So this week traders will be focused on the ISM data (both manufacturing and services) and Friday’s Nonfarm Payrolls. Elsewhere, further rate hikes are expected from the Bank of England, the Reserve Bank of Australia and the Brazilian Central Bank. It is just a question of how big the increases are. It is also a week of PMIs for major economies. How significant are the warning signals of the slowdown in economic growth?
- North America – US ISM data and Nonfarm Payrolls. Also Canadian PMIs and unemployment
- Europe – The Bank of England is the highlight, with final PMIs also due
- Asia – The Reserve Bank of Australia and PMIs
- LatAm – Another rate hike from the Brazilian Central Bank
Market reaction to US economic data may now have changed in the wake of the Federal Reserve decision last week. The bad news (or negative surprises) may no longer drive traders into buying the USD (as a safe-haven asset). Bad US data now increases the potential for lower US interest rates. Therefore would be USD negative (a traditional reaction). This could be key for data traders moving forwards.
Our long-held USD strategy of buying into weakness may become less decisive as a result. This may mean less decisive moves with shorter-term trends become more common.
Nonfarm Payrolls will be key on Friday. The labor market is tightening. Expectations of lower jobs growth and falling average hourly earnings will mean less pressure on the Fed to tighten rates.
Canadian Manufacturing PMI is expected to fall slightly but it still remains in solid expansion territory. The labour market is just beginning to show signs of tightness with the employment change expected to decline in July. A CAD recovery is being helped by a higher oil price.
- USD/CAD – holding below the previous support at 1.2820/1.2855 opens for a further correction towards 1.2670/1.2720.
Precious metals are being supported now by weaker US economic data. However, given the decline in Brent Crude to the news of negative Q2 US Advance GDP, the demand side of the story is still important for oil.
- Brent Crude Oil – resistance between $107.65/$109.65 is still key. Whilst this holds, oil is a range trade between $98/$100 support and $110 resistance.
- Gold – If weakness into $1745/$1752 can hold now as a basis of near-term support the recovery is open towards $1785/$1805.
- Silver – Old resistance between $19.10/$19.48 is now supportive and if this holds into weakness then we favour further recovery towards $20.20/$20.45.
Wall Street has held up well despite the continued run of negative earnings surprises for Q2 results. There is a mixed reaction for data traders at the moment. Negative US data surprises mean possibly lower US interest rates, but also increase the warning signals of recession.
- S&P 500 futures – with a run of higher lows over recent weeks, weakness towards 3950/4015 would be a chance to buy for pressure on 4100/4200.
- NASDAQ 100 futures – the recovery is developing well. Any near-term weakness into 12260/12700 would be a chance to buy for further upside
- Dow futures – continues to recover. Any near-term weakness into 31660/32200 support looks to be a chance to buy
Eurozone inflation continues to come in higher than forecast. Q1 growth surprised to the upside, but the flash Composite PMI dropping below 50 (expected to be confirmed in the final data) means that the warning signs are flashing red into Q3. German Factory Orders also with negative growth in June reflects badly on a major economic sector for the Eurozone’s largest economy.
- EUR/USD - recovery is lagging with resistance at 1.0270 proving to be a considerable barrier. A near-term ranging outlook continues, with support now at 1.0095.
Markets are split on whether the Bank of England will hike by 25bps or 50bps. Updates to inflation and growth projections will also be key for GBP.
- GBP/USD breaking above 1.2055 has opened the recovery. Reaction around 1.2055/1.2100 support will be a near-term gauge but technically the recovery is pointing to a rebound towards 1.2330 resistance.
FTSE 100 has outperformed European peers due to its raw materials exposure as commodities prices have ticked higher recently. The DAX continues to be weighed down by Russian gas supply threats and recession fears.
- DAX – still needs to decisively clear 13440 resistance. However, momentum is improving and a close above 13440 opens further recovery towards 13650/13735.
- FTSE 100 – weakness is increasingly being bought into. Continued closes above 7370 will sustain the improvement and open 7520/7650. Support at 7310 is growing in importance.
JPY is seeing a considerable short squeeze, driving a recovery. Continued declines in the US 10-year Treasury yield will fuel the move.
- USD/JPY – is driving lower with strengthening negative momentum. The old support at 134.25/134.75 is now new resistance.
- AUD/JPY – a sharp correction is testing the six-month uptrend. Further downside will test 91.40/91.50 support.
A +50 basis points rate hike is firmly expected. Market participants will be watching for the language around further hikes beyond that.
- AUD/USD – has recovered well in recent weeks to break a near four-month uptrend. Holding support at 0.6875/0.6890 will be important to maintain the recovery momentum for a test of 0.7070 in due course.
Employment data is expected to have continued to improve in Q2. Barring any negative surprises in this, the NZD recovery will be sustained.
- NZD/USD – continues to recover. The old resistance band 0.6190/0.6250 is now a basis of support this week to sustain the recovery momentum. A test of 0.6395 resistance is developing.
The real has recovered well as the USD has turned corrective. A 50bps rate hike should sustain this move.
- USD/BRL – has fallen sharply in the past week. Reaction around the long-term pivot at 5.2000/5.2400 will be a key gauge. Momentum is suggesting a further retreat towards 5.0300.
Consumer confidence is expected to fall to eleven-month lows. Despite this, the peso is recovering decisively now.
- USD/MXN – holding the break below 20.300/20.360 support will maintain corrective momentum as near-term rallies now look to be a chance to sell. Resistance at 20.575 is key near term.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.