US DOLLAR FALLS AFTER THIRD Q1 GDP NUMBERS DISAPPOINT
The cable fell to a seven-month low today as concerns about Brexit continued to hit the markets. In recent weeks, companies and unions have increased pressure on legislators on the need of a Brexit deal. Failure to reach a satisfactory deal means companies like BMW and Airbus would leave the country. In addition, a BOE official expressed his concerns about the household debt. In a radio interview, John Cunliffe, the BOE deputy governor said that the increased household debt levels were putting the country at risk. This point was also made in the BOE meeting held a week ago. As such, a rate hike could increase the chances of a recession as people struggle to pay their debt.
European leaders met today to talk about the top issues in the region. Immigration is a major point in the talks as populist leaders have opposed the current migration policies for the EU. In a speech, Angela Merkel asked her colleagues to accept her tough – but humane – immigration policies. In the same speech, she said that immigration was likely the biggest threat to EU unity. Merkel is herself facing the immigration challenge in her coalition partners who have threatened to exit the coalition deal. Meanwhile, economic data from the EU showed that the business and consumer confidence was at 112.3. This was higher than the expected 112.0 but lower than last month’s 112.5. This is the lowest level this year and is a confirmation of the tensions in the EU about trade.
Global markets today reversed their previous gains after a statement by Larry Kudlow. Yesterday, after Steve Mnuchin said that the Trump administration would use CFIUS to check Chinese investments in the United States, Larry Kudlow said that Trump had not changed his decision. This means that the tough trade rhetoric will continue amidst divisions within the Trump administration. US stocks, which rose initially reversed and ended the day lower. Today, China’s Shanghai Composite, Germany’s DAX, France CAC, and UK’s FTSE were lower by 1%, 1.05%, 0.52%, and 0.30% respectively.
The dollar index fell slightly after disappointing GDP numbers. The final reading of the first quarter GDP was 2.0% which was lower than the previous reading of 2.2%. The downward revision was because of low consumer spending and low inventory spending. The real gross domestic income (GNI) rose by 3.6% in Q1 compared to an increase of 1% in the fourth quarter. Nonetheless, traders are looking ahead for the second quarter numbers which some believe will reach 5%. In the quarter, corporate profits rose by 8.7% which was higher than the expected 1.9% and last month’s reading of 5.9%. The initial jobless claims rose by 227K which was higher than the expected 220K.
The EUR/USD pair dropped initially today but recovered after the disappointing GDP numbers. The pair is now trading at 1.1584 which is lower than the two and three-week moving averages as shown below. The current price is also at the 38.2% Fibonacci retracement levels. At this point, traders should watch out for the 1.1621 level, which is the 50% Fibonacci Retracement level. If it hits this level, the pair could continue the downward momentum and possibly move at or below the 1.1500 level.
The GBP/USD pair fell to the lowest level in seven months. It found support at the intraday low of 1.3065. It is now trading at 1.3070. The pair’s RSI has moved slightly up from the intraday oversold level of 18. Traders should now see whether the pair will cross the support level of 1.3065. If it does, the pair could continue moving lower as it looks for another support.
The EUR/GBP cross jumped today and reached the highest point since mid-March. The pair is now trading at 0.8850. The elevated level is above all the major short and medium-term moving averages. The RSI is currently at the overbought level of 73. While the pair could continue moving higher, traders should look out for the important support level of 0.8830.