The weekend seems to be eventful. Hong Kong is preparing for new street protests, China is angry at the interference of other countries in the affairs of the autonomous region, and Donald Trump is preparing to answer China for Hong Kong. Everyone is interested in how far the president of the United States can go and whether he will go to level the preliminary trade deal with China in 2019 or noisily take some symbolic steps, such as sanctions and visas for Hong Kong citizens. This may affect the fate of further stock market rallies.
Meanwhile, data on employment in the non-agricultural sector for May will be released next Friday. This will probably be another gloomy indicator. Despite some encouraging signs in the employment picture in recent weeks, these changes are unlikely to be reflected in the May data. Investors striving to seize on signs of economic recovery after a pandemic will meet with any positive stormy standing ovation.
According to a Reuters poll, US employers cut 7.45 million jobs in May compared with a record 20.5 million in April.
As for the dollar, today it missed the US macrostatistics. According to the Ministry of Trade, consumer spending fell by 13.6% in April compared to March instead of the expected decline of 12.6%. At the same time, income unexpectedly increased by 10.5%. Analysts had forecast a drop of 6.5%.
The University of Michigan consumer sentiment index rose by a final estimate to 72.3 points in May, not reaching expectations. Experts announced an indicator of 74 points.
The dollar has other concerns now – the uncertainty in relations between the US and China and the possible reduction in rates deep into the negative area. Jerome Powell today must hint at this or refute market guesses.
Traders are trying to figure out an important question for them: how the reduction in interest rates will affect the status of the dollar as a world reserve currency and a safe-haven asset. This explains why they cannot decide on the movement. And if we add here short-term and long-term economic risks, an increase in the number of initial applications for unemployment benefits? According to Goldman Sachs, high unemployment in the United States will continue for two years, and maybe more. This will slow down a rising economy. Forbes believes that “millions of jobs are lost forever.” It is not surprising why the greenback rushes from side to side in search of the right direction.
So, on Thursday, the dollar passed the lower border of the trading range of March 27. Traders were not sure how to proceed. There was a lull in the market on Friday, as both buyers and sellers took a wait-and-see attitude. New drivers may appear over the weekend.
At the moment, the US currency really offers a favorable risk/reward ratio. This is due to finding it as at the lower limit of the trading range, and near a possible level of resistance with a subsequent decrease.