The first day of the trading week was marked by a subtle and strange dismissal of some of the political concerns surrounding the US-China Trade War, among traders of spot currencies.
Over the weekend, trade war tensions increased, with both major economies remaining firm on their disposition, regardless of counter-threats among both sovereigns. The primary concern that most market analyst expressed for today’s trading session was on the timing of President Trump’s announcement to impose a 10% tariff on $200 billion worth of Chinese goods imported to the US. This news would usually initiate safe haven flows into the USD or JPY. However, during most of today’s trading session, we witnessed a suppressed greenback, with many dollar-denominated crosses ticking higher on what appeared to be relief from safe haven positioning. Since Monday’s are usually a light trading day, on both the economic & price action side, this provided the “right” environment, with lower than normal liquidity, to enforce a “Buy the Rumor, Sell the News” response among dollar-denominated currency pairs. And since today was a Japanese bank holiday, this also enhanced the currency landscape to foster a US dollar sell-off ahead of President Trump’s announcement.
For today’s trading session, the chief bias was to remain short on the US Dollar, and trade EUR/USD, GBP/USD, and AUD/USD higher as a hedge to offset some of the risk from escalating trade war tensions. But, it is important to keep in mind that today’s intra-day rally is simply a brief and transient re-positioning or correction, before risk aversion returns, like the playbook suggests. Since this will be a light week on the economic calendar, trade issues and their impact on the global economy are likely to dominate investor focus for the remainder of this week.
Marvin Perry has been an active trader within the Forex market since 2010. He attended the University of Illinois in Urbana/Champaign, and graduated in 2002 with a double major in Cell and Structural Biology and Chemistry. He currently serves as an FX instructor & Quantitative Analyst for the Forex Anatomy Private Trading Community called "The Lab", where he conducts live weekly trading webinars & instruction on Fundamental Analysis & Inter-Market Interpretations of dynamic asset classes and their influence on currencies.