August 2nd, 2019

China warns of retaliation after the US’s surprise announcement yesterday to impose fresh tariff’s on China. The announcement saw safe-have Yen & Chf rally to fresh highs vs US$ and CNY weaken to 2 1/2 year lows. Investors will watch today’s Non-Farm Payroll closely for signs of weakness, and potential for US$ volatility is high.

Despite oil prices falling 7% yesterday, C$ managed to hold its ground boosted by strong PMI data. Oil prices rebounded 2% overnight, but the longer term implications of a continuing trade dispute will put pressure on C$. A break of 1.3250 could see C$ rebound higher to Jun18th levels. An escalating trade dispute scenario suggests a switch back to buy US$ dips strategy vs C$.

Eur remained sidelined, holding within its recent range band. Expect euro to remain a sell on any rallies, but at current levels investors will be patient.

In the UK the conservatives majority in the house has been reduced to just one after a recent bi-election. Rumblings that some conservatives may not support a no-deal Brexit is increasing the political uncertainty. Growing comments for a 2nd referendum and possible elections will continue to keep GBP vulnerable to downside risk. GBP currently sitting at 30 month low and has potential to weaken further.