A 12 Million Dollar Offer
The United States government has set aside 12 million dollars for US farmers to compensate them for the losses they suffered from the ongoing trade war. Both China and Mexico have enacted retaliatory tariffs targeting US agricultural products that put farmers, especially soybean farmers, in a difficult position. According to Blake Hurst, President of the Missouri Farm Bureau, these subsidies will definitely be a great help, although they do not solve the underlying issue of uncertainty in the sector. The subsidies offer very little hope, however, it could still be enough for Republicans retain support in the Midwest.
Out of Steam
The Chinese stock markets several day long rally has come to a halt. The Shanghai Composite dropped 3 points (0.11%). The Australian and South Korean indices also closed approximately 0.33% lower. The Nikkei and the Hang Seng on the other hand continued to increase. The US dollar also weakened against every other major currency by approximately 0.10% since yesterday. Meanwhile the price of crude oil is up by 0.4% for WTI and 0.87% for Brent, after the latest API weekly crude oil stock report indicated a drop in both crude and refined oil inventories.
AUDUSD
Today’s Australian inflation figures show that prices increased by 2.1% in June, mainly due to rising oil prices driving up the cost of transportation. Meanwhile prices for food products, motor vehicles and accommodation for tourism continued to decrease. This latest figures put inflation on par with data from Q2 2017. Australia’s inflation has been on the rise since hitting 1% in 2016, however, 2% is still within their acceptable threshold, making the Reserve Bank of Australia unlikely to raise interest rates. As it stands, the AUD would require a powerful fundamental event to be able to strengthen against the dollar.
The daily charts show that the AUDUSD reached a persistent support line, one that prevented price from going lower since May 2017. Price reached this point one and a half months ago and has been moving sideways since. Attempts to move upwards tapered off around the 0.7440 line, excluding one short-lived breach in mid June. The question is whether price is basing for a breakout or simply ranging towards the green trendline. There is no definite answer at the moment as current price trends do not seem to confirm either of these theories. If one had to make an educated guess, going off the length of the trend and the downwards shift of the 200-period moving average makes a continued decline somewhat more likely.
EURUSD
The most notable event of the day will be Donald Trump’s meeting with European Commission President Jean-Claude Juncker in Washington to discuss tariffs and trade policy. To set the stage for the event, Trump made a surprising tweet supporting free markets and fair trade. The President suggested dropping all tariffs, trade barriers and subsidies, before declaring that the US is ready to do so. This message flies in face of everything the President said just one month ago, when he took issue with the number of German cars on 5th Avenue and proposed a protectionist trade policy to protect US interests. Knowing the European Union’s bureaucracy heavy and equally protectionist trade policy, Trump’s recommended solution seems highly unlikely. Brussels has a history of rejecting free trade offers from previous administrations, mainly due to their unwillingness to allow genetically modified food products and fears that the US would flood their markets with such goods. At the very least, Trump’s message does signal that there’s a possibility of mending US-EU trade relations.
Trade relations are not the only force behind the currency pair’s movements. Tomorrow’s European Central Bank (ECB) interest rate meeting could still hold some surprises. Price seems fairly stable at the moment, since the euro’s upwards trend from earlier this week appears to have fizzled out. Instead we’re seeing a downwards movement along the yellow trendline. Today’s key price level is the persistent 1.677 support line. If the line breaks, the USD could further strengthen to 1.1635. The market will likely keep price balanced until the ECB interest rate decision, presumably within the 1.1677 to 1.1752 range. Volatility is expected to increase alongside the release of additional news concerning Trump’s meeting with Juncker and the ECB interest rate decision.
Sincerely,
Laszlo | Market Analyst
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