Global macro overview for 28/06/2018

Trade disputes remain the main subject for markets which is manifesting in the form of a weakening Chinese yuan. CNY is the weakest in six months, but it is not clear whether these are signs of investors' pessimism about China's prospects or Beijing's new tactics in the fight against US protectionism.

The weakness of the yuan is usually bad news for emerging market currencies as well as related AUD and NZD, but the response is limited. The lack of sense of direction is noticeable, which is partly justified. Assuming that all Trump's threats will be turned into binding regulations seems premature. The total trade war is still unlikely, although the risk of its occurrence is slightly higher than before. But also commercial policy is not a simple subject to capture, given the complex network of links between suppliers and end manufacturers of products. Isolating one country does not have to be beneficial for local producers if they hinder access to components or block foreign markets. Secondly, if other countries respond purposefully to weaken their currencies against USD, the benefits of customs policies will be reduced.

In general, there are many unknowns that make it difficult to assess the final impact of trade policy, and therefore it is difficult to determine the winnings and losses in the currency market. As a result, the jerky trade on EUR/USD or USD/JPY has its justification. In other places, the risk aversion has its predominance, which is rooted in pure uncertainty.

Let's now take a look at the USD/CNY technical picture at the daily time frame. The market has just broken through the 50% Fibo at the level of 6.60 and it is heading higher towards the level of 6.6850. The momentum is strong and positive, but the market conditions are starting to become overbought. It is worth to keep an eye on the current market developments as the price is approaching the wall of the technical resistance at the levels of 6.6390, 6.6515 and 6.6616. This zone should put a temporary lid on the rally and price might start to consolidate.

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