Released and Expected Data
The RBA hiked rates by 50 points taking current interest rates up to 1.85%. investors await the RBA governor’s speech on Friday to find out more about the reason behind raising interest rates and if there is any forward guidance from the central bank over the coming period. On the other hand, the final data of the Swiss Manufacturing PMI decreased from 59.1 in June to 58 in July.
Today investors await the final data of the Canadian Manufacturing PMI (July) at 5:30 pm UAE time, and then the speech of the Fed Member Mr Evans at 6:00 pm. Markets pay a close attention to Fed members’ speeches to get any hint about the next step the US central bank’s committee may take, especially after shifting to a meeting-by-meeting approach .
Indices and Bonds Yield
Geopolitical tensions between the US and China on the back of the US House Speaker Nancy Pelosi’s visit to Taiwan have weighed today on the
China’s vows of taking “strong and resolute” measures led European indices and futures contracts of the US major indices to decline today by nearly 1% while safe havens like treasury bonds, USD and Gold have traded higher. It’s worth noting that any military action China might take may trigger sanctions from the US like those imposed on Russia after invading Ukraine.
The US 10-year bond yields fell today by about 1% and rebounded from the 2.50% level, and while the price trades below 2.80% it is highly likely to decline towards 2.38%. On the other hand, the spread between 10-year bond yields and two-year yields hit 30 basis points highlighting fears of a longer-term recession in the US economy.
Major FX Currencies
Today the US Dollar index slowed down its downside move started last week as investors reduced some of their long positions considering a possible pivot from the Fed. Nonetheless,the US dollar decline may stop due to the geopolitical instability (Russia – Ukraine, Chine- Taiwan)
As for the Euro, it is unlikely to rise above 1.0400 levels due to the energy crises in Europe, especially in Germany. Any escalation between the US and China could put more pressure on EUR/USD as it could put the market in risk-off mode ie, increasing USD long positions and bringing the pair to the parity level or maybe falling further.
The EUR/USD moves in between 1.0000 – 1.0414. A daily close below the lower end of the above-mentioned trading zone may encourage traders to focus selling pressures toward 0.9701. On the other hand, a break above the July 21 high at 1.0277 may send the price towards the higher end of the trading zone.
Gold hit today a four-week high at $1784 /oz. The price has been rising since last week as markets believed that the Federal Reserve may slow down its monetary tightening.
The daily candle closed yesterday above 1765, hinting that it may continue towards 1807 although the resistance area located between 1789 and the 50-day moving average should be monitored. In return, a daily close below 1765 may encourage traders to press towards 1747.
Oil prices have stabilized today as investors wait for the OPEC + meeting tomorrow to decide on the production policy for the month of September. It is worth noting that the spread between Brent and West Texas oil has fallen to about $6, indicating the possibility of OPEC maintaining or raising production levels.
From a technical point of view, the daily close below 93.83 opens the door for more decline towards 89.02. On the other hand, of a daily close above 93.57 may send the price towards $98.65pb.
US Dollar Index – Daily Price chart
On July 27, the US dollar index corrected higher and formed a lower high at 107.16. At the end of last week, prices broke the ascending up trend line originating from the bottom of May 30 at 101.09. Additionally, the RSI fell below the 50-level, indicating the possibility of starting a bearish momentum that might bring prices towards 101.69.
Today, the price has rebounded from the 50-day moving average at 104.75, nonetheless, still within the current trading zone of 105.47 – 103.83 and may be on its way for a test of the lower end of this zone. On the other hand, a daily close above the higher end of this zone at 105.47 might push it towards 107.14 and then 108.11 respectively.