Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Keep Your Eye On U.S.-China Summit

By Kathy LienForexApr 04, 2017 04:21PM ET
www.investing.com/analysis/keep-your-eye-on-u.s.-china-summit-200181292
Keep Your Eye On U.S.-China Summit
By Kathy Lien   |  Apr 04, 2017 04:21PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

It was turnaround Tuesday in the financial markets with the dollar, stocks and Treasury yields recovering early losses. Stronger-than-expected U.S. data took the market's focus off this week's meeting between U.S. President Trump and Chinese President Xi. The meeting is not until Thursday and for the time being it appears that investors are more focused on Wednesday's U.S. economic reports and FOMC minutes as Wednesday's data will help shape expectations for Friday's nonfarm payrolls report. If non-manufacturing ISM is weak or ADP misses, USD/JPY could make another run for 110. However the minutes from the last FOMC meeting should be optimistic with policymakers justifying the recent rate rise and plan for further tightening.

Of course, politics can easily trump economics as the world watches the first official meeting between the leaders of the 2 largest economies in the world. Even before the summit, President Trump set the tone saying it will be a difficult meeting. There are also many political issues at hand like the one-China policy and North Korea, but Trump has not been shy about his views on China's unfair currency and trade policies. This should make investors nervous but judging from Tuesday's price action, there is a hope that nothing significant will come out of the meeting. The best-case scenario is that both leaders will shake hands, smile and talk about a stronger relationship. Unfortunately, they are walking into the summit with a strained relationship as Trump rarely misses the opportunity to point fingers at China for its unfair trade practices having once described China as the world champion of currency manipulation and devaluation. Yet since the beginning of the year, the Chinese yuan has steadily increased in value, contributing in part to China's unexpected February trade deficit unlike the U.S., which reported its smallest trade deficit since the election.

FX traders should be nervous because Trump is unpredictable and it is not clear how hard he will press Xi. If the meeting ends with the same awkward press conference as the one held with German Chancellor Merkel, the markets won't be happy and risk appetite could suffer. Which would mean further losses for high-beta currency pairs like AUD/USD, EUR/USD and possibly even USD/JPY. Thankfully, with the 19th party congress set for November, Chinese President Xi needs to secure and not jeopardize U.S.-Chinese relations, so he'll have a vested interest in steering the meeting in the right direction. At the same time, he cannot leave the meeting embarrassed or bullied by Trump. With that in mind, this meeting could set the tone for Chinese-U.S. relations for the years to come and FX traders should be anything but complacent.

Tuesday's worst-performing currencies were the Australian and New Zealand dollars although all of the losses happened during the European trading session. AUD and NZD held steady throughout the NY session, ticking slightly higher as stocks stabilized. The Australian dollar sold off sharply after the Reserve Bank of Australia's monetary policy announcement. As expected the RBA left interest rates unchanged and while it was optimistic about global trade, lending and industrial output, investors latched on to the central bank's acknowledgement of recent softness in the labor market. The corresponding sell-off took AUD/USD to the 200-day SMA. While the currency pair could bounce off this level, we view rallies as an opportunity to sell at higher levels. The New Zealand dollar followed the Aussie lower though the 1.6% rise in dairy prices, which was only slightly less than the increase seen at the last auction, limited the sell-off. The Canadian dollar, on the other hand, shrugged off a surprisingly weak trade balance. None of the economists surveyed expected Canada to report a deficit but with the recovery slowing, exports fell 2.4%, causing the country's 420 million surplus to turn into a -970 million deficit in February. The report should have sent USD/CAD sharply higher but the recovery in oil allowed investors to look beyond the deterioration in trade.

The euro continued to trade in a tight range around 1.0650. Limiting the move was ECB President Draghi, who did not talk about the economy or monetary policy in Tuesday's speech. Stronger-than-expected Eurozone retail sales helped prevent steeper losses on a day when the U.S. dollar rose. Sterling, on the other hand, tumbled on the back of slower construction-sector growth. PMI services are scheduled for release on Wednesday and if service-sector activity eases alongside manufacturing and construction, GBP/USD could break 1.24 and hit a new 2-week low below 1.2377.

Keep Your Eye On U.S.-China Summit
 

Related Articles

Ashraf Laidi
Onto Retail Sales, PBOC Emerges By Ashraf Laidi - Oct 17, 2021

by Adam Button The surge in risk appetite and copper prices started in Asia on Thursday and there might be a reason for that. The PBOC did issue a statement vowing to support...

Keep Your Eye On U.S.-China Summit

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Scott Halverson
Scott Halverson Apr 06, 2017 6:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
China said they will sell all dollars...GO YAUN!!
tony ooh
tony ooh Apr 04, 2017 5:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
president trump is not unpredictable. but if you say so, ok. additionally, there will be no drama; not on golf course or at shared meals. this is Not a trip for political/economic changes. this trip is for introductions and sharing company manners. this is a naive column.
Sipho Lushozi
Sipho Lushozi Apr 04, 2017 5:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
If you highlight that it's expected to be a breakout on Thursday, it mean EUR/USD will go up, it gonna be a buy opportunity?
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email