Market Drivers May 13, 2019
Post weekend hangover in risk as Trump tweets
AU home loans -2.8% vs. -0.5%
Nikkei -0.72% Dax -0.87%
Europe and Asia:
AU Home loans -2.8% vs . -0.5%
FX markets stabilized in morning European dealing after opening with a decidedly risk-off tone in Asia session trade as traders reacted to yet another Trump tweet tirade over the weekend.
President Trump continued to put pressure on China tweeting that the country had been “ripping off” US for years and that trade terms for China would be “much worse” in his second term as President. For their part the Chinese press responded with veiled threats that “China could direct precision strikes at vital links in the US economy to inflict systemic damage to bring the latter back to the negotiating table.”
Still the kabuki theater aspect of political grandstanding on both side of the negotiating table did not impress markets much, as the consensus view is that Washington and Beijing have about two to four weeks to come to some kind of a compromise before the tariffs take place in earnest. That suggests a modicum of respite from the geopolitical tensions for the markets and perhaps a focus on more mundane economic data.
To that end the CPI, Industrial Production and GDP data out of Europe will be of keen interest to traders as they look for any evidence of improvement in activity in the region. EURUSD has rallied over the past few sessions but has been capped hard at the 1.1250 level. If it can clear that resistance the price would action would suggest that we may have seen an intermediate-term bottom in the pair and that it could slowly trade back to 1.1300-1.1500 region over the near term horizon.
As to USDJPY, the risk off flows have kept the pair pinned near the 109.50 support and that level remains key support, which if broken, could quickly trigger an avalanche of selling all the way to 109.00. However, if the pair manages to stabilize the markets will look to US Retail Sales report as the marquee economic event of the week to gauge the health of the US consumer.
The US consumer has been the weakest link in the US growth story with rise in jobs and wages having little positive impact on spending, so any upside surprise in US data would embolden dollar bulls and could push USDJPY back through 110.00 as the week proceeds.