Talking Points:
- Six days after the US tariffs were announced Trump kept pressure on while Secretary Ross said exemptions rules were coming soon
- Larry Kudlow was confirmed by the White House as the new chief economics adviser with a 'strong Dollar', China burden view
- Dollar's outlook growing more and more troubled as trade wars replace other wide-reaching fundamental themes
See how the DailyFX Analysts' top trade ideas for 2018 are faring now that we are nearing the end of the first quarter. Download the top trades guide on the DailyFX Guides page. US Equities Slide Further as Trade Outlook Still Murky
Risk trends continue to struggle across regions and asset classes, but there is still little drive behind the theme. Global equities, emerging markets and Yen crosses were little changed on the day Wednesday; but there was a notable stand-out performance on behalf of US indices. The Dow in particular marked a noteworthy retreat in a prominent wedge that well reflects the absence of conviction between bulls and bears in the market. And yet, these US benchmarks are still some way from their major support levels just as the fundamental catalysts for trends still seem some ways off. The most prominent concern for the broader markets remains the uncertainty in global trade. The US tariffs that President Trump signed on steel (25 percent) and aluminum (10 percent) last Thursday are slowly approaching with the deadline for exemptions set for next Friday. There have been reports that the President has suggested there would be few exemptions when speaking to some and many exemptions mentioned to others. What is clear is Trump reiterated the need to address trade on Twitter Wednesday and global leaders (German Chancellor Merkel the most recent) saying the requirements are still unclear. Commerce Secretary Wilbur Ross suggested he would 'soon' release the details, which just adds to the anxiety.
Dow Jones Industrial Average
Dollar Finds a Friend in Kudlow?
For the Dollar, there are very few scenarios where the a trade war is bullish for the currency - whether short-term or long-term. This past session, news that business TV persona Larry Kudlow was confirmed as Trump's top economic advisor was met with curiosity by the market. He echoed the administration’s belief that China has been operating outside the rules of trade which required some response. It is unlikely that China escapes the metals' tariffs with an exemption and the there are reports of specific intellectual and technology taxes in the works. It seems at the very least, the US and China are heading for a clash which will no doubt have blowback for the Dollar. And yet, there was something from Kudlow that was a notable contrast to recent weakness recently. He would support (in soft language) the 'strong dollar' policy so common for US officials in the past. It didn't reverse the Steve Mnuchin losses, but perhaps this is a portion of discount the currency can claw back with more support.
US Dollar Index
Euro Unmoved by Draghi's Soft Dovish Act
EUR/USD isn't just the product of where US fundamentals are heading. The Euro's own backdrop is stretched between market monetary policy speculation, optimistic political stability views and affordance of an unreasonable growth advantage. These are over-indulgent views, but what resets these beliefs? It isn't clear. This past session, ECB President Mario Draghi made a weak effort to check the Euro. He touched upon monetary policy with a dovish slant but not the one that the markets would deem a serious effort to talk down the currency. Draghi warned that QE would not end until inflation was sustainable, but that is not the same as committing to push back the expected taper from the anticipated September to December wind down. Meanwhile, German Chancellor Angela Merkel joined EU head Donald Tusk in suggesting they are not confident that Europe will avoid the United States tariffs - and in turn a trade war as the continent responds in kind.
Euro Index
Kiwi, Loonie, Franc and Bitcoin Biases
Not all markets are moored to overbearing yet sidelined fundamental themes. The New Zealand Dollar faced two rounds of key event risk: the fourth quarter current account and then GDP. Neither ultimately offered enough surprise to charge volatility which leaves pairs with tense technicals like EUR/NZD and GBP/NZD unresolved. The docket ahead includes the SNB rate decision, but the chances of a policy shift are extremely low. If they do move, it would likely be a sign of desperation. Nevertheless, many Franc crosses offer unique technicals and an equally-weighted index offers the return to a key technical level. For the Loonie, the news that backed its since-faltered relief rally is long behind us. That said, the currency remains notably oversold with meaningful technicals standing guard. While the Canadian currency holds its levels, Bitcoin and cryptocurrency are slipping through theirs. News that Google would crack down on ads for the market - and thereby cut off a portion of the new money inflow - helped take out notable technical support. We discuss all of this and more in today's Trading Video.
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