Market Drivers May 6, 2019
Risk off as Trump warns on tariff hikes
EU data improves
Nikkei -0.22% Dax -2.09%
Oil $60/bbl
Gold $1282/oz.

Europe and Asia:
EUR Sentix 5.3 vs. 1,1
EUR Retail Sales 0.0 vs. -0.1

North America:
No data

FX markets gapped lower in early Asia trade today after President Trump announced in a tweet that US will increase tariffs on 200 Billion of Chinese goods from 10% to 25% by Friday of this week.

While it’s unclear if the US administration will actually follow through on its threat or whether this is just another negotiation tactic by Mr. Trump, FX markets quickly reacted to the news with yen crosses suffering the most as trader feared the resumption of the trade war will snuff out the recent global rebound in manufacturing.

The Chinese for the part took the threat in stride so far with negotiating teams still planning to come to US this week for a round of talks. At this point the Chinese are used to Trump’s temper tantrums and may be willing to ignore them rather than save face as they focus on task at hand.

Regardless of the diplomatic posturing, the trade talks even if they resolve positively will have little impact on the market as the upside is generally priced in. In the meantime, the uncertainty from the tug of war between Washington and Beijing could elevate volatility which has been at record lows and further trigger risk-off flows as the week progresses.

USDJPY managed to rebound to 110.70 on news that China has not cut off trade talks, but after Friday’s weak performance, the pair remains pressured to the downside and shorts will be eager to test the 110.00 figure which if broken could cause serious technical damage to the upside.

WIth no data on the docket today, all eyes will be on US equities which remain near session lows. If the selloff extends, USDJPY could target the 110.00 by end of day.