U.S. Consumer Debt Spooks Currency Markets

By MoneyWay | Aug 14, 2018

Total U.S. household debt reached a new peak of $13.3 trillion, $618 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008. It was 19.2 percent above a post global credit crisis low set in the second quarter of 2013, the New York Fed said.  The ongoing growth in home, auto, student and credit loans has been linked with a solid labor market. As borrowing advanced, borrower stress continued to decline. Loans slipping into delinquency fell to 4.52 percent in the second quarter, the lowest in data from 2003. The drop was primarily due to student loans, for which the transition rate has fallen 1.3 percentage points over the last year.

The USD fell as markets digested the household debt data, also, traders are starting to worry that Washington will sooner or later try to weaken the USD. President Trump has stated on a number of occasions that China and Europe, but particularly China, have manipulated their currencies in order to cheapen their own goods, and he will take measures to weaken the USD if there is no sign of them trying to strengthen.

Support                                                                Resistance

USDCAD   1.3088, 1.3082, 1.3065                               1.3110, 1.3117, 1.3128

XE Market Analysis: North America – Aug 14, 2018

USD-CAD has drifted back under 1.3100 after capping out at a 1.3171 high yesterday, which was a three-week peak. Support comes in at 1.3067-70, and resistance at 1.3190-92. President Trump’s threatened tariffs on Canadian made cars, in a tweet late Friday as reported by the WSJ, if a deal is not struck with Canada on NAFTA. Any sure signs of progress on the NAFTA front would likely spark a rebound in the Canadian Dollar, as the uncertainty about the re-negotiation has seen a discount being build into the currency.

EUR-USD has been choppy around the 1.1400 level, so far holding within yesterday’s 1.1365 – 1.1431 range. The low from yesterday was a 13-month low. Ankara’s successful efforts to halt the rout in the Turkish Lira have helped calm global markets, which in turn has seen the Dollar weaken and the Euro firm. Data today have been Euro positive, including an upward revision in Eurozone Q2 GDP to 0.4% q/q from the initial estimate of 0.3% q/q growth, while German ZEW investor confidence came in higher than expected at -24.7 from -13.7. We would advise market participants to remain their weather stations, however: Aside from Turkey’s plight, and the flash of contagion across the globe yesterday, there are concerns about an escalating trade war involving the U.S., China, Japan and the EU — economies that form the major chunk of world GDP. We remain bearish of EUR-USD. The relative strength of the U.S. economy should be showcased by incoming data, which in turn should girder the Fed’s course to further tightening (despite the recent turmoil in global markets we still expect two more 25 bp hikes in the Fed funds rate this year, one in September and another in December). EUR-USD has resistance at 1.1425.

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