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The U.S. dollar was flat on Monday in Asia as traders remained cautious ahead of Fed minutes due later this week.

The U.S. dollar index that tracks the greenback against a basket of other currencies was largely unchanged at 98.072 by 12:37 AM ET (04:37 GMT).

All eyes will be on the Federal Reserve this week as traders await fresh insights on how the central bank may respond to growing fears of a recession after the U.S. Treasury yield inverted last week. 

The Fed will publish the minutes of its July meeting on Wednesday, while Fed Chairman Jerome Powell will deliver a speech on Friday. 

Meanwhile, the USD/CNY pair slipped 0.1% to 7.0446. The People’s Bank of China sets the yuan’s reference rate at 7.0365 today, versus 7.0312 on Friday. 

Developments on the Sino-U.S. trade front were in focus. U.S. President Donald Trump insisted their trade war with China did no harm to the U.S. and that the economy is “doing tremendously well.”

“Our consumers are rich, I gave a tremendous tax cut, and they’re loaded up with money,” Trump said on Sunday. The president also reiterated that he is not ready to make a trade deal with China, hinting that he wants to see Beijing deal with the ongoing protests in Hong Kong first. 

“I would like to see Hong Kong worked out in a very humanitarian fashion,” Trump said. “I think it would be very good for the trade deal.”

Tech giant Huawei was also under the spotlight today as U.S. President Donald Trump said he does not want to do business with the company “at all because it is a national security threat.”

Tech giant Huawei was also under the spotlight today as U.S. President Donald Trump said he does not want to do business with the company “at all because it is a national security threat.”

The Wall Street Journal and Reuters previously reported that the U.S. was preparing to extend a licence that would allow Huawei to buy parts from U.S. companies for 90 days. The current agreement will end today.
“We’ll see what happens. I’m making a decision tomorrow,” Trump said.

The USD/JPY pair was unchanged at 106.36. The safe-haven yen was under pressure earlier today on expectations that policymakers would unleash new stimulus amid slowing global economies.

On Saturday, the People’s Bank of China said it would improve the mechanism used to establish the loan prime rate so it could “use market-based reform methods to help lower real lending rates The AUD/USD pair inched up 0.1% to 0.6783, while the NZD/USD pair slipped 0.1%.

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The dollar was mixed within relatively narrow ranges Friday at the start of European trading, after the Chinese yuan defied some weak factory gate inflation data to end the week on a stable note.

In Europe, the euro recovered most of its Thursday losses after the eruption of the latest political crisis in Italy, where Matteo Salvini, the head of the right-wing populist Lega party, called for new elections in a move to cement his power. The reaction was more violent in the bond and stock markets, where Italian assets sold off dramatically.

By 3:30 AM ET (0730 GMT), the euro was at $1.1188, up 0.2% from overnight lows. It was relatively unmoved by data for French industrial production in June, which fell by a greater-than-expected 2.3%, consistent with the dismal pattern in neighboring Germany.

The British pound remained under pressure ahead of second-quarter gross domestic product figures, which are due at 0830 GMT. Prime Minister Boris Johnson was reported on Thursday to be planning a general election in early November, days after the country’s scheduled departure from the EU.

The dollar index, which tracks the greenback against a basket of currencies, was effectively unchanged at 97.403

The latest rant by President Donald Trump against the strength of the dollar and the Federal Reserve via Twitter on Thursday has had no lasting effect on the market, beyond reminding participants of the risk of intervention to depress the dollar.

“A currency war has not erupted – at least, not yet. But the danger is real,” said ING analyst Benjamin Cohen. “Relations between the world’s two largest economies could go from bad to much worse.”

Cohen noted that the Trump administration’s labeling of China as a currency manipulator may lead China to respond in kind to save face, through measures such as a ban on the export of rare earth elements vital for high-tech manufacturing.

Figures released earlier Friday showed China’s producer price inflation index turning negative for the first time in three years, stoking fears that it will ‘export deflation’ to the rest of the world as it did between 2012 and 2016.

The yuan, however, stayed well within the range it had traded in this week. On the mainland it fell by less than 0.1% to 7.0503 to the dollar, while in the less regulated offshore market, it rose fractionally to 7.0757. The discount to the People’s Bank of China’s fixing narrowed as the central bank pegged the yuan at a new 11-year low of 7.0136.

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• EUR/GBP moves closer to YTD tops, trades around 0.9250/55.
• UK advanced Q2 GDP disappointed estimates today.
• UK’s M.Gove suggested a bank holiday on November 1.

EUR/GBP is now picking up extra upside traction and moves at shouting distance from yesterday’s 2019 highs in the 0.9250/60 band.

EUR/GBP bid after poor GDP figures

The Sterling is not only suffering from the rising uncertainty around Brexitand the clear possibility of a ‘no deal’ outcome, but it is also deriving extra weakness from miserable prints from advanced Q2 GDP figures released today.

In fact, the UK economy is now seen contracting 0.2% QoQ during the April-June period and it is expected to grow at an annualized 1.2%, both prints coming in noticeably below forecasts.

Further poor UK data saw Business Investment expected to contract at a quarterly 0.5% in Q2 and Manufacturing Production contracting at a monthly 0.2% during June. On the brighter side, Industrial Production contracted less than expected (0.1% MoM) and the trade deficit shrunk to £7.01 billion also in June.

On the Brexit front, preparations for a ‘no deal’ scenario stay on the rise, as M.Gove suggested earlier today a bank holiday on November 1 in order to mitigate the potential consequences to the banking system of the ‘hard’ UK-EU divorce.

What to look for around GBP

The outlook on the British Pound looks increasingly fragile pari passu with rising odds for a Brexit ‘no deal’ on October 31. In the meantime, the Irish backstop remains the exclusive obstacle for the resumption of talks between London and Brussels, although the subject appears relegated in light of preparations for the worst-case scenario. Back to the UK economy, poor flash Q2 GDP figures published today added to the already gloomy panorama from UK fundamentals, keeping the sour prospect for the economy and the currency unchanged. At last week’s BoE event, the central bank kept the monetary conditions unchanged, although it refuses to factor in a ‘no deal’ scenario in its projections. The BoE still sees a ‘soft Brexit’ outcome and reiterated that rates are seen increasing gradually in order to bring inflation to the bank’s target.

EUR/GBP key levels

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According to Commerzbank, EUR/USD is consolidating just below resistance at 1.1285 and the 200 day ma at 1.1296 and the consolidation is viewed in a positive light.

Key Quotes

“Key resistance is 1.1360/77, the 2018-2019 down channel and the 55 week ma. A weekly close above this latter level is needed for us to adopt an outright bullish stance. Dips lower are likely to find some support circa 1.1150/06. Key support is the 1.0967 2018-2019 support line and below here lies the 78.6% retracement at 1.0814/78.6% retracement.”

“The market will need to regain the 55 week ma and channel at 1.1360/77 to generate upside interest.”

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LONDON (Reuters) - The dollar edged lower across the board on Thursday, as risk sentiment stabilized after resilient Chinese trade data and Beijing's efforts to slow a slide in the value of the renminbi encouraged investors to buy riskier currencies.

Data showed Chinese exports rose 3.3% in July from a year earlier, while analysts had looked for a fall of 2%, and policymakers fixed the daily value of the yuan at a firmer level than many had expected, even though it was beyond the 7 per dollar level for the first time since the global financial crisis.

Against a basket of currencies (DXY) the dollar was broadly steady at 97.58, but it weakened 0.1% versus the Australian dollar and the British pound

"The recent comments from Chinese officials suggest they want to stabilize their currency, otherwise a sharp currency drop may fuel capital outflows," said Manuel Oliveri, an FX strategist at Credit Agricole (PA:CAGR) in London.

"The other factor helping risk sentiment is a growing swathe of central bank cuts."

This week, New Zealand joined India and Thailand in cutting interest rates, with market expectations growing that other major central banks will join in further easing monetary policy.

Indeed, market expectations for more than a quarter point rate cut from the U.S. Federal Reserve in September is still firmly baked into bond markets, despite an overnight bounce in global markets.

Those expectations forced the dollar to weaken also against the euro and the yen.

The yen was a tad firmer at 106.185 per dollar. It touched 105.500 yen overnight, its strongest level since Jan. 3, before pulling back slightly.

"The yen's appreciation versus the dollar may have slowed for now, but it stands to keep gaining in the longer term," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. "Its other peers, notably the antipodean currencies, have weakened severely and this provides overall support to the yen."

The kiwi nudged up 0.1% to $0.6452, following a slide to a 3-1/2 year low of $0.6378 on Wednesday after the rate cut.

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Chinese yuan consolidates losses

It’s not often that EUR/USD traders look to the Chinese exchange rate for clues on where the single currency might go next, but such is the case this week as the trade battle between the US and China is dominating the financial markets.

Initially, it was a tweet from the US president about more tariffs that spooked the financial markets. A drop in the yuan below the key 7 level versus the greenback back intensified fears.

The decline in the Chinese currency stirred up speculation that China is fighting back by devaluing the yuan. However, it seems that there is an attempt to contain the drop in the yuan as the exchange rate has fallen into a range.

I think it is important to have a correct assessment of sentiment here. While equities have bounced back and the dollar decline looks like it has stalled out a bit, I don’t think the backdrop has changed in such a manner that warrants a reversal to erase the price action across financial markets in the early week. At least not in the 

Although there was an intraday push above the resistance level, the pair closed below it on an intraday basis. Not only that, a doji candle was posted in the process which signals exhaustion and builds towards the case for a pullback.

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After a sharp drop early last week, GBP/USD has fallen into a range while the dollar eases lower.

GBP/USD Consolidates Losses

If there was a clear theme in July for the FX markets, it was that the British Pound was weak. Although Sterling has been able to hold the downside a bit over the past few sessions, there is no reason to believe this theme has not carried over into August.

A weaker dollar over the past few sessions has triggered a range in GBP/USD. This is not all that surprising after the sharp earlier fall in the pair. However, while the technical outlook for EUR/USD shows that that the near-term trend has shifted upwards, GBP/USD does not share the same bullish sentiment.

The pair has been weighed by concerns over a no-deal Brexit as the new Prime Minister has not convinced UK citizens that he can pull off an exit with a deal in place. He has vowed to leave the European Union whether a deal is made or not which has caused the markets to reprice Sterling.

For this reason, I don’t expect that GBP/USD is trying to carve out a bottom here. Unless there are some developments that will boost confidence that a deal will be made, I think the natural course for the pair is lower.

Technical Analysis

I think it is important to keep in mind that there is significant support in play here. On the chart below, I have marked it off at 1.2150. However, I think we can extend a bit below the level even as it was around this area that GBP/USD bottomed in late 2016 to early 2017.

Because of the underlying support, and as the dollar as trending lower, I think GBP/USD will try to move to upper bound of the current range. I think it’s possible the pair attempts to break higher from the range. But as mentioned, I don’t think a catalyst is in place for the pair to bottom here.

Resistance has come into play from the 100 moving average on an hourly chart. If the pair pushes through it, I expect it will attempt to trigger stops above Friday’s high of 1.2188.

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Long-term perspective

The steep decline that came after the confirmation of the double resistance etched by the upper line of the descending channel and the 0.7055 with 0.7013 resistance area managed to bring the price under the 0.6858 major support level, pausing at the 0.6800 psychological level.

This movement, besides taking out the previous low that falsely pierced the 0.6858 level, is composed of strong bearish candles — the only one which does not have a long body, although is bearish, is the one on July 29, 2019, the reason being that the bulls were trying to halt the decline around an important psychological level, 0.6800, respectively.

From here, the price could consolidate above 0.6800 and then continue the downwards movement. Another possibility is the one of a throwback. In this case, the price might retrace towards 0.6858. This could end up with the actual confirmation of 0.6858 as a resistance, followed by a new leg down. Another possible scenario is a confirmation as a resistance of the projection of the 0.6831 low. Also to be considered is a false break of 0.6858 — the price might get above it but fail to confirm it as a support, with the consequent fall beneath it and the continuation of the decline.

So, as long as the price does not confirm 0.6858 as support, the movement towards south is natural, being the materialization of the impulsive wave that pertains to the descending trend. A first target is represented by 0.6700, with a possible extension on the first run to 0.6650.

Short-term perspective

The price is in a clear descending movement and, as long as it continues or as long as its change prints a continuation pattern, it is expected to continue.

The first sign of a pause could be offered if the price gets above the 0.6865 level — which corresponds to the 23.6 level of Fibonacci retracement. But even in this case the other projections — preferably up to 50.0, which corresponds to the 0.6935 level — are well suited short-term areas from where the price to continue declining. The first target is represented by the 0.6700 psychological level.

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 The dollar fell against safe havens such as the yen and Swiss francin early trading in Europe Friday, but was higher against most other currencies after President Donald Trump announced a sharp escalation of the U.S.’s trade war with China.

The yen had its best day against the dollar in two years on Thursday after the announcement of a new 10% tariff on $300 billion worth of imports from China. By 3 AM ET (0700 GMT), it was at 106.95 to the dollar, having risen to its highest since April 2018 against the greenback earlier.

The dollar was also lower against the franc at 0.9880, as traders unwound carry trades in a broad risk-off move across all markets.

Trump’s announcement shattered a fragile truce with China over trade that had been hastily put in place ahead of the G20 summit a month ago. It represents a sharp escalation of the conflict, by extending tariffs to effectively all U.S. imports from China. As such, the risk of them feeding through to higher prices for U.S. consumers is markedly higher.

Analysts from the Peterson Institute in Washington estimated that the move will raise the average tariff on Chinese products to 21.5%, from barely 3% in 2017 when Trump took power.

Trump’s move came only a day after Federal Reserve chairman Jerome Powell had pointed to the trade dispute as the biggest single risk facing the U.S. and global economies – observations that drew criticism from Trump show said that Powell had “let us down.”

“Ironically the Fed’s easing gives the President the breathing space to now play hard ball,” Megan Greene, a senior fellow at the Harvard Kennedy School, said via Twitter.

The dollar surged against high-yielders overnight, hitting a 10-year high against the Aussie and rising sharply against the Korean won and kiwi. It also surged 1% against the offshore Chinese yuan, although China’s central bank restrained the drop in the official rate.

The impact on the euro and British pound was less severe, although reports that Trump may make an announcement on trade with the EU later Friday added to the general sense of unease.

The dollar index, which tracks the greenback against a basket of currencies, hit its highest level since May 2017 at 98.697 overnight, before retracing to 98.105 in European trading.

The escalation of the trade war threatens to overshadow what would normally be the main event of the monthly economic calendar – the release of the U.S. labor market report for July. Nonfarm payroll growth is expected to have slowed to 160,000 from 224,000 in June.

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