Global stocks slump havens rise as China-US tensions escalate
Global stocks declined sharply as traders reacted to the rising tensions between the United States and China. In a statement earlier today, China reluctantly asked the US to close its consulate in the southern city of Chengdu. The diplomats stationed at the consulate were given 30 days to leave China. This decision came a few days after the US asked China to close its consulate in Houston. It also came a few hours after Mike Pompeo delivered a speech asking the Chinese people to stand up against Xi Jinping. He also asked the rest of the “free world” to stand up against the Communist Party of China. In Europe, the DAX index declined by more than 1.60% while the FTSE 100 dropped by more than 1%. In the US, futures tied to the Dow Jones and Nasdaq fell by more than 100 points.
The British pound was little changed against the US dollar as investors reacted to the end of the fifth round of Brexit talks. The round ended without a deal even as Michel Barnier warned that the UK risked leaving the bloc without a deal. Meanwhile, economic data from the UK showed that the economy was bouncing back. According to the Office of National Statistics (ONS), retail sales jumped by 13.9% in June after rising by 12.3% in the previous month. The core retail sales that exclude volatile food and energy products rose by 13.5%. Another data by Markit showed that manufacturing and services PMIs rose to 53.6 and 56.6, respectively.
The euro eased slightly against the US dollar even after Markit released impressive PMI numbers from Europe. The manufacturing PMI rose to 54.8 in July. That was better than the previous 48.5 and the 51.1 that analysts polled by Reuters were expecting. Meanwhile, the services PMI increased to 55.1 from the previous 48.3. This growth was seen across the Eurozone. For example, the services PMI in Germany jumped to 56.7 while the manufacturing PMI rose to 50.0. These numbers show that the EU economy is bouncing back in the third quarter.
The EUR/USD pair is trading at 1.1583, which is slightly below this week’s high of 1.1626. On the four-hour chart, the pair is trading above the 50-day and 100-day exponential moving averages. The RSI has also moved lower from the overbought level of 70 to the current level of 58. Also, the fast and slow lanes of the Stochastic oscillator have started moving lower. Therefore, the pair may experience a pullback as traders attempt to retest the important level of 1.1550.
The EUR/GBP pair erased gains made in the morning and is trading at 0.9095, which is slightly below the day’s high of 0.9025. On the four-hour chart, the price is slightly above the 50-day and 100-day EMAs. It is also slightly above the 23.6% Fibonacci retracement level. Also, it is forming what seems to be a bullish pennant pattern. Therefore, the pair is likely to resume the upward trend when the market opens on Monday.
The XAU/USD pair rose to an intraday high of 1900, which is just $20 below the all-time high. On the daily chart, the price is above the ascending trend line that is shown in white. It is also above the 50-day and 100-day exponential moving averages. Also, the RSI has moved to 80, which is the highest it has been since February this year. Therefore, while the upward trend is likely to continue, the pair may also experience a pullback as bulls take profit.