DOLLAR JUMPS AFTER POSITIVE HOUSING AND MANUFACTURING DATA
After yesterday’s sell-off, global stocks were mixed today with European stocks gaining. The DAX and CAC were up slightly. The upward movements on the European stocks came after Harley Davidson, announced its decision to move some of its production to Europe. This will be a blow to the Trump administration policies and a boom to Europeans. On the other side of the pond, Asian stocks dropped with the Shanghai Composite index entering a bear market. According to Bloomberg, Chinese officials – despite showing courage publicly – are concerned about the escalating trade rhetoric. Meanwhile, the US futures point to a lower market open with the Dow shedding 50 points.
The US dollar jumped against the euro after yesterday’s disappointing ifo business climate numbers. For this month, the business climate index fell to 101.8, which was lower than the expected 101.9. This was a continuation of a slide that started early this year. The decline on the euro was further accelerated by good housing numbers from the United States. The new home sales in May were 689K compared to the expected 667K. This was a 6.7% increase from the previous month. It was higher than the expected 1.5%. In addition, the Dallas Fed manufacturing business index rose to 36.5 which was almost double from what traders were expecting.
In the United Kingdom, concerns over Brexit increased with more companies calling for caution. Last week, Airbus said that a no-deal with the European Union would make it difficult for it to remain in the country. This will risk jobs of more than 10,000 people. Today, car manufacturers issued a stark report saying that a no-deal would lead to job losses of more than 860K UK residents. These manufacturers rely on the so-called just in time production where more than 5,000 trucks deliver products needed for vehicle manufacture every day. It is also one of the largest employers in the country. In 2016, the UK manufactured more than 1.8 million of which the most were exported to EU members.
The DAX was slightly higher today after the decision by Harley Davidson to shift production to the European Union. Nonetheless, the index was still trading at the lowest level since early April. The index is now trading at €12,285, which is lower than the 21 and 56-day moving average. The price is also below the 200-day moving average level, with the RSI currently at 26 and flattening. This means that the index could be up for reversal as investors move past the trade war rhetoric. If it does, traders should look at the €12,750 level, which could provide an important resistance.
The EUR/USD pair dropped below the important support of 1.1700 after disappointing numbers from the EU. The pair is now trading at 1.1675. The RSI – which was in oversold position – has moved slightly up while the MACD is moving up. As such, the pair could attempt to recover some of its previous losses. If it does, the pair could trade above the resistance of 1.1700.
The GBP/USD pair continued trading in a sideways direction today. The sideways directions started a week ago when the pair had its biggest jump in several months. This jump happened after the BOE statement that showed more officials willing to tighten fiscal policy. Today, the pair fell to an intraday low of 1.3205. The current price is the 21-day moving average. The accumulation/distribution has lost momentum. At this point, the pair could break out in either direction. Tomorrow’s statement by governor Carney and the financial stability report will help determine the direction of the pair.