DOLLAR RISES AFTER IMPRESSIVE SECOND QUARTER GDP NUMBERS
European stocks gained today as traders continued to cheer the truce between the US and EU. The concern now is whether the two sides will hammer out a deal that is acceptable to the US president. Donald Trump is known for changing his mind quickly, especially when he is criticized by his fellow republicans. A good example is when his trade representatives were negotiating a trade deal with China. Germany’s DAX, UK’s FTSE, and France CAC added to yesterday’s gains by 0.45%, 0.60%, and 0.30% respectively.
Wall Street pointed to a higher open after impressive earnings from Amazon. The company reported a quarterly profit of $2 billion, which was driven primarily by new businesses like cloud computing, advertisements, and services it provides to its sellers. The upward movements by the Nasdaq is a reversal to yesterday’s dip which was initiated by Facebook’s disappointing guidance.
The dollar gained after data from the United States Department of Labor showed that the economy grew by 4.1% in the second quarter. This was the fastest growth recorded since 2014. This was the earliest indicator of the performance of the economy after the tax reform package which was passed in December. The department attributed the growth to more consumer spending and business investments.
The euro extended the slide started yesterday during the press conference by the ECB. The press conference came shortly after the bank left interest rates unchanged as was expected. ECB officials reiterated their previous statement on winding down the Quantitative Easing program and interest rates. The bank will slash the asset purchases to $15 billion a month in October and wind down the program in December. It will then hike interest rates ‘at least through the summer of 2019’.
The Bank of Japan (BOJ) surprised the markets by announcing a special bond-buying operation. The bank also lowered the levels it had agreed to buy the sovereign notes by 1 basis point. This pushed the yields on the government’s bonds to below 0.1 percent. This was the second intervention by the bank after Monday’s offer to buy unlimited Japanese Government Bonds (JGB) if the yield reached 0.11%. The USD/JPY pair moved slightly higher after the news.
The EUR/USD pair dropped today as traders waited for the GDP numbers. The declines were also because of the statement by the ECB yesterday. It is now trading at 1.1630, the lowest level since Friday last week. This price is lower than the 50 and 100-day Exponential Moving Average (EMA) and the RSI is currently at 44, headed upwards. The pair could continue moving lower if the Fed points to more rate hikes.
The XAU/USD pair dropped to the lowest level since November last year. The decline today was because of the stronger dollar. The pair is now trading at $1220. The current slide started in early April when the pair reached a YTD high of $1366. The current price is below the 50 and 100-day EMA. As the dollar continues to strengthen, the pair could continue heading lower, potentially to test the $1200 support.
The USD/JPY pair was little changed today but it is still trading at the lower levels it reached on Monday. The pair is now trading at 111.00, which is an important support as shown below. This price is close to the 38.2% Fibonacci Retracement level. If it breaks below this support, the pair will likely test the 61.8% Fibonacci level which is close to the 110 level.