Summary:
- EURUSD plunges below 1.11 on Rehn policy comments
- Indices attempt to move higher after a major sell-off
- No clarity on trade issues may weigh on sentiment
EURUSD sinks on ECB comments, stronger US data
EURUSD recovery after the July Fed was not long-lasting. After the pair hovered around 1.12 for a while it sunk below 1.11 on comments from ECB’s Olli Rehn, suggesting that the ECB should “over deliver” during the September meeting in terms of QE and renewed interest rate cuts. Well, markets have expected this easing for a while but terms were fairly vague after president Dragi said at the previous meeting that “there is no reason to be pessimistic”. Obviously, many reasons have materialized since then like German ZEW plunging to crisis levels or Q2 GDP contracting and comments from Rehn are seen by the markets as a sign of panic at the Bank that tried to paint the reality in brighter colours.
EURUSD remains well in a downtrend. Source: xStation5
The US dollar was also helped by a package of generally better than expected US data yesterday. Although industrial output missed again, sliding to just +0.5% y/y – the thinnest growth in 2.5 years, proving that a global manufacturing slowdown affects the US as well, the US consumer still looks strong. Retail sales was very strong in July, especially the core measures. Obviously the ex-auto sales is nowhere near 5-7% growth it saw in 2018 but July’s beat helped to elevate y/y gain to 3.8%, highest since April. Regional business surveys from NY and Philly also confirm that there is no panic among the US business (unlike in Europe).
US indices attempt recovery
Better data helped drive indices a tad higher after a major selloff this Wednesday but while fresh tweets from president Trump may pour some hope short-term, they reveal lack of clear strategy from the US in terms of trade. The bottom line from these tweets is that some of new tariffs are still going to kick-in in September (nearly half) and China has already said it would retaliate.
Will the US500 recover from the second local low, or is this just a prelude to a deeper dive like it was in 2018? Source: xStation5
In other news:
- Mexico cuts interest rates for the first time in 5 years
- PMI in New Zealand sinks to 48.2 from 51.3 in June
- OIL (+1.1%) the biggest winner so far during Friday trading
