LOONIE FALLS AFTER WEAK CPI AND RETAIL SALES DATA
Global stocks rose today as traders shrugged off concerns about a trade war. Germany’s DAX rose by more than 60 points while S&P 500 futures increased by more than 45 basis points. The Shanghai composite index rose by 50 points while Japan’s Nikkei fell by 20 bps. Stocks rose even as the EU started applying tariffs on US goods worth more than $3.2 billion. Nonetheless, this is the worst week for stocks in more than three months.
The euro fell today after Markit released weak preliminary manufacturing data. In Germany, the manufacturing PMI for the month of June was 55.9. This was lower than the expected 56.3. It was also the lowest level in 18 months. The decline in manufacturing activity in the region was attributed to weaker demand. In turn, this was attributed to the ongoing uncertainties of trade which were caused by the US administrations latest stance on trade. As a result, manufacturers have complained about the uncertainty of a potential trade war. This month, Trump announced that the country would evaluate the national security issues on EU auto imports. In the EU, while the manufacturing activity reduced this month, the composite PMI was higher because of the increased activity in the service industry. The service PMI in the region was 55.0 compared to the expected 53.7.
In the United Kingdom, the stakes for the Brexit negotiations rose after a letter from Airbus. The company said that it was likely to shut down operations in the country in case of hard Brexit. The company said in case of no deal, it would be losing a billion pounds per week. This increases the pressure of the UK legislators to do a deal. This is because Airbus employs more than 10,000 people in the UK and it is unlikely the legislators will risk the company exiting the market.
Canada released disappointing CPI and retail sales data for May. The CPI rose by an annual rate of 2.2% which was lower than the expected 2.5%. The growth was unchanged from last month. The core CPI – which excludes volatile food and energy products rose by 1.3%. Traders were expecting a 1.5% gain. On a MoM basis, the core CPI contracted by negative 0.1%. Similarly, the core retail sales contracted by negative 0.1%, which was lower than the expected 0.5% gain. These numbers lessen the probability of a rate hike from the Bank of Canada this year.
Yesterday, the EUR/USD pair started a rally after the disappointing manufacturing numbers from the US. Today, the pair rose to an intraday high of 1.1674 which is the highest level since Thursday last week. It is now trading at 1.1650, which is the 14-day moving average and higher than the 28-day moving average. The RSI is currently at 59, having given up the upward momentum. There is a possibility that the pair will reverse as bulls take profit. This will see the pair test the 1.1600 support level.
The GBP/USD pair continued the upward momentum started yesterday after the interest rate decision by the BOE. The number of officials who voted to increase rates increased to 3 from last month’s 2. The pair is now trading at 1.3286, which is higher than the 14-day moving average. As shown below, the bull’s power oscillator shows that their momentum is declining. This means that it is likely to go down. This could see it fall to the 1.3225 level.
In recent weeks, the USD/CAD pair has moved higher, reaching a peak of 1.3335 on Wednesday. Today, the pair continued to surge after the disappointing CPI and retail sales data. It is now trading at 1.3340, which is slightly lower than the intraday high of 1.3382. The current price is lower than the 14-day moving average. The standard deviation of the pair is still at low levels but rising while the RSI is quickly approaching the overbought level. This means that there is a probability that the pair could continue moving higher.