The excitement around artificial intelligence is beginning
to resemble the California gold rush; only now are companies, not individuals,
chasing the new El Dorado. Representatives of all industries seem determined to
incorporate the latest technology into their operations to increase
productivity and reduce costs.

Merchants find themselves in a situation similar to that of
150 years ago: everything is going well. However, now the winners are not the
sellers of shovels, cowboys, tents, etc., but the chip vendors. NVIDIA stock has conquered the top of Olympus and, like
„Envidia“ in Spanish, has become the envy of many competitors.

It has surpassed Microsoft in market capitalization for the
first time, making it the world’s most valuable company. Notably, it took
NVIDIA 24 years to reach a market capitalization of $1 trillion, 180 trading
days to double to $2 trillion, and only 66 more to reach $3 trillion. At this
rate, the company could soon surpass the $4 trillion mark….

Keep in mind that NVIDIA’s current market capitalization is
$3.3 trillion, and revenue was $61 billion last year. Expected P/E is 27.6x,
and P/E is 49.6x. From this perspective, earnings per share (EPS) will take
about 49.6 years to equal its price to the current P/E. Thus, betting on the
stock is not very cheap. In contrast, the S&P 500 index is 21 times
earnings.

The Wall Street Journal notes that the last time a major IT
infrastructure vendor topped the list of most valuable U.S. companies was in
March 2000, suggesting parallels with the dot-com crisis. However, analysts
believe this time will be different, calling NVIDIA’s revolutionary chips the
century’s most important invention.

The only thing is that while some $50 billion has been
invested in Nvidia’s chips since the boom began, generative AI startups have
only brought in $3 billion in sales. So it will be a while before the extremely
optimistic expectations materialize on paper or, rather, on the companies‘
balance sheets.

As for what to expect next, as long as the stock market is
bullish and optimistic about the future, the AI bonanza and love for tech
stocks, especially the leading ones, may persist. However, the riskiest and
most expensive stocks could undergo a significant correction once the mood
changes. The question is not if it will happen but when.

To determine the latter, it is advisable to monitor macroeconomic indicators, as they indicate the
general state of the economy, forecast future consumer demand, etc. On the one
hand, a fall in the exchange rate may force the Fed to lower interest rates,
but on the other hand, demand for specific goods and services may fall.

This article was written by FL Contributors at www.forexlive.com.

• Prior 5.25%
• Bank rate vote 7-0-2 vs 7-0-2 expected (Dhingra, Ramsden voted to cut by 25 bps)
• For some policymakers, decision today was „finely balanced“
• That is because higher-than-expected services inflation reflected factors that would not push up medium-term inflation
• Labour market continues to loosen but remains relatively tight by historical standards
• Key indicators of inflation persistence continue to moderate, but remain elevated
• Need to be sure inflation will stay low before cutting rates
• Monetary policy will need to remain restrictive for sufficiently long to return inflation to target
• BOE remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably
• Will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole
• Full statement

The decision is as what you’d expect but there are some subtle dovish hints embedded in the statement. In the forward guidance paragraph, the BOE added this passage:

„As part of the August forecast round, members of the Committee will consider all of the information available and how this affects the assessment that the risks from inflation persistence are receding.“

It points to the notion that they are perhaps looking to tee up a rate cut come August, should the data continue on its current trajectory.

Besides that, the other standout point to me is that they are already finding excuses to dismiss the stubbornly high services inflation. In the statement, it is mentioned that:

„The upside news in services price inflation relative to the May Report did not alter significantly the disinflationary trajectory that the economy was on. This view was supported by evidence that the recent strength in services inflation included regulated and indexed components of the basket, and volatile components. Such factors would not push up medium-term inflation. For these members, the policy decision at this meeting was finely balanced.“

The fact that the decision was more „finely balanced“ means that policymakers are putting a lot of thought in considering the next step i.e. rate cuts already.

GBP/USD is down slightly after the decision here, with the pair down from around 1.2705 to 1.2690 currently.

This article was written by Justin Low at www.forexlive.com.

Fundamental
Overview

The USD has been generally
weaker this week after the strength seen last week due to some risk off
sentiment. In fact, it looks like it’s just sentiment that’s been driving the
market recently as fundamentally the soft US inflation figures just consolidated the market’s
expectation of two cuts for this year despite a bit more hawkish than expected FOMC decision.

The NZD, on the other hand,
got pressured mainly because of the risk-off sentiment and the US Dollar
strength. The mood in the market has been gradually improving this week and we
saw the Kiwi gaining ground as a consequence.

We also had some good news
for New Zealand today as the Q1
GDP showed positive growth and took the economy out of the technical recession.
GDP is generally not a strong market moving catalyst because it’s old news but
nonetheless that confirms a pickup in growth in the first part of the year.

NZDUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that NZDUSD bounced near the key support
around the 0.6082 level where we have also the 38.2% Fibonacci retracement level for confluence.

The buyers stepped in
around the bottom of the range and they are now targeting a rally back into the
0.6217 resistance. That’s where we can expect the sellers piling in again with
a defined risk above the resistance to position for a drop back into the bottom
of the range.

NZDUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the price action has been mostly rangebound between the 0.6082 support
and the 0.6217 resistance. These will be the key levels that the market will need
to break to start a more sustained trend. For now, we could keep bouncing
around as the market awaits new catalysts.

NZDUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have a strong resistance zone around the 0.6145 level where the
price got rejected from several times in the past days.

The buyers will want to see
the price breaking higher to gain more conviction and increase the bullish bets
into the 0.6217 level. The sellers, on the other hand, will likely keep on
leaning on that resistance to position for a drop back into the 0.6082 support.
The red lines define the average
daily range for today.

Upcoming
Catalysts

Today we have the US Housing Starts, Building Permits and the US Jobless
Claims figures. Tomorrow, we conclude the week with the US PMIs.

This article was written by Giuseppe Dellamotta at www.forexlive.com.