US Dollar Remains Range Bound Despite a Flurry Of Weak Data

US Dollar Remains Range Bound Despite a Flurry Of Weak Data
July 4, 2019


The US dollar dropped sharply yesterday during the US session as anticipations of a Fed rate cut increased following the release of a series of weak economic data. In particular, the greenback plunged against the yen, but optimism over the US-China trade talks enabled the US dollar to regain the lost ground. From a high of 107.92, the USD/JPY dropped to a low of 107.53 before recovering to 107.80 levels.

The Commerce Department stated that new orders for goods manufactured in the US dropped by 0.7% in May, after falling by downwardly revised 1.2% in April. Economists had anticipated factory orders to decline by 0.5% in the reported period.

While the Commerce Department released poor factory orders data, the Institute for Supply Management revealed a decline in the growth of the US service sector. The ISM non-manufacturing index fell to a two year low of 55.1 in June, from 56.9 in the earlier month. Analysts had anticipated a modest decline in the index to 55.9.

Commenting on the overall business sentiment, Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee, said, “The comments from the respondents reflect mixed sentiment about business conditions and the overall economy. A degree of uncertainty exists due to trade and tariffs.”

The business activity index fell to 58.2 in June from 61.2 in the previous month. New orders index declined to 55.8 from 58.60. Finally, the employment index also dropped to 55 in June from 58.1 in May, signaling a considerable slowdown in the pace of job growth in the service sector.

In another economic news release, the Bureau of Economic Analysis stated that the US trade deficit widened in May, compared to the previous month as the value of imports increased considerably. The trade deficit widened to $55.50 billion May, from an upwardly revised deficit of $51.20 billion in April. Economists had anticipated the deficit to be $54 billion in May.

Andrew Hunter, a Senior US Economist at Capital Economics, opined that the wider than anticipated deficit indicates that net trade was a “slightly bigger drag on second-quarter GDP growth than we had previously anticipated.”

Hunter also stated that the US-China trade war is not yet over. He said, “Despite the recent ceasefire agreed between Presidents Donald Trump and Xi Jinping, we still think it is slightly more likely than not that the trade dispute with China will ultimately escalate further.”

He further said, “The upshot is that net trade is likely to remain a modest drag on growth over the second half of this year, which we expect to compound a sharp slowdown in domestic demand growth.”

Due to Independence holiday in the US today, the Labor Department also released the report on unemployment claims, which showed a slight decrease in the week ended June 29th. The initial jobless claims declined to 221,000, a decrease of 8,000 from the earlier week’s level of 229,000. Economists had anticipated jobless claims to decline to 223,000.

Likewise, payroll processor ADP (automatic data processing) released its job growth report showing a slight acceleration in private sector (non-farm) job opportunities in June. However, it was still below economist estimates. ADP said the private sector added 102,000 jobs in June after adding an upwardly revised 41,000 jobs in the previous month. Economists had anticipated non-farm jobs to increase by about 140,000.

Commenting on job growth, Mark Zandi, chief economist of Moody’s Analytics, said: “Job growth has slowed sharply in recent months, as businesses have turned more cautious in their hiring.”

He further said, “Small businesses are the most nervous, especially in the construction sector and at bricks-and-mortar retailers.”

The weak economic data and restart of negotiations between the US and China are expected to keep the US dollar range bound in the days to come.

The USD/JPY pair remains range bound between 107.90 and 107.60. Furthermore, the stochastic oscillator is in moving towards the bullish zone. As a result, we can expect the greenback to move slightly higher in the days to come.

JPY - technical analysis - 4th 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.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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