GBP/USD JUMPS AS HAWKISH BOE EXCITES MARKETS
Global stocks continued the upward trend started yesterday after the US announced an end to its trade ‘war’ with China. The Chinese government announced that it would boost its imports from the United States with the goal of reducing the current deficit. Early today, the Chinese government announced that it would lower tariffs for vehicle imports from 25% to 15% in what is expected to be beneficial to companies like Tesla. In addition, reports show that the US is working with China to save the Chinese telecom-equipment giant, ZTE from the original plan to ban US companies from selling components to company. The agreement has received mix reactions in the United States with many experts saying the US had lost the trade war because China had not agreed to lower the barriers for American firms to do business in the country.
The pound jumped after Bank of England (BOE) officials sounded hawkish during their statement to parliament. The officials blamed the tepid first quarter growth on bad weather and predicted that the economy would rebound in the next half of the year. BOE official Gertjan Vlieghe said that the bank would continue to offer forward guidance. In his analysis, the bank would hike 6 times in the next 3 years. The inflation hearings provided a reprieve to the cable, which has seen weeks of decline following disagreements on the customs union.
As US trade relations seemed to improve, Russia and Japan were threatening retaliatory tariffs against the US. In a filing to the World Trade Organization (WTO), Japan and Russia condemned the US for imposing tariffs on steel and aluminum. The two countries announced that they would impose tariffs on American goods worth more than a billion dollars. After the tariffs were announced, the US made deals with South Korea which agreed to quotas. Australia, Canada, Mexico and European Union have also received exemptions.
After weeks of decline, the GBP/USD pair reached a low of 1.3390 yesterday. The pair then moved sideways as traders waited for the inflation hearings. Today, the pair jumped to an intraday high of 1.3490, which is the 50% Fibonacci Retracement level. It is now trading near the 38.2% level. The question is whether the pair will continue the ‘new’ upward trend or will it continue the downward momentum. After crossing the 38.2% level, the pair could drop and test the 1.3430, which is the 23.6% retracement level.
The EUR/USD pair rose today, reversing a weekly decline that started on Tuesday last week. The reversal was in line with the general sell-off on the dollar. The pair traded at an intraday high of 1.1823, which is the 38.2% Fibonacci Retracement level as shown below. It is now moving sideways as traders decide on whether to push it higher or lower. If it continues the upward momentum, the pair could likely test the 1.1857 level which is the 50% retracement level.
After yesterday’s holiday, Germany’s DAX opened the week higher and reached the highest level since February, 1. The index is now trading at €13,130. Today’s surge is associated with the easing of trade tensions and the lowering of motor vehicle tariffs which will benefit companies like BMW. At this price, the index is trading above the 60 and 120-day moving average with the RSI at 57. The index could continue moving up but, traders should be cautious because the index could attempt to come closer to the short and long-term moving averages.