Yesterday's weak reports on the labor market and activity in the manufacturing sector, along with the news that Donald Trump approved new additional duties of 10% on goods from China, led to a decline in the US dollar. Traders did not expect such a turn of events and the deterioration of the situation in the trade negotiations between the US and China, which many have already forgotten, so quickly they pass.
According to weekly data, the number of Americans applying for unemployment benefits for the first time has increased. The report of the US Department of Labor stated that the number of initial applications for unemployment benefits for the week from July 21 to 27 increased by 8,000 and amounted to 215,000. Economists had expected the number of applications to be 214,000. Despite a slight increase in the number of applications, the rate remains very low.
Today, we expect data on unemployment in the US, as well as a report on the number of employed in the non-agricultural sector, which can lead to a surge in volatility and further weakening of the dollar, provided that the data will be worse than economists' forecasts.
As noted above, the data on activity in the manufacturing sector of the United States hit the positions of the US dollar, as the momentum is gradually declining due to the weakening of the world economy and another increase in fears about the trade situation.
According to the report of the Institute of Supply Management, the purchasing managers' index (PMI) for the manufacturing sector in July fell to 51.2 points against 51.7 points in June. Values below 50 indicate increased activity. Economists had expected the index to be 51.7 points in July. It is important to note that the slowdown is observed for the fourth month in a row.
HIS Markit data also indicated a slowdown in the growth of production activity in the United States. According to the report, the index of supply managers for the manufacturing sector in July fell to 50.4 points from 50.6 points in June. Quite a slight increase in production, which was noted last month, will have a negative impact on the overall economic growth in the 3rd quarter of this year.
Given the slowdown in the economic momentum at the end of the 2nd quarter, the decline in construction costs in the US was not news to anyone. According to the US Department of Commerce, construction spending in June 2109 decreased by 1.3% from the previous month to $1,287 trillion. Economists had expected spending to rise by 0.1 percent.
Yesterday, US President Donald Trump announced additional duties of 10% on goods from China in the amount of $300 billion. The additional fee will be effective from September 1 this year. This decision was very unexpected, given the fact that further negotiations with the Chinese authorities are scheduled for the same September. Trump noted that he is waiting for the continuation of a constructive dialogue with China on the trade agreement, as the next round of trade negotiations with China is scheduled for early autumn.
The US President also said that he expected the deal to be concluded three months ago, but, unfortunately, China decided to reconsider its terms. In his opinion, Xi wants a trade agreement but does not act quickly enough.
Most likely, according to the idea of the White House, the rise of duties from the US is aimed at reviving trade negotiations with China, but such a step can result in a response from the Celestial Empire, which will further aggravate the trade situation. Earlier, the US President expressed dissatisfaction with the fact that China is not fulfilling its obligations to purchase agricultural equipment.
News that the US Senate approved the agreement for two years, canceling the debt limit, passed unnoticed by the market. President Trump is expected to sign the bill soon.
Well, at least one problem less.
As for the technical picture of the EURUSD pair, the bulls are taking retaliatory measures at the end of the week and are trying to stay at the achieved lows. It is unlikely that a good report on the US labor market will lead to a new large wave of dollar purchases. Most likely, on the contrary – weak data will force traders to fix long positions in the "dollar", which will lead to a breakthrough in the resistance of 1.1100 and a larger upward trend of risky assets in the area of the maximum of 1.1140.
