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Trade tensions cool ahead of ECB rate decision

By Jake Trask

GBP/USD has reclaimed the 1.32 handle overnight as trade tensions were cooled by a meeting between US President, Donald Trump and EU Commissioner, Jean-Claude Juncker in Washington. Stock markets rose on the news that there will be no further trade tariffs imposed by Trump on EU goods whilst talks on trade are ongoing, halting fears that the European car industry was the next target of Trumps tariff blitz. Sterling is now trading around a ten day high against the dollar having briefly traded below 1.30 at the end of last week, the reduction in trade tensions and a gradual pricing in of a rate hike next week by the Bank of England are helping push the pound higher.

The positive news re: Trump and the EU re: trade has seen some dollar weakness hit the market overnight. With the US economy continuing to perform well despite Trumps aggressive trade rhetoric traders seemed happy to hold the greenback as the impact of his acts was seemed more likely to affect overseas markets more than the US. Now that Trump has dialed back some of his intended measures the dollar has fallen as markets breathe a sigh of relief. To highlight this move USD/JPY, which normally falls on rising trade tensions as markets seek the sanctuary of the yen has dropped on the good news from Washington. Data-wise today sees Durable Goods Orders m/m from America with a 3% rise expected. This week’s big news from the States is tomorrows Q2 GDP print with a strong number expected as the US economy continues to perform well despite Trumps aggression re: trade.

The main event from the markets today is the ECB interest rate decision due at 12:45pm. No change of policy is almost guaranteed so the markets focus will be on ECB chief, Mario Draghi’s press conference 45 mins later. With the phasing out of its QE programme confirmed at last month’s get-together it seems unlikely we see any big clues dropped by the bank re: the timing of rate hikes with the “mid 2019” mantra likely to be repeated. EUR/USD has pushed back through 1.17 on the positive news from Washington with GBP/EUR continuing to be range bound sitting around 1.1250 currently.

Risk on trade helped AUS/USD push higher during the US session yesterday afternoon rising to a high of .7565 overnight. The next big move for the commodity currencies will likely be tomorrows GDP print from the States. Any shortfall in output from the US will reduce the chances of four rate hikes from the Fed this year benefitting the dollars trading pairs across the board. The next print of note from Down Under is next Thursday nights Retail Sales number however this is sandwiched between the FOMC decision and the US Jobs Report so any impact will likely be drowned out by these two big events. GBP/AUD sits at 1.7750.

USD/CAD has fallen below 1.31 as the dollar sell-off benefitted the loonie which also has been bolstered by rising crude oil prices. Brent is pushing back towards $75 a barrel for the first time in ten days providing the local dollar a tailwind. CAD is at a six-week high and close to breaking below 1.30 in what would be a bullish signal for the local dollar. These gains may be short-lived however should US growth numbers beat forecast tomorrow. GBP/CAD is at 1.72.

NZD/USD has risen through .68 on the cooling of trade tensions between the US and the EU. The next big local event for the kiwi will be Monday nights ANZ Business Confidence survey which posted a fairly miserable -39 last time, the second worst reading in nine years. Trade tensions are doing little to help new PM Jacinda Arderns government which has come under scrutiny from the markets of late as she looks to increase public sector spending. GBP/NZD trades around 1.93 this morning.