Forex-novosti i prognoze od 04-07-2024

• NZD/USD edges lower near 0.6115 in Friday’s early Asian session. 
• US Nonfarm Payrolls (NFP) data will be in the spotlight on Friday. 
• The RBNZ is expected to hold its OCR steady at 5.5% next week. 

The NZD/USD pair weakens to nearly 0.6115, snapping the two-day winning streak during the early Asian session on Friday. The release of US Nonfarm Payrolls (NFP) for June will take center stage on Friday, along with the speech by the Federal Reserve’s (Fed) John Williams. 

The recent weaker-than-expected US economic data raised expectations that the Fed would start cutting the interest rate sooner than expected, which dragged the Greenback lower. Traders are now pricing in nearly 66% odds for a 25 basis points (bps) Fed rate cut in September,  up from 58.2% last Friday, according to CME FedWatch Tool.

 Meanwhile, the Minutes of the FOMC June monetary policy meeting showed that Fed officials lacked the confidence they needed to cut the interest rate. Additionally, most participants estimated that the current policy is restrictive but had opened the door for a rate hike. 

The attention on Friday will shift to the US employment data for June. The US Nonfarm Payrolls is expected to show 190K jobs addition in June, below the previous reading of 272K. The Unemployment Rate is projected to remain unchanged at 4%. Finally, the Average Hourly Earnings are forecast to drop to 3.9% YoY in June from 4.1% in May.

On the Kiwi front, ANZ economists said that the Reserve Bank of New Zealand (RBNZ) is expected to leave the Official Cash Rate (OCR) at 5.5% at its next monetary policy meeting next week. The central bank will likely maintain a cautious stance amid evolving economic data. However, the growing speculation that the RBNZ might cut interest rates earlier than expected in November might weigh on the New Zealand Dollar (NZD). 

• UK election results show UK Labour Party poised for huge sweep to majority win.
• Brits set to elect their first non-Conservative Prime Minister in 14 years.
• US NFP labor data dump on Friday to cap off trading week.

GBP/USD traded in a tight range on Thursday as Cable traders await final results from the UK’s Parliamentary Election, and markets gear up for a fresh round of US Nonfarm Payrolls (NFP) slated for Friday. US markets were dark on Thursday, crimping overall market flows during the American trading window, but are slated to return on Friday.

Forex Today: The US Payrolls takes centre stage

The UK’s Parliamentary Election is wrapping up, and initial tallies are confirming what was largely projected by entry and exit polls: the UK is likely to elect the Labour Party’s Keir Starmer as the first non-Conservative UK Prime Minister in 14 years.

UK general election 2024: Exit poll points to Labour victory

Median market forecasts continue to expect an overall softening in US data. Investors, hungry for rate cuts from the Federal Reserve (Fed), are leaning into hopes for a slight economic downturn in the US to spark rate moves from the US central bank.

US NFP figures are expected to tick down to 190K in June, down from the previous month’s 272K. Markets will also be on the lookout for steep revisions to previous releases, while June’s US Unemployment rate is expected to hold steady at 4.0% MoM.

US Average Hourly Earnings are expected to cool slightly in June, forecast to ease to 3.9% YoY compared to the previous annualized period’s 4.1%.

GBP/USD technical outlook

GBP/USD is extending into a thin but determined recovery on Thursday, stretching into a third day of gains after arresting near-term declines just north of the 200-day Exponential Moving Average (EMA) at 1.2610.

Cable has drifted into the low end after seeing a technical rejection from a supply zone priced in above 1.2800. Still, unmotivated bears have failed to spark a meaningful decline into the last major swing low into the 1.2300 handle.

GBP/USD hourly chart

GBP/USD daily chart

UK’s Labour Party, led by Keir Starmer, appears to be headed for a huge majority in the 2024 UK election, an exit poll suggested.

An exit poll said Labour is on course to win about 410 seats in the 650-seat House of Commons, while the Conservatives are projected to win 131 seats. The center-right Conservatives have governed the country since 2010. That would be the Tories’ worst result in the party’s two-century history and would leave the party in disarray.

Market reaction

The Pound Sterling (GBP) remains steady after the exit poll suggested the Labour Party will win a landslide victory. At the press time, the GBP/USD pair is down 0.03% on the day to trade at 1.2755.

• USD/JPY eased slightly with US markets on holiday.
• Thin Japan data brings little of note for the Yen.
• Friday’s US NFP jobs data dump to cap off the trading week.

USD/JPY eased slightly as the Yen gets a much-needed break from getting pummeled by bears. The pair chalked in a midweek peak a few points away from 162.00 on Wednesday before settling into a middling pattern as markets gear up for Friday’s US Nonfarm Payrolls (NFP) labor data print.

The US Dollar continues to grind into fresh 38-year highs against the Yen as the Bank of Japan’s (BoJ) hyper easy monetary policy stance does little to support the floundering JPY. Despite numerous rounds of verbal threats from Japanese policymakers to intervene directly in FX markets, USD/JPY continues to test into nearly four-decade peaks. The Yen is getting battered across the board as Japan’s functionally zero interest rates leave a wide rate differential between JPY and the other major currencies, and global market flows continue to reflect that.

US markets went dark on Thursday in observance of the July 4 Independence Day holiday, but will be returning to the market fold on Friday just in time to deliver the latest round of US NFP hiring figures. Median market forecasts are expecting an overall softening in US data as investors lean into hopes for a slight economic downturn in the US to spark rate cuts from the Federal Reserve (Fed).

US NFP are expected to tick down to 190K in June, down from the previous month’s 272K. Markets will also be on the lookout for steep revisions to previous releases, while June’s US Unemployment rate is expected to hold steady at 4.0% MoM.

US Average Hourly Earnings are expected to cool slightly in June, forecast to ease to 3.9% YoY compared to the previous annualized period’s 4.1%.

USD/JPY technical outlook

Bullish momentum has paused with intraday bids trailing back slightly from a four-decade peak set earlier this week. Little remains in the way of technical barriers, except for the 162.00 handle likely to be viewed as more of a target than a wall by buyers.

USD/JPY has drifted well into bull country, up nearly 15.5% from late December’s swing low into 140.25. The 200-day Exponential Moving Average (EMA) is rising into 151.50, and a downside correction would need to cover significant ground to return bids to bearish chart territory as active trading holds nearly 7% above the long-run moving average.

USD/JPY hourly chart

USD/JPY daily chart

• NZD/JPY experiences a slight retreat, moving towards the 98.60 mark.
• Immediately identifiable supports are established at 98.00 and 97.00.
• In its ongoing traverse of unexplored territories, the pair could potentially test the 99.00-100.00 range.

In the Thursday trading session, the NZD/JPY pair witnessed a subtle downturn, moving towards the 98.60 level. This comes after buyers paused their aggressive move, having recently elevated the pair to highs unseen in decades, peaking near the 99.00 mark.

From the perspective of the daily chart's technical analysis, the Relative Strength Index (RSI) presently records a reading of 70, marking a slight decrease from Wednesday's session's reading. This mild decline indicates a possible decline in the previously strong bullish momentum. However, with the RSI still relatively high, the bullish momentum cannot be disregarded entirely. The Moving Average Convergence Divergence (MACD) appears in flat green bars, reinforcing arguments suggesting overextended movements and a potential pullback.

NZD/JPY daily chart

Moving forward, it is expected that the pair could maintain its bullish trajectory, remaining above the 20-day, 100-day, and 200-day Simple Moving Averages (SMAs). Nevertheless, potential corrections related to the current overbought situations could be in sight.

In case of a downward correction, immediate support is now anticipated around 98.00, 97.50, and 97.30 (20-day SMA). Buyers should prioritize maintaining these levels before seeking to explore new highs. If the 98.00 level successfully withstands the defensive play, buyers might retest the 99.00 area and even the 100.00 levels.

• USD/JPY dips to 161.24, down 0.28%, amid quiet trading on US Independence Day.
• RSI leaves overbought zone, suggesting waning buying momentum, yet remains bullish above the 50-neutral line.
• Buyers aim for YTD high of 161.95 and key 162.00 resistance, with sights on November 1986 high of 164.87.
• Support established at 161.00, 160.35 (Tenkan-Sen), 159.30 (Senkou Span A), and 158.25 (Kijun-Sen).

The USD/JPY registers minimal losses in thin volume conditions during the North American session due to US financial markets being closed in observance of the US Independence Day holiday. The major trades at 161.24, down 0.28% after hitting a daily high of 161.70.

USD/JPY Price Analysis: Technical outlook

The USD/JPY edged slightly lower yet failed to push decisively below the 161.00 psychological level, seen as the floor in the near term. Buyers would remain leaning to this level in anticipation of rallying toward the year-to-date (YTD) high of 161.95 before claiming 162.00 ahead of the November 1986 high of 164.87.

Buying momentum begins to fade as the Relative Strength Index (RSI) exits overbought territory, seen as a selling signal. However, unless the RSI pierces the 50-neutral line, remains bullish biased.

If USD/JPY drops below 161.00, the next stop would be the Tenkan-Sen at 160.35. A breach of the latter can exacerbate a pullback toward the Senkou Span A at 159.30, followed by the Kijun-Sen at 158.25.

USD/JPY Price Action – Daily Chart

• GBP/JPY is middling on Thursday, pausing after a 13-day climb.
• Data for both currencies remains limited, but UK elections could spark volatility.
• Japanese Yen likely to continue deflating as BOJ remains stubbornly easy on policy.

GBP/JPY is taking a breather after stellar 13-consecutive-trading-day win streak, holding close to the high end of a 3.5% bottom-to-top near-term rally. Meaningful economic data is absent from the economic calendar on Thursday. Still, upcoming UK Parliamentary Election results could spark moves in either direction as traders tend to reward political upheaval with an overall uptick in volatility.

A 14-year run for the UK’s Conservative Tory party is set to end on Thursday, as early entry polls heading into the election noted an extreme likelihood of a sweeping victory for the UK’s Labour Party. Labour’s Keir Starmer is set to replace incumbent UK Prime Minister Rishi Sunak as the British populace looks set to pivot away from the party that has struggled since strongarming Brexit across the finish line. 

Japanese economic data is firmly low-tier for the remainder of the trading week, and the Yen is doomed to continue spiraling lower as the still-wide interest rate differential between the JPY and most other major currencies is an unavoidable hurdle to Japanese policymakers that have been attempting to intervene in market flows with threats of direct intervention for weeks. Effects of verbal intervention have fully decayed as the Yen sinks to multi-year, and in some cases, multi-decade lows across the board.

GBP/JPY technical outlook

Topside technical barriers have all evaporated as GBP/JPY continues to grind into fresh 16-year highs regularly, and the pair is sticking close to the high end after cracking above the 206.00 handle this week.

The Guppy is buried deep in bull country in a long-term one-sided trend. The pair has traded almost exclusively north of the 200-day Exponential Moving Average (EMA) currently rising through 190.80 since climbing above the long-term moving average in the first quarter of 2023.

It would take an 8% decline to drag GBP/JPY black into bearish territory below the key moving average, and the pair has closed in the green on a week-on-week basis for all but five of the last 26 trading weeks, and is on pace to chalk in a 26th.

GBP/JPY daily chart

European Central Bank (ECB) President Lagarde noted late Thursday that although overall progress on cooling inflation is expected to continue moving forward, policymakers still need to keep a close eye on hotspots in EU inflation data.

Key highlights

• The USD/CHF extended its decline despite soft CPI figures from Switzerland.
• US ADP employment report and ISM Services PMI data for June from the US came in weaker than expected which pressures down the pair.
• Due to softening inflation, the SNB might embrace further cuts.

In Thursday's session, the USD/CHF pair slightly declined, with markets showing a less enthusiastic attitude towards the USD after weak data outcomes. The key movers are the disappointing US ISM Services PMI for June, which indicated a contraction in the US service sector reported on Wednesday. In the European session, the Swiss inflation figures came in soft.

The center of attention on Wednesday was the weak ADP Employment report for June, with private sector jobs increasing by 150K compared to the revised forecast of 160K. Additionally, the ISM Services PMI considerably underperformed, dropping to 48.8 from 53.8 in May and missing the market expectation of 52.5. Subsequently, markets grew more confident of a September cut from the Federal Reserve (Fed) which weighed on the USD.

Anticipation grows for the US labor market figures, notably the Nonfarm Payrolls for June and Unemployment and wage inflation figures due on Friday. These figures have drawn enhanced scrutiny due to growing concerns among Fed officials about the health of the labor market and may shift the expectations of the timing of the easing cycle.

On the Swiss front, the June Consumer Price Index (CPI) announced on Thursday showed a decline to 1.3% YoY vs the 1.4% YoY expected. The Core slightly declined to 1.1% the 1.2% expected. The lower inflation might give scope to the SNB to ease further. Hence, market odds for a September interest-rate cut by the SNB exceeded 50%.

USD/CHF technical analysis

The technical outlook turned somewhat negative in the short term. The currency pair cut a promising six-day streak, with indicators including the Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI) losing momentum. Main supports lie at the 100-day Simple Moving Average (SMA) at 0.8985, followed by the 20-day SMA at 0.8950. The immediate target for the buyers remains at 0.9040.

USD/CHF daily chart

• Gold prices edge up 0.15% amid thin trading on US Independence Day.
• XAU/USD reached a two-week high of $2,365 Wednesday, driven by weak US jobs data and heightened Fed rate cut expectations.
• Traders shift focus to Friday's Nonfarm Payrolls report, following the US holiday closure.

Gold prices registers minimal gains on Thursday amid thin liquidity conditions during the North American session, as US traders are off their desks in observance of Independence Day. Recent economic data from the US augmented expectations that the Fed might begin to ease policy sooner than expected, yet policymakers remain vigilant and would like to see the disinflation process evolve further.

The XAU/USD trades at $2,356, up 0.15%, after hitting a two-week high at $2,365 on Wednesday.

Bullion rallied more than 1% on Wednesday on softer-than-expected jobs reports, led by last week’s Initial Jobless Claims and ADP data showing that private hiring deteriorated in June compared with May. Additionally, business activity in the services sector, tanked to contractionary territory as measured by the ISM Services PMI.

Meanwhile, the Federal Open Market Committee (FOMC) revealed June’s meeting minutes, which showed that most participants estimated that the current policy is restrictive but had opened the door for rate increases. Policymakers acknowledged the economy is cooling and could react to unexpected economic weakness.

Traders' focus shifts to Friday’s Nonfarm Payrolls (NFP) report, as US markets remain closed due to the Independence Day holiday.

Daily digest market movers: Gold price stays firm above $2,350

• Earlier in the week, Fed Chair Powell remarked that the disinflation process has resumed but emphasized the need for further progress before considering any interest rate cuts. He added, “Because the US economy is strong and the labor market is strong, we can take our time and get this right.”
• On Friday, the US Nonfarm Payrolls report for June is expected to show that the economy added 190K jobs to the workforce, below May’s 272 K.
• The Unemployment Rate is expected to remain at 4% unchanged compared to previous readings, while Average Hourly Earnings (AHE) are projected to decelerate from 4.1% to 3.9% YoY.
• According to the CME FedWatch Tool, odds for a 25-basis-point Fed rate cut in September are at 66%, up from 63% on Tuesday.
• December 2024 fed funds rate futures contract implies that the Fed will ease policy by just 38 basis points (bps) toward the end of the year.

Technical analysis: Gold price fluctuates near Head-and-Shoulders neckline

Gold prices consolidate on Thursday due to thin volumes in the financial markets. Although the yellow metal remains bullish, the Head-and-Shoulders chart pattern is In the play, which began its formation in April 2024.

From a price action perspective, XAU/USD shows a near-term downward bias, but the overall bullish trend remains intact, supported by a bullish Relative Strength Index (RSI).

If the gold price breaks above the pattern's neckline, it could rise to $2,400, invalidating the Head-and-Shoulders chart formation and potentially leading to further gains toward the year-to-date high of $2,450.

On the other hand, if sellers drive the spot price below $2,350, further declines could target the $2,300 level. If this support fails, the next demand zone would be the May 3 low of $2,277, followed by the March 21 high of $2,222.

• AUD/USD bulls retain firm amid weak US data.
• May's strong Retail Sales figures from Australia continue to support the pair, soft Trade Surplus may limit the upside.
• US traders are out celebrating Independence day.

The Australian Dollar (AUD) held its ground against the USD, maintaining itself in highs since January. This is despite the weaker-than-expected Trade Surplus figures reported during the Asian session as the USD remains weak following Wednesday’s set of soft economic figures reported.

The Australian economy is showing some signs of weakness. However, persistently high inflation is prompting the Reserve Bank of Australia (RBA) to delay potential rate cuts. As potentially one of the last G10 countries' Central Banks to initiate rate reductions, this could somewhat further extend the gains of the Aussie as markets are also considering rate hikes.

Updated Daily Market Movers: AUD gains strength despite disappointing Trade Surplus data

• Trade Surplus for May in Australia came in at 5,773M MoM, narrower than the 6,678M expected and a downgrade from 6,548M in the previous reading, according to the Australian Bureau of Statistics on Thursday.
• Australia’s Goods/Services Exports rose 2.8% on a monthly basis versus the 2.5% decline in the prior month, offering some support to the Aussie.
• From the Reserve Bank of Australia, this week's minutes reflected an ongoing preference for holding the policy rate steady, primarily due to "uncertainty around consumption data and clear evidence of financial stress among many households".
• With the bank leaving the door open for rate hikes and with Governor Bullock confirming that the bank will do what's necessary to bring down inflation, the Aussie might extend its gains.
• Futures markets now assign a 25% probability of a rate hike at the RBA’s August 6 meeting, growing to around 50% in the following meetings.
• For the Federal Reserve, the market’s anticipation for a rate cut in September remains robust, with a 70% odds placed on the expectation.
• Wednesday’s soft ADP, Jobless Claims, and ISM Services PMIs definitely boosted the market’s doves confidence of a September cut.

Technical Analysis: AUD/USD continues its strong momentum, outlook favorable for the bulls

The AUD/USD pair retains a robust momentum, with indicators including the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) residing deep in positive territory. With the pair in its January highs, it shows a promising outlook.

On the resistance front, 0.6730 and 0.6750 are the next bullish targets. Meanwhile, potential support levels include 0.6670, 0.6650, and 0.6630.

While market participants wait for the results of the UK general elections, attention is expected to gradually shift to the release of US Nonfarm Payrolls on July 5, following a dull session that witnessed marginal volatility and unusual trade conditions in response to the US Independence Day holiday.

Here is what you need to know on Friday, July 5:

The USD Index (DXY) remained stuck within its multi-session bearish trend, approaching once again the 105.00 neighbourhood. The Nonfarm Payrolls and the Unemployment Rate will be at the centre of the debate on July 5, along with the speech by the Fed’s J. Williams.

EUR/USD picked up pace and extended the recent breakout of 1.0800 the figure. On July 5, Germany’s Industrial Production is due in the first turn, seconded by Retail Sales in the broader Euroland and speeches by the ECB’s Elderson and Nagel.

GBP/USD maintained its bullish stance well in place for yet another session and traded at shouting distance from monthly peaks north of 1.2700, all ahead of the results of the UK general election. House Prices tracked by Halifax are due on July 5, ahead of the BBA Mortgage Rate and the speech by the BoE’s Benford.

USD/JPY retreated markedly amidst the Dollar’s sell-off and the inactivity in the US. money market. On July 5, the Japanese docket will include Household Spending, and the preliminary readings of the Coincident Index and the Leading Economic Index.

AUD/USD kept its upside bias well in place and revisited the area of three-month highs past the 0.6700 mark. The final Retail Sales are only due in Oz on July 5.

Prices of WTI added to Wednesday’s advance and flirted with recent monthly highs past the $84.00 mark per barrel as traders assessed the sharp drop in US crude oil stockpiles and the extra weakness in the dollar.

Prices of Gold alternated gains with losses around the $2,360 region following another negative day of the Greenback and muted US yields. Silver saw its recent rally somewhat curtailed, although it managed well to keep business above the $30.00 mark per ounce.

• GBP/USD claws back towards 1.2800, extends into a thin but determined recovery.
• Political risk weighs heavily over Cable, with UK election results due late in the US session.
• US markets are dark for the Independence Day holiday, and volumes remain thin. 

GBP/USD is fighting back into the high end as the Greenback broadly recedes on Thursday. Market volumes are drawn tight with US exchanges shuttered in observation of the US Independence Day holiday, and Cable traders are awaiting vote tallies in the UK’s Parliamentary Elections, which are slated to begin releasing late in the US market window.

The UK’s Labour Party is broadly expected to sweep to a massive victory on Thursday, upending 14 consecutive years of Conservative Party leadership. According to advance polling released just before election day, the British populace is forecast to reject current-Prime Minister Rishi Sunak’s Tories roundly. US Nonfarm Payrolls (NFP) jobs data is also slated for release on Friday, promising a heady end to the trading week.

Daily digest market movers: Darkened US markets leave UK elections front and center

• UK Parliamentary Election is widely expected to unseat the long-running Conservative Party and incumbent Prime Minister Rishi Sunak in favor of the Labour Party’s Keir Starmer.
• Advance polling suggests Labour is going on a strong sweep this election, projected to win around four hundred seats out of the UK’s 650 available seats.
• PM Rishi Sunak marks the fourth straight Tory leader in just eight years.
• US NFP net job gains are forecast to ease to 190K in June, down from the previous 272K.
• US Average Hourly Earnings are also expected to moderate further, forecast to tick down to 0.3% MoM in June, down from the previous 0.4%.

Technical analysis: GBP/USD tests higher, clawing back ground amid thin recovery

GBP/USD is extending into a thin but determined recovery on Thursday, stretching into a third day of gains after arresting near-term declines just north of the 200-day Exponential Moving Average (EMA) at 1.2610.

Cable has drifted into the low end after seeing a technical rejection from a supply zone priced in above 1.2800, but unmotivated bears have failed to spark a meaningful decline into the last major swing low into the 1.2300 handle.

GBP/USD hourly chart

GBP/USD daily chart

• Canadian Dollar stretched into a third day of gains against the Greenback.
• Canada is absent from the economic calendar on Thursday.
• US markets are also shuttered for the holiday, leaving a lull in market volume.

The Canadian Dollar (CAD) rose into a third consecutive day of gains against the US Dollar as Thursday markets grind away quietly. A lack of notable data has left both the CAD and the USD adrift, giving market participants a breather before Friday’s heady US Nonfarm Payrolls (NFP) jobs data dump.

Canada and the US are both absent from the economic calendar on Thursday. US markets are darkened for the Independence Day holiday, while Canada has nothing useful to say. Friday is set to be a volatile capstone on the trading week, with US NFP set to eclipse Canadian labor figures entirely.

Daily digest market movers: Canadian Dollar eases into higher gains on tepid Thursday

• Market focus will shift to Friday amid a flat Canadian release schedule and US holiday.
• June’s Canadian Net Change in Employment is expected to ease to 22.5K from the previous 26.7K.
• The Canadian Unemployment Rate is forecast to tick higher to 6.3% from 6.2%.
• Annualized Canadian Average Hourly Wages for the year ended in June will also be published. Canadian wages last printed 5.2% YoY growth.
• US NFP net job gains are forecast to ease to 190K in June, down from the previous 272K.
• US Average Hourly Earnings are also expected to moderate further, forecast to tick down to 0.3% MoM in June, down from the previous 0.4%.

Technical analysis: Canadian Dollar claws back further ground from Greenback

The Canadian Dollar (CAD) is shifting moderately higher on Thursday, climbing around one-fifth of one percent against the US Dollar (USD). The CAD also gained a scant one-tenth of one percent against the Pound Sterling (GBP) and the Swiss Franc (CHF), but shed around the same against the recovering Japanese Yen (JPY).

USD/CAD is grinding lower, dropping away from Thursday’s early high bids around 1.3640, heading for the 1.3600 handle. A clean downside break of 1.3600 sets the pair up for a renewed challenge of the 200-day Exponential Moving Average (EMA) at 1.3588. Daily candles have collected a significant amount of bearish pressure from a supply zone baked in above 1.2750, and USD/CAD bids are getting squeezed into a high-pressure zone just above long-term moving averages.

USD/CAD hourly chart

USD/CAD daily chart

• Mexican Peso registers gains third consecutive day, trading below 18.10 against the US Dollar.
• Weaker US economic data, including disappointing ADP Employment Change and rising unemployment claims, weigh on the Greenback.
• Bank of Mexico Deputy Governor Jonathan Heath echoes Fed's cautious stance on rate cuts, supporting the Peso.

The Mexican Peso extended its gains for the third straight day on Thursday after evidence that the US economy is slowing down weakened the Greenback. This ignited speculation that the Federal Reserve could begin its easing cycle this year, as some Fed officials commented that the dual mandate risks are more balanced. At the time of writing, the USD/MXN trades at 18.08, down 0.36%.

Mexico’s economic docket is light, yet the Peso was boosted by Bank of Mexico (Banxico) Deputy Governor Jonathan Heath, who wrote in an X post on Wednesday that he “agree[s] with Jerome Powell. More benign inflation data is needed before cutting rates. He said it for the Federal Reserve, but the same applies to the case of Mexico.”

Aside from this, US data on Wednesday disappointed investors. ADP Employment Change figures for June missed the mark and trailed May’s data, while the number of Americans filing unemployment claims rose, exceeding estimates and the previous week's data. This accentuated fears that the labor market is weakening, increasing the odds of a rate cut by the Federal Reserve.

Further data showed signs that the US economy is slowing as the ISM Services PMI plunged after hitting its highest level since August 2023, dived into contractionary territory,

Therefore, US Treasury yields tumbled, undermining the Greenback, which stands at 105.12 and is about to crack the 105.00 mark.

According to the CME FedWatch Tool, odds for a September 2024 cut lie at 66%, higher than a day ago's 63% chances.

Daily digest market movers: Mexican Peso rises further on US Dollar weakness

• Banxico’s survey showed that economists estimate the Gross Domestic Product (GDP) to end at 2%, down from 2.1%. They expect Banxico to cut rates from 11.00% to 10.25%, up from 10.00% projected in May.
• On Monday, Banxico Governor Victoria Rodriguez Ceja was dovish, as she said the evolution of disinflation can “allow us to continue discussing downward adjustments in our rate, and I consider that this is what we will be doing in our next monetary policy meetings.”
• Fed Chair Powell said the US economy made significant progress on inflation while adding that the risks of the Fed’s dual mandate are more balanced.
• US jobs data witnessed ADP Employment Change in June, creating 150K jobs, missing the estimated 160K and the prior month 157K; while Initial Jobless Claims for the week ending June 29 was 238K, exceeding estimates of 235K, and the previous reading of 234K.
• June’s ISM Services PMI plummeted to recessionary territory, from 53.8 to 48.8, the fastest pace in four years and its weakest since May 2020.

Technical analysis: Mexican Peso surges sharply as USD/MXN slumps below 18.10

The USD/MXN extended its losses to three consecutive days, with the pair clearing the next psychological support at 18.10, which exacerbated a test of the 18.05 figure earlier during the day. Momentum hints that buyers lost steam as depicted by the Relatives Strength Index (RSI), which points downwards about to pierce the 50-neutral line despite remaining bullish.

If USD/MXN drops further, the next target is the psychological level of 18.00. Breaking below this level would expose the next support at the December 5 high, which turned support at 17.56. Further decline aims for the 50-day Simple Moving Average (SMA) at 17.37.

Conversely, if buyers push the spot price above 18.50, it could rally toward the June 28 high of 18.59, potentially extending gains to challenge the year-to-date high 18.99.

• US Dollar is under further scrutiny following dismal ADP and ISM Services PMI data
• Markets firming up their view of a September Fed rate cut.
• Investors are turning their attention towards the forthcoming Nonfarm Payrolls data from June on Friday.

The US Dollar, represented by the DXY Index, has continued to show weakness as traders assess a series of Wednesday data releases. US traders will remain on the sidelines, celebrating Independence day.

Concerns raised by signs of disinflation and a slowing labor market in the US are being taken into account by market participants, with a September rate cut now seeming more likely. Federal Reserve (Fed) officials are maintaining a conservative stance, however, starting to show concerns about the labor market struggles.

Daily digest market movers: US Dollar softens further amidst poor data, markets prepare for Nonfarm Payrolls

• With US traders off to celebrate Independence Day, the market is left to digest Wednesday's data releases.
• Private sector employment reported by Automatic Data Processing (ADP) came in lower than expected, with an increase of 150K jobs in June versus a forecast of 160K.
• Additionally, the weekly Jobless Claims came in at 238K, which was above the expected figure of 235 K.
• The US service sector displayed contraction in June signified by the ISM Services PMI, which hugely missed market expectations of 52.5 by declining to a record low of 48.8 from 53.8 in May.
• Minutes from the Federal Reserve’s June 11-12 meeting indicated that officials do acknowledge a slowing US Economy and easing price pressures, yet they refrained from any commitment to rate cuts, preferring a cautious data-dependant approach.
• Investors are now shifting their attention to Friday's significantly important June Nonfarm Payrolls report. The Bloomberg consensus predicts 190K jobs, dropping from 272K in May, with 'whisper numbers' forecasting 198K.

DXY Technical Outlook: DXY experiences further headwinds and loses 20-day SMA

The DXY technical outlook turned negative after the index fell below the 20-day Simple Moving Average (SMA). With both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) now in negative territory, the market is looking at the potential for further decline towards the 105.00 and 104.50 supports if data continues to disappoint.

Federal Reseve’s (Fed) FOMC June meeting provided no major insights regarding the policy outlook. FOMC became more cautious in the wake of sustained high inflation in Q1 2024, TDS analysts note.

Fed's SEP projections are likely already stale

“The FOMC minutes from the June meeting provided no major insights regarding the policy outlook. Indeed, the report continued to paint an FOMC that was becoming increasingly more cautious in the wake of sustained high inflation in Q1 2024. This was also reflected in the policymakers' decision to reduce the number of rate cuts penciled for 2024.”

“With that said, the Fed's SEP projections are likely already stale given recent data on inflation and consumer spending. Chair Fed Powell's remarks at the ECB's Sintra meeting on Tuesday supports this view, as the Fed seems to be already acknowledging the clear progress made on inflation and the labor market since the June FOMC meeting.”

“In our view, the main takeaway from the minutes remains intact: absent a material deterioration in the labor market, the decision to ease this year remains entirely dependent on inflation outcomes.”

• GBP/USD rises to 1.2757, up 0.14%, during UK general elections.
• Resistance at 1.2760/77, where 61.8% Fibonacci and trendlines converge.
• If surpassed, next targets: 1.2800 and YTD high at 1.2894.
• Support levels: 1.2736 (50% Fibonacci), 1.2700, 1.2666/70 (23.8% Fibonacci and 50-DMA).

The Pound Sterling rises moderately against the US Dollar on Thursday. The UK holds general elections, which would likely result in a victory for the Labour Party. The GBP/USD trades at 1.2757, up 0.14%.

GBP/USD Price Analysis: Technical outlook

The pair faces a key supply area, composed by the confluence of the 61.8% Fibonacci retracement (Fib) level drawn from the June 12 high to the June 27 last cycle low at around 1.2760 and two resistance trendlines that hover around 1.2760/77. If traders could push the GBP/USD exchange rate past that area, look for a test of 1.2800. a successful breach of the figure can expose the year-to-date (YTD) high of 1.2894.

However, if sellers contain buyers below 1.2760/77, it could weaken the Pound and send the exchange rate toward the 50% Fib at 1.2736. A breach of the latter will expose the 1.2700 figure, followed by the confluence of the 23.8% Fib retracement and the 50-day moving average (DMA) at around 1.2666/70.

GBP/USD Price Action – Daily Chart

USD/SGD continued to trade lower. The back-to-back drop in the US Dollar (USD) is providing a breather for some AXJ FX, including KRW, THB, SGD. And markets are likely to be looking forward to US NFP (Fri) andUS CPI report (next Thu), OCBC analysts Frances Cheung and Christopher Wong note.

USD/SGD drifts lower towards 1.35

“Another softer print should add to USD downside and help with recovery momentum for AXJ FX. That said, RMB, JPY moves are also eyed. Persistent drop in RMB and JPY may still dampen momentum and limit recovery in AXJ FX.”

“Pair was last at 1.3513 levels. Mild bullish momentum on daily chart is fading while RSI fell. Risks modestly skewed to the downside. Support here at 1.35 (100 DMA) and 1.3460 (50% fibo). Resistance at 1.3590, 1.3620 (76.4% fibo) and 1.3670 (2024 high). Our estimates show S$NEER was last at 1.8% above model-implied midpoint.”

The Euro (EUR) continued to build on recent gains, riding on the pullback in the US Dollar (USD) and on increasing odds that Le Pen’s party may not win an absolute majority at the second-round run-off this Sunday, OCBC analysts Frances Cheung and Christopher Wong note.

Le Pen may not win the absolute majority

“So far, French media reports show that more than 200 candidates from both left-wing alliance and Macron’s coalition have pulled out of the race in their constituencies. So just based on polls, a hung parliament outcome may be a base case scenario now. A hung parliament would be a lesser evil for EUR than a right-wing majority, but sentiments can shift between now and Sunday.”

“For EUR, the opportunistic shorts are feeling the squeeze this week. Last at 1.0790. Daily momentum turned bullish while RSI rose. Key resistance at 1.0810 (38.2% fibo retracement of 2024 high to low, 100 DMA). A decisive close above 1.0810 may well get a push higher towards 1.0870 (50% fibo) or even 1.0930 (61.8% fibo).”

“Anything beyond that would require the help of a softer USD. Support at 1.0730/50 levels (23.6% fibo, 21 DMA), 1.0660/ 70 levels (recent low). We should expect to see more 2-way risks with US NFP data in mind on Fri evening. Round 2 results should be in by the time Asia opens on Mon (8 Jul).”

• Silver price exhibits strength near $30.50 amid firm Fed rate cut prospects.
• US ISM Services PMI expectedly contracted in June.
• Silver price strengthens after a Falling Channel breakout.

Silver price (XAG/USD) turns sideways near $30.50 in Thursday’s New York session after a strong upside move on Wednesday. The white metal stays quiet amid holiday in the United States (US) markets on account of Independence Day.

The white metal witnessed strong buying interest as market speculation for the Federal Reserve (Fed) to begin reducing interest rates from September strengthened further. The expectations for early Fed rates cuts grew due to weak US data.

On Wednesday, the ADP Employment data showed an unexpected decline in private payrolls for June, which indicated that the labor market strength is ebbing. In the same period, a sharp contraction in the ISM Services PMI suggested that the economy lost momentum in the second quarter.

The number of individuals hired by the private sector came in lower at 150K from estimates of 160K and the prior release of 157K. Meanwhile, the Services PMI, which represents the service sector that accounts for two-thirds of the economy fell to its lowest in four years. Also, New Orders contracted significantly and Prices Paid expanded at a slower pace.

Rising Fed rate cut bets have weighed heavily on the US Dollar. The US Dollar Index (DXY) has dropped to near 105.20.

Going forward, investors will shift focus to the US Nonfarm Payrolls (NFP) data for June, which will be published on Friday.

Silver technical analysis

Silver price delivers a breakout of the Falling Channel chart formation on a daily timeframe. This suggests that a corrective move in the Silver price has now concluded and it has resumed its upside journey.

The white metal climbs above the 20-day Exponential Moving Average (EMA) near $29.60, suggesting that the near-term trend is bullish.

The 14-period Relative Strength Index (RSI) approaches 60.00. A decisive break above the same would shift momentum towards the upside.

Silver daily chart

US Dollar (USD) fell for a second consecutive session after ISM services slumped into contractionary territory. New orders, employment also surprised, falling into contraction zone (below 50), OCBC analysts Frances Cheung and Christopher Wong note.

Bullish momentum fades on the daily chart

“Echoing Federal Reserve (Fed) Chair Jerome Powell’s recent remarks in Sintra that Fed has made ‘quite a bit of progress’ toward cooler inflation, the FOMC minutes released overnight emphasized on ‘modest further progress’ in recent months though inflation remained elevated.”

“This is consistent with recent comments made by Fed Chair Powell and Mary Daly, who spoke about this Beveridge curve. On the data metrics, US exceptionalism narrative has been softening. And markets would be looking forward to Friday’s NFP or even next Thu’s CPI report. A softer print should help to sedate USD bulls.”

“DXY was last at 105.22. Bullish momentum on daily chart faded while RSI fell. Support here at 105.20 (50 DMA), 104.80 (61.8% fibo retracement of Oct high to 2024 low, 100 DMA) and 104.50 (200 DMA). Resistance at 105.80 (76.4% fibo), 106.20.”

• USD/JPY has touched the top of a multi-year rising channel. 
• It is likely to face increased resistance and is at increased risk of pulling back. 
• RSI is threatening to exit overbought and a Hanging Man candlestick pattern bodes ill.
   

USD/JPY has reached the top of a rising channel it has been in since the start of 2023. Although it is in an uptrend on all timeframes there is a growing risk it is about to correct back.

USD/JPY Daily Chart 

The top of the channel will present resistance to bulls acting as a barrier to them pushing price higher. 

USD/JPY posted a bearish Hanging Man Japanese candlestick pattern on Wednesday July 3 (blue-shaded rectangle) and this is further evidence a reversal may be developing. A Hanging Man develops when a candle forms at a peak with a small body near its high and a long wick below. 

USD/JPY Daily Chart 

If Thursday ends as a red bearish candlestick it will provide confirmation of a short-term reversal.

The Relative Strength Index (RSI) momentum indicator is currently at 69.88. It is exiting the overbought zone. If it closes below 70 – as looks likely – it will provide a sell signal and further evidence of a short-term reversal. 

The resulting pull-back will probably fall down to support at around the 50-day Simple Moving Average (SMA) at 157.23. This has provided support on several occasions during USD/JPY’s uptrend. A break below 160.26 would add confirmation price could hit the bearish target. 

On the other hand, a decisive break out of the top of the channel would invalidate the bearish hypothesis and indicate a move higher, perhaps to 164.00 initially. Upside momentum beyond that, however, is unlikely to sustain for long. 

A decisive break would be one accompanied by a long green candle that broke clearly through the channel line and closed near its high, or three green candles in a row that broke above the channel line. 

The Pound Sterling (GBP) has rebounded against the US Dollar (USD) so far this week ahead of today’s UK election, MUFG FX strategists note.

GBP/USD benefits from the weak US data

“The Cable rose to a Wednesday’s high of 1.2777 after it failed to break below support at the 1.2600-level at the start of this week. GBP/USD benefitted on Wednesday from the release of further disappointing US economic data releases.”

“According to Bloomberg, US economic data surprises have been surprising to the downside relative to expectations since May and it is the worst run of negative economic surprises since the summer of 2022.”

“In contrast, economic data releases have been surprising to the upside in recent months. UK GDP growth in Q1 was revised even higher by 0.1 point to 0.7%Q/Q and the BoE’s staff are expecting stronger growth to continue in Q2 (+0.5%Q/Q).”

• AUD/USD holds gains near a five-month high of around 0.6730 on firm hopes that the Fed-RBA policy divergence will be narrowed soon.
• Weak US labor demand in the private sector and contraction in Services PMI have strengthened early Fed rate-cut hopes.
• Reserved disinflation and robust Retail Sales growth have prompted RBA rate hike bets.

The AUD/USD pair trades close to a five-month high near 0.6730 in Thursday’s American session. The Aussie asset strengthens amid firm speculation that the policy divergence between the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA) would narrow.

Investors expect the Fed to start reducing interest rates from the September meeting. According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the probability of rate cuts in September has improved to 72.6% from 66% recorded a week ago. The data also shows that the Fed will cut interest rates twice this year, which has improved investors' risk appetite. S&P 500 futures have posted nominal gains in European trading hours.

Early Fed rate cut expectations have been prompted by deepening concerns over the United States' (US) economic strength. The economy appears to have lost momentum in the second quarter, as the ISM Services PMI contracted in June. The Services PMI, a measure of activities in the service sector, which accounts for two-thirds of the economy, declined below the 50.0 threshold to 48.8 from expectations of 52.5 and the prior release of 53.8.

Also, labor demand in the private sector unexpectedly declined in June, which raised concerns over US labor market strength. Weak US data has weighed heavily on the US Dollar (USD). The US Dollar Index (DXY) has declined to near 105.20.

On the contrary, financial markets expect that the Reserve Bank of Australia (RBA) could tighten its policy further. Reversed disinflation and stronger-than-expected monthly Retail Sales have boosted the possibility of more rate hikes by the RBA. This has also strengthened the Australian Dollar (AUD).

On Wednesday, the Australian Bureau of Statistics reported that Retail Sales grew at a robust pace of 0.6% from the estimates of 0.2% and the prior release of 0.1%.

The accounts of the European Central Bank's (ECB) June policy meeting showed on Thursday that some members felt that the data available since the last meeting had not increased their confidence that inflation would converge to the 2%, per Reuters.

Key takeaways

"Some doubts were raised about whether the recovery would take place as expected."

"While the impact of restrictive monetary policy was seen to be gradually fading, the services sector had anyway been affected less strongly."

"Labour market, members considered that, overall, it had remained persistently robust."

"It was pointed out that projections rested on the assumption that energy and food inflation would move below their longer-term averages."

"Wages were still rising strongly."

"Members expressed different views regarding directional changes in the balance of risks."

"It would therefore still take time for more clarity to be obtained on the dynamics of important inflation drivers."

"Any further delay in bringing inflation back to target could make it more difficult to continue to anchor inflation expectations in the future."

Market reaction

The EUR/USD pair showed no immediate reaction to these comments and was last seen trading little changed on the day at around 1.0800.

• Gold closes above the 50-day SMA after the release of weak US data increases bets the Fed will lower interest rates.
• Lower interest rates are positive for Gold since they reduce the opportunity cost of holding the non-interest-paying asset. 

Gold (XAU/USD) is rising on Thursday to trade in the $2,350s after a string of weak data releases from the US and a change in tone from the Chairman of the Federal Reserve (Fed) Jerome Powell, increased bets the Fed would cut interest rates earlier than previously expected. Such a move would make Gold more attractive as an investment since it is a non-interest-bearing asset. 

It is also possible that longer-term investors have been accumulating Gold, ready for another rally due to multiple geopolitical and macro factors that favor the precious metal over the long term. 

Gold has successfully closed above the 50-day Simple Moving Average (SMA), which has been capping its gains for several days. This further enhances the outlook for the Yellow Metal from a technical perspective. 

Gold breaks through after slew of poor US data

Gold rallies higher after weak data from the US indicates the largest economy in the world is cooling. This suggests inflation will fall more rapidly and makes it more likely the Fed will cut interest rates. Lower interest rates, in turn, make Gold more attractive as an investment because they reduce the opportunity cost of holding the non-interest-paying asset. 

The weak US data included the US ISM Services Purchasing Managers Index (PMI), released on Wednesday, which revealed a slowdown in the sector. This is extra significant since the sector has hitherto been a major driver of hot inflation. The June reading showed a fall to 48.8 from 53.8 in May, which was well below the consensus estimate of 52.5. Although the Services Prices Paid component remained in expansion territory at 56.3, that was still lower than the 58.1 in May. 

US Jobs data was also sub-par. US Initial Jobless Claims rose 238,000 in the week ending June 29, which was higher than estimates of 235,000 and the previous week’s 233,000. At 1.858 million, Continuing Claims stood at their highest since November 2021. ADP Employment Change, which measures the number of new private employees on the payroll, showed a rise of 150,000 in June, which was below May’s figure and the 160,000 forecast by economists. 

The Minutes of June’s Federal Reserve (Fed) meeting maintained a data-dependent neutral tone. The Fed said it wanted to see more progress on inflation, which still stood at 2.7% (before more recent data showed a fall to 2.6%), and weaker economic data in general before pressing a button on interest-rate cuts. This was before Chairman Powell’s speech in Sintra, where he sounded more optimistic about inflation coming down, although he still said more data was required before making a decision on cutting rates.

The anticipation of lower interest rates is positive for Gold as it reduces the opportunity cost of holding the non-interest-paying asset. 

Gold gains on broader global backdrop

Gold is seeing further gains from broader, geopolitical and macro factors.  

The ongoing conflicts in the Middle East and Ukraine and a political lurch right in Europe are increasing the number of investors opting to store their wealth in Gold. 

In the US, the Supreme Court’s decision to grant former US President Donald Trump partial immunity over allegations he incited the uprising that followed his 2020 defeat, combined with question marks over President Joe Biden fitness for office, have increased the chances of a second Trump presidency materializing – something that would further destabilize global security and increase demand for Gold. 

Finally, the expansion of the BRICS trading bloc and its expressed aim to de-dollarize global trade has also increased demand for Gold, which is viewed as the most realistic replacement for countries denied access to Dollar-denominated markets. 

Technical Analysis: Gold breaks above 50-day SMA

Gold has pierced through and closed above the 50-day SMA, indicating a major bullish shift in its technical profile. 

This further invalidates the Head and Shoulders (H&S) topping pattern that looked like it was completing. 

XAU/USD Daily Chart

Gold will now probably rise to the $2,369 level (the June 21 high). The next target after that is $2,388, the June 7 high. 

Alternatively, despite the invalidation of the H&S, there is still a lesser chance that a more complex topping pattern has formed. If the compromised topping pattern’s neckline at $2,279 is broken, a reversal lower may still follow, with a conservative target at $2,171, the 0.618 ratio of the height of the pattern extrapolated lower. 

The trend is now sideways in both the short and medium term. In the long term, Gold remains in an uptrend. 

The United Kingdom has election today, but we do not expect to change our view on the Pound Sterling (GBP) on the back of the election result, ING FX strategist Francesco Pesole.

We remain bullish on EUR/GBP

“Britain votes in its general election today. The latest polls confirmed the opposition Labour party has an approximate 20-point lead over the Conservatives and is projected to secure around 431 of the 650 parliament seats.”

“It is generally believed that exit polls have a very good predictive power for the final outcome in the UK. In the past five elections, they predicted the House composition with an average error of only four seats. We will publish a reaction note after the exit polls tonight.”

“All in all, we do not expect to change our view on the pound on the back of the election result. We still expect larger Bank of England (BoE) easing compared to market expectations are remain bullish on EUR/GBP on the back of that.”

• The Japanese Yen is trying to claw back while US markets are closed.
• 30-year bond auction goes smoothly despite concerns about the end of bond buying.  
• The US Dollar Index took a hit on easing US economic data and traders softer, just above 105.00

The Japanese Yen (JPY) strengthens to around 161.00 against the US Dollar (USD) on Thursday while the US markets are  closed for a public holiday. The move comes after a 30-year sovereign Japanese bond auction went extremely smoothly, while markets were concerned the government would have issues allocating it, with traders still concerned about the Bank of Japan (BoJ) ending its bond-buying program. Some positive news thus for the Japanese Yen which is trading higher against the US Dollar. 

Meanwhile, the US Dollar Index (DXY) – which gauges the value of the US Dollar against a basket of six foreign currencies – took a hit on Wednesday with a very packed economic data calendar.. The main takeaway from all data was that nearly every data point came in a softer or below consensus view, which points to the US economy starting to slow down. 

Daily digest market movers: Risk in the balance

• Bloomberg reports on a piece from RBC BlueBay Asset Management that sees a risk that the Bank of Japan could announce a bigger reduction in its bond purchases than markets expect. Add in there another rate hike, and a double whammy of hawkish forces could trigger a firmly higher Japanese Yen. 
• Swap traders see swap rates on forward contracts swing higher, pointing to a higher possibility for another rate hike on July 31. The surge in swap points started on June 18, when Governor Kazuo Ueda alluded that another rate hike is in the cards. 
• Equities are in the green across the board, led by the Japanese Topix and Nikkei 225, which both closed just below 1%. European and US equities are doing well despite lower volumes out of the US. 
• The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Fed officials. The odds now stand at 67.3% for a 25-basis-point cut. A rate pause stands at a 26.5% chance, while a 50-basis-point rate cut has a slim 6.2% possibility. 
• The Overnight indexed Swap curve for Japan shows a 48.2% chance of a rate hike on July 31, and a smaller 39.8% chance for a hike on September 20. 
• The US 10-year benchmark rate trades at the lower end of this week’s range near 4.36%, and will remain there as the US bond markets are closed on Thursday.
• The benchmark 10-year Japan Treasury Note (JGB) trades around 1.08%, easing from the daily high of  1.097%.

USD/JPY Technical Analysis: That might work as well

The USD/JPY still has that sword of Damocles hanging over it, with that possible intervention from the Japanese Ministry of Finance. However, the research paper Bloomberg picked up from RBC might be an alternative approach. Should the Bank of Japan announce that it is hiking interest rates, while trimming or even completely closing down its bond buying program, markets would go cold-turkey on the double hawkish intervention. JPY would rally firmly across the board while yields would be spiking higher, and would see USD/JPY fall through the floor. 

With the Relative Strength Index (RSI) now firmly overbought in the daily chart, a correction looks to be imminent. First support at 160.32 would already be a key level. Should that level breaks, a nosedive move would be inevitable with USD/JPY heading to either 157.03 (55-day Simple Moving Average) or the 100-day SMA at 154.26.

USD/JPY Daily Chart

The message that European Central Bank (ECB) officials sent from Sintra was one of patience. There is clearly no pressure to move with back-to-back rate cuts given slower disinflation, and it seems that the preference is also for a wait-and-see approach over verbal intervention when it comes to the recent bond market turmoil, ING FX strategist Francesco Pesole.

EUR/USD moves to 1.0800 and lower this week

“Market expectations for ECB easing (40bp by year-end) were given an implicit nod by some speakers openly discussing the chances of further cuts. There is a good probability those expectations will remain quite stable throughout July, meaning that the policy factor should not really be a major driver for EUR/USD.”

“We had argued for a move to 1.0800 on the back of softer US data this week, but admit that the move came in before our expectations given the shockingly low ISM services. We remain somewhat doubtful that markets will be comfortable with EUR/USD trading close to 1.09 given lingering uncertainty about French politics and the rising risk of a Trump re-election.”

“In France, there has been a remarkable tightening in the OAT-Bund 10-year spread, which closed at 66bp yesterday from a late-June peak of 82. The main trigger was the news that numerous centre and left-wing candidates have dropped out of three-way runoffs to curb the rise in Marine Le Pen's right-wing Naitonal Rally party. This raises the chances of a hung parliament.”

• WTI holds gains above $82.00 with US NFP in focus.
• Larger-than-expected drawdown in oil inventories for the week ending June 28 keeps supporting the downside in the Oil price.
• US labor market strength appears to have started easing.

West Texas Intermediate (WTI), futures on NYMEX, steady above $82.00 in Thursday’s European session as month-long rally from June 4 low of $72.45 appears to have stalled for the time-being. The Oil price struggles to extend its upside even though the United States (US) Energy Information Administration (EIA) reported a larger-than-expected drawdown in crude inventories for the week ending June 28.

The agency reported that Oil stockpiles declined by 12.16 million barrels after a build-up of 3.59 million barrels previously. A sharp decline in Oil stockpiles suggests robust demand environment, which is favorable for the Oil price.

The near-term outlook of the Oil price remains firm amid growing speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting. The expectations for early Fed rate cuts soar after US ADP Employment data for June indicated that the labor market is losing momentum.

This has also weighed heavily on the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides further to near 105.20. Weakness in the US Dollar makes the Oil price an attractive bet for market participants.

The next trigger for the Oil price will be the US Nonfarm Payrolls (NFP) for June, which will be published on Friday. Strong labor demand would ease Fed rate-cut prospects for September while soft figures will boost them.

Meanwhile, concerns over supply chain disruptions remain intact amid tensions in the Middle East region. Also, major U.S. oil and gas platforms are also in Hurricane Beryl's path, which is expected to affect about 73,000 barrels per day of offshore oil production, the ANZ Bank reported.

• The US Dollar eases further after relatively dovish Fed Minutes.
• The focus will be across the Atlantic, with the UK heading to the voting booth and the ECB’s symposium wrapping up.
• The US Dollar index bounces off 105.00, though selling pressure builds. 

The US Dollar (USD) is on track to ease for a third straight day in a row while US traders will not be making their way to the trading floor as US markets are closed due to Independence Day. However, there is much to digest after a rough day of US economic data on Wednesday, while several outside events occur on Thursday. The main event that will be building up towards the weekend will be the United Kingdom’s election outcome, where an end to the reign of the Tories party is forecasted after 14 years of being in power. 

On the US economic front, an empty calendar ahead, though, as mentioned above, outside data and headlines will drive the Greenback. German Factory Orders already came in at the lowest end of expectations, shrinking -1.6% in May. In addition, the rather disappointing data from Wednesday will still weigh on the US Dollar, with limited upside potential expected for the Greenback. 

Daily digest market movers: Outside pressure

• UK citizens are heading to the voting booth. Early results are not expected until late evening and overnight. However, exit polls and comments from key politicians could generate headling in due time. Keeping an eye on the Cable (GBP/USD) will be key for the remainder of the week. 
• The New York Times proclaimed that US President Joe Biden is considering withdrawing from the Presidential race. 
• The US Federal Reserve Minutes showed the same message as markets heard over the past few weeks: more data is needed to confirm inflation is coming down. However, the Federal Open Market Committee (FOMC) is divided on how long rates need to stay elevated. 
• European equities are marginally in the green, along with Asia, where Japan is leading the surge. US futures are flat and are facing less trading volume than usual due to the public holiday. 
• The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Fed officials. The odds now stand at 67.3% for a 25-basis-point cut. A rate pause stands at a 26.5% chance, while a 50-basis-point rate cut has a slim 6.2% possibility. 
• The US 10-year benchmark rate trades at 4.36%, near its weekly low. Note that the US bond market is closed due to the public holiday.

US Dollar Index Technical Analysis: Thin support

The US Dollar Index (DXY) eased quite substantially on Wednesday after a wave of softer US data made the DXY fell to 105.00. Luckily, Dollar bulls came in quickly to salvage the situation and push it back above the 55-day Simple Moving Average (SMA) at 105.32. Though, selling pressure is building on that support with another test early Thursday. Pressure could build in the runup towards Friday, when the Nonfarm Payrolls could be the catalyst that pushes the DXY all the way back to 104.75, which is the next key support. 

On the upside, 105.53 and 105.89 are the first nearby pivotal levels. Once a daily close above those levels, the red descending trend line in the chart around 106.23 and the April’s peak at 106.52 are the two main resistances ahead of a fresh nine-month high. That would be reached once 107.35 is broken to the upside. 

On the downside, the 55-day SMA at 105.22 safeguard the 105.00 round figure. A touch lower, near 104.76 and 104.44, both the 100-day and the 200-day SMA form a double layer of protection to support any declines together with the green ascending trendline from last December. 

US Dollar Index: Daily Chart

A collapse in the Thursday’s ISM services index triggered a large shift in US Dollar (USD) positioning, with the Greenback losing across the board, ING’s FX analyst Francesco Pesole notes.

USD to weaken in the second half of the week

“A closer look at the ISM print paints a concerning picture for US activity. The index fell to the lowest in four years (48.8), new orders plunged to 47.3 from 54.1, business activity collapsed to 49.6 from 61.2, and employment fell to 46.1 from 47.1. Combining the manufacturing and services, ISM employment points to a 175k drop in payrolls, as opposed to the expected 190k gain.”

“Market bets on Federal Reserve (Fed) easing did not rise dramatically, though. We suspect some of that reluctance to price in more easing is related to rising chances of Donald Trump winning the US. Thursday is also a US national holiday; financial markets are closed. It also means we may not get major updates on a possible Democratic candidate replacement.”

“All in all, we had expected the USD to weaken in the second half of the week on the back of US macro data, and after the ISM decline, we could see further USD softness tomorrow when the June jobs report is published. Rising bets on Trump and EU political risk can limit USD downside beyond the very short term, but the immediate impact of US data should remain significant for now.”

US markets are closed as the country celebrates its attempt to escape rule by a monarch. There has been media speculation about US President Biden’s candidacy for re-election. Markets are not likely to react to such speculation at this stage. Politically, markets primarily focus on the probabilities of economic policy change, notes UBS’s macro analyst Paul Donovan.

Markets expect two more ECB rate cuts this year

“The UK is demonstrating the stability of the democratic process under a constitutional monarchy with its general election. Markets, rightly or wrongly, think that they know the likely outcome and are unlikely to react strongly (especially today with a media blackout until the polls close).”

“The Federal Reserve (Fed) minutes of the June meeting suggested a desire for more evidence of cooling inflation before cutting rates. Some economists (including this economist) are getting frustrated. Harmonized inflation is below 2% and there is deflation for almost every sector of the economy somewhere in the US. How much more slowdown is required?”

“The European Central Bank (ECB) publishes an ‘account’ of its meetings, which sometimes feels like reading an interminably long anecdote without a punchline. Investors are comfortable with the idea of two more rate cuts this year, following inflation lower. German May factory orders were weaker than expected (they have been below expectations all year).”

• USD/CAD sees more downside below 1.3600 as the US Dollar remains on the backfoot.
• Easing US labor market strength and rising concerns over economic outlook have weighed on the US Dollar.
• Next major trigger for the Canadian Dollar and the US Dollar will be the Employment data from their respective regions.

The USD/CAD pair appears to be fragile near monthly low around 1.3620 in Thursday’s European session. The Loonie asset weakens as the US Dollar (USD) faces significant selling pressure after the United States (US) ADP Employment Change data for June showed that the strength in the labor market eases and the ISM Services PMI, in the same period, indicated that the economy outlook has become uncertain.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines to near 105.30.

The ADP Employment report showed that labor demand in the private sector unexpectedly decline. Number of individuals hired in private sector were 150K, lower than expectations of 160K and the prior release of 157K. The ISM Services PMI, a measure to activities in service sector that accounts for two-third of the economy, recorded at lowest in four years.

Going forward, the US Dollar and the Canadian Dollar (CAD) will dance to the tunes of the official Employment data for June, which will be published on Friday.

USD/CAD extends its losing streak for the third trading session on Thursday. The Loonie asset falls into the bearish trajectory after a breakdown of the Symmetrical Triangle formation on a daily timeframe. The above-mentioned chart pattern indicates a sharp volatility contraction and a downside break in the same results in wider bearish ticks and heavy selling volume.

The major shifts below the 50-day Exponential Moving Average near 1.3676, suggesting that the near-term trend is bearish.

The 14-day Relative Strength Index (RSI) has declined to near 40.00. A decisive break below 60.00 levels would push momentum on the downside.

A decisive breakdown below May 3 low around 1.3600 will expose the asset to April 9 low around 1.3547 and the psychological support of 1.3500.

On the flip side, a fresh buying opportunity would emerge if the asset breaks above June 11 high near 1.3800. This would drive the asset towards April 17 high at 1.3838, followed by 1 November 2023 high at 1.3900.

USD/CAD daily chart

The key takeaway from the US Federal Reserve’s (Fed) minutes of its 11/12 Jun 2024 Federal Open Market Committee (FOMC) meeting, was the Fed policymakers’ concern over the slower progress on inflation than what they had expected last Dec (2023), UOB Groups Senior Economist Alvin Liew notes.

Fed policymakers seek signs of easing inflation

“While the minutes of the Jun FOMC indicated that the Fed policymakers ‘emphasized the importance of conditioning future policy decisions on incoming data, the evolving economic outlook, and the balance of risks’, they were less aligned with the timing/extent of holding policy unchanged.”

“Notably, ‘some’ policymakers emphasized the need for patience, while ‘several’ warned that that rates may need to be raised ‘were inflation to persist at an elevated level or to increase further’. And ‘several’ pointed to concerns about the labour market as they warned that ‘a further weakening of demand may now generate a larger unemployment response.”

“Indeed, while the median number of rate cuts expected by the FOMC members have been reduced from three to just one (in the Jun Dotplot), the minutes showed increasing concern among the policymakers on growth and potentially weaker labour outcomes.”

The latest Bank of England (BoE) Decision Maker Panel (DMP) survey for June showed on Thursday that “one-year ahead expected CPI inflation fell by 0.1 percentage points to 2.8% in June.”

Key takeaways

“Year-ahead own-price inflation was expected to remain unchanged at 3.9% in the three months to June, the same level firms reported in the three months to May.” 

“Expected year-ahead wage growth fell by 0.3 percentage points to 4.2% on a three-month moving-average basis in June.”

“Annual wage growth was 6.0% in the three months to June, unchanged from the three months to May.”

The survey is one of the most closely watched by members of the BoE's Monetary Policy Committee (MPC).

Market reaction

The Pound Sterling shrugs off the UK businesses’ inflation expectations, as GBP/USD adds 0.10% on the day, gyrating around 1.2750, as of writing.

• The Pound Sterling performs strongly against the US Dollar as the US labor market loses momentum.
• Investors expect the Fed to begin lowering interest rates in September.
• Economists expect that the Starmer-led Labor Party will gain an absolute majority.

The Pound Sterling (GBP) strengthens against the US Dollar (USD) and rises to near 1.2760 in Thursday’s European session. The GBP/USD rises amid growing speculation that the US Federal Reserve (Fed) will start reducing interest rates from the September meeting. 

According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that the probability of rate cuts in September has increased to 72.6% from 66% recorded a week ago. Expectations for Fed rate cuts in September strengthened after a few United States (US) economic indicators showed that the labor market strength appears to have started fading and the economic health has become sluggish.

On Wednesday, the US ADP Employment data showed that labor demand in the private sector unexpectedly declined in June as the number of fresh payrolls came in lower at 150K. Market consensus showed slightly higher private payrolls at 160K than May’s reading of 157K, upwardly revised from 152K.

Meanwhile, the US service sector concluded the second quarter on a weak note as the US ISM Services Purchasing Managers’ Index (PMI) witnessed a contraction in June. The ISM Services PMI, the preferred gauge for the service sector activity that accounts for two-thirds of the economy, came in at 48.8. A figure below the 50.0 threshold is seen as a contraction in service activities. The figure was the lowest in four years. 

Going forward, the major trigger for the US Dollar will be the US Nonfarm Payrolls (NFP) data for June, which will be published on Friday. The NFP report will indicate the overall labor demand and the current status of wage growth through Average Hourly Earnings data.

https://www.fxstreet.com/analysis/how-could-the-uk-general-election-impact-the-pound-sterling-202407031325

Daily digest market movers: Pound Sterling gains further against US Dollar

• The Pound Sterling (GBP) exhibits a weak performance against its major peers, except the US Dollar (USD) and the Swiss Franc (CHF), in Thursday’s London session. The outlook of the British currency appears to be uncertain as market participants turn cautious, with the United Kingdom (UK) public casting votes for parliamentary elections. 
• Market expectations show that UK Prime Minister Rishi Sunak-led-Conservative Party will suffer a defeat from the Keir Starmer-led-Labour Party. The latter is expected to win with an absolute majority, and its party will come into power for the first time since 2010. 
• Growing speculation that the Labour Party will win at least 326 Members of Parliament (MPs) seats in the House of Commons would be favorable for the near-term outlook of the Pound Sterling. This would allow the British currency to outperform its peers where there is a high risk of political uncertainty in their respective regions. 
• On the monetary policy front, investors expect that the Bank of England (BoE) will start reducing interest rates from the August meeting. The UK’s annual headline inflation has returned to the BoE’s target of 2%. Meanwhile, inflation in the service sector remains high due to steady wage growth, refraining policymakers from advocating early rate cuts.

Pound Sterling Price Today:

Technical Analysis: Pound Sterling stabilizes above 1.2700

The Pound Sterling strengthens against the US Dollar after stabilizing above the round-level support of 1.2700. The GBP/USD pair moves higher to near the 78.6% Fibonacci retracement at 1.2770, plotted from the March 8 high of 1.2900 to the April 22 low at 1.2300.

The Cable rises above the 20-day and 50-day Exponential Moving Averages (EMAs) near 1.2695 and 1.2675, respectively, suggesting that the near-term outlook is bullish.

The 14-day Relative Strength Index (RSI) rises to nearly 60.00. A decisive break above it would shift momentum towards the upside. 

European Central Bank (ECB) Chief Economist Philip Lane said on Thursday that the “wage tracker shows much lower wage growth in 2025 and 2026.”

“Firms are telling us that wage pressures are coming down,” he added.

Market reaction

At the press time, EUR/USD keep its range trade intact at around 1.0800, awaiting ECB meeting Accounts for fresh policy cues.

The PBOC announced it will borrow China government bonds (CGB) from primary dealers. PBOC’s monetary policy remains biased towards easing in order to boost the economic recovery prospects

PBOC targets to stabilize long-term rates

“The PBOC announced it will borrow China government bonds (CGB) from primary dealers, with the possibility that it will sell these CGBs to stabilize long-term rates. This is supportive of CNY but the currency direction remains heavily influenced by Fed’s monetary policy.”

“It is thus not to be seen as a liquidity tightening move as PBOC’s monetary policy remains biased towards easing in order to boost the economic recovery prospects.”

“We maintain our forecast for the 1Y LPR to fall to 3.20% by end-4Q24 (current: 3.45%) while the 5Y LPR may stay on hold at 3.95% through the rest of 2024 after the 25 bps reduction in Feb. There is also a possibility of another 50 bps cut to the reserve requirement ratio (RRR) in 2H24 to release CNY1 tn of long-term liquidity.”

Silver prices (XAG/USD) fell on Thursday, according to FXStreet data. Silver trades at $30.42 per troy ounce, down 0.28% from the $30.50 it cost on Wednesday.

Silver prices have increased by 27.84% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 77.49 on Thursday, up from 77.25 on Wednesday.

(An automation tool was used in creating this post.)

• Silver prices depreciate due to increased optimism following renewed efforts to secure a ceasefire deal in Gaza.
• Mediators from Egypt and Qatar have conveyed Hamas's response to a proposal involving the release of hostages held in Gaza.
• XAG/USD may limit its downside as the US Dollar may struggle due to rising expectations of the Fed reducing rates in 2024.

Silver price (XAG/USD) halts its five-day winning streak, trading around $30.40 per troy ounce during the European session on Thursday. The decline in the safe-haven metal's price is attributed to increased optimism following signs of renewed efforts to secure a ceasefire deal between Israel and Hamas, as reported by Reuters.

Mediators Egypt and Qatar delivered a response from Hamas to a proposal that includes the release of hostages held in Gaza and a ceasefire in the Palestinian enclave. Israel is currently studying the document, according to a statement released by Prime Minister Benjamin Netanyahu's office on behalf of the Mossad spy agency.

The XAG/USD pair may limit its downside as the US Dollar (USD) may struggle due to the softer US data raising speculations of the Federal Reserve (Fed) reducing interest rates in 2024. US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May.

Additionally, the ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.

On Tuesday, Powell said that the Fed is getting back on the disinflationary path. However, Powell wants to see further evidence before cutting interest rates as the US economy and the labor market remain strong, per Reuters.

The US Dollar (USD) could drop to 7.2900. The next support at 7.2800 is unlikely to come under threat, UOB Group analysts Quek Ser Leang and Peter Chia note.  

A sustained breach above 7.3100 is on the board

24-HOUR VIEW: “We indicated out yesterday that ‘the underlying tone still appears to be firm, and we continue to expect USD to edge above 7.3100.’ However, we pointed out that ‘the next resistance at 7.3200 is unlikely to come into view.’ While USD subsequently edged above 7.3100 (high of 7.3114), it fell sharply from there to a low of 7.2924. USD rebounded from the low and closed at 7.3025 (-0.06%). Downward momentum is beginning to build, and USD could drop to 7.2900. The next support at 7.2800 is unlikely to come under threat. Resistance is at 7.3050, followed by 7.3100.”

1-3 WEEKS VIEW: “We have held a positive USD view over the past two weeks. In our most recent narrative from last Thursday (27 Jun, spot at 7.2990), we indicated that USD could break above 7.3100, but it is too early to tell if the next significant resistance at 7.3400 will come into view. Yesterday, USD rose above 7.3100, reaching a high of 7.3114 before falling sharply to 7.2924. While our ‘strong support’ level at 7.2880 has not been breached yet, upward momentum has largely dissipated. The current price movements are likely part of a consolidation. For the time being, we expected USD to trade between 7.2700 and 7.3100.”

The US Dollar (USD) could trade in a range between 160.80 and 161.90. Upward momentum is beginning to slow, but only a breach of 160.45 would suggest that USD is not strengthening further, UOB Group analysts Quek Ser Leang and Peter Chia note.  

Further upside is on the cards  

24-HOUR VIEW: “Our view for USD to trade in a sideways range of 161.20/161.80 was incorrect. Instead of trading sideways, USD plunged to 160.76 and then snapped back up. USD closed at 161.68 (+0.15%). The sharp but short-lived swings have resulted in a mixed outlook. Today, USD could trade in a range between 160.80 and 161.90.”

1-3 WEEKS VIEW: “We have expected a stronger USD since the middle of last month. In our most recent narrative from Tuesday (02 Jul, spot at 161.76), we indicated that if USD breaks above 162.00, the next level to watch is 163.00. We added, ‘only a breach of 160.45 (‘strong support’ level) would indicate that the USD strength has ended.’ Yesterday, USD fell briefly to 160.76 before rebounding. Upward momentum is beginning to slow, but only a breach of 160.45 (no change in level) would suggest that USD is not strengthening further.”

Chance for the New Zealand Dollar (NZD) to retest the 0.6130 level, and a sustained break above this level appears unlikely. But, recovery in NZD could extend to 0.6150, UOB Group analysts Quek Ser Leang and Peter Chia note.  

Recovery in NZD may extend to 0.6150

24-HOUR VIEW: “Two days ago, NZD dipped to a one-month low of 0.6048 and then rebounded. Yesterday, when NZD was trading at 0.6080, we indicated that ‘not only has downward momentum faded, but upward momentum has also increased to some extent.’ We expected NZD to trade with an upward bias, but we highlighted that ‘it remains to be seen if it can breach the strong resistance level at 0.6105.’ In NY trade, NZD took off and surged to a high of 0.6129. NZD pulled back from the high, closing at 0.6103 (0.41%). Despite the pullback, there is a chance for NZD to retest the 0.6130 level, even though a sustained break above this level appears unlikely. On the downside, support levels are at 0.6095 and 0.6080.”

1-3 WEEKS VIEW: “We have expected NZD to weaken since the middle of last month. Yesterday (03 Jul, spot at 0.6080), we indicated that ‘downward momentum has slowed further, and if NZD breaches 0.6105, it would mean that the weakness in NZD has stabilised.’ NZD subsequently broke above 0.6105 and rose to 0.6129. Not only has the weakness stabilised, but upward momentum is also beginning to build, and NZD could recover further 0.6150. The recovery is intact as long as the ‘strong support’ level, currently at 0.6070, is not breached.”

The Australian Dollar (AUD) is likely to trade in a sideways range of 0.6685/0.6735. If AUD can surpass 0.6755, it could continue to rise to 0.6800, UOB Group analysts Quek Ser Leang and Peter Chia note.

AUD is set to rise to 0.6800

24-HOUR VIEW: “We noted yesterday that ‘the underlying tone seems to be firming.’ We also indicated that while AUD ‘could edge above 0.6685, the major resistance at 0.6705 is unlikely to come under threat.’ The sudden surge in momentum that sent AUD surging to a high of 0.6734 came was surprising. The sharp rally appears to be overdone, and instead of continuing to rise, AUD is likely to trade sideways at these higher levels. Expected range for today: 0.6685/0.6735.”

1-3 WEEKS VIEW: “On Monday (01 Jul, spot at 0.6670), we noted ‘a slight increase in upward momentum.’ We indicated that ‘as long as AUD remains above 0.6610, it is likely to edge higher, but the likelihood of it breaking clearly above the major resistance zone of 0.6705/0.6715 is low for now.’ After trading sideways for a couple of days, AUD lifted off and broke above the major resistance zone, reaching a high of 0.6734. Not surprisingly, there has been a sharp increase in upward momentum. That said, there is another significant resistance level at 0.6755. If AUD can surpass this level, it could continue to rise to 0.6800. Overall, we continue to expect a higher AUD, provided that it remains above 0.6665 (‘strong support’ level was at 0.6625 yesterday).”

• NZD/USD gains ground as US Dollar improves on rising odds of Fed rate cuts in 2024.
• The US ISM Services PMI dropped to 48.8 in June, marking its steepest decline since April 2020.
• Fed’s Austan Goolsbee stated that bringing inflation back to 2% will require more time and data.

NZD/USD extends its winning streak for the third successive session, trading around 0.6120 during the European hours on Thursday. This upside is attributed to a decline in the US Dollar (USD), which could be attributed to softer data from the United States (US) raising speculations of the Federal Reserve (Fed) reducing interest rates in 2024.

US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May. The ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.

Federal Reserve Bank of Chicago President Austan Goolsbee stated on BBC Radio on Wednesday that bringing inflation back to 2% will take time and that more economic data are needed. On the contrary, Fed Chair Jerome Powell said on Tuesday that the central bank is getting back on the disinflationary path, per Reuters.

In New Zealand, The Reserve Bank of New Zealand (RBNZ) is set to deliver an interest rate decision next week after maintaining borrowing costs at 5.5% for the seventh consecutive meeting in May. Traders will take more cues from the Monetary Policy Statement post-rate decision.

The New Zealand Dollar (NZD) might face a challenge as the Caixin Services Purchasing Managers' Index (PMI) in China, a major trading partner, fell to 51.2 in June from 54.0 in May on Wednesday. The market had forecast a figure of 53.4 for the period.

Room for the Pound Sterling (GBP) to retest the 1.2780 level before a pullback can be expected. Risk for GBP has shifted to the upside, but note that there is a solid resistance level at 1.2805, UOB Group analysts Quek Ser Leang and Peter Chia note.

Solid resistance exists at 1.2805

24-HOUR VIEW: “While we expected GBP to rebound further yesterday, we indicated that ‘given that conditions are approaching overbought levels, any advance is unlikely to be able to break above the major resistance at 1.2720.’ However, GBP not only broke above 1.2720, but also soared further to 1.2777. GBP eased off from the high and closed at 1.2744 (+0.46%). Conditions remain overbought, but there is room for GBP to retest the 1.2780 level before a pullback can be expected. The next resistance at 1.2805 is unlikely to come into view. On the downside, if GBP breaks below 1.2695 (minor support is at 1.2725), it would indicate that the upward momentum has eased.

1-3 WEEKS VIEW: “We indicated on Tuesday (02 Jul, spot at 1.2645) that the current price movements are likely part of a consolidation phase. We held the view that GBP ‘is likely to trade between 1.2600 and 1.2720 for now.’ Yesterday, GBP took off and broke clearly above 1.2720. While the risk has shifted to the upside, it is worth noting that there is a solid resistance level at 1.2805, ahead of last month’s high of 1.2860. To keep the momentum going, GBP must not break below 1.2665.”

• The Mexican Peso drifts higher after comments from Banxico Deputy Governor Heath suggesting interest rates should remain elevated. 
• EUR/MXN and GBP/MXN trade flatter as European political risk diminishes, supporting the Euro and Pound. 
• USD/MXN pushes lower in a step-decline towards 18.00.

The Mexican Peso (MXN) drifts higher in its key pairs on Thursday although it is gaining more strength against the US Dollar (USD) due to a recent run of poor US economic data, than its European counterparts. Comments from the Deputy Governor of the Bank of Mexico, Jonathan Heath, have further provided the Peso with a tailwind. 

At the time of writing, one US Dollar (USD) buys 18.13 Mexican Pesos, EUR/MXN trades at 19.58, and GBP/MXN at 23.12.

Mexican Peso receives a boost from a post on X 

The Mexican Peso gains overnight after recent comments from Banxico Deputy Governor Jonathan Heath suggested he is not in a rush to vote for interest-rate cuts due to still-high inflation. 

Heath said on X that he, “agree[s] with Jerome Powell, more benign inflation data is needed before cutting rates. He(Powell) said it for the Federal Reserve, but the same applies to the case of Mexico”.

His comments differ from those of the Governor of the Banxico, Victoria Rodríguez Ceja, who recently said that progress had been made on disinflation, which “allows us to continue discussing downward adjustments in our rate, and I consider that this is what we will be doing in our next monetary policy meetings.”

Evidence the US economy is cooling 

The US Dollar weakened across the board after a slew of data out on Wednesday provided more evidence that the US economy is cooling. 

The ISM Services Purchasing Managers Index (PMI) revealed a slowdown in the sector, which economists have been singling out as a major driver of hot inflation. The June reading showed a fall to 48.8 from 53.8 in May, which was well below the consensus estimate of 52.5. It was the “weakest it’s been since May 2020 during the Covid-19 pandemic,” according to Jim Reid, Head of Global Macro Research at Deutsche Bank. Although the Services Prices Paid component remained in expansion territory at 56.3, that was still lower than the 58.1 in May. 

US Jobs data was also underwhelming. US Initial Jobless Claims rose 238,000 in the week ending June 29, higher than estimates of 235,000 and the previous week’s 233,000. 

This “pushed the 4-week moving average up to 238.5k, which is the highest it’s been since August,” added Deutsche’s Reid. At 1.858 million, Continuing Claims stood at their highest since November 2021. To top it off, the ADP Employment Change metric for June, which measures the number of new private employees on the payroll, showed a rise of 150,000, which was below May’s figure and the 160,000 forecast by economists. 

The Minutes of June’s Federal Reserve (Fed) meeting were also released on Wednesday, and these retained the neutral robotic data-dependent rhetoric of the pre-Powell-in-Sintra days. The Fed basically said it wanted to see more progress on inflation, which still stood at 2.7% (before more recent data showed a fall to 2.6%), and weaker economic data in general before pressing a button on interest-rate cuts.  

French-bund bond spreads narrow as election risk recedes

The Mexican Peso is trading in a range against the Euro, which continues to recover as risks subside that the far-right French National Rally (RN) party will gain an overall majority in the second round of the French elections on Sunday. 

This is reflected in the spread between French and German yields, which narrowed further on Wednesday. “Franco-German 10yr spread (-5.0bps) fell to its tightest level in three weeks, at 67 bps,” according to Deutsche Bank’s Jim Reid, in a sign investors are pricing in less of a risk of an all-out victory for extremist parties at the French election. 

Pound in focus on election day

The Pound Sterling (GBP) is also holding its ground against the Mexican Peso on the day of the UK general election. Polls have shown the left-of-center Labour Party consistently in the lead by a wide margin of around 20 points, which translates into them probably winning a large majority of seats. 

Although most economists agree that whoever the future government is, it will have little fiscal room for maneuver, there is an argument that greater political stability could support both the economy and the Pound Sterling going forward. 

Technical Analysis: USD/MXN looking increasingly range bound

USD/MXN slides lower after peaking at the June 28 swing high at 18.59. It is currently moving down towards the key June 24 low at 17.87. It is possible the pair is entering a sideways trend although it is still a little too early to be sure. 

USD/MXN 4-hour Chart 

A break below 18.10 would suggest an extension down to probably the vicinity of the June 24 low. At that point price is likely to consolidate. If it begins a leg higher, it could be a sign the pair is entering a sideways trend. Alternatively, a decisive break below 17.87 would likely suggests a new downtrend was in play, with the next target from there at 17.50 (50-day Simple Moving Average).

A rally back above 18.59, however, would suggest a continuation up to 18.68 (June 14 high), followed by 19.00 (June 12 high). A break above 19.00 would provide strong confirmation of a resumption of the short-and-intermediate term uptrends.

The direction of the long-term trend remains in doubt. 

Instead of continuing to rise, the Euro (EUR) is more likely to trade in a sideways range of 1.0750/1.0815, but increase in momentum suggests further EUR strength. It is too early to determine if it can reach the major resistance at 1.0850, UOB Group analysts Quek Ser Leang and Peter Chia note.

Rangebound for the time being

24-HOUR VIEW: “Yesterday, we held the view that EUR ‘is expected to drift higher.’ We were also of the view that ‘any advance is unlikely to reach the major resistance at 1.0785.’ However, EUR broke above 1.0785, soared to 1.0816, and then pulled back to close at 1.0786 (+0.39%). The sharp and swift rally appears to be overdone. This combined with overbought conditions suggests that instead of continuing to rise, EUR is more likely to trade in a sideways range of 1.0750/1.0815.”

1-3 WEEKS VIEW: “In our latest narrative from Monday (01 Jul, spot at 1.0735), we highlighted that EUR 'is likely to trade in a range for now, probably between 1.0680 and 1.0785.' We did not anticipate the ease in which EUR broke above 1.0785 yesterday, as it soared to a high of 1.0816. While the increase in momentum suggests further EUR strength, it is too early to determine if it can reach the major resistance at 1.0850. All in all, we will hold a slightly positive EUR view as long as it remains above the ‘strong support’ level, currently at 1.0730.”

• EUR/USD trades in a tight range as investors shift focus to the US NFP and French elections outcome.
• Investors remain uncertain about when the ECB will cut interest rates further.
• US labor market conditions appear to have started releasing heat.

EUR/USD consolidates in a tight range slightly below the round-level resistance of 1.0800 in Thursday’s European session. The major currency pair shifts to the sidelines amid uncertainty ahead of United States (US) Nonfarm Payrolls (NFP) data for June, which will be published on Friday, and the second round of French legislative elections on Sunday. Also, the trading volume appears to be light due to a holiday in the US markets on account of Independence Day.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, looks fragile near 105.30 ahead of the US NFP data. Cooling strength in the US labor market conditions has weighed heavily on the US Dollar (USD). 

On Wednesday, US ADP Employment data showed that labor demand in the private sector unexpectedly cooled in June. Private employers hired 150K job-seekers, while economists estimated that the number of fresh payrolls would be higher at 160K from the prior release of 157K, upwardly revised from 152K.

Signs of easing labor market conditions were also exhibited by Initial Jobless Claims data for the week ending June 28. The number of individuals applying for jobless claims for the first time came in higher at 238K than estimates of 235K and the former release of 233K.

Also, the economic health of the US economy appears to be deteriorating as the ISM Services Purchasing Managers’ Index (PMI), a measure of service sector activity, contracted to 48.8 from expectations of 52.5 and the prior release of 53.8. A figure below the 50.0 threshold is itself considered as contraction in service activities. Other sub-components such as Prices Paid and New Orders Index were weaker than their former readings.

Daily digest market movers: EUR/USD consolidates while the US Dollar remains on the backfoot

• EUR/USD hovers below 1.0800 as investors stay on the sidelines ahead of the second round of legislative elections in the Eurozone’s second-largest economy. After suffering a defeat by the Marine Le Pen-led-far right National Rally party, a coalition by the Central Alliance led by French President Emmanuel Macron and the left wing moved to a tactical withdrawal of at least 200 candidates from Sunday’s parliamentary elections in an attempt to thwart the far right from gaining an absolute majority.
• An attempt to block the far right from winning a majority in the legislative elections has limited the downside in the Euro. Investors worry that the formation of a new government would favor expansionary fiscal policies, which will widen the already vulnerable financial crisis in France.
• On the monetary policy front, International Monetary Fund (IMF) European Department Director Alfred Kammer said on Wednesday that the latest Eurozone inflation figures confirm that disinflation remains on track to the European Central Bank (ECB) target of 2% and the bank has more room to cut interest rates further. However, investors are more interested in knowing whether the ECB will extend the rate-cutting cycle in its next meeting, scheduled for July 18.
• Preliminary Eurozone inflation report for June showed that annual headline Harmonized Index of Consumer Prices (HICP) softened expectedly to 2.5%. While the core HICP that excludes volatile items grew steadily by 2.9%.

Technical Analysis: EUR/USD hovers near 1.0800

EUR/USD trades inside Wednesday’s trading range near 1.0800. The major currency pair has climbed above the 20-day and 50-day Exponential Moving Averages (EMAs), which trade around 1.0750 and 1.0770, respectively, suggesting a steady near-term outlook. The long-term appeal of the shared currency pair has also improved as it has jumped above the 200-day EMA, which trades around 1.0800.

The Symmetrical Triangle formation on the daily timeframe exhibits a sharp volatility contraction, which indicates low volume and narrow ticks.

Also, the 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting indecisiveness among market participants.

• USD/CHF regains ground due to lower-than-expected Swiss inflation.
• The Swiss CPI came in at 1.3%, down from May's four-month high and below the market expectation of 1.4%.
• Fed’s Austan Goolsbee stated that bringing inflation back to 2% will require time.

The USD/CHF recovers recent losses, trading around 0.9030 during the early European hours on Thursday. The Swiss Franc (CHF) struggles due to a slowdown in Swiss inflation. The Consumer Price Index (CPI) for June decreased to 1.3% year-over-year, from May's four-month high and below market expectations of 1.4%.

On a monthly basis, the CPI remained unchanged in June after a 0.3% rise in May. Additionally, the core CPI, which excludes volatile items such as unprocessed food and energy, decreased to 1.1% year-on-year in June from 1.2% in the previous month.

The US Dollar (USD) struggles as softer data from the United States (US) escalated speculations of the Federal Reserve (Fed) reducing interest rates in 2024.  US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May. The ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.

Federal Reserve Bank of Chicago President Austan Goolsbee stated on BBC Radio on Wednesday that bringing inflation back to 2% will take time and that more economic data are needed. However, on Tuesday, Fed Chair Jerome Powell said that the central bank is getting back on the disinflationary path, per Reuters.

The US Dollar Index (DXY), which measures the USD against six major currencies, is under pressure due to lower US Treasury yields. The DXY is trading around 105.30 at the time of writing. As of Wednesday’s close, the yields on 2-year and 10-year US Treasury bonds were 4.70% and 4.35%, respectively. US markets will be closed on Thursday in observance of the Independence Day holiday.

• AUD/USD trades in positive territory for three straight days near 0.6715 in Thursday’s early European session. 
• The upbeat Australian economic data fueled arguments that the RBA could raise interest rates again. 
• The cautious stance from the Fed officials might help limit the USD’s downside.

The AUD/USD pair gathers strength around 0.6715 during the early European session on Thursday. The uptick of the Australian Dollar (AUD) is bolstered by the encouraging Retail Sales data for May, which spurred the case for a rate hike by the Reserve Bank of Australia (RBA).

Australia’s Retail Sales growth was stronger than expected in May, fueling to arguments that the Australian central bank could raise interest rates as early as August. The nation’s Retail Sales rose 0.6% MoM in May from the previous reading of a 0.1% increase, according to the Australian Bureau of Statistics (ABS) on Wednesday. Additionally, the rise of Aussie is attributed to the Judo Bank's Australia Purchasing Managers Index (PMI) reports, which improved slightly in June.

On the other hand, the weaker-than-expected US economist dada continues to drag the Greenback lower. The US Services PMI declined to 48.8 in June from 53.8 in the previous reading, below the market consensus of 52.5, the Institute for Supply Management (ISM) showed on Wednesday. 

However, the cautious stance from the Federal Reserve (Fed) officials might lift the USD and cap the pair’s upside. Chicago Fed President Austan Goolsbee said early Thursday that getting inflation back to 2% will take time and there is still much data to be had on the economy. 

Meanwhile, the minutes of the FOMC June monetary policy meeting showed that the Fed officials lacked the confidence they needed to cut the interest rate. “Some participants emphasized the Committee’s data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path,” the minutes showed. Financial markets are now pricing in a nearly 66% chance for a 25 basis points (bps) Fed rate cut in September, up from 63% on Tuesday, according to the CME FedWatch tool. 

Here is what you need to know on Thursday, July 4:

The US Dollar (USD) seems to have stabilized after suffering large losses against its rivals on Wednesday. Financial markets in the US will remain closed in observance of the Independence Day holiday on Thursday. The economic calendar will not offer any high-impact data releases but investors will keep a close eye on the United Kingdom exit polls as voters cast ballots in a snap general election called by Prime Minister Rishi Sunak.

Following the announcement of the snap election in the UK, opinion polls consistently showed that the main opposition Labor Party is projected to win a landslide, with Sir Keir Starmer becoming the new Prime Minister. Exit polls are expected to be announced shortly after voting ends at 22:00 local time (21:00 GMT). The final outcome is likely to be confirmed in the early morning hours on Friday.

On Wednesday, disappointing macroeconomic data releases from the US caused the USD to face strong selling pressure. The ADP reported that the private sector payrolls grew 150,000, below the market expectation of 160,000, and the ISM Services PMI slumped to 48.8 in June from 53.8 in May, pointing to a contraction in the service sector's business activity. The USD Index declined sharply in the American session and came within a touching distance of 105.00 before staging a technical correction. At the time of press, the index was fluctuating in a tight channel at around 105.30.

EUR/USD climbed to its highest level in three weeks above 1.0810 in the second half of the day on Wednesday. The pair stays in a consolidation phase and trades slightly below 1.0800 in the European morning on Thursday.

GBP/USD gathered bullish momentum and advanced toward 1.2800 on Wednesday. After correcting lower toward the end of the American session, the pair holds steady at around 1.2750 early Thursday.

Gold turned north and rose above $2,360 for the first time in two weeks as the benchmark 10-year US Treasury bond yield fell nearly 2% following the dismal data releases from the US on Wednesday. XAU/USD struggles to preserve its bullish momentum and trades near mid-$2,350s to start the European session.

After reaching its highest level in nearly four decades near 162.00 on Wednesday, USD/JPY started to edge lower and was last seen trading in negative territory below 161.50.

Germany’s Factory Orders unexpectedly fell in May, according to the official data published by the Federal Statistics Office on Thursday, suggesting that the German manufacturing sector recovery is in the doldrums.

Over the month, contracts for goods ‘Made in Germany’ dropped 1.6%, having registered a 0.2% decline in April while missing the estimates of 0.5%.

Germany’s Industrial Orders plunged 8.6% in the year through May, compared with the previous drop of 1.6%.

FX implications

The Euro remains undeterred by the weak German data, as the EUR/USD pair keeps its range near 1.0800, almost unchanged on the day, as of writing.  

FX option expiries for July 4 NY cut at 10:00 Eastern Time, via DTCC, can be found below

- EUR/USD: EUR amounts

• 1.0640 408m
• 1.0650 706m
• 1.0730 440m
• 1.0770 881m
• 1.0775 889m

- GBP/USD: GBP amounts     

• 1.2750 460m
• 1.2790 475m
• 1.2800 552m

- NZD/USD: NZD amounts

• 0.6130 1.4b

• EUR/GBP trades in negative territory for the third consecutive day around 0.8465 on Thursday. 
• The outcome of the UK general election might potentially trigger some volatility in the Pound Sterling (GBP). 
• The easing inflation in the Eurozone bolstered hopes for potential rate cuts by the ECB.

The EUR/GBP cross extends the decline to near 0.8465 during the early European session on Thursday. The Euro edges lower as the softer Eurozone Harmonised Index of Consumer Prices (HICP) inflation report prompted the expectation of interest rate cuts from the European Central Bank (ECB). Market players will closely monitor the UK general elections on Thursday.

The upcoming UK general elections might limit GBP movement ahead of the vote on Thursday before the results potentially trigger some volatility on the Pound Sterling (GBP) on Friday. Political analysts and surveys predict that Labour will win more seats than the record 418 it won when ex-leader Tony Blair ended 18 years of Conservative control in 1997.

On the Euro front, the far right's hopes of winning outright in the French election fell on Tuesday, as centrist and left-wing candidates reluctantly banded together to stop Marine Le Pen's National Rally from seizing power for the first time, per Politico.

Additionally, the annual inflation rate in the Eurozone eased in June. The Eurozone Harmonised Index of Consumer Prices (HICP) increased by 2.5% YoY in June, compared to a rise of 2.6% recorded in the previous month, according to preliminary estimates from Eurostat released on Tuesday. This figure spurred the hopes for potential interest rate cuts by the ECB, which dragged the shared currency lower and created a headwind for EUR/GBP. 

Gold prices remained broadly unchanged in India on Thursday, according to data compiled by FXStreet.

The price for Gold stood at 6,328.68 Indian Rupees (INR) per gram, broadly stable compared with the INR 6,329.11 it cost on Wednesday.

The price for Gold was broadly steady at INR 73,817.78 per tola from INR 73,821.54 per tola a day earlier.

FXStreet calculates Gold prices in India by adapting international prices (USD/INR) to the local currency and measurement units. Prices are updated daily based on the market rates taken at the time of publication. Prices are just for reference and local rates could diverge slightly.

(An automation tool was used in creating this post.)

• Silver snaps a five-day winning streak to a nearly two-week top, albeit lacks follow-through.
• The technical setup favors bullish traders and supports prospects for further near-term gains.
• A convincing break below the $28.80-70 area is needed to negate the constructive outlook.

Silver (XAG/USD) ticks lower during the Asian session on Thursday and erodes a part of the previous day's strong gains to the $30.65-$30.70 area, or its highest level in nearly two weeks. The white metal currently trades around the $30.40 region, down 0.35% for the day, and for now, seems to have snapped a five-day winning streak, though the near-term technical setup seems tilted in favor of bullish traders.

The XAG/USD recently showed some resilience below the $28.80-$28.70 horizontal resistance breakpoint-turned-support. The subsequent move beyond the $29.70-$29.75 hurdle and the $30.00 psychological mark was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for the metal is to the upside. 

Hence, any further decline is more likely to attract fresh buyers near the $30.00 round figure, which should limit the downside near the $29.75-$29.70 resistance-turned-support. The latter should act as a pivotal point, which if broken decisively might prompt some technical selling and accelerate the fall towards the $29.10-$29.00 region before the XAG/USD eventually drops to the $28.80-$28.70 key support zone. 

On the flip side, some follow-through buying beyond the overnight swing high, around the $30.70 region, has the potential to lift the XAG/USD beyond the $31.00 mark, towards the next relevant hurdle near the $31.50-$31.55 area. The upward trajectory could extend further towards the $32.00 round figure en route to the $32.50 region, or over a one-decade peak touched in May.

Silver daily chart

• EUR/USD gains ground as US Dollar struggles due to escalated speculation of Fed rate cuts in 2024.
• The US ISM Services PMI dropped to 48.8 in June, marking its steepest decline since April 2020.
• The Euro may experience volatility as the second round of the French election approaches this Sunday.

EUR/USD continues its winning streak, trading around 1.0790 during the Asian session on Thursday. This upside is attributed to a decline in the US Dollar (USD) due to the escalated speculations of the Federal Reserve (Fed) reducing interest rates in 2024. US markets will be closed on Thursday in observance of the Independence Day holiday.

The US Dollar Index (DXY), which gauges the USD against six other major currencies, faces challenges amid lower US Treasury yields. The DXY trades around 105.30 at the time of writing. As of Wednesday’s close, the 2-year and 10-year yields on US Treasury bonds stood at 4.70% and 4.35%, respectively.

On the US data front, US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May. The ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.

On the Euro’s side, traders anticipate increased EUR volatility as the second round of the French election runoff approaches on July 7. According to a Harris Interactive poll conducted for Challenges magazine, the RN is projected to fall short of the 289 seats needed to control the 577-seat National Assembly, marking the first survey published after a cross-party anti-RN coalition was formed, as reported by Reuters.

The yield spread between French and German 10-year government bonds has narrowed to approximately 71 basis points, down from a recent peak of 82 basis points at the end of last month. This reduction in the risk premium for French government bonds suggests growing investor confidence that the far-right RN party will not secure a parliamentary majority.

• EUR/JPY weakens to nearly 174.20 in Thursday’s Asian session. 
• The fear of FX intervention from Japanese authorities supports the JPY and drags the cross lower.
• The outcome of second round vote of the French parliamentary elections on Sunday might add volatility to the EUR.

The EUR/JPY cross trades on a weaker note around 174.20, snapping the six-day winning streak during the Asian session on Thursday. The fear of foreign exchange (FX) intervention from Japanese authorities lifts the Japanese Yen (JPY). Later on Thursday, the German Factory Orders for May and ECB Monetary Policy Meeting Accounts will be released. 

The growing speculation of FX intervention from the Japanese authorities provides some support to the JPY and caps the cross’s upside. Rabobank FX strategists said that the FX intervention could be imminent due to the weakness of the Japanese Yen, which is exerting downward pressure on consumer confidence.

Data released on Wednesday showed that the final reading of Japan’s Services PMI dropped to 49.4 in June from 49.8 in May. This figure registered the largest downward movement since January 2022 and was among the biggest on record. This, in turn, might undermine the JPY and create a tailwind for the cross. 

On the Euro front, the far right's hopes of winning outright in the French election fell on Tuesday, as centrist and left-wing candidates reluctantly banded together to stop Marine Le Pen's National Rally from seizing power for the first time, per Politico. However, the announcement of the French parliamentary elections on Sunday might add volatility to the EUR. 

• WTI attracts some sellers on Thursday amid concerns about slowing global fuel demand. 
• Escalating geopolitical tensions fuels supply concerns and lends support to the commodity.
• September Fed rate cut bets undermine the USD and further help limit losses for Oil prices.

West Texas Intermediate (WTI) US crude Oil prices tick lower during the Asian session on Thursday, albeit lack follow-through selling and remain well within the striking distance of the highest level since April 26 touched earlier this week. The commodity, meanwhile, remains confined in a three-day-old trading band and is currently placed just below the $83.00 round-figure mark. 

The US data released on Wednesday pointed to signs of weakness in the labor market and some cooling in the economy. This comes on top of China's economic woes and adds to concerns about a slowdown in global economic growth. This, in turn, is anticipated to dent long-term fuel demand and is seen as a key factor exerting downward pressure on Crude Oil prices. That said, persistent supply risk stemming from the ongoing conflicts in the Middle East should act as a tailwind for the black liquid. 

In fact, tensions between Israel and Lebanon’s Hezbollah, so far, have shown little signs of de-escalating. Apart from this, Ukrainian attacks on Russian refineries continue to fuel concerns about supply disruptions from the key Oil producing countries. Furthermore, expectations of a peak summer fuel consumption and OPEC+ cuts in the third quarter could lead to a global oil market supply deficit, which, in turn, might hold back traders from placing aggressive bearish bets around the commodity.

Meanwhile, the incoming softer US economic data reaffirms market bets that the Federal Reserve (Fed) will start cutting interest rates in September and lower borrowing costs again in December. This led to the overnight slump in the US Treasury bond yields and dragged the US Dollar (USD) to a three-week low, which could further lend some support to Crude Oil prices. This further warrants caution before positioning for deeper losses ahead of the US Nonfarm Payrolls (NFP) report on Friday.

• The USD/JPY corrects from a 38-year high of 161.95.
• The Nikkei 225 Index rises to nearly 40,700 points, buoyed by gains seen on Wall Street overnight.
• The US Dollar struggles as lackluster economic data raise expectations of Fed rate cuts in 2024.

The Japanese Yen (JPY) inches higher against the US Dollar (USD) on Thursday. The USD/JPY pair retreated from its peak at 161.95, a level not seen since 1986. Traders remain watchful for significant movements in the JPY and potential intervention by Japanese authorities to prevent excessive depreciation.

The Nikkei 225 Index increases to near 40,700 on Thursday, following gains on Wall Street overnight. The weaker Yen also bolstered equities by enhancing the profit outlook for Japan's export-driven industries.

The US Dollar (USD) faced challenges amid declining US Treasury yields, fueled by lackluster economic data that reinforced expectations of Federal Reserve (Fed) interest rate cuts in 2024. US markets will be closed on Thursday in observance of the Independence Day holiday.

Daily Digest Market Movers: Japanese Yen improves as rising odds of Fed rate cuts

• On Wednesday, Rabobank FX strategists pointed out that yield differentials appear crucial to the USD/JPY outlook. They suggested that FX intervention could be imminent due to the weakness of the Japanese Yen, which is exerting downward pressure on consumer confidence.
• OCBC strategists Frances Cheung and Christopher Wong observe that the persistent strength of USD/JPY is raising intervention expectations. However, there is speculation that authorities may monitor to what extent they allow for further depreciation before intervening.
• US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May.
• The ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.
• Federal Reserve Bank of Chicago President Austan Goolsbee stated on BBC Radio on Wednesday that bringing inflation back to 2% will take time and that more economic data are needed. However, on Tuesday, Fed Chair Jerome Powell said that the central bank is getting back on the disinflationary path, per Reuters.
• The Minutes from the Federal Reserve's June 11-12 monetary policy meeting, released on Wednesday, suggested that Fed officials were in a wait-and-see mode. "Some participants emphasized the Committee’s data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path."
• Reuters, citing two government sources on Wednesday, reported that the Japan Ministry of Finance may introduce a new type of floating-rate bond to help investors mitigate the risks from rising bond yields. This move comes as Japanese officials prepare for more rate hikes by the Bank of Japan.
• The Federal Reserve (Fed) Chair Jerome Powell turned slightly dovish on Tuesday. Powell said that the Fed is getting back on the disinflationary path. However, Powell wants to see further evidence before cutting interest rates as the US economy and the labor market remain strong, per Reuters.

Technical Analysis: USD/JPY hovers around 161.50

USD/JPY trades around 161.40 on Thursday, showing a bullish bias according to daily chart analysis. The pair holds near the upper boundary of an ascending channel pattern. However, caution is advised as the 14-day Relative Strength Index (RSI) is above 70, indicating overbought conditions and suggesting a possible correction.

In the near term, USD/JPY may test resistance near 162.10, the upper boundary of the ascending channel. A breakout above this level could strengthen bullish sentiment, potentially pushing the pair toward psychological resistance at 162.50.

On the downside, immediate support is observed around the nine-day Exponential Moving Average (EMA) at 160.68. A break below this level could weaken the bullish outlook, potentially guiding USD/JPY toward the lower boundary of the ascending channel near 158.80. A further decline below this channel support could see the pair navigating the area around June's low at 154.55.

USD/JPY: Daily Chart

• AUD/USD attracts some buyers for the third straight day despite weaker Aussie trade balance data.
• September Fed rate cut bets keep the USD bulls on the defensive and lend some support to the pair.
• Holiday-thinned liquidity warrants some caution for bullish traders ahead of the US NFP on Friday. 

The AUD/USD pair trades with a positive bias for the third straight day on Thursday and is currently placed comfortably above the 0.6700 round-figure mark. Spot prices remain well within the striking distance of a nearly seven-month peak touched on Wednesday and seem poised to build on the overnight breakout through a multi-week-old range. 

The Australian Dollar (AUD) continues to draw support from the upbeat domestic Retail Sales data released on Wednesday, which strengthened the case for a rate hike by the Reserve Bank of Australia (RBA). This, along with the recent US Dollar (USD) slump, overshadows data showing that Australia’s trade surplus narrowed to A$5.77 billion in May from A$6.54 billion in the previous month and acts as a tailwind for the AUD/USD pair. 

The incoming softer US macro data pointed to signs of weakness in the labor market and a softening economy. Moreover, the minutes of the last FOMC meeting revealed that the majority of policymakers said the US economic growth is gradually cooling. This reinforces bets that the Federal Reserve (Fed) will cut rates in September, which triggered a steep fall in the US Treasury bond yields and dragged the USD to a three-week low on Wednesday. 

Apart from this, the underlying strong bullish sentiment across the global equity markets is seen undermining the safe-haven buck and lending support to the risk-sensitive Aussie. That said, persistent geopolitical tensions, along with political uncertainty in the US and Europe, might hold back bulls from placing aggressive bets around the AUD/USD pair amid relatively lighter trading volumes on the back of the Independence Day holiday in the US. 

Investors might also prefer to wait on the sidelines ahead of the closely-watched US monthly employment details on Friday. The popularly known as the Nonfarm Payrolls (NFP) report might influence expectations about the Fed's future policy decisions, which, in turn, will drive the USD and provide a fresh impetus to the AUD/USD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

• The Pound Sterling strengthens as US Dollar struggles after softer economic data.
• The Labour Party is expected to secure a record number of seats in the national election.
• The lower US Treasury yields contribute to the pressure on the US Dollar.

The Pound Sterling (GBP) continues its winning streak, which began on June 27. The GBP/USD pair trades around 1.2750 during the Asian session on Thursday, which could be attributed to the softer data released from the United States (US) on Wednesday.

Markets are expected to closely monitor the UK general elections on Thursday. Britain appears poised to elect Labour Party leader Keir Starmer as its next prime minister, ousting Rishi Sunak's Conservatives after 14 often turbulent years. A forecast by polling company Survation, as reported by Reuters on Tuesday, predicts the Labour Party will win a record number of seats in the national election.

The US Dollar (USD) struggles due to the decline in the US Treasury yields, which could be attributed to the escalated speculations of the Federal Reserve (Fed) reducing interest rates in 2024. US markets will be closed on Thursday in observance of the Independence Day holiday.

Daily digest market movers: Pound Sterling extends gains amid UK elections

• Survation's central scenario indicates that Keir Starmer's Labour Party is projected to win 484 of the 650 seats in parliament, significantly surpassing the 418 seats won by former leader Tony Blair in his famous 1997 landslide victory, as per Reuters.
• US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May.
• The ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.
• Federal Reserve Bank of Chicago President Austan Goolsbee stated on BBC Radio on Wednesday that bringing inflation back to 2% will take time and that more economic data are needed. However, on Tuesday, Fed Chair Jerome Powell said that the central bank is getting back on the disinflationary path, per Reuters.
• The Minutes from the Federal Reserve's June 11-12 monetary policy meeting, released on Wednesday, suggested that Fed officials were in a wait-and-see mode. "Some participants emphasized the Committee’s data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path."
• The Pound Sterling (GBP) outperforms its peers as Bank of England (BoE) policymakers worry about stubborn inflation in the United Kingdom (UK) service sector, which has been refraining from leaning towards policy easing. Meanwhile, inflation in other sectors has declined significantly due to weak demand from domestic and overseas markets.

Technical Analysis: Pound Sterling hovers around 1.2750

The GBP/USD pair trades around 1.2750 on Thursday. The analysis of the daily chart shows a bearish bias as the pair consolidates within a descending channel. However, the 14-day Relative Strength Index (RSI) is above the 50 level, suggesting any decline going forward to be mild. Further movement may indicate a clearer directional trend.

The GBP/USD pair could test the upper boundary of the descending channel around the level of 1.2780. A breakthrough above this level could lead the pair to test June’s high of 1.2860.

On the downside, the key support appears at the 21-day Exponential Moving Average (EMA) at the 1.2694 level. A break below this level could exert pressure on the GBP/USD pair to navigate the area near the lower boundary of the descending channel around the level of 1.2570.

GBP/USD: Daily Chart

• Gold price remains supported near a two-week high amid rising Fed rate cut bets.
• Geopolitics, along with political uncertainty, also lends support to the XAU/USD.
• A positive risk tone could cap further gains ahead of the US NFP report on Friday.

Gold price (XAU/USD) attracts some buyers for the second straight day on Thursday and looks to build on the overnight strong move up to a nearly two-week peak. The US macro data published on Wednesday pointed to signs of weakness in the labor market and a softening economy. Moreover, the minutes of the last FOMC meeting revealed that the majority of policymakers said the US economic growth is gradually cooling. This reinforces bets that the Federal Reserve (Fed) will cut rates in September, triggering a sharp fall in the US Treasury bond yields and dragging the US Dollar (USD) to a three-week trough. Furthermore, geopolitical tensions, along with political uncertainty in the US and Europe, suggest that the path of least resistance for the non-yielding yellow metal is to the upside. 

That said, the underlying strong bullish sentiment across the global equity markets could act as a headwind for the safe-haven Gold price amid relatively lighter trading volumes on the back of the Independence Day holiday in the US. Traders also seem reluctant and might prefer to wait for the release of the closely-watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report – on Friday before placing fresh directional bets. Nevertheless, the fundamental backdrop seems tilted firmly in favor of bulls and supports prospects for a further near-term appreciating move for the XAU/USD. 

Daily Digest Market Movers: Gold price continues to draw support from September Fed rate cut bets

• The incoming softer US macro data lifts market bets for an imminent start of the Federal Reserve's rate-cutting cycle later this year, which continues to act as a tailwind for the non-yielding Gold price.
• The Automatic Data Processing (ADP) reported on Wednesday that private-sector employment in the US rose 150,000 in June as compared to 157,000 in the previous month and expectations of 160,000.
• Separately,  the Labor Department said the number of Americans who applied for unemployment benefits rose further to a 2-1/2-year high last week, pointing to signs of easing labor market conditions.
• Moreover, the Institute for Supply Management's (ISM) Services PMI dropped in contraction territory and came in at 48.8 for June – marking its lowest level since May 2020 and missing consensus estimates. 
• The data further pointed to a loss of momentum in the economy at the end of the second quarter, reaffirming expectations that the Fed will lower borrowing costs in September and cut rates again in December. 
• Meanwhile, the minutes from the June 11-12 FOMC meeting revealed that the vast majority of policymakers assessed that the US economy seemed to be slowing and noted that price pressures were easing.
• Officials, however, argued that additional favorable data was required to give them greater confidence that inflation was moving sustainably toward the 2% target and before reducing interest rates. 
• The US Treasury bond yields slumped for the second successive day on Wednesday and wiped out the Donald Trump and French election-fueled spike at the start of the week, undermining the US Dollar. 
• Investors now look forward to the release of the US Nonfarm Payrolls (NFP) report on Friday for cues about the Fed's future policy decision, which will determine the near-term trajectory for the XAU/USD. 

Technical Analysis: Gold price could aim to reclaim $2,400 and retest record peak touched in May

From a technical perspective, the overnight breakout through the 50-day Simple Moving Average (SMA), along with the fact that oscillators on the daily chart have again started gaining positive traction, favor bullish traders. Some follow-through buying and a sustained strength beyond the $2,365 area will reaffirm the constructive outlook, setting the stage for a move towards reclaiming the $2,400 mark. The Gold price might then extend the positive momentum and aim to challenge the all-time peak, around the $2,450 zone touched in May.

On the flip side, any meaningful pullback now seems to attract fresh buyers near the 50-day SMA resistance breakpoint, around the $2,339-2,338 region. The next relevant support is pegged near the $2,319-2,318 area, which, if broken, could make the Gold price vulnerable to weaken further below the $2,300 mark and test the $2,285 horizontal zone. A convincing break below the latter will be seen as a fresh trigger for bearish traders and expose the 100-day SMA support, currently near the $2,258 area before the metal drops to the $2,225-2,220 region and the $2,200 round-figure mark.

• The Indian Rupee posts modest gains on Thursday amid the softer US Dollar. 
• The weaker-than-expected US Services PMI data and encouraging Indian economic outlook weigh on the pair. 
• US markets are closed for Independence Day; the attention will shift to the US June employment data on Friday.

The Indian Rupee (INR) gains ground on Thursday on the heavy bearish pressure of the US Dollar (USD). The disappointing US ISM Services Purchasing Managers Index (PMI) report for June weighs on the Greenback and acts as a headwind for the pair. Additionally,  the optimism in India’s economic outlook and the continued bull run in Indian equity markets continue to underpin the INR. 

However, the renewed USD demand for USD from local corporations and state-run banks, along with higher US Treasury bond yields, might help limit the pair’s downside. The US markets will be closed on Thursday due to Independence Day. Investors will shift their attention to the US June employment data on Friday, including Nonfarm Payrolls, Unemployment Rate, and Average Hourly Earnings. 

Daily Digest Market Movers: Indian Rupee remains strong, supported by a positive economic outlook in India

• The final reading of India’s HSBC Services PMI climbed to 60.5 in June from the previous reading of 60.2. This figure came in above the market consensus of 60.4. 
• The US ISM Services PMI dropped to 48.8 in June from 53.8 in May, missing the market expectation of 52.5 by a wide margin.  
• The US weekly Initial Jobless Claims rose by 238K in the week ending June 29, according to the US Department of Labour (DoL) on Thursday. This figure came in above the estimate of 235K and higher than the previous weekly gain of 233K.
• The Minutes of the FOMC monetary policy meeting on June 11-12 released on Wednesday, indicated that the Fed officials emphasized the data-dependent approach and refrained from committing to interest rate cuts until further observation. 
• Some policymakers noted the importance of patience before considering rate cuts, while several others stated that it’s necessary to hike again if inflation were to rebound, the FOMC Minutes showed. 
• Chicago Fed President Austan Goolsbee said on Thursday that getting inflation back to 2% will take time and there is still much data to be had on the economy.

Technical analysis: USD/INR might face some consolidation in the near term

The Indian Rupee trades on a stronger note on the day. The bullish trend of the USD/INR pair remains intact on the daily chart as it holds above the key 100-day Exponential Moving Average (EMA). 

In the near term, the USD/INR pair has oscillated within the familiar trading range since March 21. The 14-day Relative Strength Index (RSI) hovers around the 50-midline, suggesting further consolidation cannot be ruled out amid neutral momentum. 

The first upside barrier for the pair will emerge at 83.65, a high of June 26. Further north, the next hurdle is located at the all-time high of 83.75 en route to the 84.00 psychological mark.

In the bearish event, the 100-day EMA at 83.35 acts as an initial support level for USD/INR. A breach of this level will expose the 83.00 round figure, followed by 82.82, a low of January 12.

Australia’s trade surplus narrowed to 5,773M MoM in May versus 6,678M expected and 6,548M in the previous reading, according to the latest Aussie foreign trade data published by the Australian Bureau of Statistics on Thursday.

Further details reveal that Australia's May Goods/Services Exports reprint 2.8% figures on a monthly basis versus -2.5% prior. The nation’s Goods/Services Imports rose 3.9% in May MoM versus -7.2% prior. 

Market reaction

At the press time, the AUD/USD pair is up 0.16% on the day to trade at 0.6716.

The People’s Bank of China (PBOC) set the USD/CNY central rate on Thursday at 7.1305, as against the previous day's fix of 7.1312 and 7.2656 Reuters estimates.

• NZD/USD gathers strength around 0.6110 in Thursday’s early Asian session, up 0.12% on the day. 
• US ISM Services PMI came in weaker than expected, dropping to 48.8 in June from 53.8 in May.  
• The RBNZ is expected to leave its OCR unchanged at 5.5% at its policy meeting next week. 

The NZD/USD pair extends gains near 0.6110 on Thursday during the early Asian trading hours. The pair edges higher as the Greenback came under heavy bearish pressure after the disappointing US ISM Services PMI report. The US markets will be closed on Thursday due to Independence Day.

Data released from the Institute for Supply Management (ISM) on Wednesday showed that the US Services PMI dropped to 48.8 in June from 53.8 in May. This figure came in worse than the market estimation of 52.5 by a wide margin. Meanwhile, the US weekly Initial Jobless Claims for the week ending June 29 rose by 238,000, compared to the previous weekly gain of 233,000, above the consensus of 235,000. The Greenback has attracted some sellers due to the weaker US economic data, which acts as a tailwind for NZD/USD. 

The Minutes of the Federal Reserve's (Fed) June 11-12 monetary policy meeting released on Wednesday revealed that the Fed officials were in wait-and-see mode at their June meeting. “Some participants emphasized the Committee’s data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path,” the minutes showed. 

Early Thursday, Chicago Fed President Austan Goolsbee said that getting inflation back to 2% will take time and there is still much data to be had on the economy.

On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) is anticipated to hold its borrowing costs at 5.5% for the seventh consecutive meeting in July. Nonetheless, investors have priced in nearly 45% odds of an October cut from the RBNZ. Traders will take more cues from the Monetary Policy Statement. Any hints about an earlier easing cycle from the New Zealand central bank might drag the New Zealand Dollar (NZD) lower and cap the upside for the pair. 

Federal Reserve Bank of Chicago President Austan Goolsbee on Thursday discussed the economic outlook on BBC Radio. Goolsbee said that getting inflation back to 2% will take time and there is still much data to be had on the economy. 

Key quotes

Market reaction 

The US Dollar Index (DXY) is trading 0.05% lower on the day at 105.30, as of writing.