What we are looking for

  • USD remains under corrective pressure: USD has been corrective since the Fed meeting and this trend has continued into today’s session, even if it is looking slightly more cautious.
  • Indices ticking slightly higher: A strong close to last week on Wall Street means that European markets are ticking higher. However, US futures are unwinding slightly which will temper the upside momentum of the recovery. 
  • Commodities are slipping back: A concerning set of Chinese PMIs has just pulled the reins on the rebound in commodities. 
  • Data trading: UK Manufacturing PMI is a final reading so is unlikely to do too much for GBP. It may be a similar story for EUR with the Eurozone unemployment which is expected to remain at current levels. The US ISM Manufacturing will be the big focus for traders. Negative surprises should now be negative for USD.


There was a strong close to a strong week on Wall Street on Friday. However, there are a few factors that are just pulling the reins on enthusiasm this morning. PMI data out of China has shown that an expected pick up in economic activity has failed to materialise in July. This comes ahead of a raft of tier-one data (RBA, Bank of England, Nonfarm Payrolls) and risk events (US House of Representatives Speaker Pelosi is on a trip to Asia which may include a provocative visit to Taiwan). Subsequently, there is a slightly more pensive feel to markets this morning.

Despite this though, the USD correction since the Fed meeting is still on track. European indices are playing catch up on Wall Street gains, however, US futures are cautiously slipping back. Although gold is consolidating, the risk-negative implications of the China data is leaving the recovery in metals prices and oil looking more tentative this morning. 

The Manufacturing PMIs always dominate the economic calendar on the first trading day of the month. The UK Manufacturing PMI is a final reading and is expected to be unrevised from the flash reading just over a week ago. Eurozone unemployment is also expected to be the same as last time. The ISM Manufacturing will be the main focus later in the US session. Forecasts for the PMI suggest the sector with only the slightest decline. 

Today’s news

Market sentiment is a little pensive: US futures are lower, even if the correction in the USD continues.

Treasury yields are slightly higher: FOMC’s Kashkari said that he was surprised by the moves lower on bond yields and that high inflation could mean that 50bps hikes in the upcoming meetings might be reasonable.

China PMIs disappoint: The official PMIs have come in lower than forecast for July. The Government’s General PMI was expected to improve from 54.1 to 55.0, however, it dropped to 52.5, although this is still the second month of reasonable expansion above 50. The Caixin (unofficial) Manufacturing PMI also missed expectations as it dropped to 50.4 (from 51.7).

Japanese Manufacturing PMI revised a shade lower: The final manufacturing data was revised down to 52.1 (from 52.2 at the flash reading). 

Eurozone final Manufacturing PMI with a slight upward revision: The final Manufacturing PMI has been revised slightly higher to 49.8 (from 49.6 flash reading). This is still marginally in contraction though. 

Cryptocurrencies fall back: Bitcoin has fallen back over the weekend and is down -2.7% to $23,300. 

Economic Data:

  • UK final Manufacturing PMI (08:30 GMT) – Consensus is expecting no change from the July  flash reading of 52.2 (down from 52.8 final June)
  • Eurozone Unemployment (09:00 GMT) – The jobless rate is expected to be unchanged at 6.6%
  • US ISM Manufacturing (14:00 GMT) – Analysts are looking for a marginal decline to 52.9 in July (from 53.0 in June)

Major markets outlook

Broad outlook: USD weakness continues, but the sentiment is more cautious on equity markets and commodities.

Forex: USD is underperforming again across major forex pairs. JPY remains the best performer whilst AUD and NZD are again strong. 

  • EUR/USD has an upside bias to the consolidation and this is reflected in near-term momentum. It suggests a lean towards testing the resistance at 1.0275. With other pairs breaking higher, this favours pressure on 1.0275 but the longer this is resisted, the more it will be of concern. Support is building at 1.0095/1.0145.
  • GBP/USD was choppy on Friday but has continued to put pressure on the resistance band 1.2160/1.2210. A near-term base pattern still implies recovery towards 1.2330. The five-month downtrend has been broken but a move above 1.2250 would be the next step in the recovery. Recovery momentum is also building with the RSI into the high 50s and the highest since February. We are happy to back the continuation of this rally and there is good initial support between 1.2055/1.2100. 

Espresso Morning Call: A pensive start to the trading week

  • AUD/USD has stuttered slightly in the recovery in recent sessions, but a run of higher lows and higher highs has continued. Breaking the resistance of the near four-month downtrend and seeing the 55-day moving average turn higher is encouraging for the continued recovery. The resistance between 0.7030/0.7070 looks set to be tested. The importance of support at 0.6910 is growing. 

Commodities: Precious metals are rallying strongly now, whilst oil still needs to break sustainably through resistance.

  • Gold is now consolidating its recovery in the wake of the Fed's decision. Breaking through $1752 means that $1745/$1752 needs to hold as support this week. If so, then the pressure towards a test of the next resistance band between $1785/$1805 is on. 1711 and is now testing $1739/$1752 resistance. The RSI holding above 50 would help too. The four-month downtrend is at $1780. 
  • Silver has accelerated higher through resistance at $19.48 and is testing the overhead supply resistance at $20.20/$20.45. This is the next important test for recovery. RSI momentum is confirming the improved momentum. Initial support is at $19.85 with $19.40/$19.50 now key. 
  • Brent Crude oil continues to test higher in the wake of the Fed decision. An intraday breach of resistance at $109.65 has retreated, with the market back in the band $107.65/$109.65. A close above $110 would be a strong signal of sustainable medium-term recovery. However, the RSI needs to move decisively back above 50 (where recent rallies have faltered) to add confirmation. Initial support is at $105.60/$106.20.

Indices: Wall Street has been strong in recovery, but a little tentative today. European indices are looking higher. 

  • S&P 500 futures have posted three consecutive strong positive candles as the market has surged into a test of the next important resistance band between 4070/4200. However, the market is looking slightly tentative this morning. With momentum now strongly positive, we would still be looking at near-term weakness being used as a chance to buy into this recovery. Initial support is now at 4080 and strengthening between 3994/4042.
  • German DAX is finally looking to break decisively clear above 13440 resistance. A more improved configuration on RSI momentum suggests that there is a recovery that is progressing. A move towards a test of 13665/13735 resistance would be the next step. Initial support is at 13400 and then 13330. 
  • FTSE 100 has broken decisively clear above 7370. It means that 7335/7370 is now a basis of support to buy into near-term weakness. The daily RSI has moved into the 60s to reflect the strengthening positive momentum. The way to a test of 7518 could be seen initially but up towards the May highs of 7650 is now open.

Espresso Morning Call: A pensive start to the trading week

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.