GLOBAL MARKETS FALL AS TRADE CONFLICT INTENSIFIES
Today, global financial markets fell as traders grew increasingly concerned that the two biggest economies were marching towards a full trade war. Yesterday, after China retaliated against Donald Trump’s tariffs, his administration announced that it would put tariffs on Chinese goods worth more than $200 billion. China will likely retaliate against US imports too. In the end, while both countries will be hurt by a trade war, the biggest losses will be in the US. This is because China will target crucial sectors like agriculture, crude oil and natural gas. S&P and Nasdaq futures pointed to a more than 1% decline.
The Australian dollar fell today to the lowest level since June last year. The decline came after the Reserve Bank of Australian (RBA) released its minutes for the May 5 meeting. In the meeting, the bank left rates unchanged and pointed to a sustained period of easy money. In today’s statement, officials gave a key hint on the pace of future rates. They left out the following line which has appeared in their recent minutes:
“In the current circumstances, members agreed that it was more likely that the next move in the cash rate would be up, rather than down.”
This is an indication that the period of low interest rates could continue. They were concerned with low wage growth, low inflation rate, and the continued decline in house prices in Sydney and Melbourne.
The euro continued to slide against the dollar after the US released the housing data. The data showed that housing starts in May were 1.35 million compared to the expected 1.31 million. This was the highest level in more than five years. On the other hand, the number of building permits issued in the month were 1.30M which was lower than the expected 1.35 million.
The EUR/USD pair started a sharp decline last week after the dovish statement by the ECB. Today, the pair continued the decline, reaching an intraday low of 1.1528. This was the lowest level since the end of May. The pair is now trading below the 28, 50, and 100-day moving average. As the diverging central bank views continue, there is a likelihood that the pair will continue the downward momentum. Traders should watch out for the pair to move lower than 1.1506, which is the lowest multi-month low.
The AUD/USD pair continued the downward momentum today after the RBA released the minutes for their previous meeting. While officials were optimistic about the state of the economy, they were cautious about the pace of wage growth. The pair reached an intraday low of 0.7345, which is the lowest level since June last year. The pair is trading in line with its 28 and 14-day moving average with its RSI currently at 48. As shorts exit their positions, the pair could test the 0.7410 level which is also the 28.1% Fibonacci retracement level.
The USD/JPY pair fell today as traders moved to the Japanese Yen, which is often viewed as a safe haven currency. The pair fell to an intraday low of 109.5, the lowest level since Tuesday last week. The pair has moved up slightly after the positive housing data and is currently trading at 109.9. Today’s drop made the pair drop below the important support shown below. As global trade tensions continue to rise, there is a possibility that the pair will continue moving lower. In this regard, traders should look at the 109.1 level.