Rate cuts by year-end

• Fed: 125 bps (96% probability of 50 bps rate cut at the upcoming meeting)
• ECB: 75 bps (97% probability of rate cut at the upcoming meeting)
• BoE: 53 bps (57% probability of no change at the upcoming meeting)
• BoC: 80 bps (77% probability of rate cut at the upcoming meeting)
• RBA: 46 bps (84% probability of no change at the upcoming meeting)
• RBNZ: 63 bps (64% probability of no change at the upcoming meeting)
• SNB: 48 bps (90% probability of rate cut at the upcoming meeting)

Rate hikes by year-end

• BoJ: 3 bps (98% probability of no change at the upcoming meeting)

(This is an extraordinary update as things are moving very quickly and expectations are liable to big swings in both directions depending on the next developments)

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

UPCOMING
EVENTS:

• Monday: China Caixin Services PMI, Eurozone PPI, US ISM
  Services PMI, Fed’s SLOOS.
• Tuesday: Japan Average Cash Earnings, RBA Policy Decision,
  Swiss Unemployment Rate and Retail Sales, Eurozone Retail Sales, Canada
  Services PMI.
• Wednesday: New Zealand Labour Market report, BoC Minutes.
• Thursday: BoJ Summary of Opinions, US Jobless Claims.
• Friday: China CPI, Canada Labour Market report.

Monday

The US ISM
Services PMI is expected at 51.0 vs. 48.8 prior. This survey hasn’t been giving
any clear signal lately as it’s just been ranging since 2022. The latest S&P Global US Services
PMI rose to the
highest level in 28 months. The good news in the report was that “the rate of
increase of average prices charged for goods and services has slowed further, dropping
to a level consistent with the Fed’s 2% target”.

The bad news was
that “both manufacturers and service providers reported heightened
uncertainty around the election, which is dampening investment and hiring. In
terms of inflation, the July survey saw input costs rise at an increased rate,
linked to rising raw material, shipping and labour costs. These higher costs
could feed through to higher selling prices if sustained or cause a squeeze
on margins.”

Tuesday

The Japanese
Average Cash Earnings Y/Y is expected at 2.3% vs. 1.9% prior. As a reminder,
the BoJ hiked interest rates by 15 bps at the last meeting and Governor Ueda
said that more rate hikes could follow if the data supports such a move.
The economic indicators they are focusing on are: wages, inflation, service
prices and the GDP gap.

The RBA is
expected to keep the Cash Rate unchanged at 4.35%. The RBA has been maintaining
a hawkish tone due to the stickiness in inflation and the market at times even priced
in high chances of a rate hike. The latest Australian Q2 CPI quelled those expectations as we saw misses across
the board and the market (of course) started to see chances of rate cuts, with now 32 bps of easing seen by year-end (the
increase on Friday was due to the soft US NFP report).

Wednesday

The New Zealand
Unemployment Rate is expected to jump to 4.7% vs. 4.3% prior with Job Growth
Q/Q seen at -0.3% vs. -0.2% prior. The Labour Cost Index Y/Y is expected at
3.5% vs. 3.8% prior, while the Q/Q measure is seen at 0.8% vs. 0.8% prior. The
labour market has been softening steadily in New Zealand and that remains
one of the main reasons why the market continues to expect rate cuts coming
much sooner than the RBNZ’s forecasts.

Thursday

The US Jobless
Claims continue to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market. This
particular release will be crucial as it lands in a very worried market after
the Friday’s soft US jobs data.

Initial Claims
remain inside the 200K-260K range created since 2022, although they’ve been
climbing towards the upper bound lately. Continuing Claims, on the other hand,
have been on a sustained rise and we saw another cycle high last week.

This week Initial
Claims are expected at 250K vs. 249K prior, while there’s no consensus for
Continuing Claims at the time of writing although the prior release saw an
increase to 1877K vs. 1844K prior.

Friday

The Canadian
Labour Market report is expected to show 25K jobs added in July vs. -1.4K prior
and the Unemployment Rate to remain unchanged at 6.4%. As a reminder, the BoC
cut interest rates to 4.50% at the last meeting and signalled further rate cuts
ahead. The market is pricing 80 bps of easing by year-end.

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

In this video, I take a technical look at the major currency pairs vs the USD. As a bonus, I also take a look at the 2 major stock indices as traders prepare for the new week.

Including (along with the time on the video):

• EURUSD 0:15
• USDJPY 2:15
• GBPUSD 3:38
• USDCHF 5:25
• USDCAD 6:37
• AUDUSD 7:47
• NZDUSD 9:18
• S&P 10:21
• NASDAQ 11:39

I not only show the key levels for the new trading week, but also explain why they are so important for traders.

Kickstart the new trading week by understanding the roadmap for the new trading week. It is that simple.

This article was written by Greg Michalowski at www.forexlive.com.

• How reflexive is the economy to the stock market?
• What will be the main earnings releases for the week starting August 5
• Goolsbee: If inflation and the job market continue cool, the Fed should cut
• Kamala Harris crosses threshold to become Democratic nominee
• Baker Hughes US oil rig count unchanged
• Fed’s Goolsbee: The job of a central bank is to move in a steady way
• Fed’s Goolsbee and Barkin set to speak on TV
• Fed’s Barkin not ready to embrace 50 bps cut debate, says +114K jobs is ‚reasonable‘
• JPMorgan joins the 50 basis point cut call
• Citigroup forecasts 50 basis point cuts in September and November
• Goldman Sachs now sees three consecutive Fed rate cuts this year
• US June factory orders -3.3% vs -2.9% expected
• Kickstart the FX trading day for Aug 2 w/a technical look at the EURUSD, USDJPY & GBPUSD
• US July non-farm payrolls +114K vs +175K expected
• The JPY is the strongest and the GBP is the weakest as the NA session begins
• ForexLive European FX news wrap: Risk selloff holds ahead of US jobs report

Coming off some eye-opening earnings/revenue numbers from Amazon after the close (lower revenues and rumblings of a slower consumer), and a day yesterday where there was a string of bad news, the markets got another dose of „weak“ today in the US jobs report.

The July 2024 US non-farm payrolls report revealed an increase of only 114,000 jobs, significantly below the expected 175,000. The previous month’s figure was revised down from 206,000 to 179,000. The unemployment rate rose to 4.3% from the expected 4.1%, with the unrounded rate at 4.252%. The labor force participation rate slightly increased to 62.7%, and the U6 underemployment rate rose to 7.8% from 7.4%. Average hourly earnings grew by a lower 0.2% month-over-month, falling short of the 0.3% expectation, and increased by 3.6% year-over-year. Average weekly hours decreased to 34.2 from the anticipated 34.3. Private payrolls saw a rise of 97,000, below the expected 148,000, while manufacturing payrolls grew by 1,000, against the forecasted decline of 1,000. The household survey reported an increase of 67,000 jobs, and government jobs rose by 17,000.

Sector-wise, health care continued to add jobs (+55,000), while the information sector lost -20,000 jobs. Government employment showed little change after previous significant gains. Despite Hurricane Beryl, there was no discernible effect on national employment and unemployment data, though temporary layoffs increased by 249,000 to 1.1 million. This could indicate that the rise in unemployment might not be as severe as it appears.

The weaker data, gave the bond traders the go-ahead to do what the Fed did not do this week when the chose to keep rates unchanged (but left the door open for a September cut)

Following the report,

• US 2-year yields fell from 4.11% to a low of 3.845%. The current yield is 3.881%, down -28.3 basis points. For the week the 2 year is down -50 basis points. That was the largest 1-week decline since March 2023
• US 10 year yield fell from 3.941% % to a low intraday of 3.787%. The current yield is at 3.797%. For the week, the 10 year yield is down -39.4 basis points. That is the largest 1-week decline since July 2011 when yields fell -54 basis points.
• US 30-year yield fell from 4.24% to a low of 4.10%. For the week, the yield is down -33.9 basis points for the week.

The 10 year yield is now down -95.2 basis points from its high during the week of April 22. US mortgage rates, reached a peak in April at 7.22%. The rate on August 1 was 6.73% down -49 basis points. What will it be after the -18 basis point decline in the 10 year yield today?

The debt market is doing the Fed’s work for them, what has the market now priced in?

At the start of the day, there was a 30% chance for 50 basis points at the September meeting. Now the market is pricing in an 80% chance for 50 basis points. The expected cuts by January 5th is 5 cuts or 127 basis points of cuts. By June 2025, the market is pricing in 8 cuts or -242 basis point cut.

Meanwhile, not only is the job growth slowing but the stock market decline is taking money out of consumers pockets. The US major indices had another rough day with the:

• Dow Industrial Average falling -1.51%. For the week the index fell -2.10%.
• S&P index-1.84%, and for the week -2.06%
• NASDAQ index fell -2.43%, and for the week -3.35%. The last three weeks have seen the Nozick index for -3.65% -2.08%, and -3.35%.
• Small-cap Russell 2000 fell -3.52% in -6.67% for the week

Amazon shares fell -8.78%, Google fell -2.40%, Microsoft fell -2.07%, Nvidia fell -1.78%. Apple but the trend with a gain of 0.69% after better-than-expected earnings after the close yesterday

In the forex market today, the USD is ending as the weakest of the major currencies with the USDJPY falling -1.88% and the USDCHF falling 1.58%. The USD also lost -1.12% vs the EUR and -0.55% vs the GBP.

The JPY and the CHF were the strongest of the major currencies as the flow of funds moved into those „safe haven“ currencies.

For a technical look at the major currency pairs vs the USD see the weekend video below where I take a look at all the major currencies from a technical perspective and a bonus technical look at the S&P and the Nasdaq after their sharpl declines today/this week:

Thank you for your support. Wishing you a happy and safe weekend.

This article was written by Greg Michalowski at www.forexlive.com.

It was a wild week in stock markets as a huge post-FOMC jump turned into a crash lower. The Nasdaq is now down 10% from the highs, matching the mark for a technical correction.

On the day:

• S&P 500 -1.8%
• Nasdaq -2.4%
• DJIA -1.5%
• Russell 2000 -3.6%

On the week:

• S&P 500 -2.1%
• Nasdaq -3.3%
• DJIA -2.1%
• Russell 2000 -6.7%

If there is a silver lining, it’s that there was some moderate late-day buying and stocks finished off the lows.

This article was written by Adam Button at www.forexlive.com.

This is a good spot for a bounce in many things.

There are many times when the strong hands in the market would step in here; the economy isn’t that bad, there’s no financial crisis and companies are still making money. Yes, the Fed is behind the curve but they have more ammunition than they’ve had this century.

There are a few reasons that’s a tough trade to make right now:

1. Year-to-date gains have been great. Most assets are up meaningfully this year and fund managers are sitting on +15% gains. Do you really want to risk that in August? You can buy a five-month t-bill and tease out another 2% from the sidelines, then re-assess in early 2025.
2. Liquidity is hard to come by. I think this is increasingly a problem. There is so much algo trading, leverage and crowding that when the dance stops, there is no one left to buy. That’s leading to unusually large moves in the biggest stocks and in bonds.
3. Seasonals are tough in Aug/Sept. Even if you don’t want to wait out the whole year, that’s a good case to take a breather here and tune into the Olympics instead.
4. Fed pricing is aggressive. Should the Fed cut 50 bps at the next two meetings? Yes. Will they? I think the probabilities in the market are too high. The Fed will be stubborn, as comments from Barkin and Goolsbee today indicated.

All that said, I can see the case for a bounce for a few days next week as the market settles down after an emotional week but I don’t see real money chasing it for the reasons above. Watch the Nikkei closely at Monday’s open for a clearer hint.

This article was written by Adam Button at www.forexlive.com.

The Nasdaq is down 10.4% from the high just three weeks ago but when you zoom out, it’s more of a minor correction after an incredible rally.

If stocks can steady here, this episode will be quickly forgotten.

The problem is that we could see more selling and here is the case for it:

• AI has driven so much of the trade and a re-think in that could lead to heavy selling in the Mag 7
• The Fed isn’t likely to acquiesce to market pricing of 50 bps easily

I think we will see some kicking and screaming from the market before the Fed finally listens and that that point it will be even further behind the curve. I don’t see Fed officials being easily bullied by the fall in the stock market.

So what if the market falls further?

That’s when it gets interesting. More than ever, the stock market is the economy. A generation ago, the economy and the stock market were more separate but they’ve grown more closely aligned with an increasingly online and financialized economy.

I think the rally in the stock market in the past 20 months has been a tailwind for US growth but a retracement would be the opposite. Again, it’s going to take more than 10% in the Nasdaq (and probably more than 20%) but if that comes at the same time as job losses, it could spark a recessionary mindset that will be tough to overcome, especially at a time of US political angst.

This article was written by Adam Button at www.forexlive.com.

Headlines:

• Preview: July non-farm payrolls lands in a worried market
• What are the distribution of forecasts for the US NFP?
• Equities stay pressured so far in European morning trade
• A couple of August trends to watch out for in FX
• Switzerland July CPI +1.3% vs +1.3% y/y expected
• Switzerland July manufacturing PMI 43.5 vs 43.8 expected

Markets:

• EUR leads, USD lags on the day
• European equities lower; S&P 500 futures down 1.2%
• US 10-year yields down 4.4 bps to 3.933%
• Gold up 0.7% to $2,461.51
• WTI crude up 0.2% to $76.44
• Bitcoin up 0.2% to $64,767

It’s shaping up to be another rough day for equities, at least in the first half of things. The second half comes later in US trading and will feature the non-farm payrolls report. That will be a key factor in driving the market mood before the weekend comes along.

But for now, the selling pressure since yesterday hasn’t really abated. In Japan, the Nikkei fell by nearly 6% in posting its worst daily decline since the Covid pandemic. That set the tone as European traders got to their desks in the morning.

The selloff wasn’t just contained to tech shares as banking stocks are also heavily impacted. In Europe, most major indices are down over 1% as the negative sentiment persisted. That comes with US futures also dribbling lower during the session. S&P 500 futures are now down 1.2% with Nasdaq futures down 1.7%. Meanwhile, Dow futures are down 0.9% and Russell 2000 futures are down 2.3%.

In FX, USD/JPY is keeping lower with the dollar also seen slightly on the softer side today. The pair is down 0.2% to near 149.00 with EUR/USD up 0.4% to 1.0830 currently. Besides that, USD/CHF is down 0.3% to 0.8700 while commodity currencies are lightly changed against the greenback amid the more defensive risk mood.

In the bond market, yields continue to hang lower with 10-year Treasury yields building on the drop under 4%. The flight to safety is arguably a contributing factor and that is also propping up the likes of gold, which is up 0.7% to just above $2,461 currently.

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

Fundamental
Overview

The USD got a boost
yesterday following an ugly US ISM Manufacturing PMI as the markets went into risk-off. Overall, we had goldilocks data releases
until now with an economy that’s been slowing but still growing. So, one bad
report might not be a gamechanger, but the markets are increasingly sensitive
to bad news in this part of the cycle.

On the monetary policy
front, we had the FOMC rate decision on Wednesday and as expected it was
a dovish one. Fed Chair Powell hinted to a September rate cut and didn’t even
close the door for “several” rate cuts before the end of the year. The market
has now fully priced in three rate cuts by the end of the year and continues to
raise the chances of a 50 bps cut in September.

The EUR, on the other hand,
has been on a steady fall as we got the unwinding of the Yen carry trades and
general risk-off sentiment. On the monetary policy front, the ECB members
continue to repeat that they will wait for the data throughout the summer
before deciding on a rate cut in September, so even if this
week’s CPI came in higher than expected, they will also look at the data in
August to decide whether or not to cut in September.

The market is seeing 60 bps
of easing before year-end and 77% probability of a rate cut in September. This
has increased recently because of the US recession fears in the markets.

EURUSD Technical
Analysis – Daily Timeframe

On the daily chart, we can
see that EURUSD broke through the 1.0812 support yesterday and came back to retest it this
morning. This is where we can expect the sellers to step in with a defined risk
above the level to position for a drop into the 1.0727 level next. The buyers,
on the other hand, will want to see the price breaking decisively above the level
to pile in and position for a rally into the 1.09 handle.

EURUSD Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we have a downward trendline defining the current bearish
momentum. We can expect the sellers to keep leaning on it with a defined risk
above it to position for new lows. The buyers, on the other hand, will want to
see the price breaking higher to gain more conviction and increase the bullish
bets into the 1.09 handle.

EURUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that the price is now testing the trendline. What happens here will likely
be key as a breakout to the upside might trigger a strong rally, while a strong
rejection could see a selloff into the 1.0727 support. Beware of the US NFP
report today as we can get spikes on either side. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we conclude the week with the US NFP report where the consensus expects
175K jobs added in July and the Unemployment Rate to remain unchanged at
4.1%.

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

Fundamental
Overview

The USD got a boost
yesterday following an ugly US ISM Manufacturing PMI as the markets went into risk-off. Overall, we had goldilocks data releases
until now with an economy that’s been slowing but still growing. So, one bad
report might not be a gamechanger, but the markets are increasingly sensitive
to bad news in this part of the cycle.

On the monetary policy
front, we had the FOMC rate decision on Wednesday and as expected it was
a dovish one. Fed Chair Powell hinted to a September rate cut and didn’t even
close the door for “several” rate cuts before the end of the year. The market
has now fully priced in three rate cuts by the end of the year and continues to
raise the chances of a 50 bps cut in September.

The CHF, on the other hand,
has been gaining steadily against the major currencies because of the risk-off
sentiment. On the monetary policy front, today’s Swiss CPI report came in line with
expectations matching the last month’s readings. This continues to show that there’s
no need for the central bank to worry about inflation. The probabilities for
another rate cut in September are currently at 77% with a total of 40 bps of
easing expected before year-end.

USDCHF
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDCHF is falling below the 0.8730 support as risk-off sentiment continues to dominate
the markets. We can expect the sellers to increase the bearish bets on this
break and position for a drop into the 0.8550 level next. The buyers, on the
other hand, will want to see the price rising back above the support to start
positioning for a pullback into the 0.88 handle.

USDCHF Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that from a risk management perspective, the sellers will have a much
better risk to reward setup at the trendline
around the 0.88 handle. The buyers, on the other hand, will want to see the
price breaking above the trendline to increase the bullish bets into the next
major trendline around the 0.8950 level.

USDCHF Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have another minor trendline defining the current bearish momentum.
The sellers will likely keep on leaning on it to position for further downside.
The buyers, on the other hand, will want to see the price breaking higher to
gains some more confidence and pile in for a rally into the 0.88 handle. The
red lines define the average daily range for today.

Upcoming
Catalysts

Today we conclude the week with the US NFP report where the consensus expects
175K jobs added in July and the Unemployment Rate to remain unchanged at
4.1%.

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