So, the Chinese parliament nevertheless adopted the resonant law on national security of Hong Kong. Strictly speaking, deputies today only approved a resolution on the development of this bill - the law itself can be adopted within two weeks, and enter into force in August or September. But, taking into account the realities of Chinese politics, one can say with 100% certainty that the Beijing initiative will take on the necessary legislative form - the only question is compliance with procedural issues.
The fact that the law will be adopted has already been taken into account at current prices, because it was naive to believe that China would heed the wishes of the leading countries of the world and succumb to Washington's threats. Yesterday's speech by US Secretary of State Mike Pompeo in this regard was indicative - he said that "Hong Kong no longer has significant autonomy within the PRC." Thus, he signaled that in the near future, the United States could impose additional sanctions against both Beijing and the Hong Kong administration. He also made it clear that now the White House will consider this administrative unit as part of China, that is, Hong Kong will lose its special status in relations with the United States. At a minimum, this will change the status of companies registered in Hong Kong.
It is still unknown how exactly Washington will respond to China. Pompeo did not answer the corresponding question, and Trump commented rather vaguely on the possible consequences, noting that this "will be something powerful." Today, the influential publication The New York Times, citing sources in the presidential administration, said that Washington is going to expel around three thousand Chinese students, graduate students and scientists - those who are somehow connected with universities that cooperate with the PRC army. We are talking about students who either studied at such universities, or came for an exchange. According to journalists, this measure is being considered in the context of the response to Beijing. However, it is not known whether the White House will limit itself to this step or is it just the tip of the iceberg.
Judging by the dynamics of the dollar index and the EUR/USD pair, traders are confident that Washington will not translate the political conflict into an economic plane, especially amid depressing macroeconomic statistics. The downturn in the US economy is reflected in almost every report, and today's releases are no exception. Thus, the US currency was under double pressure. Firstly, recent events in China did not provoke a surge in anti-risk sentiment, and, therefore, demand for the dollar did not increase. Secondly, the published statistics again made investors nervous about the possible response from the Federal Reserve. And although Jerome Powell recently ruled out the introduction of a negative rate, many currency strategists still do not exclude this scenario. And each more or less significant indicator that comes out in the red zone serves as another reminder of the "corona crisis" and the possible reaction of the Fed.
Let me remind you that today the second assessment of the growth of the US economy for the first quarter was released today. According to the first estimate, the US economy slowed down by 4.8%. However, during the second assessment, this indicator was revised downward - to -5%. Thus, consumer spending decreased by almost 7%, basic RFE also showed negative dynamics (increased to 1.6% with a growth forecast of up to 1.8%). Exports fell by 8.7%, imports - immediately by 15.5%. In general, the first quarter of 2020 was the worst since the last world economic crisis, and more precisely - since the fourth quarter of 2008. And according to the vast majority of experts, the second quarter will be even worse.
Other macroeconomic reports were also disappointing. For example, the number of applications for unemployment benefits increased by 2,123,000 (the forecast was somewhat more modest - 2,100,000). And although there is a downward trend, the total number of applications since mid-March has exceeded the 40 millionth mark (40,800,000). Meanwhile, April data on orders for durable goods collapsed to the level of -17.2%, while the March result was revised downward (-16.6% instead of -15.3%).
Thus, the fundamental background so far favors the pair's growth, although it is worth remembering that officially the White House has not yet announced its answer to China. But if Washington confines itself to political measures and does not politicize commercial ties between the countries, then the northern dynamics will continue. At the moment, EUR/USD buyers are at two-month highs, testing the resistance level of 1.1070 (the upper border of the Kumo cloud on the daily chart). You should not rush in buying here. But as soon as the bulls consolidate above this target, it will be possible to consider long positions to the next resistance level of 1.1120 - this is the lower border of the Kumo cloud, but on the weekly chart.
