DOLLAR GAINS AS PHILADELPHIA FED MANUFACTURING INDEX RISES
The EUR/USD pair moved sideways today as investors waited for a better direction on the trade issue between the EU and the US. The 28-member states met in Sofia to discuss ways to respond to the Trump administration on tariffs and the Iran deal. For weeks, the region has been negotiating with the US about being exempted from the steel and aluminum tariffs Trump announced in March. This is compounded by the US decision to exit the Iran deal and impose tariffs. In the meeting today, the EU leaders outlined plans to impose retaliatory tariffs on American goods if the US imposes tariffs.
EU leaders also agreed to continue pressuring the US about the Iran deal, which they all admitted to be imperfect. The US has asked all companies with deals in Iran to wind them down in the next three months. Already, companies like Airbus, Total, and Maersk have announced their plans to exit the country. Other companies will do this too because they can’t choose Iran over the US, which is a bigger and more secure market.
The dollar rose against its major peers after the 10-year treasuries continued to rise. The yield on the 10-year rose to above 3.10% which was the highest level since 2011. Yesterday, the yields had the biggest single-day surge since mid-March this year. The surge in treasuries came after North Korea sowed doubts of the highly-anticipated meeting scheduled for June 12. Investors are also concerned about the flattening yield curve, which is a measure of the spread between the 2-year and 10-year yields.
The Department of Labor (DOL) released mixed weekly unemployment numbers. The initial jobless claims increased to 222K, which was higher than the expected 215K. On a positive side, the continuing jobless claims fell to 1,707K, compared to the expected 1,780K. In addition, the Philadelphia Fed manufacturing Index rose to 34.4 in May. This was higher than the expected 21.
The Australian Bureau of Statistics (ABS) released the country’s employment numbers. The unemployment rate of 5.6% missed analysts’ forecasts of 5.5% and was lower than last month’s 5.5%. On a positive side, the participation rate rose to 65.6%, which was higher than last month’s 65.5% while the employment change rose to 22.6K, which was higher than the 20.3K expected by analysts.
Germany’s DAX moved slightly higher today and crossed the important €13,000 level. This was a continuation of a winning streak for an index which was trading at €12,300 level three weeks ago. The index is now trading above the 50-day moving average. As shown below, in recent days, the bulls power has been declining while the RSI is nearing 60. This is an indication that while the index may continue moving higher, caution is needed among bullish traders.
The AUD/USD pair established a double bottom position at the 0.7445 level. Since then, the pair started an upward trend, which continued today after the positive jobs numbers. The pair reached an intraday high of 0.7547, before starting to move down. The trend reversal was confirmed by the envelops indicators as shown below. A continuation of the downward trend could see the pair test the 38.6% Fibonacci Retracement level of 0.7507 and a further decline could see it test the 50% Fib level of 0.7497.
The never-ending decline in the EUR/USD pair continued today as the pair touched the 1.1755 level. This was the lowest level since December, 21. On the daily chart below, the pair is trading below the 50 and 10-day moving average while the 28-day RSI is currently approaching 30. The continuing weakness of the euro – due to the divergence in monetary policy – could see the pair test the important support of 1.1560.