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Market Recap:
Overnight, speculation of a September rate cut in the US grew following dovish commentary from Federal Reserve Chairman Jerome Powell. His remarks spurred Wall Street, leading to significant gains with the Nasdaq closing +2.6%, the S&P 500 +1.9%, and the Dow Jones +0.1%. U.S. 10-year yields fell 10bps to 4.04%, while increased tensions in the Middle East drove oil prices 5% higher to $78.40 a barrel.
In the currency markets, USD/JPY traded under 150 for the first time since March, while AUD/USD traded in a 0.6480/0.6555 range before settling at 0.6540/45 ahead of the Asian open. Eurozone CPI beat forecasts with a core reading of 2.9% y/y (2.8% exp.) and a headline of 0.0% m/m (-0.1% exp.). EUR/USD was bid to 1.0840, and GBP/USD moved up to 1.2748.
US ADP employment change came in weaker than expected at 122k for July (150k exp.). The US employment cost index also missed estimates at 0.9% for Q2 (1.0% exp.). Following these releases, the greenback weakened, pushing EUR/USD and NZD/USD to highs of 1.0849 and 0.5943, respectively, while USD/JPY broke below 150.00, hitting lows of 149.79. AUD/USD edged back towards 0.6530 as US equity futures rose.
Chicago PMI for July printed at 45.3, down from 47.4 but slightly above expectations of 45.0. June Pending Home Sales rose 4.8% MoM, exceeding forecasts of +1.5%, but fell 7.8% YoY, below expectations of -7.4%.
The FOMC left rates unchanged, striking a slightly hawkish tone in the accompanying statement. They emphasized the need for greater confidence in the inflation outlook before cutting rates. Despite the unchanged rates, the USD slid during Fed Chair Powell’s press conference, where he suggested a potential rate cut in September if supported by incoming data. AUD/USD rose to highs of 0.6555, and NZD/USD moved up to 0.59605. EUR/USD bounced off 1.0820 lows, while USD/JPY slipped back towards its lows after recovering above 151.00 prior to the Fed decision.
Headlines later reported that the Iranian leadership had ordered retaliatory attacks on Israel, leading to a weaker risk sentiment with crude oil extending gains to as much as 5% on the day.
Day Ahead:
Today, Eurozone unemployment for June is expected to remain unchanged at its multi-decade low of 6.4%, with survey data suggesting services employment growth should offset manufacturing sector weakness.
In the UK, the outcome of the Bank of England’s (BoE) August policy meeting hangs in the balance, with current market pricing split 50:50 on the chances of a rate cut. The Monetary Policy Committee’s silence since the election makes predictions difficult. Recent data, including wage moderation and June services inflation, create a tight call. Macquarie Strategy anticipates that the BoE will hold off in August, using the statement to prepare for a potential cut in September.
In the US, ISM Manufacturing PMI for July will be released tonight. The index has declined in all three months of Q2, with market expectations for a slight increase in July, albeit still below the critical level of 50.
AUD/USD faced significant buying interest at 0.6480 yesterday, with further demand expected around 0.6460 and offering interest lowered to 0.6600/20.
Economic Data to Watch:
- AU – June Trade Balance
- CN – July Caixin China PMI Manufacturing
- EU – June Unemployment Rate
- UK – Bank of England Rate Decision
- UK – BoE Governor Andrew Bailey Press Conference
- US – Initial Jobless Claims
- US – Q2 Preliminary Nonfarm Productivity
- CA – July S&P Global Canada Manufacturing PMI
- US – June Construction Spending m/m
- US – July ISM Manufacturing
- UK – BoE’s Huw Pill
Disclaimer: The information provided in this daily market update is for informational purposes only and should not be considered as financial advice. Trading Forex and CFDs involves significant risk of loss and may not be suitable for all investors. Past performance is not indicative of future results. CA Markets does not guarantee the accuracy or completeness of the information provided, and we recommend consulting with a qualified financial advisor before making any trading decisions. Users are solely responsible for their own trading activities and decisions.
