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The highlight of the day will be a press conference of US President Donald Trump. He will speak about China that will certainly impact on financial markets. Indeed, actions against China matter a lot to investors. Recently, Donald Trump stated that he would respond toughly to China's bill on Hong Kong in the short run. So, the markets have been in suspense these days.
Yesterday, China passed the security law on Hong Kong that challenges its sovereignty. State Secretary Mike Pompeo declared that any China's decision affecting sovereignty and liberties of Hong Kong would force Washington to revise its relations with the long-lasting trade partner. Yesterday, China's Ministry of Foreign Affairs warned of resolute counter-measures in case the White House would introduce sanctions on China or some of its officials. Besides, the Ministry reminded that China would not tolerate Washington's interference in Hong Kong's affairs as the city state belongs to China, so all Hong Kong-related issues should be settled by Beijing.
The macroeconomic data on the US economy released yesterday put pressure on the US dollar, even though it was obvious that the US economy was in dire straits in Q1 and Q2 2020. According to the second estimate, the US GDP is worse than the first estimate.
The US Department of Commerce reported that GDP shrank 5% in Q1 on a yearly basis. GDP is expected to contract even deeper in Q2 due to lockdown measures which were imposed in the US in April and May. The first estimate suggested a 4.8% slowdown in annual terms. The market hoped that the reading would be unrevised.
Another macroeconomic report released in the US yesterday was durable goods orders. No wonder, the report revealed a sharp decrease in demand for durable goods amid a slump in investment due to the pandemic. According to the Department of Commerce, durable goods orders plummeted 17.2% in April on month worse than the expected 17% plunge. Importantly, low demand was recorded for all categories of goods. In March, durable goods orders tumbled 16.6%.
As for the US labor market, a weekly update yesterday showed some positive signs, though the number of unemployment claims was still at record highs. On the week ended on May 23, 2,123 million Americans filed for the first-time unemployment benefits. This number is 323,000 less than the figure of the previous week. Perhaps analysts can point out a gradual downtrend in the US unemployment that surged immediately at the coronavirus outbreak. Besides, the number of continuing jobless claims came in at 21.1 million on the week from May 10 until 16.
In a separate report, there was a decline in home buying in the US which did not come as a surprise to investors. The National Realtor Association reported that shutdown measures dampened demand, thus trimming the number of new home sales in April. The home sale index dropped 21.8% to 69.0 whereas economists had projected a more moderate 15% decline. The index slumped 33.9% from a year ago.
Last but not least, the Federal Reserve Bank of Kansas City said that business activity declined at a slower pace in May. This proves that the domestic economy is reviving cautiously as lockdown measures are being lifted in most of the states. According to the Federal Reserve Bank of Kansas City, the composite PMI recovered to -19 on May from -30 in April. The index surpassed the forecast for -22.
What does the technical picture of EUR/USD suggest? It does not make sense to predict growth of popular risky assets ahead of Donald Trump's press conference. His stance and agenda will be the key to market sentiment and trends. If the currency pair consolidates at an intraday high of 1.1090, the price will make higher highs of 1.1140 and 1.1200. However, the euro could come under pressure again. In this case, stop loss below support of 1.1065 will be activated promptly. Later, the pair will make lower lows of 1.0995 and 1.0920.
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