Greenback gains as investors increase bets on two rate cuts
The US dollar index gained slightly even as investors placed their bets that the Federal Reserve will cut interest rates two times this year. This probability rose above 40% based on future prices. Previously, futures were pointing to one rate cut, an idea that the Fed has rejected. Concerns over the growth outlook have been affecting the bond market, which has led to lower borrowing costs for the US government as demand increases. Yesterday, the ten-year treasury yield fell by 6 basis points to 2.26%, which was the lowest level since September 2017. The treasury yield moves inversely to the price. Part of the reason for the change in tone is the trade war, which restarted two weeks ago.
In Asia, stocks continued to decline as investors sought the relative safety of havens like treasury bonds. This was as traders feared that the impacts of the trade war would be much worse than earlier anticipated. In Japan, Topix declined by 1.1% while Australia’s ASX 200 declined by 0.8%. In Hong Kong, the Hang Seng declined by 0.5%. The indices took a cue from the US where the S&P 500 declined by 0.8%. In a statement, the Chinese planning body threatened to use rare earths exports as leverage in the trade war. China dominates the rare earths industry, which is a group of 17 metals used in technology applications.
Traders will continue to watch out for the euro, two days after the recent European elections. Today, France will release the CPI data. Germany will release the employment data, with the unemployment rate expected to remain unchanged at 4.9%. Traders will continue to watch out for the debate on the next EU leaders. They will also focus on the Bank of Canada, which is expected to leave rates unchanged at 1.75%.
The EUR/USD pair declined to a low of 1.1165. This was lower than this week’s high of 1.1215. On the chart below, the price is along the 38.2% Fibonacci Retracement level. The price is also slightly below the 25-day and 50-day moving averages while the Relative Vigor Index (RVI) is rising. The pair will likely remain along these levels as traders continue to monitor the events in Europe.
After months of gains, the S&P 500 pair continued to decline as traders worried about the impacts of a trade war. The index ended the day at $2795, which was the lowest level since March 27. On the four-hour chart, the index is trading lower than the 25-day and 50-day moving averages. The 14-day relative strength index (RSI) has reached a low of 30. The price is along the lower line of the Bollinger Bands. It is likely that the index will continue declining, as the trade war issue continues.
In the past few weeks, the USD/CAD pair has been moving upwards. The pair is now trading at 1.3483, which is closer to the important resistance level of 1.3520. On the daily chart below, the price is also above the important resistance lines. The price is also slightly above the 25-day and 50-day moving averages, while the RSI has been relatively unmoved. The pair could break past the current trend today after the BOC delivers its interest rates decision.