Morning Commentary & Currency Insights – July 5, 2018

With another holiday come and gone, North American trading gets back to business. Trade wars are on everyone’s mind as the stage is set for the US and China to throw massive $34B tariffs at each other on Friday with the US throwing slated to swing the first punch. A spokesman from China’s Commerce Ministry stated that the tariffs would not only hurt China, but also the US and the rest of the global economy. The Dollar is still down as investors remain cautious due to the trade concerns. After a quiet start to the week, we will see the Fed release the minute’s from last month’s meeting and non-farm payrolls tomorrow. The BoC has a rate decision next Wednesday where there is an 83.9% chance of a hike priced into the market. We will also see Canadian employment numbers tomorrow morning.

EUR rose to multi week highs this morning as we saw better than expected German industrial orders signaling an increase in demand from Germany and the Eurozone. ECB policy makers feel unsettled that investors are avoiding EUR after news from last month stated that there would not be a rate hike until late 2019, and are now hoping to move that forward by a few months. Traders are leaning towards an 80% chance of a hike by September of next year. GBP is soft as Brexit concerns continue to weigh on Theresa May and the UK. May is struggling to win the support of the Cabinet after her compromise proposal was rejected by her chief negotiator. Carney also spoke this morning and identified the slowdown in the UK economy, but was confident moving forward and feels that a rate hike could be in the cards for the BoE sooner than expected.

To end the week on the calendar we have US ISM Non-Manufacturing/Services Composite (58.2 vs 58.6), US Crude Inventories and the Fed Minutes for today, followed up by Friday’s UK Unit Labor Costs (20.0k vs -7.5k), US Non-Farm’s (195k vs 223k) and Unemployment Rate (3.8% vs3.8%) and Canadian Unemployment Rate (5.8% vs 5.8%). The short term support and resistance is 1.3100 and 1.3220 respectively, with RSI remaining at 59 and the 200-day moving average residing at 1.2760.