USD AND GBP JUMPS AFTER IMPRESSIVE NFP AND BREXIT PROGRESS
The US dollar jumped after the Labour Department released the jobs numbers for August. In August, the economy added 201K jobs. This was higher than the expected 191K and the ADP number released yesterday. The unemployment rate was unchanged at 3.9%. The bright spot on the numbers was the jump in average hourly earnings which rose by 0.4% and at an annualized rate of 2.9%. The wage growth was the highest since 2009. The average weekly hours remained at 34.5 while the participation rate declined to 62.7%. Meanwhile, Canadian jobs numbers disappointed. In August, 51.6K people lost their jobs, which was lower than the gain of 5.1K which was expected. The participation rate fell to 65.3% from last month’s 65.4% while the unemployment rate increased to 6.0%.
The Japanese Yen fell against the dollar and other peers as traders started to worry about US relations with the US. A report published by the Wall Street Journal said that Donald Trump was expected to start a trade war with Japan. Japan is the world’s third largest economy in the world after US and China. It is also one of the largest trading partners with the US after Canada, Mexico, and China. Last year, the US exported goods and services worth $65 billion to Japan. It imported goods and services worth $129 billion, creating a deficit of $64 billion. This came after the public hearings of US tariffs on Chinese goods ended. Traders expect the administration to impose tariffs in the coming week. These worries led to the main global stocks falling.
The second quarter reading of EU’s Q2 GDP was revised lower by Eurostat. The data showed that the economy grew by an annualized rate of 2.1%. This was lower than the 2.2% traders were expecting and the estimate of 2.2% released in August. The main contributor to the GDP growth was the increase in consumer spending and fixed capital investments. The laggard was the reduction in exports as imports increased. Meanwhile, the German industrial production for July fell to minus 1.1%, which was lower than the expected 0.2% growth. Exports fell by minus 0.9% while imports increased by 2.8% which was higher than the expected 0.2% growth. The trade balance was at €15.8 billion, which was lower than the expected €19.0 billion.
Yesterday, Switzerland reported excellent second-quarter growth, which was helped by the manufacturing industry. In the quarter, the economy grew by 3.4%, which was better than the expected 0.5%. Today, the statistics office released the employment numbers. The national unemployment rate remained low at 2.4% in line with the estimates.
The sterling jumped by almost one percentage point after transcripts published by the UK parliament showed that the chief EU negotiator was willing to discuss alternative backstops to the withdrawal agreement. Just last week, the negotiator said that he was deeply disappointed with some parts of the agreement proposal submitted by Theresa May. On Wednesday, the sterling jumped after Germany and UK entered into a truce. A key obstacle to preventing a no-Brexit deal is the Irish border with Northern Ireland. According to the transcripts, Barnier said that the EU could simplify the checks at the border.
This week, the DAX crossed the important support of €12,118. Today, it reached an intraday low of €11,895. This was the lowest level since April this year. YTD, the index has fallen by 8%, underperforming US stocks that have gained by more than 5%. On the hourly chart, the index has stayed near and slightly below the Relative Strength Index (RSI) an indicator that it is getting oversold. The price is also below the 50 and 100-day EMA while the bears power has eased a bit. These are indications that the index could recover and if it does, it will hit the resistance area of €12,118.
The EUR/GBP pair dropped sharply after the transcripts of the EU negotiator were released. It reached an intraday low of 0.8922. This was the lowest level since August 15. It was also the second sharp drop of the pair this week. The pair fell below an important support shown on the four-hour chart below. Since April, the pair has made higher highs and higher lows, rising from 0.8620 to a high of 0.9100 in August. The current price is below the 50 and 100-day EMA. As the good news on Brexit continue to break, the pair will likely move lower.
The EUR/USD pair fell sharply after the impressive jobs numbers from the United States. Immediately the data was released, the pair fell to an intraday low of 1.1580. This level is along the important support as shown in the chart. The new jobs numbers favour the Fed’s decision to hike interest rates, which could see the pair fall to the support of 1.1530 in the medium term.