AUSSIE JUMPS AFTER SOLID RETAIL SALES GROWTH
Global stocks rose today, ignoring the risks posed by a potential trade war. Last week, the Trump administration announced that it would place tariffs on steel and aluminum from the European Union, Canada, Mexico, and Japan. These countries had previously been exempted from the tariffs. The leaders of these countries will meet with Trump later this week in Canada, where the focus will turn to the issue of trade. Germany’s DAX, France CAC, Italy’s MIB, and UK’s FTSE were up by 0.20%, 0.30%, 0.10%, and 0.62% respectively.
On Sunday, China and the United States ended trade negotiations with no progress. US Commerce secretary, Wilbur Ross met with Chinese trade czar, Liu He but the talks did not materialize into anything meaningful. After the summit, China released a statement saying that it would withdraw all the concessions made if the US continued to impose tariffs on its goods. The statement was referring to a deal which the Chinese government agreed to buy more American goods. China has also lowered tariffs on American imports such as motor vehicles.
The Australian dollar rose today after the Australian Bureau of Statistics released retail numbers. In April, retail sales grew by 0.4%, which was higher than the expected 0.2%. In the first quarter, Australian companies’ gross profit margins increased to 5.9%, which was better than the expected 3.0%. The better-than-expected numbers came just a day before the RBA releases its interest rate decision. Traders expect officials to leave interest rates unchanged at 1.5%. A day later, traders will receive the second reading of the first quarter GDP numbers.
The British pound rose today against the US dollar after data from the Chartered Institute of Purchasing and Supplies (CIPS) showed an improvement in the construction industry. The data showed that the PMI rose to 52.5, which was better than the expected 52. An improvement in the construction industry is an indicator of the overall performance of the economy.
On Wednesday, the AUD/USD pair bottomed at 0.7475 and started a major rally. The pair is now trading at 0.7655, which is the highest level since early May. The current price is above the 30 and 60-day moving average with the RSI and stochastic indicator at an overbought position as shown below. There is a possibility that the pair could come down slightly as traders wait for tomorrow’s statement from the RBA.
The EUR/USD pair reached a bottom of 1.1509 on Tuesday last week. It then started moving higher after the positive inflation data from the EU. The pair is currently trading at 1.1715, which is higher than the 25 and 50-day moving averages. The pair’s ADX is currently at 23, and is pointing lower. The index is used to confirm the strength of a trend. At the same time, the RSI is currently moving sideways. The pair could continue moving upwards but traders should be cautious about a reversal.
In late April, the GBP/USD pair started to slide from a high of 1.4375 and reached a low of 1.3202 on Wednesday last week. Today, the pair moved slightly up after the release of the construction PMI data. The pair is now trading at 1.3380, which is near the 60-day moving average. The question now is whether the pair has found a floor or whether it has started a new upward trend. There is a likelihood that a new upward trend is starting, but traders should also be worried about a false breakout.