GBPUSD Technical Analysis – The US Dollar came back with a vengeance 0 (0)

Fundamental
Overview

The USD regained some
strength in latter part of last week. From the monetary policy perspective,
nothing has changed as the market continues to expect at least two rate cuts by
the end of the year and sees some chances of a back-to-back cut in November.

The data continues to
suggest that the US economy remains resilient with inflation slowly falling
back to target. Overall, this should continue to support the soft-landing
narrative and be positive for risk sentiment. The new driver could be Trump now
looking more and more like a potential winner and his policies are seen as
inflationary which could see the Fed eventually going even more slowly on rate
cuts.

The GBP, on the other hand,
has been supported against the US Dollar in the past weeks mainly because of
the risk-on sentiment, although that has changed last week. On the monetary
policy front, the data last week was a disappointment for the BoE as the UK CPI figures were unchanged from the prior month
and the labour market report showed wage growth remaining
at elevated levels. Therefore, the market doesn’t expect a rate cut in August
anymore.

GBPUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that GBPUSD erased all the gains from the prior week and it’s now near the support
zone around the 1.29 handle where we can also find the 38.2% Fibonacci retracement level for confluence.

This is where we can expect
the buyers to step in with a defined risk below the support to position for a
rally into the 1.3140 level next. The sellers, on the other hand, will want to
see the price breaking below the support to increase the bearish bets into the
major trendline.

GBPUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the price is now consolidating just above the support zone as the
buyers are starting to pile in, while the sellers keep pushing towards a breakout
to the downside. There’s not much we can glean from this timeframe, so we need
to zoom in to see some more details.

GBPUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that the price is currently ranging between the 1.29 and 1.2940 levels. The
buyers will want to see the price breaking above the 1.2940 level to gain more
conviction and increase the bullish bets into new highs.

The sellers, on the other
hand, will look for a breakout to the downside to increase the bearish bets
into new lows. The red lines define the average daily range for today.

Upcoming
Catalysts

This week is pretty empty on the data front. We begin tomorrow with the release
of the UK and the US Flash PMIs. On Thursday, we will get the latest US Jobless
Claims figures. Finally, on Friday we conclude the week with the US PCE report.

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

Go to Forexlive

Forex vs. Futures Trading: A Comparative Analysis 0 (0)

Diving into the
world of financial markets, investors are often faced with the choice between
Forex and Futures trading. Both avenues offer unique opportunities and come
with their own sets of risks and rewards. Understanding the key differences
between these two types of trading can help investors make more informed
decisions. But which trading option aligns best with your financial goals and
risk tolerance?

Definition

Forex trading is
about exchanging one currency for another in the foreign exchange market,
whereas Futures trading involves the buying and selling of contracts that
obligate the buyer to purchase an asset, like commodities or financial
instruments, at a predetermined price at a specified future date.

Futures trading with
Plus500
, a leading online trading platform, allows investors to speculate on the
price movements of various assets without actually owning them. This can
provide flexibility and diversification in an investor’s portfolio.

Market Size and Liquidity

As mentioned
earlier, the Forex market is the largest financial market in the world with an
estimated daily trading volume of over $6 trillion. This is significantly
higher than Futures trading, which has a daily volume of around $500 billion.

With such high
liquidity, Forex traders can easily enter and exit positions without worrying
about any significant price impact.

On the other hand,
Futures markets are more prone to price fluctuations as they are less liquid
compared to Forex.

Trading Hours

Forex markets
operate 24 hours a day, five days a week, providing ample opportunities for
traders to execute trades at their convenience. On the other hand, Futures
markets have specific trading hours depending on the asset being traded.

For example, energy
and agricultural futures have limited trading hours compared to stock index or
currency futures.

Leverage

Both Forex and
Futures trading offer leverage, which allows traders to control a larger
position with a smaller amount of capital.

However, the amount of leverage available in the two markets differs
significantly. Forex brokers typically offer higher leverage ratios, sometimes
up to 200:1 or more, while Futures brokers usually provide lower leverage
options.

Leverage can amplify
potential profits, but it also heightens the risk of losses. Traders must fully
understand and manage these risks before incorporating leverage into their
trading strategies.

Market Participants

The Forex market is
primarily dominated by large financial institutions, such as banks and hedge
funds, which use it for currency hedging and speculative purposes. However,
with the rise of online trading platforms, individual retail traders now make
up a significant portion of the daily forex trading volume.

Futures markets, on
the other hand, have a more diverse range of participants including commercial
producers and consumers of commodities, speculators, and even governments.
This can lead to higher volatility in futures prices due to the varying
motivations and trading strategies of these participants.

Regulation

Both Forex and
Futures markets are regulated to protect traders and maintain the integrity of
the markets. However, the regulatory bodies differ between the two markets.

Forex trading is
largely decentralized, with no central exchange or regulating body. Instead, it
is overseen by regulatory authorities in each country where it operates, such
as the Commodity Futures Trading Commission (CFTC) in the United States and the
Financial Conduct Authority (FCA) in the United Kingdom.

On the other hand,
futures trading takes place on centralized exchanges, such as the Chicago
Mercantile Exchange (CME), which are heavily regulated by government agencies
like the CFTC.

This centralized
structure provides greater transparency and protection for traders, but it also
means that exchanges have more control over the pricing and execution of
trades.

Conclusion

Both Forex and
Futures markets offer unique opportunities for traders, with their own pros and
cons. The decision to trade either market ultimately depends on a trader’s
individual preferences, risk tolerance, and trading strategy.

It is important for
traders to thoroughly research and understand the characteristics of each
market before making any investment decisions. With proper knowledge and risk
management, both Forex and Futures can be valuable tools for diversifying a
portfolio or generating income through trading.

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

Go to Forexlive

ForexLive European FX news wrap: Dollar steady but mixed, stocks look to bounce back 0 (0)

Headlines:

Markets:

  • JPY leads, AUD lags on the day
  • European equities higher; S&P 500 futures up 0.5%
  • US 10-year yields down 2 bps to 4.219%
  • Gold up 0.1% to $2,402.24
  • WTI crude down 0.4% to $78.32
  • Bitcoin up 0.7% to $67,470

It was a quiet session as the European calendar is looking to embrace the summer lull. There weren’t any key releases – the same case will be for tomorrow as well – so traders had very little to work with.

The Japanese yen saw a nudge higher early on before European markets opened, with USD/JPY falling from 157.30 to a low of 156.28. The pair bounced back slightly after but is still down 0.5% on the day, seen at 156.60 levels now.

There wasn’t any major catalyst for the move as traders are still sorting out their feet following the news over the weekend that Biden has bowed out of the presidential election. 10-year yields in the US are hanging slightly lower, down 2 bps to 4.219% currently.

Besides that, the dollar is keeping steadier elsewhere with light changes overall. The aussie and kiwi are slightly lower though, owing to a softer Chinese yuan. That comes after the PBOC introduced a number of easing measures earlier in the day, weighing on the yuan currency.

In other markets, equities are looking to bounce back after a disappointing showing last week. Tech shares are leading the charge with Nasdaq futures up nearly 1% now. However, we do have key earnings coming up tomorrow after the close with Alphabet (Google) and Tesla set to report.

It’s a brighter start to the new week after the heavy selloff in the second half of last week. But it’s still too early to say that the optimism here is enough to carry stocks until the end of the week.

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

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Bundesbank calls for rate cuts to be „carefully considered“ as inflation risk persists 0 (0)

  • Some of the factors supporting the economy are making it more difficult to achieve inflation target
  • The labour markets is still operating at a high capacity
  • Wage growth is brisk and prices are rising strongly, particularly in the services sector
  • Possible further interest rate cuts should therefore be carefully considered in light of current data

Besides that, they noted that the German economy itself likely grew a little slower than anticipated in Q2. Well, that’s not too surprising given that the industrial sector remains in a recessionary state.

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

Go to Forexlive

Bitcoin Technical Analysis – The bullish bias remains intact 0 (0)

Fundamental
Overview

Bitcoin rallied strongly last
week after a failed attempt to assassinate the former US
President Trump. The market reacted positively to the event because he’s been a
supporter of the crypto industry and Trump’s odds of winning the election
soared.

Last night, the price of
Bitcoin dipped on the news that Biden
dropped out
of the presidential race probably on expectations that some
other candidate could have higher chances of beating Trump, but as Biden endorsed
Kamala Harris and others followed suit, Bitcoin erased the losses and rallied
into a new high as the market doesn’t expect Harris to have any better chances of
beating Trump.

Moreover, last week we got
the news that the German government finally offloaded all of its Bitcoin
holdings on July 12th, so that bearish driver is now in the rear-view mirror.
Also, the old crypto exchange Mt. Gox has been repaying its old clients since the
first week of July, so even this news should now be priced in.

So, we are left with lots
of bullish drivers and very few bearish reasons. On the macro level, the
soft-landing narrative strengthened as we continue to see inflation falling while
the economy continues to grow. Last week, we got more positive data with US Retail Sales and Industrial Production beating expectations by a big margin.

So, all
else being equal, we are getting rate cuts into resilient growth which should
ultimately be bullish for Bitcoin.

Bitcoin
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that Bitcoin eventually extended the rally into the key 67.275 resistance
as the bearish drivers dissipated while the bullish reasons increased. The buyers
will want to see the price breaking above the resistance to increase the
bullish bets into a new cycle high. The sellers, on the other hand, will likely
step in around the resistance to position for a drop back into the 60000
support.

Bitcoin Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the price is struggling a bit at the resistance. If we get a pullback
from these levels, we can expect the buyers to step back in around the 64000
level where we can find the confluence
of the previous swing high, the trendline
and the 38.2% Fibonacci
retracement
level. The sellers, on the other hand, will want to see the
price breaking below the trendline to increase the bearish bets into the 60K
level next targeting a breakout.

Bitcoin Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have some consolidation around the key resistance. We got a spike
lower yesterday on the news that Biden dropped out from the presidential race,
but the buyers bought the dip back quickly. There’s not much else to glean from
this timeframe but the buyers will likely continue to pile in above the 67275
resistance, while the sellers should take back control with a break below the
65700 level. The red lines define the average daily range for today.

Upcoming
Catalysts

This week is pretty empty on the data front. We begin on Wednesday with the
release of the US Flash PMIs. On Thursday, we will get the latest US Jobless
Claims figures. Finally, on Friday we conclude the week with the US PCE report.

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

Go to Forexlive

Copper Technical Analysis – The PBoC rate cuts might reverse the recent rout 0 (0)

Fundamental
Overview

Copper experienced a strong rout last week with market participants blaming
the soft Chinese economic
data
and the increase in inventories in most global warehouses suggesting some
weak demand.

The PBoC tonight surprised with rate cuts across many key
benchmarks. Moreover, the recent PBoC policy framework reform suggests that the
Chinese officials could take more actions to spur growth.

In the big picture, stable global growth and major central banks cutting
rates into resilient economies should be bullish drivers for the copper market and
more expansionary policies from Chinese officials might give an even stronger boost.

Copper
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that copper eventually broke through the key 4.35 support where we had also the 50% Fibonacci retracement level for confluence, and extended the drop into the
4.21 level.

There’s not much else to glean
from this timeframe as the sellers might want to see a pullback before piling
back in while the buyers will look for opportunities on the lower timeframes to
position for a rally back above the 4.35 level.

Copper 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 around the 4.35 level where they can step in with a
defined risk above the resistance. The buyers, on the other hand, will want to
see the price rising back above the 4.35 resistance to increase the bullish
bets into the 4.67 level next.

Copper Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that the recent price action formed what looks like a falling
wedge
. This is generally a reversal pattern, so the buyers will want to see
the price breaking above the minor downward trendline
to pile in for a move higher.

The sellers, on the other
hand, will likely keep on leaning on the minor trendline to keep pushing lower
but if the price were to break higher, the next entry point for the sellers
should be the trendline around the 2.28 level. The red lines define the average daily range for today.

Upcoming
Catalysts

This week is pretty empty on the data front. We begin on Wednesday with the
release of the US Flash PMIs. On Thursday, we will get the latest US Jobless
Claims figures. Finally, on Friday we conclude the week with the US PCE report.

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

Go to Forexlive

ECB’s Kažimír: Market pricing of two rate cuts by year-end is not entirely misplaced 0 (0)

  • No need to rush decisions
  • Data will set the stage for September decision
  • The door remains open to additional easing should conditions warrant it

The ECB narrative now is that they would want to cut rates further but are going to let the data in the coming weeks to decide that. Not much of a change to the status quo since last month really.

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

Go to Forexlive

Newsquawk Week Ahead: Highlights include US PCE, BoC, PBoC LPR, PMI’s and Tokyo CPI 0 (0)

Week Ahead 22nd-26th July:

  • Mon: PBoC LPR
  • Tue: NBH Policy Announcement; US Existing Home Sales (Jun), Richmond Fed (Jul), EZ Consumer Confidence Flash (Jul)
  • Wed: BoC Policy Announcement & MPR; Japanese Flash PMIs (Jul), German GfK (Aug), EZ, UK & US Flash PMIs (Jul)
  • Thu: CBR Announcement, CBRT Announcement; EZ M3 (Jun), German Ifo (Jul), US Durable Goods (Jun), GDP Advance & PCE (Q2), IJC (20th Jul)
  • Fri: Moody’s Bulgaria, Czech Republic, Latvia Review; Japanese CPI Tokyo (Jul), US PCE (Jun), Uni. of Michigan Final (Jul), German Import Prices (Jun)

Note: Previews are listed in day order.

PBoC LPR (Mon):

The PBoC is expected to maintain its benchmark Loan Prime Rates next week with the 1-year and 5-year LPR to be kept at the current levels of 3.45% and 3.95%, respectively. The likelihood for China to maintain its benchmark rates follows the central bank’s decision to keep its 1-year Medium-term Lending Facility rate at 2.50% as this serves as a fairly accurate leading signal for the intentions regarding the LPRs which are the rates that most new loans and mortgages are referenced on. The central bank is also seen to be focusing on short-term liquidity measures which was evident in the increased injections during this week’s 7-day reverse repos announcements, while it was reported earlier this month that it would conduct temporary overnight repos or reverse repos based on market conditions to keep banking system liquidity reasonably ample and to increase the accuracy and efficiency of open market operations. Furthermore, industry sources cited by PBoC-backed Financial News stated that the PBoC will make clear it will start to use a short-term interest rate as its main policy rate after reducing the importance of the MLF rate as a policy benchmark which suggests a lack of urgency to adjust the benchmark LPRs. Nonetheless, future rate adjustments cannot be ruled out given recent data releases including a contraction in imports, as well as softer-than-expected CPI and Retail Sales data which suggest weak domestic demand, while GDP data for Q2 also missed estimates and House Prices have continued to contract. As such, if the data continues to deteriorate, it could stoke slowdown concerns and warrant support measures, while analysts cited by Shanghai Securities News recently noted that China may see a window to cut its interest rates or RRR at the end of Q3 or in Q4 to support its economy.

EZ Flash PMI (Wed):

Expectations are for manufacturing PMI to tick higher to 46.0 from 45.8, and services to rise to 53.0 from 52.8, leaving the composite at 50.8 vs. prev. 50.9. As a reminder, the prior release saw the manufacturing print fall to 45.8 from 47.3, and services decline to 52.8 from 53.2, leaving the composite at 50.9 vs. prev. 52.2. The accompanying report noted, “while the manufacturing sector weakened considerably in June, activity growth in the services sector continued to be nearly as robust as the month before.“ This time around, attention will in part be on whether any of the political uncertainty has filtered its way into the data and to what extent. Furthermore, given the more cautious stance by the ECB on price pressures in the Eurozone, cost metrics in the release will likely get extra attention. From a policy perspective, with the ECB’s July meeting only just in the rearview mirror and a lot of data between now and the September meeting, the release will likely not have too much sway on market pricing. Inflationary developments and comments from ECB officials will act as more of a guiding force for that meeting which currently assigns a circa 64% chance of a cut.

UK Flash PMI (Wed):

Expectations are for the services print to nudge higher to 52.5 from 52.1, manufacturing to rise to 51.2 from 50.9, leaving the composite at 52.6 vs. prev. 52.3. As a reminder, the prior release saw the services print decline to 52.1 from 52.9, and manufacturing slip to 50.9 from 51.2, leaving the composite at 52.3 vs. prev. 53.0. The accompanying report noted that the UK is “on track for another quarter of GDP growth…albeit one that will be less punchy than the first quarter’s 0.7%.“ This time around, analysts at Investec note that the certainty provided by the outcome of the General Election and the “new government’s key focus on strengthening growth, should help companies to firm up their own plans for the future”. As such, the desk expects a bounce for both the services and manufacturing components. On prices, Investec notes “in June, despite some easing in input cost pressures, the prices charged index moved up. A reversal of this would be very welcome from the MPC’s perspective”. From a policy perspective, the release will be the main data highlight before the August BoE announcement, which is a near-enough coin flip. The release may cause some move in market pricing on the day, however, it is unlikely to seal the deal one way or the other given the MPC’s fixation on services inflation and real wage growth.

BoC Announcement (Wed):

The current analyst poll has not been released yet, but money markets currently assign an 80% probability of a rate cut in July after soft data while ING, RBC, and Scotia all look for the BoC to follow up with another 25bp rate cut after cutting by 25bp in June. Recent data has been on the cool side, inflation continued to ease with the average of the BoC core measures rising 2.6% Y/Y in June, down marginally from the prior 2.63%, albeit this was revised down from 2.70%. Meanwhile, the June jobs report was soft with the unemployment rate ticking up to 6.4% from 6.2%, above the 6.3% forecast. The monthly employment change was also disappointing, falling by 1.4k, with a decline of 3.4k full-time jobs, and a gain of 1.9k part-time jobs, well beneath the expected 22.5k and prior 26.7k. The latest business outlook survey saw that most respondents expect inflation to return close to target in 2-3 years, while outlooks were mostly unchanged from the prior quarter, remaining more pessimistic than average. The share of firms reporting labour shortages is at near survey lows, but only a few firms plan to reduce headcounts. On prices, firms expect the growth of their input prices and selling prices to slow, suggesting that inflation will continue to decline over the coming year. A soft labour market and more signs of cooling price pressures ahead opens up the door for another rate cut in July. Looking ahead, markets are fully pricing in two 25bp rate cuts this year, with a 60% probability of a third. The focus of this meeting will be on the rate decision, but any guidance on rates in the statement will also be key. This meeting will also be accompanied by the latest Monetary Policy Report, which will also be used to gauge how the BoC expects the economy to perform, which may provide insight into their future easing process. ING is of the view that the BoC cut rates again in July, and expects a further 50bp of rate cuts thereafter. The desk acknowledges the rise in the unemployment rate and sub-forecast inflation led the bank to shift its view to expect a rate cut at the upcoming meeting.

US GDP Advance (Thu):

The US advance Q2 GDP report will be released on Thursday, July 25th. The Final Q1 print saw growth at 1.4%, while Q2 growth is currently tracking at 2.7%, according to the Atlanta Fed GDPNow estimate, albeit this will be updated on Wednesday, July 24th. Over Q2, retail sales data saw the April report revised lower to -0.2%, falling from March’s 0.6%, whilst May saw a 0.1% gain, and June was unchanged, although above the -0.3% forecast. Nonetheless, the control metric, which is a strong gauge of consumer spending, declined 0.5% in April, rose 0.4% in May, and surged 0.9% in June, suggesting the consumers were spending more in the latter parts of the quarter. Within the durable goods reports, it is the nondefense capital goods ex-aircraft shipments that are incorporated into the GDP report, and that saw a 0.4% rise from March to April, but a 0.5% decline from April to May; with the nominal Dollar amount of shipments in the latest report only marginally beneath the March number. The current consensus for GDP is for 1.8% growth in Q2, but analyst forecasts are varied, ranging between 1.2-2.6%. The consensus will likely adjust closer to the data as more submit their forecasts. ING are towards the top end of forecasts, pencilling in 2.5% to reflect better consumer spending, rising inventories and slightly stronger investment readings. Looking ahead, they expect weaker growth in H2 with the Fed to start cutting from September.

CBRT Announcement (Thu):

The CBRT is likely to maintain its rates at its meeting on Tuesday, which has been rescheduled from the usual Thursday announcement. Expectations for the Weekly Repo Rate to be maintained at 50.00% come amid the cautious policy stance widely telegraphed by the central bank and its governor Karahan. Turkey’s inflation slowed in June, sparking talks of potential rate cuts. Despite speculation of a rate cut due to slowing inflation, Karahan stressed maintaining a cautious stance and emphasized that policy actions must align with hitting the inflation target in 2025 and beyond. The central bank projects inflation to decrease to 38% by the end of 2024, 14% in 2025, and 9% in 2026. Some suggest the central bank aims to see clearer improvements in inflation expectations before easing policy.

Japanese Tokyo CPI (Fri):

Tokyo Core CPI for July is expected to tick up to 2.2% from 2.1% in June; Tokyo inflation data is seen as a leading indicator of the national price trend. The data will also come a week before the BoJ meeting. Analysts at ING “expect Tokyo core inflation to rise 2.0% YoY, which is above the BoJ’s target of 2%”. The desk also posits that “Together with strong wage growth, a recovery in the auto sector, and retail sales, the BoJ is expected to deliver a 15bp hike at its July meeting.”

US PCE (Fri):

US PCE for June, the Fed’s preferred gauge of inflation, is due on July 26th whereby current analyst forecasts for core PCE M/M are ranging between 0.15-0.2%. Moreover, ING notes that the core PCE deflator is expected at 0.2% M/M, with risks skewed towards the downside. The bank adds that the core CPI print was just 0.1% M/M, but some of the PPI inputs into the PCE deflator, such as portfolio fees and transport, favour 0.2%. Even so, this would be tracking at the run rate required to deliver 2% Y/Y inflation over time and should keep those interest rate cut expectations in place. In June, US CPI was cooler-than-expected across the board highlighted by Core M/M rising only 0.1% (exp. & prev. 0.2%), while the Y/Y pace eased to 3.3% (prev. & exp. 3.4%). The headline came in beneath all analyst forecasts at -0.1% (exp. +0.1%, prev. 0.0%), with the Y/Y easing to 3.0% (prev. 3.3%), beneath the 3.1% forecast. The June PPI was hot, but there were chunky revisions to May’s numbers and analysts at Bank of America noted that overall, the components of the PPI report that affect the PCE report, were softer. Following the inflation metrics, WSJ’s Fed watcher Nick Timiraos said that based on the June CPI and PPI, forecasters who map out the PCE expect core prices rose 0.17% in June, which would hold the 12-month rate at 2.6%. Moreover, the six-month annualized rate would tick up to 3.3% and the three-month annualized rate would fall to 2.1%. However, Pantheon Macroeconomics note that „The core PCE print can’t be predicted perfectly, as the BEA uses expert judgement in the seasonal adjustment of some components, and some series are derived from non-CPI/PPI data sources that are unavailable prior to publication“. Lastly, Fed’s Waller noted the recent inflation data makes him more confident that the Fed will achieve its inflation goal, but on monthly PCE inflation, he needs to see a bit more evidence that this will be sustained, which is in fitting with recent commentary seen from other officials. Money markets are currently fully pricing in the first cut by September, with 62.5bps priced in by year-end (implying two-three 25bp rate cuts for 2024), with a near zero percent chance at the next meeting on July 31st.

This article originally appeared on Newsquawk.

This article was written by Newsquawk Analysis at www.forexlive.com.

Go to Forexlive

Weekly Market Outlook (22-26 July) 0 (0)

UPCOMING EVENTS:

  • Monday: PBoC
    LPR.
  • Wednesday: Japan/Australia/Eurozone/UK/US
    Flash PMIs, BoC Policy Decision.
  • Thursday: US
    Durable Goods Orders, US Jobless Claims, US Q2 Advance GDP.
  • Friday: Tokyo
    CPI, US PCE.

Monday

The PBoC is expected to keep the LPR rates
unchanged at 3.45% for the 1-year and 3.95% for the 5-year. The central bank
left the MLF rate unchanged at 2.50% last week and it’s generally a leading
indicator for the LPR decision.

As a reminder, the PBoC recently introduced
a new cash management mechanism and Governor Pan Gongsheng said that the
seven-day reverse repo rate „basically fulfils the function“ of the
main policy rate. ING published a nice article on the new policy framework
reform here.

Wednesday

Wednesday will be the Flash PMIs Day for
many major economies with the Eurozone, UK and US PMIs being the main
highlights:

  • Eurozone Manufacturing
    PMI: 46.3 expected vs. 45.8 prior.
  • Eurozone Services PMI:
    53.0 expected vs. 52.8 prior.
  • UK Manufacturing PMI: 51.1
    expected vs. 50.9 prior.
  • UK Services PMI: 52.5
    expected vs. 52.1 prior.
  • US Manufacturing PMI: 51.5
    expected vs. 51.6 prior.
  • US Services PMI: 55.0
    expected vs. 55.3 prior.

The BoC is expected to cut interest rates
by 25 bps and bring the policy rate to 4.50%. Such expectations have been
influenced by another soft labour
market
report and strengthened after the
last Canadian
CPI
data where the underlying inflation
measures eased further. Including the July cut, the market expects 62 bps of
easing by year-end.

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.

Initial Claims remain
pretty much stable around cycle lows and inside the 200K-260K range created
since 2022. Continuing Claims, on the other hand, have been on a sustained rise
recently with the data printing new cycle highs every week.

This shows that layoffs are
not accelerating and remain at low levels while hiring is more subdued. This is
something to keep an eye on. This week Initial Claims are expected at 238K vs.
243K prior, while there’s no consensus for Continuing Claims at the time of
writing although the prior reading saw an increase from 1847K to 1867K.

Friday

The Tokyo Core CPI Y/Y is
expected at 2.2% vs. 2.1% prior. Inflation in Japan is basically at target and
there are no strong signals that point to a reacceleration. It’s hard to see a
rate hike given that Japan strived to achieve inflation for decades and it
might ruin this accomplishment by tightening policy too much.

Nonetheless, besides the
expectations of BoJ trimming its bond purchases by a “substantial” amount, the
market is also assigning a 60% probability of a 10 bps hike at the upcoming
meeting.

The US PCE Y/Y is expected
at 2.4% vs. 2.6% prior, while the M/M measure is seen at 0.1% vs. 0.0% prior.
The Core PCE Y/Y is expected at 2.5% vs. 2.6% prior, while the M/M reading is
seen at 0.1% vs. 0.1% prior. Forecasters can reliably estimate the PCE once the
CPI and PPI are out, so the market already knows what to expect.

This report won’t
change anything for the Fed as the central bank remains in a “wait and see” mode. The market has
already fully priced in a rate cut in September and one in December with some
chances of a back-to back cut in November. The Fed is expected to be more
dovish at the upcoming meeting but won’t deliver a rate cut nor pre-commit to
one.

The next CPI release will
be key (barring quick deterioration in the labour market) as another benign
report will likely see the Fed Chair Powell pre-committing to a rate cut in
September at the Jackson Hole Symposium.

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

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How would the bond and FX markets react to Biden dropping out of the race? 0 (0)

The bond market is usually the first to figure things out but even it’s struggling with the political turmoil and economic uncertainty right now.

Notably, long dated Treasury yields jumped in the immediate aftermath of the debate on June 28 in a signal about a Republican sweep coupled with further tax cut and a deficit running around 6.5% of GDP for the next five years.

Then the market had a rethink. Whether that was due to cross-currents, the still-long timeline before the election or the likelihood of Biden dropping out is debatable. BMO thinks the market is also factoring in the second-order effects of a Republican sweep:

Recall in the wake of the Biden/Trump debate, the
Treasury market bear steepened on supply/reflation concerns. Once the initial
dust settled, the kneejerk response to improved Trump odds appears to be a bear
flattener – the logic being that any rebound of inflationary pressures will
slow the FOMC’s normalization (i.e. cutting) process during the latter part of
2025 and beyond. We suspect the first order response to a Biden withdrawal
would be incrementally bond friendly and most likely still a steepener. Simply
a reversal impulse.

To translate this into FX, the takeaway would be:

  • Trump positive = dollar bullish
  • Biden/Democrat positive = dollar bearish

I’m on board with this thinking but I wouldn’t get carried away with the idea that it will dominate markets. Also, the most-underappreciated race in 2024 is the House. Betting sites put Democrats only narrowly behind for House control despite all the turmoil and that could quickly turn and lead to a split Congress and the inevitable gridlock that comes with it.

Another thing to keep in mind is that bond seasons are constructive for the next few weeks, meaning the bias in yields is to the downside. None of this is happening in a vacuum and the outlook for the economy and inflation is in flux.

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

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