Where Will Trumps Gaze Fall Next?

Market Analysis /
26 Mar 2018


The trade wars topic will be front and center for global markets this week after last week saw President Trump move his focus to China. The news of a $60bn tariff package on Chinese imported goods showed that protectionism is still rife globally, and the ceasefire that saw exemptions to Canada and Mexico was a just a brief respite. The issue now lies with the US’ trading partners and how they plan to retaliate. So far, we have seen China push a $3bn tariff on US imports, but this was a planned response to the aluminum and steel tariffs announced earlier this month.

There is also sentiment that there could be a more diplomatic solution to these trade wars, as it was reported over the weekend that diplomats from both China and the US are negotiating behind closed doors.

The US dollar does have a big focus on the major economic calendar this week, but not until Wednesday with the US annualized GDP reading. Bloomberg’s survey of analysts expect to see a reading of 2.6%, so anything different from this number could cause US dollar moves. The same will be said for the core PCE (Personal Consumption Expenditures), the Fed’s preferred measure of inflation which will be announced on Thursday. With inflation as a key battleground after last week’s Fed rate decision, we can expect a big focus on these numbers for any US dollar-based assets.

Also, the key to remember is the short week for some markets with the long Easter weekend just around the corner. This means that as the week moves on we will likely see volume drop away, which could create pickup in market volatility. However, it’s more likely we will see a  holiday slowdown after the data release on Thursday.



Data is incredibly light out of Europe this week, so it could be trade wars that yet again cause the market moves for Euro pairs this week ahead of the long Easter break. The highlight of the week from a macroeconomic standpoint is likely to be single country PMI (Purchasing Managers’ Index) readings that are scattered across the days, primarily during the later part of the week. The quiet will be in preparation for a much busier week next week when it comes to the full Eurozone inflation readings, pivotal to monetary policy and potential tapering conversations.

Political risks and trade war fears could somewhat fade away with the focus shifting to China in the short term. Over the weekend, reports in the press showed that some kind of progress had been made in the forming of an Italian government. Even though the finalization of this is still a long way off, any progress takes away near term political risks for any Euro pairs.

With slightly better numbers out of the individual PMI's, and a quiet week for the political risk we could see the headlines around trade wars push the dollar lower and see EUR/USD test highs from last week. However, this also means that a miss in data and headlines out of the UK and Italy could push the market the other way.



Data both last week and this week will be a focus for the Loonie. Last week saw Canadian inflation data surprise to the upside, now above the 2% level, which is the mid-point of the Bank of Canada’s inflationary target range. After that upside surprise to CPI (Consumer Price Index)  focus now switches to the January GDP reading due for release on Thursday.

Expectations are for a reading to come in at 0.1% on a monthly basis, and at 2.9% for the quarter. The quarterly number could see a downside move from the previous month of 3.3%. The reason for the potential shortfall could be lackluster activity data, as was highlighted by the weaker than expected retail sales reading from last week (+0.3% vs +1.1% MoM).

The NAFTA situation will continue to cause an issue for any CAD exposed pairs, with both NAFTA and US trade policy still an incredibly touchy subject for traders. Any headlines are expected to dominate proceedings, and with the only data due on Thursday, it could well be a subdued week for the Loonie if US President Trump keeps his focus on China.



With the long Easter break approaching, Sterling is one currency that could see some movement, but remains free of any key drivers. Last week’s agreement of a Brexit transition deal, as well as the positive surprise on wage growth saw a topsy-turvy end to the week, very much in positive territory. It will also likely be the driver for this week’s performance. Adding the data to last week’s hawkish Bank of England performance, the mini-boost to the Pound and negative US dollar caused some big moves in GBP/USD.

Like many other regions, it’s a quiet week for UK data, with only consumer confidence and the final Q4 GDP reading on Thursday. Expectations are for the reading to stay harmonized with previous estimates at 0.4% MoM and 1.5% QoQ. Although we can’t rule out Brexit headlines, and downside Euro data moving markets, without many key drivers it could be a week where Sterling looks to decipher old data and jumps on the coattails of other news.



Chinese trade wars will affect the Australian and New Zealand dollar this week, after the gaze of the US President shifted to China at the back end of last week. Everything will depend on how China decides to retaliate, especially as we know that China is already looking to retaliate on the aluminum and steel tariffs.

The trade wars will also affect both the Australia and New Zealand dollars, due to the effect they could have on the commodity markets. We are already seeing an effect here with oil and metals prices being affected. With little or no data out in both Australia and New Zealand this week, the focus will be solely on the US President and the fickle nature of his focus.

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