US DOLLAR SLIDES FOLLOWING YESTERDAY’S WEAK INFLATION DATA
Stocks in Europe fell today as concerns grew among investors on the path forward regarding the Joint Comprehensive Plan of Action (JCPOA). There are concerns that the US will require European firms doing business in Iran to wind down their operations. Already, the US has started applying pressure on Iran. Yesterday, the treasury department, in collaboration with the UAE, levied sanctions on several companies in Iran. This measure could affect several European firms. In addition, on Wednesday, the new US ambassador to Germany asked all German companies in Iran to wind down operations.
European companies have vowed to remain in the Iran deal and try to make it work. Iran too has vowed to remain in the deal. The challenge will be how far-reaching the US sanctions will be and whether there will be any exceptions. Companies may be faced with the difficult decision on whether to do business with Iran or the United States. Germany’s DAX, UK’s FTSE, and France’s CAC were down by 30, 10, and 35 basis points respectively.
The dollar index fell by more than 20 basis points today. This was a continuation of the decline that started yesterday following the release of consumer prices data. Consumer prices rose by an annualized rate of 2.5% while core consumer prices rose by an annual rate of 2.1%. The increase in fuel prices was offset by a slight decline in healthcare costs. Fuel prices are likely to continue moving up following Trump’s decision to exit the Iran deal. Meanwhile, in the US, stocks continued a 6-day winning streak with the Dow and Nasdaq ending the day 196 and 65 points higher respectively. Futures point to a double digit open by the Nasdaq and the Dow.
In Canada, the bureau of statistics released jobs numbers that largely disappointed. The unemployment rate remained unchanged at 5.8% while the participation rate rose by 65.4%, which was lower than the expected 65.5%. The participation rate is a very important dataset that shows the percentage of the total number of people, 15 years and over, that is in the labor force or is looking for work.
The DAX is currently trading at 13,000 euros. Today, it crossed the important support level of 13,010 euros. This was a similar decline the index has been making since April 25 when the it started moving up after reaching a monthly low of 12,210 euros. The current price is the same as the 50-day moving average for the index. Further declines will likely see the index test the 100-day MA at 12,950 euro, while further gains would see it test the 13,100 euro level.
EUR/USD pair rose to the highest level since Tuesday. It is now trading at the 1.1933 level. This climb was as a result of yesterday’s disappointing consumer prices data. Following the data, analysts believe that the Fed will raise rates two more times this year. The pair could move up, potentially to the 1.1978 level. However, there is also a likelihood that the pair could reverse and continue the downward momentum considering the data in the EU is not supportive of hikes past September.
The US dollar jumped against the Canadian dollar after disappointing jobs numbers from Canada. The pair had been in decline since Tuesday, when it reached a high of 1.2997. At time of writing, it reached a low of 1.2727. At the current price, the pair is slight above the 50-day moving average. In the coming days, the pair could be a bit volatile as the current phase of NAFTA negotiations continue.