A series of messages from Washington and Beijing has confused financial markets and shows how trade in major currencies has become particularly unpredictable and difficult. USD is in retreat, and risky assets are doing better, though for bad reasons.
According to the announcements, the US presented a list of goods imported from China worth USD 200 billion, which will be subject to customs duties, first (from September 24) in the amount of 10%, and from the beginning of next year, the rate will rise to 25%. Everyone was waiting for China's response, but it came from anonymous sources and gaining in a positive way that Beijing sees the only right way in cooperation. As a result, the first market movement in the "risk-off" mode has been reversed. This morning, China officially announced that they intend to introduce retaliation at the same time as tariffs imposed by the US, and the future of further negotiations is uncertain. It brought confusion again. Landscape at night looks like USD and JPY are weaker, they gain risky currencies, and stock indices are strong. However, I would not read it as a sign that everything is fine for investors and we reject the fears of trade wars. The events of the night undermined the confidence of market participants to the conditions that served as the basis for the positions taken. What about the fact that the US-China trade dispute will last several months if suddenly incoming anonymous information can break the order and bring speculative price rallies in the opposite direction. Confusion is an unprofitable feature of the market and hence I treat the recent changes as a reduction of positions by investors for whom the risk of surprise has become too great. Unwinding position can now be the main driver of change, which can hurt the USD the most, which in recent weeks has used the hawkish Fed's narrative, strong US economy and escape to security in the face of tensions in emerging markets.
Let's now take a look at the US Dollar Index technical picture at the H4 time frame. The market is treading dangerously close to the technical support at the level of 94.36 again and this level might be violated soon. Moreover, the price is still below the blue trend line and below the technical resistance at the level of 95.00. In a case of a further move down, the next technical support is seen at the level of 94.17 - 94.10. Weak momentum indicator (below fifty) confirms the short-term bearish outlook.
