DIVISIONS EMERGE IN THERESA MAY CABINET OVER CUSTOMS UNION

Yesterday, Donald Trump told that he would announce his decision on the Joint Comprehensive Plan of Action (JCPOA) today. He is widely expected to withdraw the country from the deal, bringing in new challenges to his administration. This comes a few weeks before he travels to South Korea to meet with North Korea’s Kim Jong-un. In response, US futures pointed to a lower open with the NASDAQ and the S&P shedding 30 and 10 points respectively.

In the United Kingdom, the ongoing Brexit negotiations continued to experience challenges. Divisions among Theresa May’s cabinet came to light after her Foreign Minister, Boris Johnson trashed her proposal, calling it crazy. Reports showed that Boris was ready to resign if she goes on with the plan. The plan being championed by the Prime Minister is one in which the UK would continue collecting EU import tariffs on behalf of Brussels. The criticism among key Brexit proponents is that this plan is untested and impractical and would open the possibility of the country to remaining within the customs union.

In Japan, data from the Statistics Bureau showed that household spending dropped by negative 0.1% in March. In February, it had dropped by negative 1.5%. Traders were expecting the spending to go up by 1.5%. On an annual basis, household spending dropped by negative 0.2% which was lower than the expected 1.2% gain. The household spending number is important because it helps investors measure the change in inflation-adjusted value of all expenditures by consumers.

Meanwhile, in Australia, retail sales data disappointed. In April, there was no growth in retail sales. Traders had expected the data to show growth of 0.2%. For the quarter, retail sales rose by 0.2%, which was lower than the 0.6% analysts were expecting.

AUD/USD

The AUD/USD pair continued its descent to reach the lowest level since May last year. The descent came as Australia’s retail sales data disappointed. This came just a day after the RBA showed increased concerns about the economy. As such, there are increasing chances that the RBA will take time before it starts hiking rates. The pair is now trading at 0.7450. The MACD is currently at the lowest level since 2016 while the RSI is below 30. This could be an indication that the pair could see a reversal, albeit a short-term one.

EUR/USD

The EUR/USD pair passed a major support level, mostly because of the dollar weakness. The pair is now trading at the lowest level since early January. This continues a steep decline that started in late March. The pair’s RSI is currently at 24. It has stayed between 19 and 40 for almost two weeks now. The key factor this week will be the consumer prices data which will be released on Thursday. Accelerating CPI will lead to a stronger dollar as it will increase chances for more tightening.

GBP/USD

The cable continued the decline today reaching an intraday low of 1.3480. The decline came as differences in Theresa May’s cabinet continued. The pair could continue going down, until a solution on the customs union issue is sorted out. A strong CPI could lead to more declines. However, traders should watch the UK’s inflation report which will be released on Thursday. Further declines could see the pair testing the 1.3016 level.