US Session Forex Brief, May 24 – The USD Turns Bearish, While the GBP Jumps on Theresa May’s Resignation
Skerdian Meta • 4 min read
As we highlighted in yesterday’s midday brief, the USD has been on an uptrend for a few weeks since there is nothing else to buy as the uncertainty is still quite elevated in financial markets. There are many factors for this uncertainty – the US-China trade war, Brexit, the European elections, a weakening global economy, etc. The US economy is in the best place among major global economies as different sectors are in contraction or in stagnation in the other ones, hence the uptrend in the USD recently.
Speaking of the weakening in the global economy, the US manufacturing and services reports released yesterday in the afternoon were pretty horrible, showing that these sectors are edging closer to stagnation as well. So, no, there’s nothing to buy for forex traders with stock markets being bearish, the major currencies being bearish since their respective central banks have turned bearish, and Oil turning bearish as well. The only place to run for safety are the safe havens, which have turned bullish in the last two days because of this.
- Theresa May Announces Hr Departure Date – Theresa May finally accepted defeat and she held a speech earlier announcing her departure on June 7th. She said that I’ve done my best to implement the Brexit vote, I’ve done everything I can to convince MPs to back my deal, it is a matter of deep regret that I have not delivered Brexit. Will continue to serve as prime minister until new leader is elected. The leadership contest will begin in the following week after her resignation and consensus on Brexit can only be reached if all sides are willing to compromise. Although, she is expected to stay in office until mid July as the elections in the Conservative party take place and a new leader comes in.
- Boris Johnson Speaks – Boris Johnson who is a leading candidate to replace Theresa May spoke a while ago saying that the will of the people “can and must” prevail on Brexit. Question is will the will of the people prevail? I think it must, otherwise there will be a very bad reaction. We will leave EU on Oct 31, deal or no deal. The way to get a good deal is to prepare for a no-deal scenario. We have to be prepared to walk away from the table to get a good deal. I don’t want to impose tariffs on BMWs. I don’t want to think no deal will be the outcome.
- UK Retail Sales – UK retail sales remained flat last month, beating expectations of a 0.3% decline. The previous number was revised higher to 1.2%. Retail sales excluding autos and fuel came at -0.2% vs -0.5% expected MoM. Retail sales YoY came at +5.2% against +4.5% expected. Prior stood at +6.7%. Core retail sales YoY increased to +4.9% against +4.2% expected. Prior stood at +6.2%; revised now to +6.3%. The ONS noted that the record growth in the online sector in the three months to April helped to boost the reading here and is largely driven by clothing purchases. Overall, slightly better than expected numbers and the GBP climbed 30 pips.
- Comments From China – China’s NDRC deputy, Ning Jizhe, said earlier that China is able to minimise the impact from the trade war on its economy. The Chinese economy can maintain healthy, steady and sustainable growth. This morning China’s foreign ministry said that it hopes US will stop trade war escalation. They’re firmly against US using state power to crack down on Chinese firms and firmly against US abusing export restriction measures.
- US Durable Goods Orders – The US durable goods orders report for April was released earlier and the headline number was pretty horrible, showing a 2.1% decline against a 2.0% decline expected. The prior number stood at +2.8% but was revised lower to +1.7%. Durable orders excluding transport remained flat at 0.0% against an increase of +0.1% expected. The previous e-transport order came at +0.2% for March but were revised lower to -0.5% today. Capital goods orders non-defense excluding aircraft came -0.9% against -0.3% expected. Prior core orders stood at +1.0% but were also revised lower to +0.3%. Pretty soft numbers, especially the headline number and the revisions for March, but the core figure was steady at least.
- China’s PM Speaking – Chinese Premier Li Keqiang said the country has room to use policy tools for macro-adjustment. He added that the country will expand tax cuts to simulate the economy. It is clear that China is preparing for long term trade war, so things should gt worse.
- Belgian Business Climate – The business climate has been deteriorating for about a year and this year it has been totally negative from January. Last month it fell to -3.2 points, although the climate was expected to improve a bit this month to -2.3 points. But, it deteriorated further falling to -3.6 points so things are going from bad to worse, really.
- The main trend remains bullish
- The 50 SMA is defining the trend
- Fundamentals are bullish
The price reversed around the 50 SMA again today
EUR/GBP has been on a bullish trend since the beginning of this month and the trend has been really straightforward. The 50 SMA (yellow) is defining the trend on the H1 chart despite being pierced like today and on the H4 chart the 20 SMA (grey) is doing that job. Today we saw a retrace lower as the GBP turned bullish for a moment after Theresa May’s resignation but the pullback ended around the 50 SMA again and the bullish trend resumed after that. So we have a bullish bias for this pair.
The uncertainty is growing as China prepares for a long term trade war with the US ad Theresa May finally decides to leave her post. The European Parliamentary elections are ongoing while the US joins the rest of the global economies which have been weakening after the terrible report we saw from US yesterday and today, so brace yourselves for harsh times to come.