The decision of the U.S. Supreme Court can set back the US economy
Euro has quickly restored during the US Forex session after its drop close to its 11-month low that had resulted from Italy’s government bond sales and Jens Weidmann’s moderate-dovish rhetoric. The Philadelphia Fed manufacturing activity index deepest drop since 2014 reflects investors’ concerns about trade wars’ influence on the U.S. economy. The situation was fueled by the U.S court that freed the government to collect new sales taxes from online retailers. Although Donald Trump announced consumers’ victory, the tax burden will be imposed exactly on them.
45 out of 50 US states have sales tax, but didn’t impose its on online platform, due to the rule of physical presence. The Supreme Court voted 5 against 4 to overturn the physical presence requirement and referred to a research, according to which, the USA received $33.9 billion less taxes a year. Consumers will have to pay this amount, which will reduce their purchasing power and slow down the US GDP. At the same time, the stocks of the Internet companies, such as Amazon, lose in price. And the US-based equities ETFs attracted $5.1 bn of new cash for the week ended June 20, compared to $8.1-bn outflow from their foreign counterparts. Investors were too optimistic about the US economy’s prospects, and some of them started bringing their money back.
Taxation problems and poor macroeconomic statistics on the USA contributed to the Treasuries yield decline, followed by the USD index drop. However, Societe Generale marks a gradual return of the link between the trade-weighted USD and Treasury inflation protected securities (TIPS). This suggests the greenback is underestimated; according to the bank, it has a potential for the renewing its 13-year highs.
Dynamics of USD and Treasury yields
Euro managed to catch up quickly after the information about the euroskeptics’ appointment to head the budget committee and the Senate finance committee, as there were no signs of deterioration in relations between Italy and the EU According to Danske Bank, one needn’t worry until September, when the government will present the budget proposal for 2019. As for Jens Weidmann, the Bundesbank president said nothing new. ECB really needed some time to watch the economic expansion. That is why he announced the interest rate to be retained through at least next September.
Investors anticipate the data on PMI in Germany and the Eurozone for June. The indicator, leading for GDP, can give a clue about the time when the currency block’s economy should restore. Even if Bloomberg experts expect the sixth consecutive PMI decline, if the actual data are positive, bulls will manage to storm the resistance at 1.1645 and develop the short-term consolidation in the range of 1.15-1.18, I previously indicated.
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Price chart of EURUSD in real time mode
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