A snippet from TD overnight, looking for a volatile path ahead in 2019 for the US dollar, it'll finish lower but not in a straight line.
If the US levies tariffs against remaining Chinese goods it's likely full risk-off.
- an environment where EUR, JPY and CHF generate strong gains against the likes of EM and the dollar bloc
- JPY should fare well against Asian crosses like SGD, TWD and KRW
- US equities are likely to tank
- noteworthy that gold currently implies a move higher in EURUSD. This is also the PAIN trade that might prompt a move towards a deal later in the year
The flip side
- we could see policymakers kicking the can down the road
- reducing the delta of trade escalation
- takes us back to pre-May markets, where global equities rally and markets remove some of the insurance cuts in the markets
- negative for the USD, especially against the high-yielders and commodity currencies, notably the AUD
- EUR could benefit too, reflecting the loss of US growth divergence, though JPY and CHF will be notable losers on this outcome
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If the trend is your friend we'll continue to see trade war escalation. I guess we await a Xi-Trump meeting at the end of June (at the G20 in Japan - meeting has not been announced as of posting). The two sides are irreconcilable, and conflict with China plays well with trump's base as we approach the 2020 election. But maybe something can be patched together.
