ANGELA MERKEL PROBLEMS MOUNT AS INTERIOR MINISTER THREATENS TO RESIGN
The euro dropped today fuelled by politics in the European Union. After hammering a deal with her European colleagues last week, Angela Merkel met criticism at home. Her coalition partners criticized the deal and her interior minister threatened to resign if Merkel failed to reach a better deal. The current crisis could see the coalition deal made three months ago fall apart. If it happens, it could be a major issue for the euro. On a positive side, the unemployment rate for the European Union dropped to 8.4%, which was better than the expected 8.5%. The German manufacturing PMI was unchanged at 55.9, which was in line with the expectations.
Global stocks fell today as the ongoing trade conflict goes on. The Asian markets fell by an average of 2% while Germany’s DAX dropped by 20 basis points. US Futures show that the Dow will fall by triple-digit points. Yesterday, Axios reported that the Trump administration was considering exiting the World Trade Organization (WTO). Such a move would have ripple effects around the world because of the influence the US has in the organization. It would mean higher tariffs, Intellectual Property theft, and other trade malpractices.
The Japanese Yen fell against the dollar after weak manufacturing data. The manufacturing PMI fell to 53.0 in June from 53.1 in May. The Tankan Large Manufacturers index for the second quarter was at 21 which was also lower than the expected 22. In the first quarter, this index was at 24. This was also compounded by the decline in factory orders in the country, a reflection that the ongoing trade dispute is having some serious problems. On a positive side, the Tankan Large Non-Manufacturers Index rose to 24 from the first quarter’s 23.
On Friday, the EUR/USD pair rose above the 61.8% Fibonacci retracement level. Today, the pair dropped below the level and is currently at the 50% retracement level. Its current price is 1.1623 and is below the 21-day moving average. Further downward movements could see the pair test the 1.1600 level which is also the 38.2% Fibonacci retracement level. There is also a likelihood that the pair could resume the upward momentum when it hits the 1.1600 level.
On Tuesday, the USD/JPY pair started a rally after finding a floor at 109.36. Since then, the pair has been on a major rally that saw it reach a weekly high of 111.06 today. The pair has since lost some of today’s gains and is currently trading at 110.75, which as you can see below is an important support level. After the US PMI data is released today, the pair could see some major movements. On the downside, the pair could attempt to find a floor at 110.38 while on the upside, the pair could attempt to cross the intraday high.
The DAX index started a rally in late March. It rose from a low of €11,692 and reached a high of €13,200 in mid-June. Since then, the index has been falling and today, it reached the lowest level since early April. The index is now trading at the €12,240 level which is also the 38.2% Fibonacci retracement level. It is also trading below the 50 and 200-day moving average level as shown below. In the short-term, the index could attempt to move over the 50% Fibonacci level of €12,450.