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Trade issues weigh on US dollar price consolidation

By OFX

The US dollar index traded marginally higher in yesterday’s trading session as Brexit exhaustion weighed on volatility. In addition, US-China trade relations influenced the US dollar index.

There was a report that the Trump-Xi meeting has been delayed until at least April, at the earliest, according to three people familiar with the matter. Yesterday at the White House, Trump said there would be news on a trade deal, “…one way or the other” over the next three to four weeks. Treasury Secretary Steven Mnuchin promised that any deal would have a, “…very clear enforcement mechanism” during congressional testimony on the subject.

Moreover, as expected, the US Senate voted to block President Donald Trump’s declaration of a national emergency to pay for a wall at the border with Mexico. Trump immediately tweeted that he would be happy to veto the bill.

Technically speaking, the US dollar index is still on an uptrend. It would take a fall of over 1 percent from 96.72 (the index at this moment) for the trend to change. The recent excitement over the last few days about the US dollar weakening is based on the US dollar touching highs at around the mid 97s and being incapable of going higher. Therefore, it is important to mention that this is a “wait and see” situation. For now, 96 and the mid 97s are the levels to watch before the direction of the US dollar becomes clear (the EUR/USD represents more than 50 percent in this index.)

The Loonie erased its gains in yesterday’s trading session, and this morning it continued to fall. The USD/CAD is rising 0.23 percent this morning (weaker Loonie) along with a flat US dollar. The reason? Crude oil has fallen 1 percent this morning and market participants are ignoring the better manufacturing sales that came in at 1 percent versus the 0.4 percent expected; they are probably looking at the bigger picture here.

Regarding bigger pictures, Governor Carolyn Wilkins of the Bank of Canada set the bearish tone for the Loonie when she spoke yesterday at UBC’s Vancouver School of Economics and CFA Society Vancouver, noting the risk from elevated household, government and corporate debt in different places around the world. She mentioned, “…whether you are a homeowner or a businessperson, you know first-hand that high leverage can leave you in a vulnerable financial position,” and added, “it’s no different for economies.” Wilkins also said that the biggest threat to global growth right now is trade wars.

Technically speaking, the USD/CAD pair is still on an uptrend, and it has increased 0.63 percent from the lowest level on March 13. The support and resistance levels for today are 1.3350, 1.3335 and 1.3380, 1.3395, respectively. It is trading at 1.3355 at the time of this writing.

The Euro may have finally petered out in its recovery against the US dollar. It had touched 1.1329 in London session and it is trading slightly lower at 1.1310 at the time of this writing. It has been a quiet week for the Euro. Earlier today we had inflation figures for February. The Euro-Zone Consumer Price Index (YoY) came in at 1.5 percent, the core CPI number came in at 1 percent, and the month-to-month CPI came in at 0.3 percent. All of these numbers came exactly as expected.

Elsewhere, for those interested, the Finish Central Bank Governor Olli Rehn is set to speak at a conference on monetary policy. Why is this interesting? Well, he is a potential candidate to succeed current European Central Bank President Mario Draghi at the end of the year.

Once again as expected the House of Commons convened last night. This time they voted on an extension to Article 50 and it was overwhelmingly passed. As things stand though, and as mentioned earlier in the week, in law the UK is still set to leave the EU on March 29. The next step is for Prime Minister Theresa May to ask the European Union for an extension and the length of the offer from the EU is critical.

In the face of a long extension (Donald Tusk has already indicated he will advocate this to the EU27), many MPs may wish to now back May’s deal. This brings us nicely to next week when the House of Commons is expected to vote on May’s deal once again by March 20, although don’t be surprised if we also see a fourth meaningful vote.

Technically speaking, the GBP/USD pair is trading in the top part of an uptrend channel (which is bullish), however, on an intraday basis, it has weakened, and it is trading in a countertrend mode. This means it might continue to weaken during the last hours of trading this week. It is trading at 1.3250 at this moment, representing no change compared with yesterday’s close in North America.

Chinese state media reported overnight that there had been further progress made between itself and the US on its trade relations. Chinese live premier reportedly spoke to US Treasury Secretary Steven Mnuchin. The Aussie dollar was supported mildly overnight by this as well as comments from China’s de facto number two. Premier Li said that China would use all steps necessary to keep the economy growing in its current range. However, the commodity currencies currently stand on thin ice as Chinese data continues to disappoint.

The AUD/USD pair trades at 0.7074, a 0.15 percent increase this morning.

The New Zealand dollar tested intraday highs to 1.6859 in overnight trading against the US dollar, helped by an improved mood in capital markets. There was also terrible news out of New Zealand, which has shocked everyone as 49 people were shot at two mosques in Christchurch.

The NZD/USD pair is trading higher 0.6839, a 0.28 percent increase this morning.