Optimism rose due to improving consumer confidence in the United States. However, it supported risky assets such as the euro and the pound, not the US dollar.
But the recent speeches of US Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell reduced the ardor of bulls and left the EUR / USD pair in a side channel.
As for the pound, a slight strengthening was observed after British Prime Minister Boris Johnson announced his plans to increase funding, which will certainly support the UK economy.
Consumer confidence in the United States improved in June this year, after declining sharply due to the coronavirus. The opening of the US economy gave a positive effect on consumer sentiment, as stated in the report published by the Conference Board. According to the data, the consumer confidence index rose to 98.1 points in June, higher than the forecast of 91.0 points. One of the important factors was the slight stabilization of the labor market, even though the index still signals that economic conditions remain weak. Many households are still pessimistic about the short term, despite all the support given by the state. Thus, the index of current conditions rose to 86.2 points in June, while the expectations index rose to 106.0 points.
Yesterday, US Treasury Secretary Steven Mnuchin made statements that directly address the support to the US economy. According to Mnuchin, he fully endorses the law on additional incentives, as more support is needed at the moment. Help is necessary not only to the sectors that suffered the most from the pandemic, but also to other market directions. Mnuchin also expressed hope that China will continue to comply with the terms of the first phase of the trade agreement, as yesterday, the representative of the Ministry of Foreign Affairs, Zhao Lijian, said that China is ready to take decisive measures in response to US actions that have long intervened in Hong Kong's domestic policy and hindered the adoption of the national security bill. The white house ' s decision to exclude Hong Kong from export restrictions and cut off all supplies of defense products including dual-use products provoked indignation among Chinese officials. It further aggravated relations between the two states, including trade ones. Against this background, the growth of the US dollar is no longer so unexpected, especially in the context of a next surge in the incidence of COVID-19 around the world.
As for other macroeconomic reports, business activity in Chicago is growing. According to the data, most enterprises returned to their usual mode of operation, so the Chicago PMI rose to 36.6 points in June, from 32.3 points in May. Economists expected the barometer to be 45.0 points. However, despite its increase in June, a figure below 50 points still indicates a decline in activity. The index was at 49.0 points before the pandemic.
Another good report was the data published by the Retail Economist and Goldman Sachs which revealed that retail sales in the US rose 0.7% over the week of June 21-27 but decreased by 9.3% compared to the same period in 2019.
Household prices also accelerated sharply in April this year due to the rather limited supply in many markets. According to S&P / CoreLogic / Case-Shiller, the national housing price index rose 4.7% in April (compared with the same period the previous year), after being down 4.4% in March. The decrease in sales did not cause any decrease in prices, but rather, increased sharply since many buyers and sellers took a wait-and-see attitude. The total number of homes for sale at the end of April, according to NAR, fell by 19.7% compared with the same period the previous year.
Fed Chairman Jerome Powell made another speech yesterday which emphasized on the fact that American banks are a source of strength in the current situation. Such statements are constantly being made after recent stress tests, which showed the financial system's readiness for current shocks. Powell also reiterated that the prospects of the economy is extremely uncertain, in connection with which the Fed has already stopped paying most of the dividends and will continue to look for ways to improve lending to small businesses. Since public confidence is key to economic recovery, the Fed's policy is aimed at creating the conditions for an energetic and strong recovery. As for emergency lending to small businesses, it can be completed at any stage, as soon as the Fed considers it necessary.
As for the technical picture of the EUR/USD pair, the situation as a whole remains rather calm. The efforts of the bulls pushed the quotes to the middle of the side channel 1.1240 yesterday, a breakout from which will open the way to the weekly high 1.1290. But if the bears continue to control the market, a repeated return to the weekly low 1.1190 will increase pressure on risky assets, which will lead to large sell-offs in the area of lows 1.1150 and 1.1100.
The British pound rose yesterday due to British Prime Minister Boris Johnson's speech, which stated that economic activity in the UK began to recover after the restrictions on the coronavirus were relaxed. A new plan that will help revitalize the UK economy was also revealed, which will amount £ 5 billion to cover key infrastructure costs.
However, this bullish trend may end rather quickly, since the problems and concerns of investors with regards to UK-EU relations still remain. There is also a possibility that in August of this year, the Bank of England will announce new measures to support the economy, since without them it will be quite difficult to prevent a further increase in unemployment.
Thus, for the technical picture of the GBP/USD pair, the demand for the currency will decline if the quotes grow quickly above the resistance level of 1.2390. Such will push the pair to the lows of 1.2320 and 1.2255. Growth will also be limited by the larger weekly resistance 1.2450, a breakthrough of which will provide access to the level 1.2530.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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