US President Donald Trump increased the pressure on China in order to achieve a new and more profitable trade agreement for his country. Moreover, he obviously does this in order to push the Chinese side to take active steps in the negotiation process.

Trump obviously put everything in stake, hoping that the Chinese would "break down", fearing the prospects of getting an increase in customs duties to 25% for another 300 billion dollars. Yet they responded with retaliatory measures, which was the reason for the sharp collapse of major as US stock indices lost more than 2.0% and the high-tech NASDAQ with 3.41% on Monday. Such a noticeable drop was noted only at the end of 2018 when the Fed raised interest rates and made it clear that they could raise them twice more in the next 2019.

The US government debt market has resumed the dynamics of growth in demand for government bonds, resulting in a fall in the yield accordingly. Thus, the benchmark yield for the 10-year treasuries on the basis of trading on Monday fell from Friday's closing level of 2.473% to 2.401%. Thus, it continued to decline to the local minimum of March 28 of this year.

On the basis of trading results on Monday , the US dollar rose against all major currencies in the foreign exchange market with the exception of the Japanese and Swiss currencies, which clearly fits into the general trend of investor risk aversion.

Yesterday's collapse of the US stock market clearly demonstrated that bidders were clearly nervous and doubt that Trump's pressure on Beijing could lead to the conclusion of a contract. They were afraid that it may turn out to be zilch and only aggravated the general situation in the global economy. It is expected that the escalation of the trade war will lead to the Chinese side losing about 4.0% of GDP but America also cannot avoid a strike since its GDP may drop by more than 2.0%. While in the current situation, the US president continues to "feed" the markets with optimism about the positive prospects for the negotiation process, investors began to doubt this.

Assessing the general situation, it can be assumed that the escalation of the trade war between Washington and Beijing will contribute to the growth of volatility in the stock markets. At the same time, one should probably not expect the formation of any clearly expressed trends on the foreign exchange market. Negative news or rumors will support the demand for safe-haven currencies, including the US dollar, but at the same time, any positive news will definitely push up hopes for an early resolution of the crisis. In turn, this will put pressure on the dollar in a perspective. If the Fed does not decide on new incentive measures, the dollar can generally continue to grow against most major currencies.

Forecast of the day:

The AUD/USD pair is trading below the support level of 0.6965 against the background of the escalating trade crisis between the US and China. If the price holds below the level of 0.6965 and drops below the level of 0.6940, we should expect the continuation of its fall to 0.6900.

The USD/JPY pair has recovered from yesterday's fall. However, if it remains below 109.70 in the wake of the negativity remaining in the markets, it may continue to fall to 108.55.