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The US dollar decreases after the European Union seems likely to retaliate on cars and auto parts tariffs

By OFX

The US dollar is decreasing 0.1 percent amid higher U.S. stock futures prices after reports that the Senate will vote Thursday on rival proposals to end the partial shutdown of the federal government. On top of that, the US dollar did not get buying pressure after news from the European Union related to a potential hit of US$ 22.7 billion on U.S. goods through tariffs if President Trump follows through on the threat to impose duties on EU cars and auto parts.

Regarding the US-China trade war, advisers to President Trump said he wouldn’t soften his hard line on trade with China just in return for a promise to buy more U.S. goods. U.S. Trade Representative Robert Lighthizer said that the administration wanted Beijing to move on more structural issues such as intellectual property theft and forced technology transfers. Officials also had to deny reports that the White House had refused to meet a lower-level delegation ahead of vice-premier Liu He’s visit to Washington D.C. next week.

As the partial U.S. government shutdown continues, sophisticated FX market participants are getting creative when it comes to analyzing FX positioning because the last U.S. Commodity Futures Trading Commission positioning data only covered until the week through December 18th.

The Loonie was appreciating this morning around 0.16 percent versus the US dollar after a bounce in the oil prices. Oil prices edged up Wednesday morning, partially recovering a day after the leading benchmarks fell by roughly 2 percent amid fresh investor concerns about slowing global economic growth. This morning, however, the Loonie’s appreciation erased most of its gains after retail sales came in at -0.9 percent versus the expected -0.6 percent (month to month in November) and retail sales ex-auto came in at -0.6 percent versus a -0.4 percent read (month to month in November). The USD/CAD is still trading lower, 0.10 percent (stronger Loonie), but market participants have started to show some worries about the Canadian economy.

The next piece of information for the Loonie will come next Thursday, January 31st, when Gross Domestic Product numbers are released.

If there is any data that the market thinks reflect the state of the German economy, it is the ZEW. The assessment of the current economic situation sunk to a four year low reflecting the current Brexit impasse, the US/China trade war, and global headwinds.

In a slight surprise, the sentiment moving forward picked up against expectations. Mario Draghi meets his colleagues tomorrow where the ECB is expected to downgrade forecasts for growth. Investors will be reading between the lines tomorrow when Draghi speaks at his press conference, although surprises might be few and far between with the ECB President having spoken as recently as last week to the European Parliament. If Draghi is particularly dovish, then EUR/USD could drop even more.

The EUR/USD pair is trading at 1.1357 this morning; the quietness in the Euro is typical hours before the European central bank announcement.

There is life beyond Brexit apparently. Markets were reminded of that yesterday with the latest release of UK employment figures. The number of people in employment rose once again while the employment rate itself hit 75.8 percent; the highest level since records began. Importantly as well, with so little slack in the employment market, it’s also crucial to look at wage growth figures, which even beat expectations rising to 3.4 percent, the highest level since 2008. With real wages continuing to outstrip inflation, the Pound felt buoyed yesterday.

The market, however, is still solely interested in Brexit proceedings with reports that a hard-looking Brexit is entirely discounted however this still seems premature.

The GBP/USD pair is trading at 1.3033, a 0.58 percent increase.

The IMF chimed in recently regarding global growth forecasts for 2019, downgrading their expectations to 3.5 percent. Christine Lagard, MD of the fund, said that US-China trade wars, Brexit and the slowdown in China are hurting growth prospects. It is this focus on China which is a cause for concern for the Australian dollar. We wrote recently how the Chinese economy shrunk to a ‘modest’ 6.4 percent in Q4 2018 on an annualized basis. Over the last six days or so, the Aussie has slipped around 1 percent against its American counterpart as the slowdown continues. The AUD/USD trades at 0.7125 this morning.

New Zealand inflation picked up at the back end of last year beating expectations and coming in almost exactly on point at the target of 1.9 percent. The Reserve Bank of New Zealand was the first central bank to adopt inflation targeting as we know formally, and today’s release of numbers has seen the Kiwi push on against a number of its counterparts, in particular, the US dollar. The NZD/USD pair is trading 0.45 percent higher, at 0.6780.