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Analysts at TD Securities explained that Markets ended the week on a noisy note after reports emerged suggesting President Trump has already decided to impose tariffs on $200bn of Chinese imports ahead of another round of talks meant to defuse tensions.

Key Quotes:

“North American equities saw a pointed selloff on the news before recovering over the afternoon to end the session little changed. Meanwhile, rates bear-steepened in Canada and the US with Canada outperforming by ~1 bp across the curve.

A renewed focus on trade tensions has helped support the USD against G10 currencies. SEK (-1.1%) sold off on soft CPI data while AUD (-0.6%) traded lower on the trade wars theme.
RBA minutes, NZ GDP, and the BoJ will provide event risk over the coming week.

What we’re watching in markets
We think this month’s ECB meeting adds to an increasingly-bullish backdrop for the EUR as the USD’s summer rebound looks exhausted. A more positive macro, policy, and technical picture have us looking for further gains in coming weeks. Given the highly uncertain global landscape, however, we prefer positioning via shorter-dated calls or (zero cost) risk reversals.

Furthermore, the disappointment on CPI provides further evidence that the USD rally is near its peak as valuations are getting stretched and positioning is lopsided. We continue to like AUDUSD upside towards 0.75.

EUR/UK rates continue to trade with a weak bias following yesterday’s ECB and BoE meeting. We continue to recommend USD vs EUR/UK compression trades. In particular, we favour receiving 2y2y USD swap vs paying GBP 2y2y swap.”

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