TRADERS BRACE FOR POTENTIAL ESCALATIONS BETWEEN WASHINGTON AND MOSCOW

When Donald Trump was elected president, many people expected him to smooth relationships between the US and Russia. 14 months later, the relationship between the two countries is at a multi-year low. The key issues are Russia’s continued support for Bashir Assad of Syria, the interference with the US election, and the annexation of Crimea. In the past few days, Trump has sanctioned 24 leading Russian politicians and businessmen. Today, he asked Putin to brace for a military strike following the recent chemical attack in Syria. The tweet led the global stocks to fall as investors braced for a new wave of confrontations between two major nuclear powers.

The sad news dampened the mood after a day of optimism yesterday when Xi Jinping – and later Trump – moved to calm the markets about a trade war. Earlier today, the new PBOC Governor Yi Gang promised to fast track Jinping’s commitment of allowing foreign investment in the Chinese financial sector. In a statement, he promised that this would happen before the end of the year.

The US consumer prices declined for the first time in ten months due to low gasoline prices. The data from the Labor department showed that prices fell by 0.1% last month. Analysts were expecting a surge of 0.2%. On an annualized basis, prices rose by 2.4%, which was higher than last month’s 2.2%. Annualized and monthly Core CPI data was unchanged at 2.1% and 0.2% respectively. Meanwhile, traders are waiting for the Fed minutes later today. The minutes will give them direction about the Fed officials’ thinking about the economy and pace of hikes.

In the UK, MoM manufacturing production declined by 0.2%. This was a disappointment because the market was expecting the sector to grow by 0.2%. Other data released today like industrial production, and construction also disappointed. The MoM industrial production and construction output declined by 0.1% (versus expected 0.4%) and -1.6% (versus expected 0.7% gain).

EUR/USD

The EUR/USD pair continued the rally started on Friday last week. It reached a high of 1.2395, which is the highest level since March 29. The current rally is as a result of dollar weakness caused by disappointing employment numbers and today’s consumer prices. The current rally could continue if today’s Fed minutes paint a dovish picture. However, traders should watch out for the important retracement levels of 1.2353 and the 1.2326.

GBP/USD

Last week, a bullish rally began that saw the pair rise from a low of 1.3964 to a weekly high of 1.4220. Today, the rally seemed to fizzle out following disappointing manufacturing, industrial, and construction data from the United States. It declined to the 23.6% Fibonacci Retracement level of 1.4160. The pair could move on to test the 1.4120 level before continuing with the bullish momentum.

USD/CAD

After reaching a multi-weekly high of 1.3123 two weeks ago, the pair started moving down, breaking a key support level shown below in yellow. Today, at the current level of 1.2607, the pair has retraced to the 61.8 Fibonacci level. At the same time, the MACD oscillator seems to be losing the downward momentum, which is an indication that an upward reversal could be a possibility.