MARKETS RISE AS CHINESE STIMULUS HOPES THRILL INVESTORS
World stocks gained today as traders hoped that the Chinese government would offer a stimulus package. The news offered a reprieve to investors who have suffered big losses after the Trump administration started issuing tariffs on imported Chinese goods. The news lifted Chinese stocks with the Shanghai composite gaining by almost 2%. In Europe, stocks rose after upbeat quarterly results from UBS, auto firm PSA, and chipmaker AMS. Wall Street futures were also high mostly because of the impressive results from Google’s owner Alphabet.
The Japanese Yen was little moved against the dollar after speculations emerged that the Bank of Japan would move to end its stimulus package and start normalization. This speculation led to large movements in the world’s bonds market. The Japanese government bonds had the biggest jump in three years as the US two-year treasury yields jumped to almost three percent. The Fed started hiking three years ago and the ECB is planning to start normalizing by the end of the year leaving Bank of Japan as the sole anchor of the global government bonds markets. The Yen was also little moved by the PMI data that showed that activity in the manufacturing industry slowed to the lowest level in 20 months.
The euro was little moved against the dollar and pound even with the positive manufacturing data. The data from Markit Economics showed that the manufacturing PMI in France, Germany, and the EU rebounded in July. In France, the PMI rose to 53.1, which was higher than the expected 52.6. In Germany, the numbers showed the PMI at 57.3, which was higher than the expected 55.5 while in the EU, the PMI rose to 55.1, which was higher than the expected 54.7. These numbers are good as the ECB Monetary Policy Committee (MPC) meets on Thursday to talk about the future of the current monetary policy. The laggard from the data today was from the services industry which missed the consensus forecast in France, Germany, and the EU.
The EUR/USD pair was little moved today even with the positive manufacturing data from the EU. The pair is now trading at 1.1680, which is a minor support level as shown below. The level is also below the yesterday’s high of 1.1750 and the middle Bollinger Band. The decline started yesterday seems like a false downward breakout, which means that the pair could resume the upward momentum and test the 1.1750 level. This will likely happen as traders wait for the decision of the ECB.
The USD/JPY pair continued to trade at the lows established yesterday. It is now trading at 111.20, which is an important support level as shown below. The strength of the Japanese yen was mostly because of the speculation that the BOJ would follow the Fed in normalizing. This price is along the 38.2% Fibonacci Retracement level. Since the pair is struggling to pass this level, there is a likelihood that the downward momentum will resume and the pair will move to test the important 110.0 level, which is also the 61.8% Fibonacci Retracement level.
On Friday, the USD/CAD pair slid after the positive inflation numbers from Canada. The pair dropped to the 1.3110 level. Since then, the downward momentum slowed and the pair is trading slightly higher than Friday’s low. The current price is also along the important support line shown below and is along the middle line of the Bollinger Bands. Further upsides above this level will see the pair retest the 1.3290 level, which was the highest level on Friday.