US Dollar Declines On Poor Manufacturing Index Data

US Dollar Declines On Poor Manufacturing Index Data
June 18, 2019

 

The greenback started weakening against its G10 rivals at the beginning of a new trading week, mainly due to weak economic data and unresolved trade tensions between the US and China. As the investors are treading cautiously, the EUR/USD gained only moderately by rising from a low of 1.1204 to a high of 1.1247 in the past 24 hours.

In the US, the New York Fed reported the Empire State manufacturing index reading of -8.6 in June, a fall of -26.4 points from the earlier month. Notably, the index plummeted into negative territory for the first time since October 2016. While analysts surveyed by Econoday expected a reading of 10, the index registered a record decline.

FRBNY’s report reflects the overall weakness in the economy. An important measure, the new-order index, dropped 21.7 points to -12 in June. Shipments declined 6.60 points to 9.70. Unfilled order and inventories also sank into the negative region. The index of future activity fell 4.9 points to 25.70 in June.

Commenting on the steep drop in the manufacturing index, Josh Shapiro, chief US economist at MFR Inc, said that the figure “was shockingly weak, raising a caution flag about the prospects for other manufacturing data in the month.”

In other economic data, as per the recent NAHB/Wells Fargo Housing Market Index (HMI) data, builder confidence for newly-built single-family homes decreased two points to 64 in June. Notably, for the past five months, sentiment levels remained in a solid range of between low and mid-60s.

Regarding the demand for home sales, NAHB Chairman Greg Ugalde said: “While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues.”

Other HMI indices also declined in June. The index measuring current sales conditions decreased one point to 71, while the measure of expectations in the next six months fell two points to 70. The metric reflecting buyer traffic decreased one point to 48.

The weakness seen in the US economy has put the Fed Chair Jerome Powell under pressure from President Trump and economists to lower interest rates. The Fed will provide its interest rate outlook tomorrow at the end of a two-day policy meeting. Even though the Fed is not expected to slash rates this month, the market expects the central bank to forecast at least one future rate cut. The assumption is backed by the CME Group’s FedWatchtool, which indicates that a majority of market participants anticipate at least one rate cut next month.

Regarding the issues faced by Fed, Karen Shaw Petrou, managing partner at Federal Financial Analytics, said: “The Fed has to wrestle with not only all of the uncertainty that’s in the market because of the trade battles but an unprecedented amount of political risk.”

With the US-China trade dispute continuing in the backdrop and multiple economic data making investors feeling uncomfortable, there are concerns of an economic recession, which is why the White House insists on a rate cut. If the trade talks with China fail, President Donald Trump is determined to slap import duties on the remaining $300 billion worth Chinese products, according to US Commerce Secretary Wilbur Ross.

On the issue of delay in arriving at a deal, Ross said: “We will eventually make a deal, but if we don’t, the president is perfectly happy with continuing the tariff movements that we’ve already announced, as well as imposing the new ones that he has temporarily suspended.”

The comments made by Ross reflect the opinion given by Treasury Secretary Steven Mnuchin last week.  The economic data and unresolved US-China trade issues indicate that the greenback will remain weak in the short-term.

The historical price chart indicates that the EUR/USD pair has successfully retested the support at 1.2210. The stochastic oscillator is rising towards the bullish zone. As a result, we are expecting the currency pair to remain slightly bullish in the short-term.

The greenback started weakening against its G10 rivals at the beginning of a new trading week, mainly due to weak economic data and unresolved trade tensions between the US and China. As the investors are treading cautiously, the EUR/USD gained only moderately by rising from a low of 1.1204 to a high of 1.1247 in the past 24 hours.

In the US, the New York Fed reported the Empire State manufacturing index reading of -8.6 in June, a fall of -26.4 points from the earlier month. Notably, the index plummeted into negative territory for the first time since October 2016. While analysts surveyed by Econoday expected a reading of 10, the index registered a record decline.

FRBNY’s report reflects the overall weakness in the economy. An important measure, the new-order index, dropped 21.7 points to -12 in June. Shipments declined 6.60 points to 9.70. Unfilled order and inventories also sank into the negative region. The index of future activity fell 4.9 points to 25.70 in June.

Commenting on the steep drop in the manufacturing index, Josh Shapiro, chief US economist at MFR Inc, said that the figure “was shockingly weak, raising a caution flag about the prospects for other manufacturing data in the month.”

In other economic data, as per the recent NAHB/Wells Fargo Housing Market Index (HMI) data, builder confidence for newly-built single-family homes decreased two points to 64 in June. Notably, for the past five months, sentiment levels remained in a solid range of between low and mid-60s.

Regarding the demand for home sales, NAHB Chairman Greg Ugalde said: “While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues.”

Other HMI indices also declined in June. The index measuring current sales conditions decreased one point to 71, while the measure of expectations in the next six months fell two points to 70. The metric reflecting buyer traffic decreased one point to 48.

The weakness seen in the US economy has put the Fed Chair Jerome Powell under pressure from President Trump and economists to lower interest rates. The Fed will provide its interest rate outlook tomorrow at the end of a two-day policy meeting. Even though the Fed is not expected to slash rates this month, the market expects the central bank to forecast at least one future rate cut. The assumption is backed by the CME Group’s FedWatchtool, which indicates that a majority of market participants anticipate at least one rate cut next month.

Regarding the issues faced by Fed, Karen Shaw Petrou, managing partner at Federal Financial Analytics, said: “The Fed has to wrestle with not only all of the uncertainty that’s in the market because of the trade battles but an unprecedented amount of political risk.”

With the US-China trade dispute continuing in the backdrop and multiple economic data making investors feeling uncomfortable, there are concerns of an economic recession, which is why the White House insists on a rate cut. If the trade talks with China fail, President Donald Trump is determined to slap import duties on the remaining $300 billion worth Chinese products, according to US Commerce Secretary Wilbur Ross.

On the issue of delay in arriving at a deal, Ross said: “We will eventually make a deal, but if we don’t, the president is perfectly happy with continuing the tariff movements that we’ve already announced, as well as imposing the new ones that he has temporarily suspended.”

The comments made by Ross reflect the opinion given by Treasury Secretary Steven Mnuchin last week.  The economic data and unresolved US-China trade issues indicate that the greenback will remain weak in the short-term.

The historical price chart indicates that the EUR/USD pair has successfully retested the support at 1.2210. The stochastic oscillator is rising towards the bullish zone. As a result, we are expecting the currency pair to remain slightly bullish in the short-term.

EUR - technical analysis - 18th June 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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