Will we see an escalation of the U.S.-China trade war this week? More importantly, how will the dollar react to related updates?
As you can see below, the Greenback still takes cues from U.S. reports from time to time.
There are no top-tier reports from Uncle Sam this week, though we will see a bunch of manufacturing-related data over the next couple of days.
New York’s manufacturing index is first today at 12:30 pm GMT and analysts are seeing a lower reading (23.2 from 25.6) for the month of September.
Traders expect the opposite from the Philly Fed manufacturing index, which is expected to come in at 16.3 after printing at 11.9 in August.
Last but not the least is the flash manufacturing PMI scheduled on Friday. Like in the Philly Fed report, analysts see a better reading (55.1 vs. 54.7) for this month.
Manufacturing-related reports not only give clues on how the ongoing trade war between the U.S. and China has affected Uncle Sam’s manufacturing industry, but they also contain info that might help us estimate this month’s NFP data.
What’s a trading week without updates on Uncle Sam’s negotiations with its biggest trading partners, amirite?
This week pay close attention to whether or not the Donald will formally announce tariffs on another $200 billion worth of Chinese goods.
Word around the hood is that China’s officials might not send an RSVP to Washington’s invitation to talk this week if Trump announces the tariff plans.
Will we see further escalation in the U.S.-China trade war this week?
And then there’s the ongoing NAFTA trade negotiations. Canada’s officials remain optimistic over the current talks, but investors will remain concerned until we see significant progress.
Last Week’s Price Review
The Greenback had a reversal of fortunes since it was one of the top-performing currencies last week, but is this week’s second biggest loser (as of 5:00 pm GMT).
The Greenback had a mixed start but began to encounter broad-based selling pressure (except on USD/JPY) during Tuesday’s U.S. session.
The Greenback began taking hits from sellers at around 1:00 pm GMT. There were no apparent negative catalysts, but risk-taking was ramping up at the time, which may have convinced some market players to unwind some of their safe-haven bets.
A catalyst did emerge later, though, since the Greenback got swamped by more sellers after Trump said that trade talks with Canada are going well.
After that, the Greenback traded mostly sideways during Wednesday’s Asian and European sessions before moving broadly to the downside again during Wednesday’s U.S. session, apparently as a bearish reaction to the poorer-than-expected readings for U.S. PPI.
The Greenback’s then steadied again during Thursday’s Asian and European sessions before getting a double whammy from the disappointing U.S. CPI report and a strengthening euro in the wake of ECB Overlord Draghi’s presser.
Buyers would return briefly when Trump tweeted the following:
The Wall Street Journal has it wrong, we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet?
— Donald J. Trump (@realDonaldTrump) September 13, 2018
However, selling pressure was ever-present, likely because of the persistent risk-on vibes, and so most USD pairs eventually began to drift lower.
The Greenback would finally get a chance to lick its wounds during Friday’s London session, likely because of signs that risk appetite may finally be fading, which devolved into outright risk aversion during Friday’s U.S. session.
And oddly enough, the Greenback didn’t seem to mind the worse-than-expected readings for U.S. retail sales, probably because the previous headline and core readings were upgraded.
Short-covering to avoid weekend risk and after a week-long beating is also a possibility, but market analysts say that the market interpreted the U.S. retail sales report as positive overall since U.S. Bond yields rose because of the report.
At any rate, the Greenback’s recovery on Friday was just not enough to offset the losses suffered during the course of the week (except on USD/JPY), and so the Greenback is currently on course to closing out the week as a loser.