Forex Signals US Session Brief, August 2 – Safe Havens are the Beneficiaries of New Tariffs on China
Skerdian Meta • 4 min read
Yesterday the USD was on a bullish run which started on Wednesday evening, after the FED meeting which wasn’t as dovish as markets were anticipating. The FED cut interest rates by 25 bps, but markets were hoping for either a 50 bps rate cut or even better, the FED leaving the door open for further rate cuts. As a result, the USD turned pretty bullish after the meeting, climbing nearly 100 pips higher across the board, but the USD started to reverse back down after the US manufacturing reports in the afternoon. Final manufacturing PMI came in a bit better than expected and moved away from stagnation but the ISM manufacturing softened further and it is heading towards contraction now.
That started to reverse the USD lower in the afternoon, but the big move came later in the evening after Donald trump announced an increase in tariffs on China by 10% on the remaining $300 billion of goods imported by the US. That came as a bit of a surprise when markets have been expecting a trade deal between the two giant countries. The failure to come up with a positive outcome in this week’s meting between the two trade teams in China was a sign that negotiations might have fallen apart, but markets weren’t expecting new tariffs, so it came as a surprise which sent the USD lower across the board initially, but then it turned into a run for safe havens. USD/JPY and EUR/CHF have turned really bearish now, while GOLD surged around $60 higher yesterday.
The European Session
- Italian Retail Sales and Industrial Production – Retail sales turned negative in the last three readings in Italy, declining by 1.0% in total from March to May. But, retail sales posted a decent jump of 1.9% in June, and coming after three negative months previously, it looks even better. Industrial production has also been very weak recently, declining by 1.8% in March and June. We saw an increase in production in May, but a 0.4% decline was expected today for June. Production fell indeed, but by 0.2%.
- Eurozone Retail Sales – The economic data from the Eurozone has been weakening in recent months, especially manufacturing. The consumer confidence has also been deteriorating as the broader economic projections look gloomy in Europe. Although, today we see some really positive figures from the retail sales reports. Retail sales posted a decent jump of 1.1% in June after the decline we saw in May. The jump in retail sales is a good sign for the weeks to come.
- China Responds to US Tariffs – China’s foreign ministry said this morning that the ball is in the US court now. China’s commerce ministry also chipped in saying that China will take countermeasures if US tariffs take effect. They’re strongly dissatisfied with US’s latest tariffs announcement and firmly oppose it. They hope that US can rectify its mistakes as soon as possible. US’s escalation on trade is not in line with global interests and hope that both sides can resolve their dispute on the basis of equality
- UK Construction PMI – Different sectors of the UK economy have fallen in contraction recently, with construction doing so back in February. In June, the decline deepened further in construction activity, with the PMI indicator falling to 43.1 points. This sector was expected to get a bit better in July and the PMI indicator was expected at 46 points, but it missed, coming at 45.3 points, which still means deep contraction.
The US Session
- US Unemployment rate and Earnings – The unemployment rate was expected to tick lower to 3.6% in the US, but it remained unchanged at 3.7%. US July non-farm payrolls came close to expectations at 164K vs 165K expected. The participation rate ticked higher to 63.0% from 62.9% prior, which seems to be the reason that the unemployment rate didn’t fall this time. But, average hourly earnings MoM ticked higher by 0.3% against +0.2% expected. Average hourly earnings YoY also ticked higher to 3.2% from 3.1%. Underemployment moved lower to 7.0% from 7.2% previously, which is another good sign.
- US Factory Orders – Factory orders have been quite volatile in recent months in the US. We saw a 0.5% decline in February, followed by a 1.9% jump in March. But in April and May orders fell by a total of 1.0%. Today’s report is expected to show another reversal and a pickup in factory orders by 0.6%.
- US Revised UoM Consumer Sentiment – The consumer sentiment weakened considerably in Q1 of this year as this indicator fell to 93 points, but it improved during Q2. Although, in June the sentiment disappointed coming at 97.9 points. The sentiment improved a bit last month, coming at 98.4 points and it is expected to be revised a tick higher today to 98.5 points.
Trades in Sight
- The trend is bearish
- The 50 MSA is providing resistance
- The pullback is complete
The stochastic indicator is now oversold on the H4 chart
GBP/USD has turned massively bearish as now it becomes increasingly obvious that the new Prime Minister Boris Johnson is not bringing anything new to the Brexit negotiation table with the EU. As a result, GBP has crashed down and yesterday this pair was heading for 1.20. But the weaker US manufacturing data, as well as the surprise announcement on tariffs sent the USD lower and GBP/USD retraced higher. Today we are seeing another weak retrace which looks more like a consolidation and the 50 SMA (yellow) is providing resistance at the top, so this looks like a good opportunity to go short on this pair.
The US employment report is out. The unemployment rate missed expectations and remained at 3.7% which is still a very good place to be, but it was due mainly to the increase in participation rate. Earnings came in better than expected, which is a positive sign for the US economy and the USD which is climbing higher now.