The risk complex remains slightly positive as confidence returns to the markets after a week of headlines suggesting higher Fed rates and geopolitical tensions in the US. The trading consolidation ahead of this week’s top-tier data/events also allows the market sentiment to portray cautious optimism, especially when the qualitative catalysts. Furthermore, China’s rate cut and global central bankers’ mixed views on the previous hawkish statements also allow traders to remain positive as frontline catalysts decorate the weekly calendar.
Amid these plays, the US Dollar struggles to defend the first weekly gain in three while riskier assets like commodities and Antipodeans lick their wounds. Yields pare previous recoveries while the major currencies keep eyes on the monthly US PMIs, first readings of the Q2 GDP, and the Fed’s preferred inflation gauge.
EURUSD and GBPUSD remain mostly dicey as most of the European Central Bank (ECB) officials back two more rate cuts while the UK data appear to lack the proof to back the hawkish promises of the Bank of England (BoE).
USDJPY prints the first daily loss in three while reversing the previous rebound amid fresh doubts about the Bank of Japan’s (BoJ) bond actions after Friday’s minutes. Also challenging the Yen pair buyers are expectations of witnessing more proof of escalating price pressure in Japan than in the US.
AUDUSD and NZDUSD buck the trend as the People’s Bank of China’s (PBoC) surprise rate cut tests the Antipodeans, especially after China’s disappointing growth figures. Further, USDCAD struggles to defend the buyers after snapping a five-week losing streak, backed by softer Oil prices and expectations of the Bank of Canada’s (BoC) rate cut.
Crude Oil remains pressured after marking the biggest weekly loss since late April as fears of energy demand from China join slower exports from OPEC and easing supply crunch woes. On the same line, Gold Price stays defensive near the $2,400 threshold after falling the most in six weeks the previous day, as well as snapping a three-week uptrend.
BTCUSD and ETHUSD both print mild losses after rising in the last two consecutive weeks. The latest challenge to Donald Trump in winning the US Presidential Election could be considered an important hurdle for the cryptocurrencies even as optimism ahead of the spot ETH ETF launch previously favored the bulls.
Following are the latest moves of the key assets:
US Dollar bulls retreat ahead of a big week…
Be it the escalating odds of the US Federal Reserve’s (Fed) fewer rate cuts in 2024 or the growing geopolitical chaos surrounding Donald Trump’s lead in the Presidential Election polls, not to forget China woes, the US Dollar Index (DXY) cheered it all to print the first weekly gain in three by the end of Friday. However, Sunday’s news suggesting Joe Biden’s departure from the race and Kamala Harris’s candidature for the US President seems to renew the market’s optimism. Also, China’s surprise cut in the one-year and five-year Loan Prime Rates (LPRs) joined the major central bankers’ readiness for more rate cuts, ex-Fed, to underpin the cautious optimism early Monday.
On Friday, New York Fed President John Williams renewed concerns about the Fed’s rate cut in 2024 while saying, “Central banks must own the inflation-control mission.” His comments also raised doubts about the US soft landing and challenged the US Dollar bulls afterward. However, Microsoft's fiasco drowned the technology shares and allowed the Greenback to end the week on a positive side before retreating on Monday.
Elsewhere, ECB’s Madis Muller, Villeroy de Galhau, and Gediminas Šimkus backed the market’s expectations of witnessing two more rate cuts, which in turn weigh on the EURUSD prices despite the US Dollar’s pullback. In the same way, the UK’s downbeat Retail Sales and the recent reduction in the UK confidence in the new government challenge the BoE’s hawkish bias and exert downside pressure on the GBPUSD, even if the Cable pair remains slightly positive of late.
USDJPY leads the G10 currency gainers versus the US Dollar as Treasury bond yields retreat after Friday’s corrective bounce. Also weighing on the Yen pair are chatters about Japan’s intervention to defend the domestic currency amid a softer US Dollar and the BoJ’s likely cautious move in the bond market, as well as the rate actions, ahead of this week’s Japan inflation release.
It’s worth noting, however, that the Antipodeans struggle to cheer the cautious optimism as fears about China’s economic health growth. Also weighing on the Dollars of Australia, New Zealand and Canada are growing concerns about the rate cuts from the respective central banks, especially when the BoC is up for reducing rates this week.
China's woes also challenge the commodity bulls and exert downside pressure on the prices of Crude Oil and Gold, even if the US Dollar’s lack of strength puts a floor under the prices. It should be observed that likely softness in the US activity and growth numbers, as well as inflation clues and geopolitical jitters, keep the Gold buyers hopeful despite the energy traders’ growing fears.
A slower start to the key week…
Looking forward, the Chicago Fed National Activity Index will join the fresh optimism in the US, led by political news and hopes of witnessing Fed rate cuts, which could entertain the intraday traders amid a light calendar elsewhere. However, major attention will be given to the monthly PMIs for July, the Core PCE Price Index, and the first readings of the US Q2 GDP for clear directions. Apart from that, monetary policy meeting announcements from the BoC and Japan's Inflation data are additional catalysts that will keep the market players on their toes. Hence, trading with caution appears a likely advice to the market players for this week.
