Trade Woe Sends Dollar Moving Lower

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Trade Woe Sends Dollar Moving Lower

The U.S. Dollar Is Falling After Trade Talks Fall Apart

The U.S. Dollar is moving lower. This is just week’s after it broke out of its trading range in what looked like a major move to the upside. The problem is trade, or the lack of consensus on trade talks, and the reescalation of the trade war. While the talks were ongoing, even without a deal in sight, there was hope that there would be a deal. Better, there were real signs within the economy that both sides, China and the U.S., could not only survive under the new tariffs regime they could both still grow.

Now, with tariffs on both sides upped to 25% and the possibility there will be even more tariffs has rocked the status quo. This may disrupt trade enough to send the world into recession, just like the market feared a short time ago. With that in mind forex traders are fleeing the dollar and the yuan in favor of safe-haven assets and those least affected by global trade.

The DXY is now back within its trading range and indicated lower. The $97.50 level has reemerged as strong resistance and likely to remain in place as resistance without some change to fundamentals. The next targets for support at $96.50, $96.00, and $95.50 in the near-term. Later this week there is some economic data that may affect this outlook including retail sales, Empire manufacturing, and Housing Starts/Building Permits.

The EURO Is Above Support, But…

The EUR/USD is back above support but it is still below a key resistance. Support is at the previous broken low of 1.1900, resistance is at the bottom of last years trading range near 1.2200. The indicators are bullish so a test of the resistance is likely, a break above that level would be bullish. If 1.2200 is broken a move up to 1.2400 is the least you should expect. EU data this week includes CPI, Employment and GDP so there is a chance the EUR/USD could see additional catalyst.

Pound, Not Sure Where It Wants To Go

The British pound was able to gain against the dollar following the trade talk breakdown but the move wasn’t strong. The candle is green but met resistance at the short-term moving average that could easily cap gains. The indicators are mixed, rolling over in confirmation of support, but not showing a clear buy or sell signal at this time. With trade in doubt, and the Brexit in more doubt, there is only one thing for certain about this pair; sideways range bound trading is likely to occur without some clear sign of economic trajectory for one of the currencies or other.

Yen, Back In Favor

The Japanese yen may be the true winner in the trade talk breakdown. The safe-haven currency gained 0.80% against the dollar in the wake of the latest news and looks like it could shed another 3-7%. The indicators are bearish and momentum is gaining strength so a continuation of the downtrend should be expected. The support target of 108.00 may halt the decline but that is not guaranteed, a fall below 108.00 could take the USD/JPY down to 106.00 or lower.

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Trade war escalation sends markets lower

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Market Snapshot

Anora M. Gaudiano and

Ryan Vlastelica

Boeing was one of the day’s biggest drags

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U.S. stocks closed lower Tuesday, with major indexes turning decisively negative in afternoon trading and ending near their lows of the day as uncertainty over trade policy and other geopolitical issues remained high.

What did markets do?

The Dow Jones Industrial Average DJIA, -0.36% fell 178.88 points, or 0.7%, to 24,834.41. The S&P 500 SPX, -0.15% lost 8.57 points, or 0.3%, to 2,724.44. Among the day’s biggest decliners were industrial stocks, a sector that is heavily correlated with trade concerns. The group lost 1.3% while the materials sector lost 0.9%.

The Nasdaq Composite Index COMP, -0.07% lost 15.58 points, or 0.2%, to 7,378.46.

The small-cap benchmark Russell 2000 index RUT, +1.28% lost 0.7% points to 1,625.25, ending a four-day rally that took it to a series of records.

What drove the market?

Trade policy continued to be a primary driver for investors, and the issue grew clouded on Tuesday. Asked if he was happy with how U.S.-China trade talks were going, President Donald Trump told reporters, “Not really,” and said negotiations “have a long way to go.”

Optimism over trade had spurred a stock rally in Monday’s session, after Treasury Secretary Steven Mnuchin said that the Trump administration would “put the trade war on hold” while working out details of a deal between the countries. Trump’s comments seemed to offset Mnuchin’s view.

Other geopolitical tensions also continued to hover in the background, with uncertainty over a historic meeting between Trump and North Korea’s dictator Kim Jong Un. Vice President Mike Pence warned in an interview late Monday that North Korea cannot “play” Trump where nuclear disarmament is concerned. On Tuesday, Trump said a planned summit with Un may happen later than currently scheduled.

Meanwhile, laying out new demands for Iran on Monday, the White House said any new nuclear deal with the U.S. would require Iran to stop enriching uranium and to pull its support for militant groups in the Middle East. The demands were met by immediate rejection from Iran.

What were strategists saying?

“For the moment, investors are taking a wait-and-see attitude with respect to the [trade] negotiations, especially with the other geopolitical issues weighing on the market,” said Jeff Kravetz, regional investment strategist at U.S. Bank Wealth Management.

“Issues like the future of the North Korea summit or negotiations with Iran are things that investors are very concerned about, though they’re more psychological than things that would have a major economic impact. Our view is that markets will move higher over the remainder of the year, but it will be a volatile journey to get there.”

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What stocks were in focus?

Among notable decliners in the industrial space, Boeing Co. BA, +0.43% lost 2.5% while Caterpillar Inc. CAT, -0.22% ended down 1.7%. 3M Co. MMM, -1.12% fell 1.4%. All three were among the biggest decliners on both the Dow and the S&P.

J.C. Penney Co. JCP, -1.55% fell 6% after the company’s chief executive quit to take over leadership of Lowe’s Cos. LOW, -0.10% . Shares of Lowe’s fell 1.9%.

Toll Brothers Inc. TOL, -0.69% shares slumped 9.6% after the building company posted a 10% fall in second-quarter profit on higher impairment charges, and said gross margin fell.

Shares of Micron Technology Inc. MU, +0.70% rallied 6.4% after the company raised its third-quarter outlook and announced a large stock-buyback program. The gain supported chip makers overall; the PHLX Semiconductor index SOX, +0.17% rose 0.6%.

AutoZone Inc. AZO, -1.08% sank 9.5% after the company reported its first-quarter results.

TJX Companies Inc. TJX, -2.37% shares rose 3.3% after the retailer’s quarterly earnings came above estimates.

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