The lower-than-anticipated US employment change data reported in the early American session yesterday enabled the euro to rally higher against the US dollar yesterday. The euro also received higher bids due to the sell-off in global equity markets over fears related to the US-China trade truce and the arrest of the Huawei CEO in Canada. In the past 24 hours, the EUR/USD currency pair rallied from a low of 1.1321 to a high of 1.1413.
Economic data and political developments weaken the greenback
The EURUSD pair opened yesterday’s session in a consolidative phase and gained further ground in the early European session following the release of the Markit Germany construction PMI for November, which came in at 51.3 compared with the 49.8 in the previous month. Renewed increase in construction (homebuilding and commercial development) activity contributed to the strong PMI data. Furthermore, the rate of expansion reached its highest since February. The inflow of new orders was also supported by the pace of job creation in November.
The release of weaker-than-anticipated ADP employment change data in the early American session further weakened the greenback. The report indicated that the US economy added 179,000 jobs from October to November, versus economists’ expectations of 195,000 jobs. Notably, the economy added 225,000 jobs in October. The November figures were also below the prior monthly average of 203,000.
The greenback’s decline was fueled by higher-than-anticipated unemployment claims reported by the Department of Labor. For the week ended December 1, the seasonally adjusted initial claims were 231,000, a decrease of 4,000 from the previous week’s upwardly revised level, but higher than analysts’ estimates of 226,000.
The trade deficit data reported by the Bureau of Economic Analysis also did not help the US dollar. The US trade deficit widened to a 10-year high in October as soybean exports continued to decline and imports of consumer goods increased to a record high. This indicates import tariffs announced by the White House have been ineffective.
The Commerce Department reported that the trade deficit widened 1.7% to $55.5 billion, the highest level since October 2008. Notably, for the fifth successive month, the trade gap has widened. September data was revised to show the deficit increasing to $54.6 billion instead of the earlier reported $54.0 billion.
The overall bearish sentiment brought down the 10-year Treasury yields to 1.85%. As a result, the market (CME FedWatch) now only gives a 63% chance for a Fed rate hike in December, down from 80%. Interestingly, the market currently provides only a 20% chance for a rate hike in March, down from over 40% earlier on.
The currency market also became jittery after the chief financial officer of Chinese telecom giant Huawei Technologies faces extradition to the United States following her arrest in Canada. The executive, Meng Wanzhou, is also the daughter of the company’s founder. She was arrested on charges of violating sanctions on Iran.
Huawei, the world’s third-largest mobile phone manufacturer, has faced intense scrutiny from US officials over suspected sanction violations for years. The arrest will undoubtedly be taken seriously by the Chinese government, and experts fear a backlash in the form of an arrest of a US executive.
Therefore weak economic data and political uncertainty keep the greenback bearish.
The EURUSD price chart indicates that the currency pair has received support at 1.1340. Furthermore, the money flow indicator has crossed above the reading of 50. As a result, we can expect the EURUSD pair to move up in the short-term.
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.
