Pressure Mounts on Euro-Dollar Rate in the Face Of Lower Investor Confidence in the Eurozone
On Friday, July 5, 2019, the US Department of Labor released the June non-farm payrolls. Clearly, 224,000 jobs were added in June compared to the meager 75,000 added the month before. The market reacted with the US dollar climbing close to two-week highs.
The US dollar gaining against rivals
At the start of this trading week, the EUR/USD was trading at 1.1224. This is just 24 pips movement for the pair since the two-week low level attained on Friday. For the most part of the trading session, the pair danced within the neighborhood of the Friday value. Clearly, the pair is yet to adopt a firm direction.
The undecidedness of the pair is perhaps due to the fact that the U.S. is yet to get it right when it comes to the unemployment rate. As per the latest figures, the rate is at 3.7%, which is a slight increase but still below the lowest rates for five decades.
Increased job creation for June casts doubt on the possibility of a rate cut in July. To be sure, past economic data and the escalation of global conflicts in international trade had persuaded traders to price in a rate cut of at least 50 basis points. Also, the increasing likelihood of a trade deal between the U.S. and China could help to propel the greenback to new highs.
On Friday, the US dollar index hit the highest level in two-and-a-half weeks at 97.261 but closed the session at 97.17, according to data from MarketWatch. The figure was further up on Monday.
Source - MarketWatch
Lower Investor Confidence in the Eurozone Hurting the Euro
Deutsche Bank exemplifies the struggles in the Eurozone. To be sure, the lender announced and moved on, almost immediately, to affect a massive job cut. The German lender revealed that it would get rid of 18,000 employees, the majority of who worked in its equity trading business.
For over 20 years, Deutsche Bank has been trying to break into the mold of top Wall Street banks. However, it seems the ambition has been set aside. At the time of writing, the Deutsche shares were down 5%. As a result, the DAX was trading 0.3% down from the opening Monday trading sessions.
The problems do not end there for the Eurozone. As per the latest statistics from Moody’s Analytics, the month of May saw retail sales in the Eurozone drop by 0.3% and which was more than expected. This has put pressure on the Euro.
The market is already speculating hard about a possible quantitative easing program. But the incoming of Christine Lagarde, the IMF Chief, should help to breathe some air of confidence in the market.
The EUR/USD pair could be headed for more lows if the ECB continues to leave its rates unchanged, analysts say. But the pair will continue to remain tight as trading continues to be subdued.