Tariff Rumble Makes Dollar Crumble

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Market Drivers March 2, 2018
USDJPY holds just above swing lows
UK PMI Construction beats
Nikkei -2.50% Dax -1.95%
Oil $60/bbl
Gold $1316/oz.
Bitcoin $10900

Europe and Asia:
GBP UK PMI Construction 51.4 vs. 50.2
EUR EZ PPI 1.5% vs. 1.6%

North America:
CAD GDP 8:30

USDJPY was once again under pressure in Asian and early European trade today dropping to within a few pips of the recent swing lows of 105.50 as markets continued to react negatively to President Trump’s proposed tariffs on steel and aluminum.

The pair also fell on the testimony of BOJ chief Kuroda, who seemed to suggest to the Parliament that the central bank may begin phasing QE in 2019. The Japanese officials immediately tried to walk back the comments but the damage was done and USDJPY spend the night mired below the 106.00 figure as equities across the world remained firmly in the red.

The commodity dollars were also weaker as risk aversion flows dominated trade on the last day of the week with kiwi slipping below the .7250 level. The majors, however, held firm with EURUSD trading back to 1.2300 level and cable moving towards 1.3800. Cable may see more turbulence later in the day when PM May makes her Brexit speech response to the latest EU talking points. The key issue remains the open border in Northern Ireland which appears to be one of the bigger sticking points in the negotiations.

In North America today, the US calendar is barren but Canada has GDP data coming out which is expected to be softer than period prior at 0.1% versus 0.4%. The combination of weak data and risk aversion could send USDCAD back towards 1,2900 as the pair continues to remain bid and target the psychologically key 1.3000 level.

The dollar in the meantime could see continued weakness against the majors as the tariff news is further digested by the market, FX markets generally despise any trade interference and all past US efforts at trade protection resulted in the weaker currency. With USDJPY now broken below the 105.50 level, 105.00 could quickly come into view as shorts run the trade.

Boris Schlossberg
Managing Director

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