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US-China trade talks restart and Trump threatens auto tariffs on European cars

By OFX

The US dollar index is rising slightly this morning (0.1 percent) as US-China trade talks restart in Washington. Vice Premier Liu He will meet US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on February 21-22nd. At an industry conference yesterday, Steve Censky, the Department of Agriculture’s Deputy Secretary, said that talks are “picking up” ahead of the March 1st deadline for the imposition of new tariffs.

Regarding the US-European Union trade relationship, the auto tariffs that President Donald Trump is threatening would be the latest problem for companies battling cooling markets across the globe. The European Union has vowed prompt retaliation on any levies, specifically against any U.S. tariffs on car imports. Jean-Claude Juncker told a German newspaper that the EU wouldn't buy U.S. soy and LNG if Trump breaks a truce agreed to in July. This situation could weigh in favor of the US dollar in the near-term.

The USD/CAD pair trades flat this morning. However, Canadian Equity Futures might put some pressure on the Loonie. These were pointing lower before the bell as market participants turned their focus to a fresh round of trade talks between the United States and China. These talks are beginning in Washington today, with follow up sessions later in the week.

In other news, a top aide to Canadian Prime Minister Justin Trudeau resigned unexpectedly on Monday. Allegations surfaced that Trudeau's office had pressured the former justice minister to help SNC-Lavalin Group Inc - a construction firm - to avoid criminal prosecution.

Technically speaking, the long-term chart of the USD/CAD is up. The pair has not moved outside of the range of 1.3225 and 1.3325 in the last 12 days, with the exception of February 13th, where it fell to the 1.3200 handle and immediately came back to the range. The crude oil price has been strong, supported by OPEC-led supply cuts, but the crude rally looks exhausted, which might put a floor on the USD/CAD pair. Key levels to watch today are 1.3240 as a support and 1.3265 as a resistance.

This Thursday and Friday, we might have some new catalysts for the Loonie. Wholesale trade sales and retail sales numbers will be published, and BoC governor Stephen Poloz will make a presentation on Thursday at noon.

The Euro started today on the back foot, with EUR/USD pushing down around ten pips early in the trading session. The growing likelihood of Teresa May requesting an extension to Article 50, and reports that EU car sales will be exempt from US tariffs, will likely push the shared currency higher later. Furthermore, the monthly German ZEW Economic Sentiment came in at -13.4 when the expected number was -14. Once again, economists are pessimistic on the state of the German economy, although the actual numbers were less negative than expected. The EUR/USD pair is trading around the 1.1300 handle this morning.

It was another tumultuous day in British politics yesterday, as seven Labour MPs decided to break ranks from the party. Luciana Berger, Anne Coffey, Mike Gapes, Chris Leslie, Angela Smith, Gavin Shuker, and Chuka Umunna are all now standing as independents in parliament in protest at supposed bullying and anti-Semitic views within Labour’s hierarchy. It should be noted that all seven MPs announced they are calling for a second referendum, which may be a reason why the Sterling moved higher. As mentioned yesterday, there is another series of talks between PM Theresa May other cabinet members and EU representatives this week. May will attempt to break the deadlock before a vote in parliament - due on February 27th - which could see May lose control of negotiations, and an extension to Article 50 requested. GBP/USD trades around 1.2951, a 0.25 percent increase. p hidden="" class="break"> 

The minutes from the Reserve Bank of Australia were released overnight, showing that policymakers are currently in no mood to adjust interest rates. The RBA is currently seen as being of neutral bias, with the global trade war impacting the health of China's economy - Australia’s biggest trading partner. Recent falls in house prices were also highlighted as an area of concern, however, given the enormous rises seen over the last years, a correction could be seen as a good thing. The Aussie was relatively unmoved by the publication as nothing unexpected was stated. The AUD/USD pair trade lower at 0.7114, a 0.24 percent lower.

The NZD/USD pair currently sits at 0.6833 in a week devoid of any domestic data of note. Developments regarding the US-China trade talks and the FOMC minutes, will be the main mover of the Kiwi this week.