Global Markets Digest US-China 90-Day Cooling-Off Period

Strategic Insights -

The global markets are consolidating after the US and China agreed to a 90-day cooling-off period. The US dollar is softer against the G10 currencies, while the euro and pound are trading within quiet ranges. The monetary policy focus is shifting to the May CPI and the upcoming Fed fund rate decision. The market is also watching the case challenging the presidential authority to impose tariffs under the International Emergency Economic Powers Act (1970).

Key Takeaways:

  • The Dollar Index is consolidating in the upper end of yesterday's range, with the 102.10 area serving as the (61.8%) retracement of the leg lower from late March.
  • The euro is trading in quiet turnover, with the $1.1025 area serving as the (38.2%) retracement of this year's rally.
  • The PBOC has continued to change the dollar's daily reference rate, with today's adjustment of 0.1% being the largest change since April 7.
  • The US posted a bullish outside up day against the Canadian dollar yesterday, with the greenback approaching CAD1.4020 and taking out the (38.2%) retracement of the leg down from the April 1 high.
  • The Australian dollar was turned back from $0.6460 yesterday and frayed $0.6360, but there was no follow-through selling today.
  • The Reserve Bank of Australia market trimmed the extent of the cuts this year to about 83 bp from 106 bp a week ago.
  • The US posted a 0.9% decline in March industrial output, with the weakness of the economy now seeming to be more salient for policymakers than inflation.
  • Banxico meets Thursday and is widely expected to deliver the third half-point cut of the year.

Statistics:

  • The 102.10 area is the (61.8%) retracement of the leg lower from late March.
  • The $1.1025 area is the (38.2%) retracement of this year's rally.
  • The PBOC adjustment of 0.1% is the largest change since April 7.
  • The US posted a 31k loss of manufacturing employment.
  • The futures market trimmed the extent of the cuts this year to about 83 bp from 106 bp a week ago.
  • Banxico is expected to deliver the third half-point cut of the year on Thursday.

Sources:

  • Bloomberg
  • Google
  • US Court on International Trade
  • International Emergency Economic Powers Act (1970)
  • Reserve Bank of Australia
  • Bank of Mexico
  • Marc to Market