29th July 2019 - USD is still well-buoyed ahead of Trade talks and FOMC meeting

Walid Salah Eldin

Active member
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The US equities indexes future rates are still referring to no major change waiting for the outcome of U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steve Munchin visit to China.

After released news about this visit, The demand increased for risky assets and equities related to the trade talks such as caterpillar, Boeing and agricultures in US.

Both sides took a step back in their way to reach a deal by exchanging imposing tariffs on their exports to each other in last June worsening the situation and they need now to pave the way for turning around their retaliations trade acts which cannot be retracted soon.

So, China may focus mainly now on removing the sanctions on Huawei and the ties on its activities across the globe and US looks for guarantees from China that it will buy its agricultures such as soybean.

From another side, The markets will be closely watching the FOMC members meeting and their awaited decision to lower rate by 0.25% to know whether it is to be an easing cycle or a cut and done, after series of dovish comments prepared the markets for this action to avoid economic deterioration and prop up inflation in US.

However the data which came out recently from US do not refer to serious need to take such needed action by Trump who nominated recently Christopher Waller and Judy Shelton to join the committee as a push toward easier monetary policy.

The US labor market is still widening very well without even one monthly loss of jobs out of the farming sector, the average earning per hour scale is rising standing above 3% since last October and the unemployment rate is well below 4% since June of 2018, while US weekly initial jobless claims stand currently close its all times low for several weeks. The US labor data may refer to the need of tightening not cutting!

We have seen also by the end of last week Real Q2 U.S. Gross Domestic Product growth by 2.1% year on year versus 1.8% median forecast and following 3.1% growth in the first quarter due to stronger than expected government spending and consumption, but the lower nonresidential fixed investment, inventory investment and exports could erode the GDP expansion rate to be the lowest since the first quarter of 2018 by only 2.1% annualized growth.

About inflation, Q2 PCE rose by 2.3% y/y, following rising by 0.4%in Q1 and its core figure rose by 1.8% following rising by 1.1%in Q1 and tomorrow we wait to know more about the inflation in US with the release of PCE deflator which is the Fed’s preferred gauge of inflation.

PCE broad figure is expected to show yearly rising by 1.7% in June and core figure excluding food and energy is expected to yearly rising by 1.6% as the same as May, while the Fed's goal stands at 2% yearly, not expected to be met soon as the FOMC indicated in its recent assessment.

Despite UST 10 year yield decreasing by 0.02% to 2.06% during the Asian session, EURUSD retreated for trading near 1.1120 and also GBPUSD resumed its slide to 1.2361 which has not been seen since March 2017, as The greenback is still looking unfazed by this anticipated and well-priced action by the Fed scoring gains versus its rivals specially against the common currency, while the markets participants are still in uncertainty about the next easing action by The ECB to stimulate its worsening economy and prop up the inflation levels in EU.

During the weekend, The ECB member Ewald Nowotny expected lower interest rates, after The ECB governing council members ended their meeting last Thursday with no change, showing in their economic analyses more readiness to act in the near future by restarting the QE program or cutting rates further.

So, there is a need to see this meeting minutes to know more about the ECB next accommodative action and the conviction on it among the members.

While in UK, The uncertainty surrounding Brexit is still dominating weighing down on GBP and EUR too from another side, after Boris Johnson could take easily The government leadership and it is expected to see him soon leading UK to more conflicts with EU.

Boris Johnson is not only the most preferred person to Trump in UK, but he was also the architect of Brexit since he has been the Mayor of London and he was one of the most important reasons why millions in UK have chosen to split out from EU, after campaigning against it.

Boris Johnson raised the odds of Hard Brexit and also the prospects of having worse relationship with EU can threat the business spending in UK which will be in need eventually to more confidence in its economic outlook by easier monetary stance to produce jobs away from EU.

While the Brexit extension to next Oct. 31 can drive the UK economy to longer stalling and lower confidence in business spending waiting for higher certainty.

BOE has repeated recently its warning about material economic disruption from a no-deal Brexit.

In the same time, the global economic slowdown is weighing down on the economic activity in UK and on its inflation scale which has stood close to BOE 2% yearly target since the end of last year.

EURUSD Daily Chart:

EURUSD-DAILY-29-07-2019 09-34-17 ص.jpg

Following several tries to get back 1.13 level figure ended to forming resistance at 1.1285, EURUSD extended its slide to 1.11, before bouncing up ended to 1.1187 whereas the pair started to retreat again to trade currently near 1.1125.

EURUSD is now in its seventeenth day of being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.1236.

The pair is now in a lower place below its daily SMA50, its daily SMA100 and also its daily SMA200.

EURUSD daily RSI-14 is referring now to lower existence inside the neutral region reading 35.023.

While EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line barely inside the neutral territory at 21.807 above its signal line which is lower inside its oversold area below 20 at 17.920, after bouncing up from 1.1101 last Thursday.

Important levels: Daily SMA50 @ 1.1240, Daily SMA100 @ 1.1241 and Daily SMA200 @ 1.1305

Experienced S&R:

S1: 1.1101

S2: 1.1000

S3: 1.0838

R1: 1.1285

R2: 1.1412

R3: 1.1447

Have a good day

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
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