China To Hit Back?

China’s Commerce Ministry said it will have to take further measures to respond to US tariffs on Wednesday and that initially weighed on the dollar. But as USD/CNY hits hit fresh 4-week lows, it is sending all major currencies lower against the USD, including AUD despite a stellar Australian jobs report.

GBP broke below $1.30 after an unexpected decline in UK retail sales. USD pushes higher after jobless claims fell by 8K to a fresh 48-year low, while the Philly Fed survey rose to 25.7 from 21.5 after a previous dip.

The trade war this year has confounded most analysts, it’s the boogyman of markets. It seems to appear from time to time and sends a fright into the market only to disappear. Each time a few bulls are spooked out of the market while the rest seem to carry on in the belief that the boogyman doesn’t really exist.

The problem here is that the trade war is real. The US revealed a new proposal for uranium tariffs Wednesday and China’s Commerce Ministry said it will take further measures. The boogyman is real and analysts and economists continue to talk about it.

Does the market believe it? USD/JPY fell on Wednesday on the China headlines Wednesday before later rebounding for most of the day. If you’ve been following this story, that’s a recurring theme. Every trade war scare headline-move has been erased so far. Sometimes it’s quick, other times it’s slow but a portion of the market is increasingly conditioned to buy every dip.

How does it end? Either the dip buyers continue to dominate and it ends with equities and USD/JPY continuing to climb; or the dip buying lulls the market into a false sense of security that’s spectacularly shattered once the trade war hits some kind of tipping point.

What might that tipping point be? Most would point to the tariffs on $200 billion Chinese goods the US has under consideration. Until then, the dip-buying trade will slowly get more crowded.

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