Sterling declines as Boris Johnson asks EU to drop backstop
The US dollar eased slightly today after Home Depot released its second-quarter earnings. In the quarter, the company announced an EPS of $3.17, which was lower than the expected $3.08. Revenue for the quarter was $30.84 billion, which was lower than the expected $30.99 billion while same-store sales increased by just 3%. The company joined a growing list of other companies like Lowe’s, Macy’s, and US Steel that have underperformed, in what is being known as an earnings recession. These companies have blamed the ongoing trade war between the United States and China.
The sterling declined today after Boris Johnson wrote a letter to the European Union. In the letter, he asked the EU to scrap the backstop, which is the most contentious part of the withdrawal agreement that was voted by the EU. In the letter, he said that the backstop was unviable and that the UK parliament was unlikely to support any deal that has it. In response, Donald Tusk said that the backstop was an insurance policy to avoid a hard border between the EU and the UK. He also suggested that the backstop could be removed if an alternative option was found.
European stocks and US futures rose today as investors continued to hope for a stimulus from the Trump administration. In recent days, reports – and tweets – say that Donald Trump is seriously worried about the health of the US economy. This is especially after most media outlets have continued to carry the recession risks as their headlines. As a result, rumors are that the administration is considering a fresh wave of new payroll taxes. Meanwhile, the People’s Bank of China announced fresh methods of boosting the economy. In a statement, it said that it was lowering the way commercial lenders set interest rates for loans. This is expected to lower interest rates at a time when the Chinese economy needs a boost.
The EUR/USD pair remained under pressure today and is currently trading at 1.1075. On the hourly chart, this price is along with the 23.6% Fibonacci Retracement level. It is also slightly lower than the short and medium-term moving averages while the pair appears to be on a sharp downward trend. The momentum indicator remains at the neutral level of 100. The pair will likely maintain the downward momentum, mostly because of the weakness in the EU economy.
The GBP/USD pair declined sharply today after the Boris Johnson letter and the reply from the European Union. The pair reached an intraday low of 1.2063, which was the lowest level since Friday last week. On the hourly chart below, the price is along the lower line of the Bollinger Bands while the RSI is slightly above the oversold level of 30. The money flow index too has been on a downward trend. The pair will likely continue being volatile ahead of the upcoming G7 meeting.
The FTSE 100 rose today in a continuation of a rally that was started on Wednesday last week, when it was trading at £7030. The index reached a high of £7237 today. On the four-hour chart below, the index is trading slightly above the 23.6% Fibonacci Retracement level. The price is also along the upper line of the Bollinger Bands while the short and longer-term EMAs appear to be making a crossover. This is an indication that the index could continue the upward trend.