Global macro overview for 07/03/2018

With the resignation of Trump's chief economic advisor, Gary Cohn, who opposed customs policy, financial markets are re-introducing risk aversion. Signals from the Korean Peninsula, where the summit between the South and the North Korea ended in hope for the continuation of the nuclear program by Pyongsang only for a moment brought relief to the financial markets. After 24h the signs of weakening geopolitical tensions were overshadowed by reports from the White House. The departure of Gary Cohn, who has so far strongly opposed import duties, best illustrates how the attempts to persuade Trump to change his mind are over. The chances of an uncontrolled escalation of trade wars have now clearly increased, which the market will express by escaping into risky assets towards safe havens.

USD/JPY and other yen crosses should go lower, especially if the spiral of uncertainty hits the stock indices more strongly. EUR/USD also has an easier way up, because in this arrangement Trump is a disadvantage of the dollar. The situation may change if the customs policy boosts inflation in the US and prompts the Fed to more aggressive tightening, but it is not the time for that. But the USD is already winning against the risk currencies, which need a sustained global recovery for the rally, and trade wars do not bode for it. At the turn of the year, global investors saw a lot of buying of commodity currencies and emerging markets for a dollar and now these positions will be susceptible to the reverse. AUD, CAD and MXN are the first victims.

Let's now take a look at the USD/JPY technical picture at the H4 time frame. The market is weak as the price cannot break out above the nearest technical resistance at the level of 106.41 and reverses quickly towards the support at the level of 105.53. The weak momentum that stays below its fifty level supports the bearish outlook. The next technical support is seen at the level of 105.25 and in a case of the extension - 104.24.


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