US vs China, Trump vs Fed, and a tough week ahead

Last week was marked by uncertainty about the resolution of the US and Chinese trade wars. Trump took a rather aggressive stance, resulting in an increase in tariffs on Chinese goods worth $ 200 billion to 25%

China has not responded yet, but only expressed regret. And the experience shows that " respond " is inevitable. For instance, in the form of restrictions on the export of agricultural products from the United States. As for the negotiation process, despite the fact that the Chinese delegation arrived in Washington, it did not achieve success.

In our previous reviews, we have already noted that a strong dollar is one of the factors that level the effect of US trade restrictions. We were waiting for Trump to return to the old topic - pressure on the Fed to force the Central Bank to lower interest rates. On Friday, the President of the United States on Twitter collapsed with another piece of criticism on the Fed. In particular, he noted that the Central Bank raised interest rates when there was no real need for this (inflation was quite low), resulting in an overdose of monetary tightening. Further, Trump said that the United States has the potential to literally “take off” in terms of economic growth if the Fed lowers the rate by at least 1%.
Not surprisingly, the dollar was under pressure on Friday. If Trump continues to develop this theme, markets may well revise their expectations on the parameters of US monetary policy in the direction of its easing. Moreover, Friday's data on consumer inflation in the United States came out lower than expected and on an annualized basis amounted to exactly 2% (inflationary target of the Fed). So this week we will continue to sell the dollar. But, naturally, we will follow the news development.
We note that the UK GDP came out in the framework of forecasts on Friday. The figures for industrial production were pleasantly surprised (+ 0.7% with a forecast of + 0.1%). The buyers of the Canadian dollar were pleased with the data on the labor market in Canada. Changes in the number of employees exceeded the most ambitious and positive expectations: + 106.5K with the forecast of + 10K, the unemployment rate also came out better than expected. So the strengthening of the Canadian currency was fully justified.

As for the upcoming week, it is definitely not worth relaxing. News of trade wars and negotiations between the US and China will remain in the center of events, also the macroeconomic statistics (data on the UK labor market on Tuesday, GDP in the Eurozone and consumer inflation in Canada and retail sales in the United States on Wednesday; statistics on Australia’s labor market on Thursday and finally Eurozone inflation statistics on Friday) will be published. Considering how events developed last week, our positions for the current week are as follows: we will look for points to buy the Australian and Canadian dollars and the euro against the dollar, sales of oil and the Russian ruble, as well as buying of gold and the Japanese yen.