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Possible Outcomes of US-Sino Trade Talks on Thursday

Oct 8 2019, 09:06 PM (BDT) |


High-level trade talks are to continue this week on Thursday between global economic giants the United States and China. This is the first such meeting in over two months in the ongoing 15-month trade war. 

On Monday, the Trump administration placed eight Chinese technology giants on a blacklist over alleged human rights violations against Muslim minorities. The entities added to the blacklist include Dahua Technology; Hikvision; IFLYTEK; Megvii Technology; Sense Time, Xiamen Meiya Pico Information Co. Ltd.; Yitu Technologies; and Yixin Science and Technology Co. Ltd.  

Hikvision and Dahua Technology are two of the world’s largest manufacturers of video surveillance products. These companies are now barred from buying parts and components from U.S. companies without U.S. government approval. 

Both sides stated that trade negotiations are still set to continue as planned, and this move is not tied to trade talks. Although retaliatory measures lie ahead if the United Sated does not correct their mistake, as stated by foreign ministry spokesman Geng Shuang “We urge the U.S. side to immediately correct its mistake, withdraw the relevant decision and stop interfering in China’s internal affairs,” adding that “China will continue to take firm and forceful measures to resolutely safeguard national sovereignty, security and development interests.”

A week from today, U.S. tariffs on $250 billion worth of Chinese goods are scheduled to rise to 30% from 25%. President Donald Trump postponed the increased tariffs from October 1st till October 15th after China’s tariff exemption on 16 American products. 

The progressive dispute has caused major havoc across the globe. Sending major economies to the brink of recession and contributing to the overall global economic slowdown. The month of September was tough on US macroeconomics. As we mentioned in our article last week, the negative aspect of new job creation (NFP 136K), manufacturing (47.8) and non-manufacturing PMI (52.6), and souring consumer confidence (125.1 ) are all warning signs that the record long expansion is abating and these signs should not be ignored due to an unexpected drop in unemployment rate (3.5%). 

The Chinese Communist Party’s official newspaper, People’s Daily, suggested 3 possible scenarios for the trade talks this week, on Tuesday. Those are: both sides reaching a “fair” deal; the talks completely falling apart; or maintaining the state of “talking while retaliating”.

Let’s consider the possible scenarios while looking at the 4HTF of USDJPY. 

Yesterday started for the pair with a gap down, which was quickly filled as the market nerves were subdued on news that trade talks will resume as scheduled despite new political hiccups. Today we are seeing the opposite bearish momentum that brought the price down below 107 to approximately 106.873. 

If trade talks are positive, we’ll see the USD rally. Targets up are going to be at 107.526 (23.6% Fibo), further up we have support at 108.125. Then we have the September highs, in the vicinity of 108.477. If Dollar bulls are able to break above resistance at 108.865, our next target up will be 109. 

If negotiations fall apart, the USD will trade lower. Our targets down are going to be first at the 50% Fibo level of 106.462, then support at 106.140, followed by the 61.8% Fibo at 105.986 and then another support level around 105.708. The lowest price that the pair has seen this year is 104.446. 

We would also like to remind you that USDJPY is a “risk-on” “risk-off” cross-currency, and if there are any major negative breakthroughs on the financial markets, such as Brexit, the pair may experience a sell-off as investors turn to safe-haven yen. 

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