US dollar index soars as US non-manufacturing PMI falls; deficit widens

The US dollar index rose as the market reacted to the latest trade and ISM non-manufacturing PMI data. It also rose due the euro weakness following the decision by a German court to question the legality of Quantitative easing. The EUR/USD pair declined by more than 60 basis points today.

US trade declines in April

The US trade numbers disappointed in March as the coronavirus pandemic reduced imports and exports. According to the Bureau of Economic Analysis (BEA), the US exported goods worth $187.7 billion in April. This was a 9.7% decline from February’s exports of $207 billion. It was also the lowest figure since the past financial crisis.

The US export industry has been hit mostly because of weak demand for farm products and the problems facing Boeing. As the coronavirus pandemic spread, consumption in China decreased, leading to weak demand for crops like soybeans and corn.

As the biggest US exporter, Boeing problems have contributed to this weak growth. The company halted its 737-Max shipments after the Ethiopian jet crash. At the same time, Boeing has received many cancellations of jets because most airlines are struggling.

Similarly, imports declined to $232 billionafter rising by $247 billion in March. All this led to a 11.6% increase in deficit to $44 billion.

The deficit with the European Union rose by $4.7 billion to $16.9 billion as imports rose by $3.7 billion. On the other hand, the trade deficit with China decreased by $4.2 billion to $15.5 billion as surplus with the UK fell by $1.2 billion.

US non-manufacturing sector struggles

The US non-manufacturing sector is struggling, according to data from the Institute for Supply Management (ISM). The data showed that the PMI declined to a record low of 41.8 from the previous 52.5. The four sub-indexes of the PMI index declined.

The ISM non-manufacturing business activity declined from the previous 48.0 to 26.0 while non-manufacturing employment slumped to 30.0. Similarly, new orders dropped from 52.9 to 32.9 while prices rose from 50.0 to 55.1.

The report found that the best-performing non-manufacturing sectors were public administration and finance and insurance. The other industries declined, with the worst-performing sectors were arts, entertainment and recreation, agriculture, fishing and hunting among others. A respondent of the survey told ISM:

“COVID-19 is altering the operation, supply chain and sales process of home-building. Stay-at-home orders have hampered business in residential construction. As ours has been deemed an essential industry, we continue to navigate changing guidelines and restrictions on a daily basis.”

This data came a few days after ISM and Markit released their manufacturing PMI numbers. As shown below, the two PMIs declined in April to the lowest level since the last financial crisis. At the same time, the two organisations said that the situation was worse than what was reported. This is because the two PMIs included supplier delivery times as a component of the calculation. In normal times, delays are usually seen as a sign of a growing economy.

The US dollar index technical forecast

On the four-hour chart, the US dollar index rose to an intraday high of 99.98, which is the highest level since Friday. The price has moved above the 50-day and 100-day exponential moving averages while the RSI has surged to a high of 60. With this chart arrangement, I expect bulls to remain in control as they attempt to test the previous resistance level at 100.87.