The United States and China have also decided to prolong their tariff truce to 90 more days. This extension is significant as it maintains the current tariff rates, with the United States holding on to its 30 per cent tariffs and China holding at 10 per cent. This delay causes a temporary cover-up of doubt in global markets, thus enabling traders to dwell on pending economic figures, mainly, the U.S. Consumer Price Index (CPI) report that will be released later in July 2016.
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Turning to the forex market, the current rally is indicative of a short-term risk-on situation. Pairs like AUD/USD and NZD/USD, which are typically sensitive to global trade patterns, are on an upward trend, with the U.S. dollar holding steady in the face of inflation prints. However, a CPI report that exceeds expectations could shift the market’s focus back to the possibility of more Fed rate hikes, prompting a bounce for the high-flying dollar. Traders should remain alert and prepared for this potential scenario.
Technically, traders will be able to monitor Fibonacci retracement levels on the major pairs. These levels are a key part of technical analysis, indicating potential areas of support or resistance. The major pairs experienced a downtrend in the recent past due to tariff uncertainty. Any reversion to the 38.2 percent or 50 percent retracement area may present a buying opportunity, especially when they are confirmed with bullish candlesticks.
Market psychology is also at play here. The fear and greed index currently favors greed, as traders show increasing interest in risky assets. However, the temporary nature of the truce means this sentiment could quickly reverse if the talks collapse. In this context, it’s crucial to manage trades with a well-defined stop-loss, providing a sense of security and control in these uncertain times.
Ultimately, the extension of the tariff settlement presents a window of opportunity for profitable trading. However, the CPI remains the true litmus test. By leveraging technical arrangements, tracking sentiment, and exercising good risk control, traders can position themselves to capitalize on the next market swing, whether it’s an expansion of the risk rally or a snapback.
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