Trade War Tension may Trigger Recession
- 25 June 2018
Fundamental Outlook The U.S. –China trade tension may spread to Europe after Trump administration threatened to raise import tariff on European goods. Bank of England holds monetary policy unchanged. Crude prices recover moderately after OPEC members agree to increase moderate production before oversupply level.
The U.S. building permit for May rose 1.30 million and lowest in past 8 months. Another report on housing starts expanded 1.35 million and highest at 11-year record. Existing home sales fell for a second month at 5.43 million.
The current deficits of Q1 seasons widened to USD124 billion compared to revised USD116 billion in previous quarter. American jobless claims for the week ended 16 June stayed at 218,000 and matched forecast.
Market analysts are worried for possible recession in U.S. economy due to rising trade tension. Trump administration has threatened to raise a 20 percent import tariff on European goods in addition of the recent announcement of USD200 billion tariff on Chinese imports.
The German flash manufacturing index grew 55.9 in June and missed forecast. Another report on Eurozone’s manufacturing index stays consistent at 55.0 reading.
Bank of England holds interest rate at 0.5 percent and asset purchase program remains unchanged at GBP325 billion. Investors are looking at August for next hint in rate hike.
OPEC ended the 2-day meeting in Vienna and agrees to increase production moderately to prevent oversupply. Market analysts speculate the increment at 600,000 – 800,000 barrels per day. Crude prices have been rising slightly after the meeting.
Technical Forecast USD/JPY has been trading in stagnation last week. The trend is strongly capped under 111.00 level but temporary supported at 109.50 area. This week, we reckon the trend will continue to thread in narrow range while waiting for direction in Dollar Index. Extension beyond the aforementioned range needs risk control.
EUR/USD has shown strong support at 1.1500 level after recent bounce-off. This week, we foresee initial range will be traded in tight movement from 1.1550 – 1.1750 region. In our opinion, the outcome of Turkish election may be a lead factor in directing the Euro movement after the 24 June.
GBP/USD has begun to recover from recent 1.3100 bottom. Market is still weak and strong resistance emerges at 1.3400 area. This week, we foresee range bound trading within this aforementioned region until we see a breakthrough. Traders are staying dormant after central bank refrained from rate hike last week.
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DAR Wong is a registered fund manager in Singapore with 27 years of global trading experiences. You may reach him at firstname.lastname@example.org