US and European futures drop as US and China tensions escalate
The British pound declined slightly as traders reflected on the latest commitment of traders (CoT). The report, which is released by the CFTC showed that net short positions by hedge funds and other money managers rose to 6.7k in the previous week. This was the highest it has been this year. Perhaps, the funds are worried about the slow pace of Brexit negotiations and the damage caused by the coronavirus pandemic. Also, because of the uncertainty of the Bank of England (BOE), which will meet this week. Analysts expect the bank to leave rates unchanged and possibly add about £200 billion to its quantitative easing program.
US and European futures declined as the market focused on geopolitical issues between the United States and China. Over the weekend, the US insisted that the coronavirus pandemic was likely started in a Chinese laboratory in Wuhan, a claim that China has always rejected. The statement by Mike Pompeo came two days after Donald Trump threatened additional tariffs for goods from China. The stakes could be high at a time when the US is gearing for an election. Also, the new tensions threaten the truce that was reached in January between the two countries. Futures tied to the Dow Jones, S&P 500, and DAX declined by 1.0%, 1.2%, and 2.88% respectively.
Today, we will receive the manufacturing PMI data from Germany, Italy, and other European countries. The German PMI is expected to drop from the previous 45.4 to 34.4 mostly because many companies either closed or reduced their production in April. In Italy and France, the PMI is expected to have declined to 30.0 and 31.5 respectively. According to Markit, the manufacturing PMI in the European Union is expected to have declined to 33.6 from the previous 44.5. We will also receive factory orders and durable goods orders from the United States.
The GBP/USD dropped to an intraday low of 1.2460 from Friday’s close of 1.2500. Friday’s close was along the 61.8% Fibonacci retracement. As the price dropped, it moved below the important trendline shown in red below. Also, the 14-day and 28-day EMA have made a bearish crossover, which means that bears are now in control. Therefore, the pair may continue moving lower and potentially test the 50% retracement at 1.2300.
The EUR/USD pair declined to an intraday low of 1.0950, which was lower than Friday’s high of 1.1018. On the four-hour chart, this price is slightly below the 38.2% Fibonacci retracement level. It is also above the 14-day and 28-day exponential moving average while the RSI has moved from the overbought level of 70 to the current 60. The pair may continue moving lower as bears attempt to test the support at 1.0885.
The AUD/USD pair declined to an intraday low of 0.6374, which was significantly lower than last month’s high of 0.6570. On the hourly chart, the price declined to the 61.8% retracement level. The price is below the 25-day and 50-day exponential moving averages while the RSI has moved slightly upwards. The pair may continue to resume the downward trend as bears attempt to test the 0.6350 support level.