US-Sino trade talks are in the market’s attention

The USD tended to be on the rise yesterday as market hopes for the outcome of the US-Sino trade talks remain high. The negotiations initiated after the Xi-Trump phone call as the tariff tensions are still ongoing. It seems that unlike the Geneva trade talks which were more generic, this time the two sides are entering into more specific issues such as US exports of chips to China and China’s exports of rare earths. Despite some optimism for the outcome of the talks, we tend to remain pessimistic. Should there be signs of an improvement of the trade relationships of the two sides we may see the USD gaining substantial ground, while any signals that the negotiations are falling through, could weigh on the greenback. On a deeper fundamental level, we highlight the escalation of the unrest in LA, with President Trump deploying more troops, in order to set it under control. For the time being there seems to be no major market reaction deriving from the issue yet any intensification of the unrest could weigh on the USD and vice versa.

EUR/USD remained relatively unchanged just below the 1.1450 (R1) resistance line. The pair in its motion broke the upward trendline that was guiding it since the 12th of May, signalling an interruption of the upward movement, hence we switch our bullish outlook in favour of a sideways motion bias. Furthermore, the RSI indicator continues to run along the reading of 50, implying a rather indecisive market, yet the Bollinger bands despite narrowing a bit maintain a wide gap implying that volatility may still arise. Should the bulls take over, we may see the pair breaking the 1.1450 (R1) resistance line, which proved to be a formidable barrier until now and set as the next possible target for the pair the 1.1690 (R2) resistance hurdle. Should the bears take over, which currently seems remote, we expect the pair to drop and break the 1.1210 (S1) support line paving the way for the 1.0940 (S2) support level.

Across the pond, the GBP weakened from the release of the UK employment data for April, as the unemployment rate ticked up as was expected, the employment change figure dropped, yet failed to meet the market’s expectations which was a positive sign, and the average earnings rate unexpectedly slowed down. In our opinion, the release tended to underscore the vulnerability of the UK employment market, adding some pressure on the BoE to continue cutting rates. Please note that the BoE is currently expected to remain on hold in its meeting on the 19th of June as per GBP OIS, which could be supportive for the sterling on a monetary level. As for upcoming financial releases pound traders may also focus on the release of the UK GDP rate for April due out on Thursday and a contraction of the rate is currently expected which does not pose well for the pound. On a fundamental level, we highlight the presentation of the UK Government’s spending plan before parliament tomorrow and the UK Government seems to be in front of some tough choices on fiscal level, which could weigh on the pound.

Cable remained stable and well within the boundaries set by the 1.3640 (R1) resistance line and the 1.3435 (S1) support level. We currently maintain a sideways movement bias for GBP/USD’s direction with the boundaries being set by the prementioned levels and expect the pair to clearly break the upward trendline that was active since the 9th of April. For a bullish outlook we would require the pair to break the 1.3640 (R1) resistance line and start aiming for the 1.3835 (R2) resistance level. For a bearish outlook to emerge, we would require the pair to break the 1.3435 (S1) support line and start aiming for the 1.3205 (S2) base.

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Today we get Sweden’s GDP rate for April, Norway’s CPI rate for May, the Czech Republic’s final CPI rate and the Eurozone’s Sentix index figure June. In tomorrow’s Asian session, we note Japan’s corporate goods prices rate for May.