Currency summary of the week. The trade conflict has awakened the market.

Last week was rich not only in numerous macroeconomic data, but also in several central bank meetings. The number one duty (apart from interest rates in the United States) remains the new customs duties imposed by the USA on China. It is not difficult to guess how the market reacted to new information. We encourage you to review the main currencies and what awaits us in the coming days.

Just in case

We got to know the decision last week FED on interest rate cuts. They were no surprise information from the United States about a reduction of 25 basis points. The vast majority of investors expected further announcements in this matter and successive, systematic actions. Despite the lack of information about further reductions, market volatility increased significantly.

The head of the Federal Reserve explained the decision to cut interest rates with a desire to secure the economy for the future. This action can be assessed as very conservative due to the fact that in the US recession is not yet visible. Good data from the labor market as well as positive and stable information from foreign trade reports should not take the opposite course in the near future. Inflation is also unbearable and is based within designated limits.

USD / CAD chart, H4 interval. Source: xNUMX XTB xStation

Trump's decision to introduce tariffs on Chinese goods is an additional "asset" for the dollar. The value of this move was valued at around 300 billion dollars. In fact, after the announcement of this decision, the market, despite good data from the economy, lived practically only with this decision. It will be hard to "break" the upward trend of the dollar, which is particularly true for commodity currencies (NZD, CAD) will gradually strengthen. In the coming days it is worth expecting data on business activity in the US, which will have a high impact on the market during Monday trading. It is also worth following the Friday information, in which we will get to know the PPI core inflation publications in America on an annual and monthly basis. Analysts do not expect large fluctuations.

We're still waiting for the pound

BoE - Central Bank of England - in line with market expectations, left interest rates at the same level. As a result, the pound did not show much volatility after the decision was announced. Also after the conference summing up the meeting, no new declarations or comments were made regarding the situation in the markets. Overall, the pound still has a strong downward sentiment along with the rising risk of the UK leaving the EU without a deal.

GBP / USD chart, H4 interval. Source: xNUMX XTB xStation

BoE president emphasized that hard Brexit will weaken the British currency even more. Increasing inflationary pressure is becoming more apparent, and trade tensions around the world are in no way helpful. We are currently observing a slight rebound from the lower support on the pound. I would not see a change in the trend there. For the most part, this slight demand movement was caused by worse than forecasted US readings. One of the most important events for the pound will be Friday's data on foreign trade. However, most analysts do not expect significant improvement.

Chance for yen and franc

The escalation of trade tensions and the announcement of the imposition of duties on China flooded the stock exchanges in red. The German DE30 index hit the largest ricochet, decreasing by 3%. American stock exchanges also recorded declines, while they were negated quite quickly in the next session. JPY and CHF were among the strong currencies that defended during adverse reports. In the basket, G10 was one of the few that went up. Are they somehow circumventing the trade conflict and the pressure associated with it? In a way, yes. Given the policy (including monetary policy) of both countries, the risk of tensions between the US-China and hard Brexit effectively avoids them.

USD / JPY chart, D1 interval. Source: xNUMX XTB xStation

Let's just remind that Central Bank of Japan it maintains its monetary policy effectively and unchanged. After the July meeting, the markets expected no changes in interest rates and it happened so. It was only decided to cut inflation and growth forecasts. Calm policy and the bank's strong commitment to the bond and ETF buying program may strengthen the yen in the coming weeks. The appreciation of the Japanese currency against the dollar is increasingly unfavorable for exporters. Strong JPY in recent export readings contributed to its weakening.

The euro has moved back into the shadows

Last week he lived much more information from the US than from the euro area. EBC so far it doesn't seem willing to cut interest rates. Data from the German economy do not look good, and information on the imposition of duties by the United States on Chinese goods also affected major European indexes. DAX dived approaching the 12000 level