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I. Market focus:
A relative calm prevailed in the foreign exchange markets at the beginning of Thursday's session, as the news background was rather limited after the Independence Day holiday in the U.S. By the beginning of the European session, no important macroeconomic reports were published, as well as there were no important comments from the officials.
The most interesting announcements were about the prospects of the monetary policy of the European Central Bank (ECB) and the Fed. Citing sources in the ECB, Bloomberg reported that some regulator’s policymakers were concerned that the central bank might start raising rates too late (at the moment, the first rate hike is expected in September 2019). It is possible that the announcement was a move of the ECB to prepare the markets for an earlier start of monetary policy tightening. As for the Fed, the International Monetary Fund (IMF) said that it saw prerequisites for faster monetary policy tightening by the Federal Reserve. The fund warned that fiscal stimulus, which came into effect this year, might provoke a surge in inflation. According to the IMF’s estimates, this will lead to an increase in the FOMC's target federal funds rate to 3.5 to 3.75 percent by 2020. Although these reports had not a significant influence, the chances of a faster pace of monetary policy tightening in the U.S. are very high.
Markets are awaiting the release of the U.S. employment data. The U.S. official jobs report will be published tomorrow. Today, investors will focus on the statistics on employment in the private sector of the U.S. economy from the ADP (12:15 GMT) as well as the ISM’s report for the non-manufacturing sector (14:00 GMT), which may have a strong impact on expectations on Friday’s report. These data along with the publication of the minutes from the Fed’s latest meeting (18:00 GMT) will be the key expected events of Thursday. In addition, investors will pay attention to the statistics on crude oil inventories in the U.S., which will be released at 15:00 GMT.
II. The market highlights are:
Susumu Takahashi, an economic adviser to the government and chairman emeritus of the Japan Research Institute, said that Japan needs additional fiscal stimulus ahead of a planned increase in sales tax. He thought that measures are needed to manage the fluctuations in demand ahead of the tax hike to 10 percent from 8 percent, which is scheduled for October 2019. "I think we still need more measures to strengthen Japan’s economic growth and raise the potential growth rate," Takahashi said. "We need to use money and put forward policies, including fiscal stimulus, right away to speed that up." The Bank of Japan’s (BoJ) data released on Wednesday showed the economy’s potential growth rate was unchanged at 0.85 percent. Japan plunged into a recession when the government raised the sales tax by 3 percentage points to 8 percent in 2014. Prime Minister Shinzo Abe has since twice postponed another planned increase in the tax and has repeatedly stated that he will go ahead with the increase in 2019.
III. Market Situation
The currency pair EUR/USD traded slightly higher, due to the broad weakening of the U.S. currency, and the increased demand for the euro after Bloomberg’s report that some ECB’s policymakers were concerned that the end of 2019 would be too late for a rate increase. As a result, the probability of a September 2019 ECB rate hike rose from 69 percent to 80 percent. Investors are adjusting their positions ahead of the release of the ADP’s June data on employment in the U.S. and the minutes from the Fed latest meeting later today. Tomorrow, the focus will be on the U.S. official employment report. The hawkish tone of the Fed’s minutes and strong U.S. jobs data are likely to strengthen the chances of another increase in interest rates in the U.S., which should support the U.S. dollar. Resistance level - $1.1720 (high of June 26). Support level - $1.1591 (low of July 2).
The currency pair GBP/USD consolidated near the opening level, due to the lack of new drivers. Brexit uncertainty continued to weigh on the pair’s performance. The UK government is working on the final Brexit withdrawal agreement, which is to be submitted to the EU next week, and will allow beginning discussions on the post-Brexit trade relationship. However, if the agreement does not contain the necessary details, the pound is likely to resume falling. Today, market participants will pay attention to the speech of the of the Bank of England (BoE) governor Mark Carney, as well as the U.S. statistics on employment in the private sector of the U.S. economy from the ADP, the ISM’s non-manufacturing PMI and the minutes of the Fed’s last meeting. Resistance level - $1.3314 (high of June 22). Support level - $1.3049 (low of June 28).
The currency pair AUD/USD traded slightly lower, as the fact the Australian dollar was not able to continue its yesterday’s recovery, strengthened the traders’ propensity to sell currency at growth. Although the dynamics of the Australian dollar is largely determined by the dynamics of the U.S. currency, the continuing concerns about the Chinese stock market and the recent fall in prices for industrial metals suggest that the Australian currency is likely to continue to fluctuate in the future. Meanwhile, market participants will closely follow the news about trade wars as the July 6th deadline for the U.S. tariffs on $34 billion of Chinese goods approaches. Resistance level - AUD0.7443 (high of June 22). Support level - AUD0.7310 (low of July 2).
The currency pair USD/JPY rose sharply, refreshing the high set at the beginning of the session, due to the activation of the buyers after yesterday's holiday in the U.S. The pair’s performance was also impacted by the comments of the Bank of Japan’s (BoJ) board member Takako Masai, who said that the regulator should continue with strong monetary easing “in a persistent and sustainable manner, while being more carefully than ever when examining developments in economic activity and prices as well as financial conditions.” Resistance level - Y111.13 (high of July 3). Support level - Y109.36 (low of June 25-26).
U.S. stock markets were closed on Wednesday due to the Independence Day holiday.
Asian stock indexes closed mostly lower on Thursday, as investors awaited the implementation this week of trade restrictions between the U.S. and China, which could seriously hurt the global economic growth, as well as the release of the minutes from the Fed’s last meeting and the jobs report for June.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 2.85% (+2 basis points)
Yields of German 10-year bonds hold at 0.31% (0 basis points)
Yields of UK 10-year gilts hold at 1.28% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in August settled at $73.86 (-0.38%). The crude oil prices fell moderately, responding the U.S. President Donald Trump’s tweet, urging OPEC to reduce crude prices. Market participants are also awaiting official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA), set to be released at 15:00 GMT.
Gold traded at $1,254.60 (-0.04%). Gold prices dropped slightly, despite the broad weakness in the U.S. dollar. Investors are adjusting their positions ahead of the release of the minutes of the Fed’s last meeting. The hawkish tone of the minutes is likely to strengthen the chances of another increase in interest rates in the U.S. And this may lead to a drop in gold prices, as higher interest rates can cause a rise in bond yields, making non-yielding bullion less attractive to investors, and could strengthen the dollar, making the precious metal more expensive for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
Consumer Price Index
BOE Gov Mark Carney Speaks
German Buba President Weidmann Speaks
ECB's Yves Mersch Speaks
ADP Employment Report
Continuing Jobless Claims
Initial Jobless Claims
Crude Oil Inventories
FOMC meeting minutes
AiG Performance of Construction Index
|remaining time till the new event being published|
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