Trade tensions might trigger a recession
Fundamental outlook
THE US-China trade tension might spread to Europe after the Trump administration threatened to raise import tariff on European goods. This might also trigger a recession in US’ economy. The Bank of England (BoE) retained its monetary policy. Crude prices recovered moderately after members of the Organisation of Petroleum Exporting Countries (OPEC) agree to raise the average production level.
US building permit for May rose 1.3 million, the lowest recorded in eight months. Housing starts expanded 1.35 million, the highest in 11 years. Existing home sales fell for the second month at 5.43 million.
The current deficits in the first quarter (1Q) widened to US$124 billion compared with a revised US$116 billion recorded in the previous quarter. American jobless claims for the week ended June 16 stayed at 218,000, matching forecast.
Market analysts are worried that a recession could occur in US’ economy due to the rising trade tension. The Trump administration has threatened to raise the import tariffs on European goods by 20 per cent, in addition to the recent announcement of a US$200 billion tariff on Chinese imports.
German flash manufacturing index grew 55.9 in June, below forecast. The eurozone’s manufacturing index stayed consistent at 55.
The BoE retained interest rate at 0.5 per cent and the asset purchase programme was also retained at 325 billion pounds. Investors are looking at August for the next hint of a rate hike.
The OPEC ended its two-day meeting in Vienna and agreed to increase oil production moderately to prevent oversupply. Market analysts speculate that the increment could be around 600,000 to 800,000 barrels per day. Crude prices have been rising slightly after the meeting.
Technical forecast
US dollar/Japanese yen was stagnated last week. The trend is strongly capped under the 111 level but temporarily supported at the 109.50 area. This week, we reckoned the trend could continue to thread in a narrow range while waiting for significant course of direction in the dollar index. Practice risk control if it extends beyond the aforementioned range.
Euro/US dollar has shown strong support at 1.15 after the recent bounce-off. This week, we foresee initial range could trade in a narrow range from 1.1550 to 1.1750. In our opinion, the outcome of the Turkish election might be a lead factor in directing the euro’s movement after June 24.
British pound/US dollar recovered from its recent 1.31 bottom. The market is still weak and strong resistance is seen at 1.34. This week, we foresee range within this aforementioned region until we see a breakthrough. Traders are staying dormant after central bank refrained from the rate hike last week.
Disclaimer: This article is written for general information only. No liability by the writer, publisher or any third party involved in the distribution of this work. Dar Wong is a registered fund manager in Singapore with 29 years of global trading experiences. You may reach him at dar@pwforex.com.