The US Federal Reserve noted in its quarterly Senior Loan Officer Survey that banks eased standards on commercial, industrial and household loans in the second quarter, as reported by Reuters.
"Major net shares of banks cited a more favorable or less uncertain economic outlook, more aggressive competition from other banks on nonbank lenders, and improvements in industry-specific problems as important reasons," the Fed's publication read.
This report doesn't seem to be having a significant impact on market sentiment. As of writing, the S&P 500 and the Nasdaq Composite indexes were up 0.15% and 0.36% on a daily basis, respectively.
- EUR/USD remains on track to end the day flat.
- US Dollar Index stays above 92.00 following an earlier decline.
- US ISM Manufacturing PMI came in lower than expected in July.
The EUR/USD pair advanced higher toward 1.1900 during the European trading hours on Monday but failed to preserve its bullish momentum. As of writing, the pair was virtually unchanged on the day at 1.1870.
DXY reclaims 92.00 after US data
Earlier in the day, the risk-positive market environment made it difficult for the greenback to find demand helped EUR/USD push higher. However, Wall Street's main indexes retreated from the daily highs set after the opening bell and allowed the USD to regather its strength. At the moment, the US Dollar Index (DXY) is flat at 92.08.
The data from the US revealed that the manufacturing activity continued to grow at a strong pace in July. The IHS Markit's Manufacturing PMI improved to 63.4 in July's final reading from the flash estimate of 63.1. Furthermore, the ISM's Manufacturing PMI arrived at 59.5 and missed the market expectation of 60.9. The Prices Paid component of the ISM's survey edged lower to 85.7 from 92.1 and the Employment component improved to 52.9 from 49.9.
CFTC Positioning Report: USD net longs at 15-month highs.
On Tuesday, June Producer Price Index (PPI) will be the only data featured in the European economic docket. Later in the day, the ISM-NY Business Conditions Index, the IBD/TIPP Economic Optimism Index and June Factory Orders data from the US will be looked upon for fresh impetus.
Technical levels to watch for
- GBP/USD bears are seeking a break of hourly support and eye a drop to test 1.3820.
- The BoE and Fed is the driving theme while the US dollar is caught up in risk-on and off ebbs and flow.
After hitting a five-week high of $1.3983 on Friday, closing its best week versus the weakening greenback since early May, the sterling bears have piled in again as the week gets underway.
At the time of writing, GBP/USD is trading at 1.3886 and down some 0.13% on the day so far.
To start the day, the pound was bid with a firmer global risk tone as traders walked in from the weekend on the back of the news of the US infrastructure bill.
US Senators introduced a sweeping $1 trillion bipartisan plan to invest in infrastructure, with some predicting the chamber could pass this week the largest public works legislation in decades.
Additionally, a drop in COVID-19 cases and the reopening of the British economy has helped keep the pound elevated in recent days, with the currency fighting back from its biggest fall in nine months in June.
However, the US dollar is showing some signs of life on Monday in attempts to climb from the lows printed on Friday vs a basket of major currencies.
After recouping some of its recent losses Friday, DXY is flat and oscillating around the 92 figure but has been as high as 92.17.
Some analysts remain positive on the dollar, but acknowledge that the rally is unlikely to resume in force until a more hawkish Fed narrative takes hold.
This week will be a critical one for the greenback in terms of data.
It has suffered a less inspiring Gross Domestic Product report of late, a miss in the Manufacturing PMIs today and Friday's PCE, the Fed's preferred measure of inflation also missed expectations, rising 0.4% MoM versus 0.6%.
Nevertheless, the US Nonfarm Payrolls data will be eyed with an emphasis at that Fed, more so than inflation readings, with respect to timings of a taper.
Markets are still trading off Fed chair, Jerome Powell’s dovish press conference rather than the hawkish insertion of tapering in the official statement which leaves the US dollar vulnerable of the jobs data does not come in hot.
Fed speakers, such as Neel Kashkari and Lael Brainard have both came out on the dovish side and underscored Powell’s message which has not helped the US dollar.
The next few weeks into the Jackson Hole will be critical for data and the greenback.
The next data will be the Services PMI to be reported Wednesday and are expected at 60.5 vs. 60.1 in June.
Overall, analysts at Brown Brothers Harriman are bullish on the greenback and the US economy, explaining that the PMI readings of late, despite some misses of expectations, ''remain at historically high levels, signifying continued strength in the economy.''
''Despite the mildly disappointing read for Q2 growth, the US economy should continue to post strong growth in Q3. Atlanta Fed GDPNow model just started estimating Q3 growth last Friday and clocks in at 6.1% SAAR. That's down slightly from the 6.5% reported for Q2 last week but is still well above the NY Fed's Nowcast reading of 4.19% SAAR for Q3. BBG consensus is 7.1% for Q3 but this is likely to edge lower after Q2 growth fell short of the 8.5% consensus,'' the analysts explained.
''We still have fiscal stimulus in the pipeline and so we think growth around 6.0-6.5% in Q3 is quite likely.''
Eyes on the BoE
Meanwhile, the market's attention will flip to the Bank of England meeting next Thursday.
The BoE is expected to keep its foot firmly pressed on the stimulus pedal.
Some see the need for the central bank to begin tapering its bond-buying programme as the economy recovers due to the prospect of continued consumer-led growth, allied to a material upgrade in the inflation profile in the UK.
However, the consensus is that there will not be any new guidance on the interest rate path but, instead, a repeat of prior language that ‘significant progress’ is needed before the stimulus is removed.
Only 1-2 members are likely to vote for an early end of the QE and if there are no surprises, then the impact on GBP should be rather limited.
''We look for the MPC to keep policy unchanged at this meeting, despite recent hawkish sentiment from two members. While wage and inflation dynamics remain strong, there are early signs of a slowdown in demand,'' analysts at TD Securities argued. ''The QE decision will likely not be unanimous.''
''We do not expect the August MPC meeting to provide a strong directional cue for GBP, particularly as FX markets have been content to shrug off stronger policy signals elsewhere,'' the analysts at TDS said.
As for positioning, CFTC Positioning Report: USD net longs at 15-month highs
GBP/USD technical analysis
The price is stuck at hourly support.
A break here opens risk to the next layer of support in the 1.3820 area ahead of 1.3790 old daily resistance.
- AUD/USD touched a daily high of 0.7372 on Monday.
- US Dollar Index stays flat on the day above 92.00.
- RBA is expected to keep its policy rate unchanged.
The AUD/USD pair preserved its bullish momentum in the early American session and touched a daily high of 0.7382. However, the pair failed to push higher and was last seen gaining 0.28% on the day at 0.7365.
The upbeat market mood at the start of the week helped the AUD find demand. With Wall Street's main indexes opening in the positive territory following Friday's slide, AUD/USD managed to edge higher in the second half of the day.
Nevertheless, the greenback stays resilient against its rivals and keeps AUD/USD's upside limited. The US Dollar Index is currently unchanged on the day at 92.07.
Earlier in the day, the data from the US showed that the business activity in the US manufacturing sector continued to expand at a robust pace in July. The IHS Markit Manufacturing PMI and the ISM's Manufacturing PMI arrived at 63.4 and 59.5, respectively. The Prices Paid component of the ISM's survey edged lower to 85.7 from 92.1 in June, suggesting that input price pressures softened modestly.
Eyes on RBA's policy announcements
On Tuesday, the Reserve Bank of Australia (RBA) is expected to keep its policy rate unchanged at 0.1%. In its latest policy meeting, the RBA announced that it will reduce the pace of asset purchases to A$4 billion from A$5 billion and experts think that the bank could opt out to delay that adjustment given the uncertainty caused by the rising cases of Delta variant.
Previewing the event, "market players are anticipating a dovish stance that should put the AUD under selling pressure," said FXStreet Chief Analyst Valeria Bednarik. "From a technical point of view, the AUD/USD pair is bearish. In the daily chart, the pair is developing below a bearish 20 SMA, which extends its decline below the longer ones, providing dynamic resistance at around 0.7405."
Reserve Bank of Australia Preview: Dovish twist as lockdowns continue.
Technical levels to watch for
Analysts at MUFG Bank forecast the NZD/USD pair at 0.71 by the third quarter and at 0.73 by the second quarter of next year. They see that the plans of the Reserve Bank of New Zealand to hike rates encourage a
Stronger kiwi (NZD).
“The New Zealand dollar fell only marginally in July and unlike the AUD which was the 2nd worst performing G10 currency. The economic backdrop remains favourable for New Zealand with the economy less impacted than elsewhere given New Zealand’s successful ‘zero-COVID’ policy. Real GDP has already surpassed the pre-COVID peak and inflation data for Q2 released in July was much stronger than expected. The Q/Q rate increased 1.3% versus an expected 0.7% increase. The 3.3% annual rate was the highest since 2011.”
“The RBNZ meeting, the day before the CPI data, already had enough information to announce a sudden halt to its QE program, which surprised the market. The 2-year NZ-US swap spread jumped 34bps to a level last seen in Q1 2017 when NZD/USD was trading between 0.7000-0.7300. The RBNZ in ending QE also gave clear guidance on rate hikes later this year.”
“ The OIS forward market implies two rate increases are priced by year-end. There are risks to this pricing we believe and the escalation of COVID in Australia and the forced closure of the New Zealand border to Australian entrants underlines some near-term risks that the RBNZ only delivers one of those two rate increases. Still, we are assuming higher vaccination rates and an improvement in global growth optimism will help support NZD over the forecast period through to mid-2022."
The real gross domestic product (GDP) in the United States is expected to grow by 6.3% in the third quarter of 2021, up from 6.1% on July 30, the Federal Reserve Bank of Atlanta's latest GDPNow report showed on Monday.
"After this morning's Manufacturing ISM Report On Business from the Institute for Supply Management and the construction spending report from the US. Census Bureau, the nowcast of third-quarter real personal consumption expenditures growth increased from 3.2% to 3.9% and the nowcast of third-quarter real gross private domestic investment growth decreased from 29.4% to 28.0%," Atlanta Fed explained in its publication.
The US Dollar Index showed no immediate reaction to this report and was last seen trading flat on the day at 92.06.
Downside risks for the South African rand have eased after the recent sell-off, argue analysts at MUFG Bank. The USD/ZAR is forecast to trade at 14.400 during the third quarter and at 14.900 by the second quarter of 2022.
“The rand has continued to underperform over the past month resulting in a reversal of strong gains against the US dollar from earlier in the year. The rand has been hit hard recently by the combination of negative domestic and external developments.”
“The social unrest has eased but fears remain that it could resurface. The negative impact on the economy from the rioting prompted the SARB to leave their GDP forecast unchanged at 4.2% for this year rather than upgrade.”
“The government has announced relief measures including reinstating a monthly welfare grant of ZAR350 for the poor until the end of March and support for uninsured businesses to help dampen downside risks for the economy. There have been encouraging signs recently that the third wave of COVID in South Africa has passed the peak allowing the government to begin easing restrictions. The riots have encouraged the SARB to be more cautious over tightening monetary policy. The SARB is now only forecasting one rather than two rate hike towards the end of this year. We expect higher commodity prices and yields on offer in South Africa to prevent a further sharp rand sell off.”
The August meeting of the Monetary Policy Committee (MPC) of the Bank of England will take place this week. Market participants expect no change. Analysts at Rabobank don’t expect the MPC to offer any clues on under what conditions a first interest rate hike would come.
“We don’t expect any changes to Bank rate. This vote is widely expected to be unanimous. We also don’t think that the MPC will spell out the conditions under which it actually would contemplate a rate hike, as the growth and inflation outlook beyond this year is too uncertain.”
“We look for an 8-1 majority vote to maintain its year-end target for gilt purchases at £875 billion. The MPC already announced a slight slowdown of these purchases in May, creating a glide path. The APF has now completed £821.6 billion worth of purchases at a current pace of £3.44 billion a week. After the conclusion of this week’s meeting, the central bank will publish a new market notice in which it sets out the details on how the APF plans to purchase gilts in the upcoming period. This concerns new net purchases and the reinvestment of the £14.3 billion of cash flows associated with the maturity of the 7 September 2021 gilt. As there are 21 weeks left before year-end, and £67.7 billion of purchases to be made, a change in pace is not imminent.”
“The central bank plans to finish its net asset purchases at the end of the year. One or two policymakers may vote for winding up the net asset purchases early. Such a decision merely creates uncertainty, while its economic impact is insignificant.”
“The MPC will now also formally add negative rates to its tool kit, even as any interest in using this policy has completely faded in recent months. The formal inclusion of negative rates also means that the MPC’s estimate of the effective lower bound needs to be updated.”
Analysts at MUFG Bank, expected the Indian trade deficit to widen during the second half of the year. They add that blockbuster IPOs offered support to the rupee in the context of global risk aversion. Their forecast is for USD/INR at 74.500 during the third quarter and at 75.250 by the second quarter of 2022.
“The Indian rupee was more stable than most Asia ex-Japan currencies in July that were hit by negative sentiments driven by Delta variant concerns. Admittedly Indian risk assets were also negatively affected with foreign investors offloading Indian equities in July following two months of net inflows. But one of the factors that kept the rupee relatively resilient was IPO-related inflows due to launches of a few blockbuster IPOs in July. With the IPO calendar still looking busy in August, the rupee could continue to hold up relatively well despite lingering Delta variant concerns.”
“We still expect the rupee to be on a modest depreciation trek against the US dollar in the coming months as the current account deficit is expected to widen on larger trade deficits. This will be mainly driven by stronger import growth as private consumption rebounds following the relaxation of mobility restrictions.”
“But with oil imports likely to become cheaper as oil prices fall from its cyclical peak in the coming months, the current account deficit is expected to be well-contained below 2.0% of GDP in 2021, limiting rupee losses.”
Data released on Monday from the US manufacturing sector came in below expectations. The July ISM report tells us the manufacturing expansion continues to be limited by supply-chain issues, explained analysts at Wells Fargo.
“The ISM index came in at 59.5, the first sub-60 headline reading since January. The outcome was short of a consensus expectation for 61.0. The news was mixed and while supply-chain dynamics are a long long way from returning to normal there were a couple signals of improvement.”
“One unalloyed positive was the fact that the employment component crossed back into expansion, rising to 52.9 in July from 49.9 in June. Comments continue to point to the difficulty finding labor, but this is a welcome step in the right direction and suggests at least some easing in labor constraints.”
“Similarly, easing in input costs growth gives some indication that demand and supply is tippy-toeing back toward balance, but here too, the net share of businesses reporting higher input costs suggests businesses are not seeing much relief yet.”
“Supply issues are not just a concern for the manufacturing sector at these extremes either. The nearly 30-year high in core CPI has been underpinned by surging goods inflation, while the disappointing pace of Q2 GDP was tied in no small part to businesses further drawing down already scant inventories. No surprise then that the question of "When will these supply pressures begin to ease?" is at the forefront of the minds of business owners, investors, policymakers and consumers alike.”
- Loonie under pressure as WTI drops 4%.
- USD/CAD rises for the second day in a row.
The USD/CAD jumped to 1.2502 on American hours, even amid a weaker US dollar across the board. The sharp decline in crude oil prices weighed on the loonie. The WTI barrel is falling by 4%.
After the release of the US ISM manufacturing index, USD/CAD bottomed at 1.2452 and then bounced sharply to the 1.2500 area. As of writing, it is hovering around 1.2495, with a bullish tone intact.
The DXY is down just 0.07%, around 92.00, as US yields tumble. The 10-year dropped to 1.17%, the lowest since July 20, and on a daily basis, it could post the lowest close since February. In Wall Street, stocks are modestly higher.
Key resistance at 1.2530
If the USD/CAD finds more buyers, the next key level is the 1.2530 are. A break above should clear the way for an approximation to 1.2600 and would alleviate further the bearish pressure. On the flip side, in the very short-term, 1.2485 is the immediate support, followed by 1.2450 and last week low at 1.2420.
- Japanese yen gains momentum across the board on lower US yields.
- USD/JPY heads for the lowest close since late May.
- Data from the US below expectations, NFP to be released on Friday.
The USD/JPY dropped further during the American session and bottomed at 109.22, the lowest intraday level since July 19. The pair remains near the bottom, under pressure amid a stronger Japanese yen across the board.
The yen is among the top performers, boosted by a rally in US bonds. The US 10-year yield is down almost 4% and recently reached at 1.179%, the lowest since July 20. At the same time, equity prices in the US are up by 0.45% on average.
Economic data from the US came in below expectations. The ISM manufacturing index dropped from 60.6 to 59.5, below the 60.9 of market consensus. The employment index rose to 52.9, ahead of Friday’s Nonfarm Payroll report.
From a technical perspective, a consolidation below 109.30 should keep the bearish momentum in place in USD/JPY, with doors open to a decline to test the July low (109.06); below, the next support stands at 108.55. On the upside, now 109.40 is the immediate resistance, followed by 109.65 and 109.75 (Aug 2 high).
- Gold staged a modest rebound after dropping to $1,805.
- 200-day SMA aligns as strong resistance at $1,820.
- Sellers could have a difficult time dragging gold below $1,800.
Following Friday's sharp decline, the XAU/USD pair started the new week on the back foot and declined to a daily low of $1,805. However, gold managed to pare its daily losses in the early American session and was last seen trading flat on the day at $1,815.
In the absence of significant macroeconomic data releases, gold struggled to find demand in the risk-positive market environment. Reflecting the upbeat market mood, Wall Street's main indexes opened in the positive territory and major European equity indices remain on track to register daily gains.
On the other hand, the US Dollar Index is fluctuating in a tight range around 92.00 at the start of the week, not allowing XAU/USD to make a decisive move in either direction.
Earlier in the day, the data from the US revealed that the business activity in the manufacturing sector continued to expand at a robust pace in July. The IHS Markit revised the Manufacturing PMI higher to 63.4 from 63.1 in the flash estimate and the ISM's Manufacturing PMI arrived at 59.5. Although this reading came in lower than the market expectation of 60.9, it was largely ignored by market participants. In the meantime, the Prices Paid component of the ISM's survey retreated to 85.7 from the all-time high it set at 92.1 in July and made it difficult for the greenback to gather strength.
There won't be any other macroeconomic data releases from the US in the remainder of the day and XAU/USD is likely to continue to fluctuate in its daily range.
Gold technical outlook
With this recent price action, gold's near-term technical outlook remains neutral. Confirming the pair's indecisiveness, the Relative Strength Index (RSI) indicator on the daily chart is flat near 50.
The initial resistance is located at $1,820 (200-day SMA) and a daily close above that level could open the door for additional gains toward $1,830 (50-day SMA) and $1,845 (static level).
Supports, on the other hand, could be seen at $1,810 (20-day SMA) and $1,800 (100-day SMA, psychological level, Fibonacci 50% retracement of the April-June uptrend) and $1,790 (July 23 low). The latter is a significant level and a break below that support could attract additional sellers and cause the technical outlook to turn bearish.
Additional levels to watch for
The Reserve Bank of Australia will announce its monetary policy decision on Tuesday, August 3. As we get closer to the release time, here are the forecasts by the economists and researchers of seven major banks regarding the upcoming central bank's decision. The latest coronavirus developments hint at a dovish shift from policymakers.
As FXStreet’s Chief Analyst Valeria Bednarik notes, AUD/USD is bearish and could fall to fresh 2021 lows with the RBA’s announcement.
“We think the lockdown in Sydney (at significant short-term economic cost) means that they’ll suspend their tapering of bond purchases until November.”
“We expect that the policymakers will announce to postpone the tapering until the recovery of the economy from the current outbreak is confirmed. The RBA will also revise its GDP forecasts to reflect the impacts from the current outbreak: cutting the growth in 2021 and raising the growth in 2022. A good deal of uncertainties in both the economy and monetary policy due to COVID-19 outbreak is likely to persist until 4Q21.”
“The RBA's 'Recovery to Expansion' narrative no longer holds given the prolonged Sydney lockdown. GDP and unemployment rate downgrades in the Aug SoMP will lend a dovish tone. We expect the Bank to reverse their Sep taper with QE staying unchanged at A$5 B from Sep'21. We shift our call on the stock under Flexible QE from 'up to A$100 B' to A$130 B.”
“The RBA will probably leave all aspects of their current stance unchanged despite a pickup in inflation in 2Q21. Market participants are still waiting to see whether the price spike in Australia pushes into wages. That said, the latest batch of COVID-19 induced lockdowns may encourage the RBA to take an even more dovish approach to previous guidance on asset purchases later this year.”
“Given the sharp unexpected deterioration in the economy the Board should send a clear signal that it continues to be committed to supporting the Australian economy with an immediate increase of weekly bond purchases to A$6 B. It should also announce a deferment of the taper from A$5 B to A$4 B that was planned for early September. It should commit to maintaining the A$6 B purchase pace through to the November Board meeting in recognition of the economy’s sudden deterioration and the uncertainty around the recovery phase.”
“We think the RBA will announce a delay to its intended September tapering of bond purchases given the downside risks to the economy are greater than when it decided on the taper in early July.”
“Following the RBA’s meeting in July, we have affirmed our view that the conditions for rate hikes are unlikely to be met until at least late 2023. Meanwhile, we expect its QE program to be extended again in November, with a further reduction in the pace of purchases likely.”
- ISM Manufacturing PMI came in lower than analysts' estimate in July.
- US Dollar Index extends sideways grind near 92.00.
The economic activity in the US manufacturing sector continued to expand in July albeit at a softer pace than it did in June with the ISM's Manufacturing PMI declining to 59.5 from 60.6. This reading came in slightly lower than than the market expectation of 60.9.
Further details of the publication revealed that the Employment Index improved to 52.9 from 49.9 and the Prices Paid Index retreated to 85.7 from the series-high is set at 91.2 in June. Finally, the New Orders Index declined to 64.9 from 66.
The US Dollar Index showed little to no reaction to this report and was last seen posting small daily losses at 91.97.
- Silver witnessed some selling on Monday and eroded a part of last week’s recovery gains.
- The set-up seems tilted in favour of bearish traders and supports prospects for further losses.
Silver traded with a mild negative bias through the early North American session and was last seen hovering near the lower end of its intraday trading range, around the $25.40-35 region.
Looking at the technical picture, the XAG/USD, for now, seems to have stalled the recent bounce from mid-$24.00s, or the lowest level since early April stalled near the $25.80 support breakpoint. The mentioned area coincides with the very important 200-day SMA and should now act as a key pivotal point for short-term traders.
Meanwhile, technical indicators on the daily chart – though have recovered from lower levels – are still holding deep in the bearish territory. This, along with the emergence of some selling near a support-turned-resistance, favours bearish traders and suggests that last week's positive move might have run out of steam.
That said, it will still be prudent to wait for some strong follow-through selling before positioning for any further depreciating move. From current levels, the $25.00 psychological mark might protect the immediate downside, which if broken will reaffirm the negative outlook and prompt aggressive technical selling around the XAG/USD.
The next relevant support is pegged near July monthly swing lows, around mid-$24.00s, below which the XAG/USD seems all set to accelerate the fall further towards the $24.00 round-figure mark. The downward trajectory could eventually drag the white metal back towards challenging YTD lows, around the $23.80-75 region.
On the flip side, any meaningful move up might continue to confront stiff resistance and remain capped near the $25.80 region (200-DMA). A sustained move beyond might trigger a short-covering move and push the XAG/USD further beyond the $26.00 mark. The momentum could further get extended towards the next relevant hurdle near the $26.35-40 supply zone.
Silver daily chart
Technical levels to watch
- Markit Manufacturing PMI renewed series high in July.
- US Dollar Index continues to move sideways near 92.00.
The IHS Markit's Manufacturing PMI reached a new series high of 63.4 in July, up from the flash estimate of 63.1.
Commenting on the report, "July saw manufacturers and their suppliers once again struggle to meet booming demand, leading to a further record jump in both raw material and finished goods prices," said Chris Williamson, Chief Business Economist at IHS Markit.
"Suppliers hiking prices for inputs into factories at the steepest rate yet recorded and manufacturers able to raise their selling prices to an unprecedented extent, as both suppliers and producers often encounter little price resistance from customers," Williamson added.
This report doesn't seem to be having a meaningful impact on the USD's performance against its rivals. As of writing, the US Dollar Index was down 0.08% on the day at 92.02.
Senior Economist at UOB Group Alvin Liew reviews the latest preliminary figures for US Q2 GDP.
“US 2Q 2021 GDP increased by 6.5% q/q SAAR, accelerating slightly from the revised 6.3% expansion in 1Q, but well missing Bloomberg and our forecasts. Note that the BEA also revised the 2020 full year GDP contraction slightly to -3.4% (from -3.5% previously).”
“Growth in 2Q was fueled by government stimulus, as the US vaccine rollout proceeded at a rapid pace helping the re-opening of many parts of the economy while monetary policy remained very accommodative. But challenges in keeping inventory stocked and bottlenecks in production likely have curbed the pace of growth.”
“The growth in 2Q was again largely attributed to the strength in private consumption, while business spending also contributed, albeit a much smaller share of the overall growth. Several components dragged on US headline GDP growth including residential investments, government’s consumption expenditure & investment, private inventories and net exports of goods and services.”
“On balance, we remain positive about US outlook despite fears of a COVID-19 driven correction. That said, the growth trajectory remains uncertain (i.e. the tapering in the take-up rate of vaccination demand and COVID-19 Delta variant) but for now we still project US GDP will extend its rebound at a slightly faster pace in 2H. The US full-year 2021 GDP is still expected to expand by 6.8%, which is slightly below IMF’s recently revised projection of 7% US growth.”
- Wall Street's main indexes started the week on a firm footing.
- Financial shares post strong gains after the opening bell.
- Consumer Staples Index is the only major sector trading in the red after the opening bell.
Major equity indexes opened in the positive territory on Monday as the market mood remains upbeat. As of writing, the S&P 500 Index is up 0.45% on the day at 4,415, the Dow Jones Industrial Average is rising 0.43% at 35,082 and the Nasdaq Composite is gaining 0.25% at 14,995.
Among the 11 major S&P 500 sectors, the Financials Index is the top performer after the opening bell, rising 1.35%. On the other hand, the Consumer Staples Index is the only sector trading in the red.
Later in the session, the IHS Markit and the ISM will be publishing Manufacturing PMI reports for July.
S&P 500 chart (daily)
- EUR/JPY trades within the familiar range above the 130.00 mark.
- JPY-strength forced the cross to give away part of the earlier gains.
- US ISM Manufacturing takes centre stage later in the NA session.
After hitting fresh tops in the 130.40 region, EUR/JPY sparked a knee-jerk to the current area just above the psychological 130.00 yardstick.
EUR/JPY turns negative near 130.00
EUR/JPY extends the side-lined formation around the 130.00 neighbourhood for yet another session, still unable to gather enough traction to surpass last week’s tops in the 130.50 zone.
The cross gives away initial gains and returns to the negative territory on the back of renewed strength in the Japanese yen, which is turn propped up by the downtrend in yields of the US 10-year benchmark.
In the data space, earlier results saw German Retail Sales expanding at a monthly 4.2% in June, while the final Manufacturing PMI in both Germany and the broader Euroland surpassed the preliminary readings.
In the US, Markit will publish its final Manufacturing PMI ahead of the more relevant US ISM Manufacturing for the month of July.
EUR/JPY relevant levels
So far, the cross is losing 0.06% at 130.07 and faces the next down barrier at 128.62 (200-day SMA) followed by 128.59 (monthly low Jul.20) and finally 128.29 (low Mar.24). On the other hand, a surpass of 130.56 (weekly high Jul.29) would expose 130.67 (38.2% Fibo of the January-June rally) and then 131.08 (weekly high Jul.13).
- GBP/USD witnessed some intraday selling near the 1.3930-35 region on Monday.
- A combination of factors extended some support and helped limit any further slide.
- Investors look forward to the BoE policy decision on Thursday for a fresh impetus.
The GBP/USD pair retreated nearly 50 pips from daily swing highs and dropped to three-day lows, around the 1.3885-80 region in the last hour, albeit lacked any follow-through selling.
The pair struggled to preserve its modest intraday gains, instead met with some fresh supply near the 1.3930-35 area and might now be looking to extend Friday's retracement slide from over one-month tops. The intraday pullback lacked any obvious fundamental catalyst and is more likely to remain limited, warranting some caution for bearish traders.
The British pound might continue to benefit from the optimism over the declining trend in new COVID-19 cases in the UK. Apart from this, the European Union's decision to pause legal proceedings against Britain over the Northern Ireland protocol dispute should further act as a tailwind for the sterling and lend some support to the GBP/USD pair.
Meanwhile, evidence of a more robust UK economic recovery now seemed to have fueled speculations that the Bank of England (BoE) could be among the first major central banks to begin the process of weaning its economy off stimulus support. Hence, the market focus will remain on the upcoming BoE monetary policy meeting scheduled on Thursday.
Conversely, growing market speculations that the Fed would retain its ultra-lose monetary policy stance for a longer period dragged the US dollar back closer to one-month lows touched last week. Apart from this, declining US Treasury bond yields and a generally positive tone around the equity markets further undermined the safe-haven greenback.
This might turn out to be another factor that should hold traders from placing any bearish bets around the GBP/USD pair and help limit the downside. Market participants now look forward to the US economic docket, highlighting the release of ISM Manufacturing PMI. The data might influence the USD price dynamics and provide some impetus to the major.
Technical levels to watch
The USD/TRY pair rallied to an all-time high at 8.8057. According to Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, further consolidation below the mentioned peak is expected to be seen.
USD/TRY made an all-time high at 8.8057
“USD/TRY is still coming off its all-time high at 8.8057 below which the cross is still expected to consolidate. It is currently flirting with the 2021 support line at 8.4400 and may soon reach the June low at 8.2735.”
“Support below the next lower 8.2056 May low is seen at the 8.1300 late April low and also at the late November and December highs and April low at 8.0530/7.9775. Further down lies the March 8 high at 7.7881. Below it the March 17 high and March 23 low can be spotted at 7.6923/7.6413.”
“Minor resistance sits at the 8.6274 late July high.”
“If the all-time high at 8.8057 were to be overcome, the psychological 9.0000 mark and a daily 0.1 x 3 vertical Point & Figure target at 9.1000 may be reached.”
In its recently published External Sector Report, the International Monetary Fund noted that they have assessed the US dollar as likely overvalued by 8.2% with a range of 5.2% to 11.2% during 2020, as reported by Reuters.
"Combined global current account surpluses and deficits rose to 3.2% of global GDP in 2020 from 2.8% in 2019."
"Global current account imbalances expected to rise further in 2021, then narrow to about 2.5% of global GDP by 2025."
"Higher current account imbalances driven by covid aid spending in US and advanced countries; trade imbalances for medical goods; fall in demand for oil and travel."
"Staff assessed euro as undervalued by about 1.8% for euro area as a whole in 2020; for Germany, euro was undervalued by about 9.2%."
"Staff assessed chinese yuan as undervalued by 0.5% in 2020 with a range of -10.5% to +9.5%."
This report doesn't seem to be having a significant impact on the USD's performance against its rivals. As of writing, the US Dollar Index was down 0.07% on the day at 92.03.