The trade war is back and investors don’t like it.

[GersonH]

The trade war is back and investors don’t like it. The U.S. dollar traded higher against all of the major currencies Friday on the back of a stronger jobs report and President Trump’s threat of fresh tariffs on China and Japan. Stocks extended their slide and unless the president retracts his threats, further losses are likely, which means more risk aversion and losses for the major currencies. Friday’s nonfarm payrolls report guarantees a Fed hike on September 26. Not only were there more than 200K jobs created in August but, wages are growing! Average hourly earnings rose 0.4% last month, the strongest pace of growth in nearly a year. Between the record highs in U.S. stocks last month and the pickup in earnings, next week’s retail sales could surprise to the upside as well. Comments from U.S. policymakers have also been hawkish with Fed Presidents Mester, Rosengren and Kaplan looking for the policy rate to move toward neutral.

The greenback should extend its gains versus Eur, Aud and other major currencies, but the outlook for USD/JPY is tricky. USD/JPY dropped as safe haven carry flows returned home after President Trump hinted that Japan could be the target for their next trade fight. He’s focused on reducing deficits and in a phone interview with the Wall Street Journal he said they may not be happy “as soon as I tell them how much they have to pay.” Late Friday, he also tightened the noose on China by threatening to impose another $267B in tariffs. These threats make it very difficult for stocks and USD/JPY to rise. Although the yen crosses could be hit the hardest, if Trump throws out more threats next week or China/Japan return with hard words of their own, USD/JPY will fall. At the beginning of the month we talked about how September is historically a weak month for stocks and President Trump’s trade war could make things even worse.

The Australian and New Zealand dollars hit a 2-year low and further losses are likely. AUD/USD was hit the hardest by President Trump’s threat of new tariffs on China. Between the mortgage rate hikes, global trade tensions and yuan weakness, the outlook for Australia is grim and therefore AUD/USD could extend its slide below 70 cents. The New Zealand dollar also tumbled – there’s been an irrefutable downtrend in New Zealand data and the deterioration should be evident in next week’s manufacturing PMI report. We believe there could be another 2% to 3% drop in NZD/USD before the pair finds a bottom.

On Friday we learned that Canada lost 51K jobs last month with the nation’s largest province, Ontario, seeing part-time work decline by the biggest amount in close to a decade. The increase in full-time work is encouraging but with such a significant pullback, the economy is not at risk of overheating. However the market is looking for a rate hike from the Bank of Canada this year and according to Deputy Governor Wilkins, the central bank debated dropping the line “gradual approach” to rate hikes from their policy statement, adding that normally there would be a rise at this point to preempt inflation. This tells us that the central bank is clearly hawkish and open to the idea of raising interest rate before the end of the year. Yet they also don’t want to pre-commit without seeing how the trade talks progress. If a deal with the U.S. is reached before the October meeting, there’s nothing standing in the way of a hike. Not only would we see USD/CAD fall aggressively when the headline hits, but it will be the start of a new downtrend that could take the pair down to 1.29. If there’s no deal, USD/CAD could hold strong into the rate decision. Pay atention about forex economics fundamentals here!

[GersonH]

Current situation:

In order for this week’s trading to close at my projected level around 1.1580, the bears need to go on the attack today. For the time being, they’re holding off ahead of today’s NFP report in the US, which comes out at 15:30 (GMT+3).

If the NFP report disappoints market participants today, there’s a risk of returning to 1.1720 over the following 3 hours. I don’t make market predictions on payrolls day. If the actual figures significantly diverge from projections, we can expect volatility within a 100 – 150 pip range.

There aren’t any important news releases from Europe expected. The market often consolidates within a narrow range ahead of the NFP report. Don’t be surprised if the pair continues to trade at around 1.1635 up until 15:30 (GMT+3).

Markets are jittery over the possibility of even more tariffs being imposed on Chinese imports to the US, so pressure on the euro will remain even if it moves upwards at 15:30. See more forex lessons technical analysis here!

[GersonH]

On Wednesday the 12th of September, trading on the euro closed up. The dollar was under pressure amid the strengthening of the Canadian dollar. Market participants reacted to officials' sentiment regarding the imminent conclusion of a new trilateral NAFTA free trade agreement between the US, Canada, and Mexico. In addition, US President Donald Trump said in the evening that negotiations with Canada were going well, and that Canada wants to conclude a new agreement. The euro recovered to 1.1650, after which the pair moved to the consolidation phase.

Day's news (GMT+3):

9:00 Germany: CPI (Aug).
9:45 France: CPI (Aug).
10:15 Switzerland: producer and import prices (Aug).
14:00 UK: BoE asset purchase facility, BoE interest rate decision, BoE minutes.
14:45 Eurozone: ECB interest rate decision.
15:30 Eurozone: ECB monetary policy statement and press conference.
15:30 Canada: new housing price index (YoY).
15:30 US: initial jobless claims (Sep 7), CPI (Aug).
21:00 US: monthly budget statement (Aug).

Fig 1. EURUSD hourly chart.

Current situation:

The lateral trend from 1.1650 has been underway for 14 hours. At the time of writing, the euro is at 1.1624 (1.1635 on the chart).

Market participants have their attention focused on the ECB and BoE meetings, as well as Draghi's press conference. The ECB is not expected to raise rates. Draghi said that rates will remain low for a long time. All eyes and ears will be on Draghi's announcement.

The euro may fall under pressure after the BoE's decision to keep interest rates at the same level. At this time, we should monitor the breakdown of votes on the decision. Any changes will cause sharp price fluctuations on GBP pairs, and will affect the euro/dollar via the euro/pound pair.

I forecast a drop this week to 1.1576, and on Friday to 1.1530. The forecast does not take into account the fundamental data, therefore deviations are possible. The support is at the 45th degree - 1.1596, resistance - 1.1666. what does pips mean in forex trading in this forescast