Summary:
- US equities open the day lower following risks related to a trade war between the US and China
- Fed’s Bullard says rate hikes should be halted in order to avoid the yield curve inversion
- US dollar index set to end the week below its crucial technical level
Donald Trump likes to be in the spotlight. This week has begun with his equivocal comments he delivered in Helsinki when met with Vladimir Putin pertaining to Russian meddling in the US presidential election. Then, he explicitly criticized the current monetary policy course in the United States, and today he offered the final nail in US assets’ coffin. Trump said earlier today in an interview with CNBC that he is essentially ready to put duties on all $500 billion of Chinese imported goods highlighting that those tariffs are not politically motivated. Subsequently, he stressed that the US has been ripped off by China for a long time when it comes to trade.
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Trump reiterates his harsh remarks targeted at China as well as the European Union. Source: Twitter
What’s more, it was not the end of his show as he tweeted a while ago that rates and currencies had been manipulated all around the world! He underlined that the stronger dollar takes away a competitive edge. As a result, the US dollar is taking a hit while US equities are extending their declines. Taking a look at the chart below depicting the Dow Jones (US30) one may suppose that these falls might be just the beginning of a deeper pullback given the current technical landscape. Notice that the US industrial index is bouncing off its upper limit and it looks that it may move down at least toward its lower boundary over the next days.
The US30 is retreating from its upper bound of a possible triangle pattern. Source: xStation5
The US dollar is under downward pressure as well being depressed not just by Trump’s comments. Namely, a while before Trump’s remarks hit the wires we had opinions with regard to monetary policy from Fed’s Bullard. He claimed that the yield curve inversion seems to be imminent, and it could be a real possibility if the Federal Reserve does not hold off on lifting interest rates. According to him the act aimed at taming inflation leads to the rising likelihood of the yield curve inversion, and he added that there is no point in doing so (he might have meant that inflation is not far above the objective).
The US yield curve has flattened out substantially since the beginning of the year. Source: Bloomberg
Anyway, the US dollar index (USDIDX) is making a tremendous reversal from its peak reached on Thursday. Some time ago everybody was wondering whether the buck would be able to close the week above a 95 handle. Currently, it seems that it will be a really hard task given where we are at the time of writing. By and large, it appears that we are experiencing another week when USD bulls failed to break their crucial resistance. Taking into account the twin deficit the US economy faces plus the Trump’s attitude as regards the dollar one may anticipate the US dollar might struggle to move higher from the current levels barring widespread financial woes (if it happened, capital would flow to the US).
The US dollar index has tumbled from its yesterday’s peak steered by Donald Trump. Should bulls fail to move through 95 in the nearest future, the price might be subject to head lower toward 92.50. Source: xStation5
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