LOONIE RISES AFTER TRUDEAU’S TOUGH TALK ON NAFTA
The euro rose today after yesterday’s carnage. Stocks across the continent were higher today led by Italy’s MIB and Germany’s DAX which rose by 2% and 1.50% respectively. Today, the two populist parties in Italy – League and Five Star – attempted to form the government after their previous attempt was thwarted by the president. On the other hand, the premier-designate Carlo Cottarelli held a meeting with the president about the situation. To form the government, the League has settled on Giancarlo Giorgetti, a senior law maker to be the prime minister. The euro and European stocks rose as contrarian traders moved to buy oversold ‘assets’ on the cheap hoping that the problem in Italy will be resolved.
The euro was also supported by positive economic data from Germany and Spain. Germany’s unemployment rate fell to 5.2%, which was better than the expected 5.3%. The unemployment change was at negative 11K, which was better than the expected -10K. In Spain, the preliminary inflation rate was at 0.9% in April, which was better than the expected 0.5%. On an annual basis, the consumer prices rose by 2.0%, which was better than the expected 1.7%. On the other hand, the Harmonised Index of Consumer Prices (HICP) rose by 0.9% in April compared to the expected 0.5%. It rose at an annual rate of 2.1%. Another positive read today was the GDP numbers for France, which improved by an annual rate of 2.2%. In addition, the consumer and business consumer expectation of 112.5 was better than the expected 112.1.
Yesterday, the Consumer Bureau (CB) released the consumer confidence numbers. The consumer confidence index rose to 128, matching estimates from April’s 125.6. The confidence was bolstered by a bigger after-tax paycheck and a healthy job market. 42% of the respondents saw the jobs in the economy as plentiful, the highest reading since 2001. Today, ADP released the private payrolls numbers for April that missed analysts’ estimates. The numbers showed that payrolls increased by 178K compared to the expected 186K. Traders are now waiting for the official employment data to be released on Friday.
In Canada, Justin Trudeau had a tough message for Trump. In an interview at a Bloomberg event, he said that he was prepared to leave NAFTA if the US was not ready to ease its stance on various issues. He argued that for Canada, a no NAFTA deal would be better than a bad NAFTA deal. In the past, Trump has said that he would be prepared to exit NAFTA if his goals are not achieved. Meanwhile, the administration announced that the tariffs on Chinese goods would go into effect in June. This announcement was made a few days before Treasury secretary, Wilbur Ross left for China.
After soaring yesterday, the USD/CAD pair fell today as the dollar weakened. The dollar index, which tracks the dollar against 6 currencies fell by more than 0.50%. The USD/CAD pair is now trading at 1.2973, which is lower than yesterday’s high of 1.3045. As the pair dropped, it crossed the important support of 1.3028 as shown below. It also moved to trade lower than the short and long term moving averages. While the pair could move lower, traders should be cautious because, as shown below, the MACD indicator is showing signs of a reversal.
In late April, the DAX index started a rally after reaching a monthly low of €12,313 level. The rally continued until a month later when the index reached a high of €13,205. Since then. The pair has fallen to a weekly low of €12,567. The sudden reversal was as a result of the crisis in Italy. As the index dropped, it fell below the important support price of €13,095 as shown below. The index is currently trading in line with the monthly SMA. As the problems in Italy ease, there is a possibility that the index will rise to the €13,000 level, which provides an important support.
The EUR/USD pair jumped today after the crisis in Italy eased and after US private payrolls disappointed. The pair is now trading at 1.1637, which is higher than yesterday’s low of 1.5070. The pair’s 50 and 25-day moving average is currently on the right side of the pair, an indication that it could continue to move up. However, the RSI and MACD are signaling that the pair is approaching the overbought territory, which calls for cautious trading.