This
bold and frightening move by Trump has already triggered retaliatory actions
from China, who fought back by disclosing plans to impose tariffs on up to $3
billion of U.S imports. With fears likely to heighten over a trade war
negatively impacting global growth, risk aversion could become a dominant
market theme moving forward.
Escalating
trade tensions between China and the U.S have exposed global equity markets to
significant downside risks. Asian stocks suffered severe losses this morning,
following Wall Street’s gut-wrenching declines overnight. The negative
sentiment from Asian markets could contaminate European shares and trickle down
to Wall Street. With the Dow Jones Industrial Average closing more than 720
points lower on Thursday amid trade war fears, U.S equity bears could attack
once again this afternoon.
Sterling slips
post BoE meeting
Sterling
sharply appreciated against the Dollar before abruptly surrendering gains on
Thursday, after the Bank of England kept its interest rates unchanged at 0.5%.
Although
monetary policy remained unchanged in March, a key takeaway from the meeting
was the 7-2 split vote, which was seen as hawkish. The agreement on a Brexit
transition deal with the E.U and signs of wage growth acceleration are likely
to boost expectations of a rate hike in May.
There
is a possibility that Sterling’s current weakness could be thanks to the BoE
expecting the economy to take a ‘temporary hit’ from the recent severe weather
conditions. With the Pound highly sensitive to monetary policy speculation,
expectations of higher U.K interest rates could offer some support further down
the road.
Taking
a look at the technical picture, the GBPUSD has found itself under pressure,
with prices trading around 1.4110 as of writing. A daily close below 1.4100
could encourage a decline back towards 1.4000. Alternatively, if bulls can
defend 1.4100 then prices could challenge 1.4180.
Yen gains on risk
aversion
The
Yen proudly marched to a 16-month high against the Dollar on Friday, as traders
frantically sought safety in safe-haven assets amid growing fears of a global
trade war.
With
uncertainty likely to heighten as trade tensions escalate, the Yen may remain a
risk-averse trader’s best friend. Taking a look at the technical picture, the USDJPY
is under intense pressure on the weekly charts with prices trading around
104.70 as of writing. A solid weekly close below 105.50 could invite a decline
lower towards 104.00.
Commodity
spotlight – Gold
Gold
bulls were back in action on Friday with prices venturing towards $1340 thanks
to a vulnerable Dollar and a sell-off in global equity markets.
It has
certainly been an incredible trading week for the yellow metal, as heighted
fears of a global trade war accelerated the flight to safety. With risk
aversion in the air and the Dollar under pressure, Gold has the potential to
appreciate further. From a technical standpoint, Gold could challenge $1355 if
bulls are able to secure a weekly close above the $1340 level. Alternatively, a
failure for bulls to secure control above $1340 could encourage a decline back
towards $1330.
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