US Dollar Pushing For A Breakout?
The dollar is now approaching 97.50 which is a key resistance level, a break above this level could see a short-medium term bullish rally in the Dollar index
There was Initial jobless claims data (actual: 1509K vs. 1290K estimate) and USD Philadelphia Fed Manufacturing Index (+27.5 vs -21.4 expected). Although jobless claims did increase, markets focused on the manufacturing index, with the data being so positive, it is an indication that demand for goods have picked up faster than markets have prices in. This is a strong bullish factor for the USD and supports the equally strong retail sales data we saw last week.
Moreover tensions between the US and China is keeping the dollar upheld as a safe heaven. These tensions revolve around two core themes:
- Trump Passes Uighurs human rights bill to punish China
It is widely known that China has been imprisoning Muslim minorities in Western Xinjiang. This Human rights bill aims at ensuring China takes accountability and the relevant parties are surveyed going forward.
Although Trump is likely doing this just to attack China, it certainly will help his presidential vote later this year and it serves a key message – enough is enough. Uighur activists have praised Trump as they see this as an important step, it is the first time any government has sought to punish China for a campaign of mass surveillance and detention of Uighurs and other mostly Muslim ethnic groups in the western Xinjiang region.
China has responded by expressing strong opposition to the US law regarding Uighurs, exclaiming that Xinjiang is purely China’s affairs and urged the US to revoke its decision, ‘or’ they will ‘resolutely’ respond and the US will bear the consequences.
2. China not respecting phase one of US-China trade agreement
One of the key aspects agreed upon during the phase one trade agreement between US and China, was China’s commitment to increasing spending on US goods by a further $200bn.
The US released a statement urging China to ‘accelerate’ purchases in order to abide by the agreement. China has yet to respond, though it is likely they will argue this is not currently possible due to the current environment we are in where consumer spending and business activity have been negatively affected.
What does this mean ?
Risk assets will remain under pressure (AUD, NZD and CAD) , and safe heavens are likely to pick up (CHF, JPY, GOLD)