Germany recession fears as industrial production falls unexpectedly
The euro dropped slightly against the USD after disappointing data from Germany. In June, the country’s industrial production declined by 1.5%, which was larger than the consensus estimates of a 0.5% decline. The decline in the industrial production raised fears that the country would go through the first recession in six years. The industrial sector, which is the biggest employer in the country, has weakened mostly because of a slowdown in the auto sector. Just yesterday, Bloomberg reported that industrial giant, Thyssenkrupp, whose shares have declined by more than 50%, was likely to be booted from the DAX index. Internal problems have been compounded by the ongoing risks to global trade.
Global bonds rose today after a number of central banks slashed interest rates. Earlier in the day, the New Zealand central bank slashed rates by 50-basis points, which was a bigger cut than the consensus estimate of 25-basis points. In India, the central bank slashed rates by 35-basis points, which was higher than the 25-basis points that the market was expecting. In Thailand, the central bank unexpectedly slashed rates by 25-basis points. Like the other central banks, the bank said it blamed the current trade climate for the cut. These cuts came a week after the Fed slashed rates for the first time since the financial crisis and the ECB announced that more stimulus was coming.
Investors continued to focus on the trade war going on between the United States and China. A report by Wall Street Journal (WSJ) said that while President Xi does not want a trade conflict, he was ready to ‘wait it out’. This means that he was ready to wait until the next US election to see whether there will be a change in government in the US. However, he is worried about the slowing economy. In recent months, a number of companies that import to the US have said that they were likely to move to other countries to avoid the tariffs.
Meanwhile, US officials signaled that they were prepared to continue the talks when Chinese officials come to Washington in the coming week. According to a report by WSJ, the US Treasury collected more than $6 billion in tariffs in June, up from $5.3 billion in May, and $4.8 billion in April. In the past 12 months, it collected more than $63 billion in tariffs. Experts believe that the country can collect more than $100 billion in tariffs annually.
After dropping in the morning session, the EUR/USD pair pared some of those losses. As of writing, the pair is trading at 1.1195, which is slightly higher than the intraday low of 1.1180. On the hourly chart, the price is trading slightly below the important red support shown below. The price is slightly above the 61.8% Fibonacci Retracement level. The price is trading along the 25-day moving averages (red) and slightly above the 50-day moving averages (blue). The pair will likely remain in this channel as traders wait for more developments on trade.
The NZD/USD pair declined to an intraday low of 0.6377, which was the lowest level since 2016. It then pared some of these losses and rose to the current level of 0.6436. On the four-hour chart, the price is below all the short (5-day), medium (25-day), and long-term (100-day) moving averages as shown below. The price is along the lower line of the Bollinger Bands and slightly below the 23.6% Fibonacci Retracement level of 0.6475. The pair will likely continue moving higher, to test the 23.6% Fibonacci level, and then resume the downward trend.
The AUD/USD pair declined sharply to an intraday low of 0.6676, which was the lowest level since 2009. The decline was a reaction to the dovish statement from neighboring New Zealand. On the daily chart, the price is below the 25-day (yellow), 50-day (red), and 100-day (green) moving averages. The RSI has crossed to the oversold level of 30, while momentum indicator has moved to the lowest level since May 2016. The pair could continue moving lower as the trade war continues.