US stocks reached record highs yesterday as investors continued to cheer the truce between the US and China on trade. The truce was reached at the G20 meeting. In the rally, the biggest gainers were technology companies like Google and Qualcomm. These companies made major gains because of Trump’s decision to allow US companies to continue doing business with Huawei, a company that has spent more than $11 billion on US firms. While the truce provided relief to the markets, some analysts believe that a major trade deal will not happen any time soon because of the hardline positions by the two countries.
The euro declined in the Asian session after the United States Trade Representative (USTR) office recommended tariffs worth more than $4 billion on Europe. These tariffs were suggested because of the illegal subsidies the EU gives its airline companies like Airbus. The new tariffs will target products like olives, Scotch whiskey, and Italian cheese on top of the $21 billion tariffs that were announced in April this year. Europe will likely respond with its own tariffs, which will affect trade of the two regions. In 2018, the combined trade volume of Europe and United States was more than $1.2 trillion. Goods totaled more than $807 billion while services totaled more than $488 billion.
The Australian dollar rose after the country’s central bank released its interest rates decision. As expected, the bank lowered interest rates by 25 basis points to a new low of 1%. This was the second consecutive interest rates cut and is a reaction to the ongoing weakness in the global economy. In the accompanying statement, Governor Lowe said:
The outlook for the global economy remains reasonable. However, the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside. In most advanced economies, inflation remains subdued, unemployment rates are low and wages growth has picked up. The slowdown in global trade has contributed to slower growth in Asia. In China, the authorities have taken steps to support the economy, while continuing to address risks in the financial system.
The EUR/USD pair declined sharply to a low of 1.1275, which was the lowest level since June 20. This was a continuation of a decline that started on June 28, when the pair formed a double bottom pattern as shown on the chart below. The price is below the 14-day and 28-day moving averages and slightly above the 38.2% Fibonacci Retracement level. The RSI remains below the oversold level. The same is true with the money flow index. The downward momentum is likely to continue moving lower to test the 23.6% Fibonacci Retracement level of 1.1230.
The S&P index rose sharply to a record high of $2980 as traders rejoiced over the US-China truce. The upward trend was a continuation of a rally that started on December 20, when the index reached a low of $2338. On the daily chart, the momentum indicator has remained above the important level of 100. The price is above the 100-day and 50-day moving averages while the RSI has moved close to the overbought level of 70. In the next few days, the pair will likely reach the important psychological level of $3000.
The AUD/USD pair rose today after the dovish statement by the RBA. The reason the pair rose was that the rate cut was already priced-in by the market. The pair moved from yesterday’s close of 0.6955 to a high of 0.6985. On the hourly chart below, this price is slightly above the middle line of the Bollinger Bands and slightly below the important support line shown in yellow below. The pair’s RSI has moved from a low of 21 to the current 51. The pair will likely continue the upward trend to retest the previous high of 0.7000.