THE GREENBACK FALLS AS TRADE WAR DRUMS CONTINUE TO BEAT
The Reserve Bank of Australia (RBA) left interest rates unchanged at 1.5%. This was an expected move from the central bank as the country struggles to move from depending on the mining sector. According to the accompanying statement, officials felt that more needs to be done to reduce the unemployment rate. In the last numbers released by the Australian Bureau of Statistics, the unemployment rate of the country stood at 5.6% while wage growth was below 3.5%. Officials expect wages to grow gradually.
In the morning, Bloomberg reported that the European Union had created a list of American goods that they will impose tariffs on if Donald Trump imposes tariffs on steel. The assorted list included items such as steel, clothes, and agricultural products. By doing so, the region will have opened a trade war that could end badly. While there will be no winner in case of a trade war, chances are that the Europeans would have more to lose. This is because the United States, which has a large trade deficit with the EU would have more goods to place tariffs. Simple mathematics shows that if the EU and US were to place a 25% tariff on exports and imports, the US would actually make more than $60 billion.
Other big news today came from South Korea. After a meeting between Kim Jong Un of North Korea and South Korean officials, the South reported that Kim was ready to talk to the United States about denuclearization. This was a positive move for the markets because last year, the general mood seemed to be about an impending war. North Korea is currently starved of funds following tough sanctions championed by the United States. After the news, the Japanese Yen fell against major currencies.
The dollar weakened against the Euro following a list of American goods likely to be sanctioned by the EU. The dollar lost more than 0.63% to trade at a bi-weekly high of 1.2413. As shown below, the pair’s RSI is currently above the 70 level which could be an indication of it being overbought. At the same time, the pair is way above the 200-SMA, which is currently at 1.2273. There is a likelihood that the pair could come down potentially to the 1.23480 level which forms the 50-day SMA and the 23.6% Fibonacci Retracement level.
The dollar gained against the Japanese Yen following the news that North Korea was not only ready to talk, but also to denuclearize. After the news, the dollar gained by 0.24% to trade at an intraday high of 106.45. The pair’s RSI is currently at 39 while the pair is trading slightly lower than the 14, 50, and 200 Moving Average. Traders should now watch out for the 105.85 level which is the weekly low.
The pair rose to the highest weekly level after the RBA left interest rates unchanged while signalling no action in the near-term. The rise was also attributed to the lower dollar. The pair rose to a high of 1.7841. In the near-term, a reversal could be imminent as traders wait for United States’ employment numbers on Friday.