Daily Market Update

Trade Tensions Dominate; Dollar Benefits

June 19, 2018

“Risk off” seems to be the theme of the day.


Risks of a trade war are increasing after President Trump announced tariffs on $200 billion of Chinese goods and another $200 billion if China retaliates. China, of course, vowed to retaliate “forcefully”. If neither party blinks, American consumers are set to be the collateral damage as prices on a variety of goods will certainly rise.

The pending trade war has caused equity markets to sell-off, but the greenback has been the beneficiary of the risk-off trade. The Shanghai Composite closed nearly 4.0% lower and American stocks are poised to open over a percent lower. The safe-haven Japanese yen has been the biggest winner, rallying across the board. The Australian dollar and South African rand proved to be the victims with the Aussie trading to its lowest level in a year and the rand falling to the worst level since September.

This morning’s economic data will be viewed as second tier. Housing starts improved 5.0% in May, beating expectations of a 1.9% increase. Building permits disappointed, however.



EUR/USD is under pressure again this morning and is approaching its lowest level of the year. If the pair breaks below its May low, the Euro will be at its weakest level since July 2017. The greenback is benefiting from global risk aversion in the face of the Chinese/American trade dispute this morning. But overall, EUR/USD remains weak after last week’s policy meetings highlighted the policy differential between the European Central Bank and the Federal Reserve.



The British pound sunk to a fresh seven-month low. Prime Minister Theresa May faced another setback overnight. The House of Lords voted to back an amendment that would force parliament to have a “meaningful” vote on any deal with the European Union over “Brexit.” May will face a similar vote later this week in the House of Commons. With less than a year to come up with a deal, we are again facing the possibility of a “no deal” and a “hard Brexit” which would be disastrous for the sterling.


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