GBP SLIGHTLY HIGHER AS UK ECONOMIC GROWTH PICKS UP STEAM
European stocks rose today as US trade representative Robert Lighthizer travelled to Brussels to have a conversation with Jean Claude Juncker. This will be the first major meeting between the US and the EU after Juncker’s meeting with Trump in Washington. The negotiations on trade come at a time when the US is preparing a new set of tariffs on Chinese goods. On Friday, the US president said that he was ready to impose tariffs worth $200 billion on Chinese goods. He also said that additional tariffs worth more than $267 could follow. Last year, the US imported goods worth $505 billion from China while China imported goods worth $129 billion from the United States. China said that it would retaliate against the fresh US tariffs.
Last week, Trump said that Japan would be next in his trade negotiations. In an interview, he said that Japan should be ready for fresh tariffs. Today, the Japanese prime minister, Shinzo Abe said that he will try to talk to the US president about the creation of a free trade agreement with the United States. Japan is one of the major proponents of the Trans-Pacific Partnership (TPP), which Trump killed in the first day as president. Trump and Abe get along well and have even played golf twice. Japan is the fourth largest trading partner with the US. In 2017, the US exported goods worth $67.6 billion to Japan and imported goods worth $136 billion.
Japan’s statistics agency reported that the country’s economy increased by 3.0% in the second quarter. This was higher than the 2.6% growth traders were expecting. The growth was attributed to a higher-than-expected capital expenditure by Japanese firms. These expenses rose by 3.1%, which was higher than the expected 2.8%. In August, bank lending rose by an annualized rate of 2.2%, which was higher than the expected 2.0%. Traders are however concerned about the third quarter growth following deadly earthquakes last week.
The sterling rose slightly against the USD after data from the Office of National Statistics (ONS) showed that the economy rose by 0.6% in the second quarter. This was higher than the first quarter’s expansion of 0.4% and was the fastest growing quarter since July last year. The main contributor to this growth was the good weather, which contributed to more retail sales. The construction output rose by 0.5% in July, which was higher than the -0.4% contraction traders were expecting. On an annualized basis, the construction output rose by 3.5%, which was higher than the expected 2.6%. On the other hand, manufacturing and industrial production rose at a slower rate than expected. Industrial production rose at an annualized rate of 1.1%, which was lower than the expected 1.5% while manufacturing production fell by minus 0.2%. This was lower than the expected 0.2% gain.
In the past three weeks, the EUR/USD pair has traded between the 1.1527 and 1.1732 levels. Today, the pair reached an intraday low of 1.1527 and bounced back. It is now trading at the 1.1574 level, which is the 61.8% Fibonacci Retracement level. If the pair continues the upward trend, it will test the 1.1650 and if it moves lower, it will pass the support of 1.1527 and possibly head to the 1.1466 level.
The USD/JPY pair started an upward momentum on Friday. It climbed from a low of 110.377 and reached a high of 111.24. Today, the pair moved slightly higher and reached an intraday high of 111.14. This is the 50% Fibonacci Retracement level, which is above the 50 and 100-day Exponential Moving Average (EMA). The Bulls Power indicator is losing steam and is currently closer to the neutral level. This means that the rally is not strong and could reverse.
The GBP/USD pair ended the sharp decline it was in on Wednesday last week when it reached a low of 1.2784. It then saw some wild swings that and reached a high of 1.3028 on Friday. Today, the sterling rose slightly against the dollar but remained below the 1.3028 high. The current price is slightly above the 50 and 100-day EMA and along the 61% Fibonacci Retracement line. Further upward movements will see the pair attempt to trade at or above the 1.3028 resistance level.