Forex news from the European trading session - 11 July 2018
Headlines:
- Offshore yuan weakens to beyond 6.70 against the dollar... again
- Let's look ahead to the Bank of Canada meeting later today
- ECB's Villeroy says rate hike could take place at the earliest "through the summer of 2019"
- Italy's Di Maio says government is not working on a euro exit
- Trade rhetoric escalation accelerates flattening of US yield curve
- All eyes turn to China now on the trade war rhetoric
- Japan May tertiary industry index +0.1% vs -0.3% m/m expected
- China says it would be forced to retaliate to new US tariffs
Markets:
- USD leads, AUD lags on the day
- European equities all lower
- Gold down 0.43% to $1,250.17
- WTI crude down 0.73% to $73.57
- US 10-year yields down 1.3 bps to 2.836%
- Bitcoin down 0.95% to $6,327
The trading session was bereft of any key catalysts for the most part but we did see some action towards the end with the dollar stretching its gains on the day. All of the earlier risk-off moves were already done and dusted in the Asian session and with a lack of economic data and notable headlines, trading was pretty much a snooze fest.
It started with China saying that they would retaliate against US tariffs, and that built up some anticipation in the market that they would announce those countermeasures soon enough. It put markets into a pause with trading already in a risk-off mood but market participants are unsure if there would be any further escalation or not.
The pound did catch a quick bid during the lack of action, but that faded rather quickly as well. Probably someone getting a bit too enthusiastic ahead of England's match against Croatia later on, eh?
Other than that, it was subdued trading all the way until dollar bulls decided it was time to break the stigma and push the greenback higher. The dollar index tested key near-term levels around 94.40-42 once again, and has backed off thereafter currently trading around 94.36.
That saw the dollar also back off from the highs after having pushed EUR/USD below the 1.1700 level for a brief moment. There wasn't much else on the day, but European equities continue to bleed further as the session went along - indicating that the negative tones in the market is still prevalent.
I'm starting to think that China will not be announcing their countermeasures any time soon, as they tend to only do so when the US officially hits them with the proposed tariffs. The $200 bn list here is only to take effect after two months, and that gives China some leeway in working out an all-round game plan before retaliating in kind when the time comes.
Given that scenario, I would not be surprised if the market decides to fade the trade news seen today - as it has time and time again done over the last few months. Sure, today may still be a negative day for risk assets but with earnings season just around the corner I would expect US stocks to shift their focus in due time and that will provide a more positive backdrop for equities and risk in general.
