The US Dollar rose slightly after the new positive message of US President Donald Trump with expectations Sino-American trade talks to be successful. However, the offshore yuan and the Australian dollar were the main winners.
Trump said on Tuesday he would meet with Chinese President Xi Jinping at the G20 summit next month. This happens after China announced on Monday that it would impose higher tariffs on US imports worth 60 billion USD, which additionally raised the trade tension between the two countries. While analysts believe it will take time to reach a full deal, the risk-sensitive currencies, including the offshore yuan and the Australian dollar, have risen.
The US Dollar Index, which measures the strength of the greenback against a basket of six major currencies, rose slightly to 97.320 points after the previous session ended with a fall.
Investors’ focus on Tuesday will be turned to the industrial output of the Eurozone for March and the German index of investor confidence for May.
The upside momentum in the European currency faltered ahead of 1.1250 and is now motivating EUR/USD to recede a tad to the 1.1240 area. The daily up move in the pair appears to have run out of steam in the proximity of 1.1250 helped by mixed results from the ZEW survey in Germany and the broader Eurozone.
In fact, Economic Sentiment in the Eurozone dropped to -1.6 for the current month, while the same gauge ticked lower to -2.1 in Germany. On the brighter side, the Current Conditions component surprised to the upside at 8.2 in Germany.
Further data releases in Eurozone showed the Industrial production contracted 0.3% during March, extending the yearly shrinkage to 0.6%.
At the moment, the pair is gaining 0.17% at 1.1240 and a break above 1.1264 (high May 1) would target 1.1315 (100-day SMA) en route to 1.1323 (high Apr.17).
On the downside, immediate support aligns at 1.1209 (21-day SMA) seconded by 1.1135 (low May 3) and finally 1.1109 (2019 low Apr.26).
The Australian dollar was able to recover some of its losses to 0.6952 USD after it had earlier reached its lowest value since early January.
The Australian dollar is often perceived as an indicator of Chinese economic growth, as Australia’s exports are dependent on China, the country that is the main destination for Australian goods.
Volatility in the market has increased a lot. And it will take time before it is established. However, the good news and raising hopes push up the Australian currency.
The markets could indicate that the AUD/USD exchange rate may test the upside border of the cloud at 0.6955 and then resume moving downwards to reach 0.6855. Another signal to confirm further descending movement is the exchange rate rebounding from the channel’s upside border.
However, the scenario that implies further decline may be canceled if the AUD/USD rate breaks the upside border of the cloud and fixes above 0.7000. In this case, the pair may continue growing towards 0.7085.
The USD/JPY pair rose by a quarter to 109.60 JPY after it dropped to 109.15 JPY at the start of Asian trade.
The pair bounces on Tuesday after falling to new two and a half month low at 109.02 the previous day, as markets recover from initial shock on signals of US/China trade conflict escalation.
Profit-taking boosted recovery that was also signaled by oversold studies and bullish divergence on daily slow stochastic.
Near-term picture is bearish and current action is seen as positioning ahead of fresh weakness, with upticks expected to stay below key barrier at 110.31 (Fibo 38.2% of 112.40/109.02 / daily cloud base, reinforced by falling 10SMA) to keep bears intact, for renewed attack at 109 handle and possible extension towards target at 108.49 (Fibo 50% of 104.59/112.40 31 Jan higher low).
Only a sustained break above 110.31 would sideline bears and allow for a stronger correction.