GREENBACK FALLS AS OPTIMISM OF US-CHINA DEAL FADES
The Aussie rose sharply after the Reserve Bank of Australia (RBA) announced its interest rate decision. The bank left interest rates unchanged at 1.50% and showed no signs that it will hike in the upcoming meetings. Nonetheless, investors were pleased with the upbeat statement from the central bank’s governor where he said that the current low interest rates were helping the economy create jobs. The unemployment rate is currently at 5%, which is the lowest level in six years. The statement also sounded upbeat about inflation, which is expected to reach 2.75% in 2019.
The US dollar index declined sharply as investors started to worry about the deal the US signed with China. The dollar index, which weighs the USD against a basket of peer currencies declined by 60 basis points. After cheering the truce yesterday, investors started to question whether it will yield any results. This is because earlier this year the two countries held top-level talks in Beijing and in Washington. These talks yielded no results because each side took hard positions. Yesterday, Trump appointed Robert Lighthizer, his trade czar, to lead the American side of the talks.
The euro rose sharply today after France suspended a fuel tax it had proposed. This is after the tax fueled riots in Paris and other cities. The tax was intended to reduce the consumption of fossil fuels in a bid to deal with climate change. It was supported by a section of Macron’s coalition parties. The riots were the latest in Macron’s problems, which have seen his approval rating decline to 25%. At the same time, the approval rating of gilets jaunes have increased to 72% according to the latest Harris Interactive poll. Investors are worried that rebellion against Macron could fuel resistance against the European Union in the next elections.
Governor Mark Carney today defended the projections from the BOE on the post-Brexit scenarios. In a review last week, the bank said that exiting the union without a deal will have larger effects than those of the global financial crisis. The review found increased resistance among parliamentarians critical of the deal that Theresa May has proposed. In a statement to parliament, he said that the scenarios presented were as a result of a lot of work from the bank’s staff with the goal of ensuring that the banking system was ready for Brexit. Another report released today by the BOE showed that most companies were not prepared for Brexit. At the same time, the advocate general of the European Court of Justice said that the UK had a right to withdraw Article 50 and unilaterally end Brexit. On data, the construction PMI numbers by IHS Markit showed an improvement of activity in the sector.
The price of crude oil continued the upward momentum started yesterday. WTI and Brent rose sharply to intraday highs of $54.70 and $63.65 respectively. The reason for this is that traders anticipate that OPEC members will agree to reduce production in the upcoming meeting, which will take place in Vienna on Thursday. The meeting comes after Qatar announced that it was exiting the organization in an indication that tensions with its neighbors were increasing.
The AUD/USD pair continued the upward momentum started on October 25. The pair reached an intraday high of 0.7395, which is the highest level since August 10. The RSI has moved closer to the overbought level of 70, which is a bullish signal. The Demarker indicator on the eight-hour chart is showing that the pair could continue the upward momentum. The same is true with the double EMA. Therefore, in the short term, the pair could continue the upward momentum and test the important resistance level of 0.7400.
The EUR/USD pair moved higher today after Emmanuel Macron’s government agreed to scrap the proposed fuel tax. The pair reached an intraday high of 1.1420. Still, the pair is trading within a narrow range as shown in the four-hour chart below. Today’s high was along the upper line of the symmetrical triangle the pair has been forming. This means that a breakout could happen, especially after the US releases its jobs numbers on Thursday and Friday. Further upward movements will likely see the pair move to the important resistance level of 1.1500.
The GBP/USD pair rose today after a mix of positive economic data, weaker dollar and political statements. The pair reached an intraday high of 1.2840, which is slightly above the 21-day and 35-day EMA. Still, the pair is trading within the range started two weeks ago. The pair’s MACD has been stable below the neutral level while the current price is above the moving averages. The pair will likely continue trading within this range as traders wait for a decision on Brexit.