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26.08.201909:10 Forex Analysis & Reviews: Trump is now enemy of US dollar

Long-term review

China announced retaliation against US companies on Friday with the US Administration, in turn, announcing a further increase in tariffs on Chinese exports after the market close.

Fears over the US economy increased sharply with the impact of tariffs amplified by Trump's rhetoric in ordering US companies to pull out of China.

Trump also launched another attack on the Federal Reserve in general with Chair Powell a particular target. The dollar fell sharply late on Friday and losses extended at Monday's Asian open with USD/JPY posting 2019 lows close to 104.50.

US Treasuries rallied sharply with the 10-year yield sliding to fresh 3-year lows below 1.45% while the 2 and 10-year bonds yield curve inverted once again.

There was an element of moderation in language in Asia on Monday with Trump indicating that he did not want US companies to pull out of China while Beijing attempted to ease tensions with hopes for dialogue.

USD/JPY then rallied sharply to above 105.80 after Trump stated that China wants to return to the negotiating table and that a deal is possible.

Overall confidence will remain extremely fragile in the short term. Trump's increasingly erratic rhetoric will deter longer-term fund managers from taking positions which will increase the influence of speculative players. There will also be very quick moves to liquidate positions.

This effect will be amplified by a seasonal lack of volatility during the peak European and US holiday season.

Trump will see lower interest rates as vital to support the economy and attacks on the Fed will continue. The yuan slide will also draw strong criticism from the White House and the possibility of direct intervention to weaken the US currency.

The potential use of emergency powers to stop US companies operating in China will also have an important negative US economic impact and undermine the dollar. A key tipping point is likely to have been reached with Trump causing long-term damage.

Rhetoric from Trump and Chinese officials will be watched closely, although it will be equally important to watch any comments from key moderate Administration officials such as Treasury Secretary Mnuchin.

The response from US congressional leaders will also be important, especially key Republican officials, and there is a much greater risk of moves to remove Trump from office.

Exchange Rates 26.08.2019 analysis

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Tim Clayton,
Analytical expert of InstaSpot
© 2007-2024
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