Trade war price, short dollar and Bank of Canada

29 мая 2019 г.

Tuesday turned out to be another quiet day. So, we have time to talk about global things. For instance, about the possible price of a trade war for the United States, China and the world as a whole. The fact is that trade wars have been discussed often, almost constantly, but at the same time, some things are sounded as self-evident without any refinements to detail.

Therefore, today we would like to talk about the price of trade wars. In the end, this problem will be solved until the end of this month (the meeting of the United States and China leaders at the G-20 summit), and the losses are already taking place now.

So, economists at Bloomberg Dan Hanson and Tom Orlik analyzed the main scenarios of a trade war and its consequences. Their main conclusion is: if tariffs spread to all trading process between the USA and China, then global GDP will lose about $ 600 billion by 2021. By the way, this year will be a peak in terms of losses from trade wars.

If tariffs turn out to be at current levels, in a couple of years China’s economy will lose 0.5% growth as well as the United States - 0.2%. If tariffs are distributed to all groups of goods, then China will lose 0.8% of economic growth, the USA will lose 0.5%, just like the world as a whole.

So, the trade war is, indeed, a key aspect for the modern global economy. No wonder its is paid so much attention by markets and analysts.
Meanwhile, Brandywine Global Investment Management LLC. - an investment fund with $ 72 billion of assets – is predicting the end of the dollar rally. The reason is that the United States will agree with China: the damage from trade wars is too high for both sides. In addition, a trade war hurts US consumer, and setting people up against, on the eve of the US Presidential election, is the last thing Trump wants to do.

Returning to the current situation in the financial markets and the news background, we note that the main event of the environment will be the results announcement of the Bank of Canada meeting. The rate is likely to remain unchanged. We also are not waiting for aggressive comments from the Central Bank - it is not the time to show aggression. Trade war escalation is more than a serious reason to continue to pause. Despite the fact that we do not expect a hawkish position from the Bank of Canada, we believe that the current price of USDCAD is simply excellent in terms of its sales. So, we recommend today to look for points for its sales. In general, you need to sell about 1.35. We place stops above 1.3550, and put profits at the bottom 1.33.

The rest of our trading positions have not changed: we will look for points for buying of the euro and the pound against the US dollar, sales of oil and the Russian ruble, as well as buying of gold and the Japanese yen.