Dollar Higher Ahead of Fed Meeting OANDA Market Beat Podcast

OANDA Senior Market Analyst Alfonso Esparza reviews the major upcoming market news, macro analysis and economic indicator releases that will impact currencies, stocks other asset classes. Joining him this week is OANDA’s Vice President of Research Dean Popplewell

Subscription available on iTunes https://goo.gl/TZEWRW and GooglePlay https://goo.gl/cRBk39. Tune in every Tuesday and don’t miss a beat as we cover the hottest trends impacting the markets in the week ahead. Trading is high risk. Losses can exceed investment.

BoJ’s new script supports the carry-trade

Tuesday July 31: Five things the markets are talking about

Sovereign government bonds prices have rallied overnight as the Bank of Japan (BoJ) again committed to keep its “ultra-loose” monetary policy intact.

As expected, Japanese policy makers tweaked some policies, but signalled rates to stay low for an “extended period of time.”

In respect to the long-term rates, the BoJ reiterated that it would continue to buy JGB’s to keep their 10-year yield at about +0%, but added that “while doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.”

Elsewhere, global equities have been trading somewhat mixed as corporate earnings reporting continues – all market eyes will be on Apple’s Q2 results today after the close.

From a central bank monetary policy perspective, next up will be the Fed (Aug 1) and the Bank of England (Aug 2). Capital markets will be looking for confirmation that U.S policy makers plan two more interest-rate hikes before year-end, while in the U.K, Governor Carney is expected to hike interest rates by +25 bps despite ongoing Brexit worries.

Commodity prices are under pressure after China’s manufacturing PMI’s fell this month (51.2 vs. 51.5 m/m) as the first-round of U.S tariffs begin to have an impact.

On tap: U.S personal spending and income data for June will be released. On Friday, it’s U.S non-farm payrolls (NFP), which is expected to show a healthy labor market with +193K new jobs, and an unemployment rate slipping back to +3.9%.

1. Stocks mixed results

Global stocks are broadly steady, but mixed overnight, after U.S tech share losses yesterday.

In Japan, the Nikkei share average ended flat, rebounding from a one-week low after the BoJ tweaked its monetary policy settings, but refrained from making any radical moves. The benchmark Nikkei inched up +0.04%, while the broader Topix fell -0.84% as bank shares fell on profit-taking after the rate decision.

Down-under, Aussie shares found support Tuesday, mostly supported by BHP. The S&P/ASX 200 rallied +0.03%, holding atop of its multi-year highs, to close out for a fourth consecutive month of gains. In S. Korea, the Kospi inched higher, closing out the month +0.08% in the ‘black.”

In Hong Kong, the Hang Seng index ended down overnight, following the U.S tech sector lower. At the close of trade, the index was down -0.52%, while the Hang Seng China Enterprises index closed -0.2% lower.

In China, stocks closed higher, aided by gains in real estate and energy firms, while the market response to the country’s manufacturing data has been relatively muted – the data clearly reports a slowdown in economic momentum. The blue-chip CSI300 index ended +0.1% higher, while the Shanghai Composite Index closed +0.3% firmer.

In Europe, regional bourses are trading mixed in a range bound trade, while in the U.S stocks are set to open in the ‘black” (+0.2%).

Indices: Stoxx600 +0.1% at 391.2, FTSE +0.1% at 7711 DAX +0.1% at 12811, CAC-40 flat at 5492, IBEX-35 +0.5% at 9905, FTSE MIB +0.6% at 22080, SMI +0.2% at 9183, S&P 500 Futures +0.2%

2. Oil prices drop on oversupply worries, gold unchanged

Oil prices fell overnight, with Brent futures set for their biggest monthly loss in two-years, as oversupply concerns rose on reports that OPEC’s output rose in July to its highest for 2018.

September Brent crude futures fell -25c, or -0.3% to +$74.72 a barrel after rising nearly +1% yesterday. U.S West Texas Intermediate crude futures (WTI) are down -24c, or -0.3% at +$69.88 a barrel, after rising more than +2% on Monday.

Note: For the month, Brent futures are set to drop -6%, while WTI futures are set to decline -5.8%.

A Thomson Reuters survey showed that OPEC increased production by +70K bpd to +32.64M bpd in July, the most this year – to offset the loss of Iranian supply as U.S sanctions have already started to cut exports from the world’s third-largest producer.

Ahead of the U.S open, gold prices are steady, trading within a tight range as the market adopts a “wait-and-see” approach ahead of the Fed’s two-day monetary policy meeting, commencing today. Spot gold is up about +0.1% at +$1,222.15 an ounce, while U.S gold futures are -0.1% lower.

3. Euro zone bond yields edge up after inflation beats expectations

Eurozone government bond yields are edging higher this morning, after preliminary data showed that inflation was higher than expected in July.

Headline consumer inflation accelerated to +2.1% from +2.0% in June, while core-inflation rose to +1.3% from +1.2% in June.

Germany’s 10-year government Bund yield has backed up to +0.44%, while other euro zone bond yields have come off their lows, rising about +1 bps across the board.

This Thursday, the Bank of England (BoE) is expected to hike +25 bps. However, market expectations are looking for a split vote of perhaps 6-3 in favour of a rate rise – some members are likely to continue favouring waiting to see how the data develops.

Note: The market is pricing in an almost +90% odds for a hike.

Elsewhere, the yield on U.S 10-year notes has declined -2 bps to +2.95%, the lowest in a week, while in the U.K, the 10-year yield has declined -2 bps to +1.343%, the biggest fall in more than a week.

4. Dollar’s mixed results

The yen (¥111.51) is a tad weaker after the BoJ’s policy decision overnight. The bank has stressed a “prolong period of extremely low rates” or in other terms further “policy stimulus” in its first-ever forward guidance. Technically, the statement is encouraging for long-term investors to consider adding to their ‘carry-trade’ positions.

Elsewhere, a plethora of mixed European data (see below) is supporting the EUR (€1.1724). Nevertheless, the pair remains confined to its tight summer trading range. This morning’s mixed data will do little to persuade the ECB to move away from its current stimulus objectives.

5. Eurozone economy slows further

Data this morning showed the eurozone’s economy slowing further in Q2, as exports and business confidence both weakened on trade relations concerns.

Eurostat said that compared with Q1, the eurozone’s GDP was +0.3% higher, the weakest expansion in two-years, and year-over-year, it was +2.1% higher.

Note: The U.S/E.U growth differential is the widest in four-years. Stateside, economic growth was +4.1% q/q.

Consumer confidence is expected to rebound if there is progress in talks to resolve trans-Atlantic tensions.

Higher oil prices are another obstacle. The ECB confirmed last week that it would proceed with plans to end QE in December, but a “lengthening period of weaker growth may make it reluctant to hike rates next year.”

Other data this morning released showed the annual rate of inflation rose to +2.1% in July, further above the ECB’s target and that the unemployment rate across the eurozone was steady at +8.3% in June, but the number of people without work rose slightly for the first time in 12-months.

Forex heatmap

Wall of worry builds around the US tech sector 

Wall of worry builds around the tech sector 

US equity markets continue to absorb Facebook’s swoon which is weighing down FAANG’s ahead of Apple earnings announcement on Tuesday. Indeed the markets heavyweight champions are having a rough day, but US markets pruned much of their losses as bank stocks and surging oil prices boosted producers. But all eyes will remain on NASDAQ as the Wall Street wall of worry continues to build around the tech sector.

Interest rate markets are predictably in flux ahead of the numerous central bank announcements this week with the BOJ tomorrow, the US FOMC on Wednesday and the BOE on Thursday. No one is expecting any rate changes, but as always the statements will be closely analysed for any shifts in policy.

But the US dollar is still suffering a bit of a GDP hangover after squeezing higher vs G-10 peers on whisper numbers that were running exceptionally hot. But in the GDP  aftermath, the USD bears continue to remind that 4.1% print was below consensus but more significantly, core PCE came in below expectations  And while the GDP print keeps the Fed on a path for two more rate hikes in 2018, the markets are not buying in wholeheartedly given the lack of inflationary pressures.

Oil Markets

Oil markets are starting the week on a very positive tone with prices trading bid throughout the NY session as supply concerns are making headlines once again  Both Brent and WTI contracts are seeing strong support after three UK oil fields, Alwyn, Dunbar and Elgin are shutting down due to labour strikes. All the while middle east geopolitical tensions recur as Saudi Arabia continues to halt their shipments via the vital Red Sea shipping lanes as ongoing attacks from Houthi rebels take their toll.

Also, Trump’s auto plan continues to influence prices as the rollback in US efficiency requirements is projected to increase fuel consumption by some 500 K barrels per day.

Gold Markets

The markets are trying to turn bullish on the hope for some type of relief rally, but prices remain entirely at the fate of the US dollar. The Yuan has continued to weaken throughout the day and has pressured prices lower.  It’s taking little to spook gold longs suggesting as the markets remain decidedly bearish ahead of the critical central bank decisions.

Currency Markets

Not making much of current price actions given summertime liquidity feel to FX markets as the subtle ebb and flows are more apt to little more than position driven given the tricky calendar of events in the days ahead. And to complicate matters, month end is approaching with quant signals suggesting USD selling portfolio adjustments.

USDJPY still hovering around 111 ahead of the highly anticipated BoJ policy meeting. And while it’s unlikely the BoJ will lay a summertime hawkish horror story on the markets, there has been enough noise to suggest that something is afoot. And while USDJPY could gap higher on the lack of hawkish inference, but the markets will likely continue to bank on a fall review which should temper upside moves. At this point, the general market consensus is for a downgrade on CPI forecast to 1.5 % from 2 %

USDCAD with WTI surging, its been playing positively into CAD trading sub 1.300 before midday profit-taking set in and WTI traded off intraday highs.

EURUSD: The Euro has been trading firmer today on the back of higher EU Zone yields suggesting we could see a move to the top side of the current ranges.

GBPUSD: Cable has been rangy” but with the lack of Brexit noise Sterling shorts are being pared.

AUDUSD: The Aussie short remains a crowded trade but with month-end dollar selling likely to develop into month end shorts are getting covered.

USDCNH Spot continues to move higher even though the fix was lower than market expectation. There is little news, but the lack of progress on the trade war front coupled with little pushback from the PBoC suggests the USDCNH has room to run higher.

USDMYR: Oil prices have been mildly supportive, but the MYR continues to be weighed down by the weaker Yuan and uncertainty over trade war. But with the plethora of central banks taking the stage this week. The local trader is waiting to take their cues from both BoJ and the FOMC forward guidance.

G7 FX moves look to central banks for direction

Monday July 30: five things the markets are talking about

Stocks begin a new week under pressure, as investors mull over some lofty corporate earnings and a number of key policy meetings.

A host of G10 central banks are on tap to offer their monetary policy decisions – the Bank of Japan (BoJ), Reserve Bank of India (RBI), Bank of England (BoE) and the Federal Open Market Committee (FOMC).

Up until last week, capital markets were not expecting any changes to the BoJ’s policy. Nonetheless, Japanese policy committee are supposedly mulling over some adjustments to policy to help their banking sector – 10-year JGB yields have backed up from +0.035% to +0.10% in anticipation of tomorrow’s announcement.

Elsewhere, the BoE is expected to increase its policy rate by +25 bps even amid Brexit gloom, while the RBI is 50/50 on higher rates. The Fed is expected to leave its fed funds rate unchanged. However, look for any indications that U.S policy makers are shying away from two-more interest-rate hikes before the end of this year.

In currencies, the onshore yuan extended last week’s slump, while the ‘big’ dollar ticked higher alongside U.S Treasury yields as metals decline while crude oil prices advance.

On the fundamental front, it’s a heavy week for economic data with the week ending with Friday’s U.S non-farm payrolls (NFP).

On tap: BoJ monetary policy (July 30/31), CAD GDP, U.S consumer confidence & NZD employment (July 31), Fed monetary policy, GBP manufacturing PMI & AUD Trade balance (Aug 1), BoE monetary policy, U.K inflation report & AUD retail sales (Aug 2), CAD Trade balance & U.S non-farm payroll (NFP) (Aug 3)

1. Stocks see ‘red’

In Japan, stocks closed lower overnight as possible changes this week in the BoJ’s monetary policy weighed on sentiment, while quarterly earnings were also in focus. Japan’s Nikkei share average closed down -0.74%, while the broader Topix fell -0.43%.

Down-under, Australia’s S&P/ASX 200 closed down -0.4% following Friday’s 11-year closing high, with health care down -1.1%. In S. Korea, the Kospi stock index and the won weakened overnight ahead of key central bank meetings and U.S inflation and payrolls data. At close, the index was down -0.06%.

In Hong Kong and China, stock indexes closed weaker overnight, pressured by a slump in healthcare shares. In Hong Kong, the Hang Seng index ended down -0.25%, while the Hang Seng China Enterprises index was unchanged. In China, the blue-chip CSI300 index fell -0.2%, while the Shanghai Composite Index slipped -0.1%.

In Europe, regional bourses trade a tad lower, tracking their Asian counterparts as bond yields rise.

U.S stocks are set to open in the ‘red’ (-0.1%).

Indices: Stoxx600 -0.2% at 391.2, FTSE -0.2% at 7683 DAX – 0.2% at 12831, CAC-40 -0.40% at 5492, IBEX-35 flat at 9870, FTSE MIB -0.1% at 21,932, SMI +0.1% at 9183, S&P 500 Futures -0.1%

2. Oil prices edge higher but trade row caps gains, gold lower

Oil prices are better bid with the U.S benchmark WTI moving higher after a month of declines, but gains remain capped as the fallout from trade tensions weigh on markets.

Brent crude futures rose +13c, or +0.2% to +$74.42 – it rose +1.7% last week, the first gain in four. U.S West Texas Intermediate (WTI) crude futures are up +31c, or +0.5%, at +$69 a barrel. WTI fell -1.3% on Friday.

The U.S economy grew at its fastest pace in nearly four-years in Q2, but trade tensions remain high between U.S and China despite an easing between the U.S and the E.U.

Last Thursday, Saudi Arabia said that it was “temporarily halting” all oil shipments through the strategic Red Sea shipping lane of Bab al-Mandeb after an attack on two oil tankers by Yemen’s Iran-aligned Houthi movement.

Note: An estimated +4.8M bpd of crude oil and refined petroleum products flow through this waterway towards Europe, the U.S and Asia.

According to Baker-Hughes data last week, U.S. energy companies added three oilrigs in the week to July 27, the first time in the past three weeks that drillers have increased activity.

Ahead of the U.S open, gold prices have eased a tad on a former U.S dollar ahead of key central bank meetings and U.S inflation and payrolls data this week. Spot gold is down about -0.3% at +$1,219.70 an ounce. U.S. gold futures are also -0.3% lower at +$1,219 an ounce.

3. Yields back up

Japanese government bond prices fell overnight, with the benchmark 10-year yield touching its highest level in 18-months as the market tries to test the BoJ’s intention ahead tomorrow’s decision.

Higher yields has forced the BoJ to conduct a “special bond buying operation” to stem rising bond yields amid growing expectations that Japanese policy makers could adjust its policy. On Friday the BoJ lowered the yield to +0.10% – still, the 10-year JGB yield rose to as high as +0.11% earlier this morning, in defiance of the BoJ’s apparent defence line.

Note: Some believe that the BoJ could possibly announce it would allow larger moves in the JGB market by loosening its interpretation of its policy target of “around zero percent” in the 10-year yield.

Elsewhere, the yield on 10-year Treasuries rallied +1 bps to +2.96%. In Germany, the 10-year yield decreased -1 bps to +0.40%. In the U.K, the 10-year yield fell -1 bps to +1.282%, the biggest fall in more than a week.

4. Dollar in control

Major currency pairs are trading in a tight range as the markets focus turns to central bank meetings this week.

EUR/USD (€1.1663) is steady as a plethora of German States reports their July CPI data, which for the most part saw the year-over-year above the consensus for the national reading. The ‘single’ unit could not find much traction, despite the 10-year Bund hitting a six-week high near +0.43%.

USD/JPY (¥111.10), again its steady and holding above the psychological ¥111 handle ahead of tomorrow’s BoJ rate decision. Overnight, the BoJ conducted a fixed-rate JGB Bond Purchase operation – an unlimited amount of 5 to 10-year JGB’s at +0.10% (its third operation within the past week).

Elsewhere, the EUR/SEK (€10.2419) fell by -0.6% as Sweden Q2 preliminary GDP beat expectations and kept the timeframe intact for the Riksbank to hike rates around year-end.

5. U.K consumer lending stable in June

U.K data this morning showed that the British consumer borrowing remained broadly stable last month, which would suggest another month of steady growth in household spending.

Bank of England (BoE) data showed banks lent £5.4B to consumers in June, net of repayments, a touch higher than the £5.3B in May.

Borrowing on credit cards and other unsecured forms of lending was flat at £1.6B, while mortgage lending inched higher.

Digging deeper, the number of new home loans approved by lenders in June also rose compared with May, to +65,619.

Note: An uptick in mortgage lending offer signs that potential homeowners may be seeking to finalize their purchases before further hikes in borrowing costs this week.

The BoE is expected to lift its benchmark interest rate to +0.75% (Aug 2).

Forex heatmap

Dollar Mixed Ahead of Busy Week in the Market

The US dollar is mixed on Friday against major pairs. The US economy grew at a 4.1 percent pace on the second quarter according to the first estimate. The number came in right on the forecast which had no positive effect for the USD, but it did validate the U.S. Federal Reserve decision to keep a tighter monetary policy with two more rate hikes in the horizon this year. The week from July 30 to August 30 will be full to the brim featuring monetary policy announcement from the Bank of Japan (BOJ) the Fed, the Bank of England (BoE) and the release of jobs data in the United States.

  • US Fed forecasted to stand pat on Wednesday
  • Bank of England (BoE) expected to hike by 25 bps
  • US could have added close to 200,000 jobs in July

EUR Falls on Dovish ECB and Political Tension

The EUR/USD lost 0.51 percent in the past five days. The single currency is trading at 1.1659 after the European Central Bank (ECB) did not provide any additional information at the end of its monetary policy meeting in July. The statement was almost a word for word recreation of the June document offering no insights for investors on when the central bank is willing to start lifting rates. The growing gap between US interest rates and European rates and an impressive growth rate in the second quarter in America gave the edge to the US dollar.



US President Trump said on Friday that the US will beat the current pace of growth going forward. The strong fundamental data will be vital for Republicans as they face midterm elections in the fall. Politics in Europe continue to add uncertainty as Italy’s Five Star founder once again is seeking a referendum on euro membership.

The U.S. Federal Reserve is not expected to announce any changes on Wednesday when it wrap up its August meeting. The next rate move is expected in September, which a more than 90 percent probability of a hike if inflation and growth continue in their current trends.

Loonie Rises on NAFTA Optimism

The USD/CAD lost 0.64 percent in the last week. The currency pair is trading at 1.3058 in a week that saw trade war concerns ease. The NAFTA and EU-US trade conversation both had positive sound bites this week. Incoming Mexican President was eager for a quick NAFTA renegotiation and he was echoed by the Trump administration. Canada and Mexico made sure to be clear that a trilateral negotiation is needed as the US has been pushing for two bilateral sit downs.


Canadian dollar weekly graph July 23, 2018

The loonie reached its higher level in six weeks on Wednesday amidst rising oil prices despite multiple evidence of ample supply. Disruptions in Saudi Arabia and the ongoing uncertainty with Iranian crude continue to push prices higher.

The main Canadian economic events during the week will be the release of the monthly GDP report on Tuesday and the Trade balance on Friday.

Yen Higher Ahead of Bank of Japan

The USD/JPY lost 0.43 percent in the last five trading sessions. The currency pair is trading at 110.95 ahead of the July 31 Bank of Japan (BOJ) policy meeting. The central bank has remained on the sidelines for most of the year and its most active contribution was to remove inflation targeting in April. The BOJ has in place an easing monetary policy that includes bond buying to keep 10 year bond yields under control.



There is a possibility that the BoJ will change the extreme form of its QE program on Tuesday, but it remains small given the lack of strong economic indicators out of Japan. Inflation continues to struggle and the economy contracted in the first quarter of 2018 so at this point it remains unlikely that the Bank of Japan would join the group of central banks who are scaling back their quantitive easing efforts.

GBP Awaiting BoE Rate Hike

The GBP/USD lost 0.08 percent during the week. The currency pair is trading at 1.3116 amid political tension due to Brexit with three consecutive weekly losses. The Brexit deal that was presented to the EU, a hard fought battle for Prime Minister Theresa May and for which hard core Brexiteers resigned, was knocked back by EU Brexit negotiator Michel Barnier. Key elements were rejected outright, even both parties still cling to an October deal.



The GBP lost despite heavy anticipation of a rate hike by the Bank of England (BoE) on super Thursday. The market is pricing in a 81 percent probability of a 25 basis points rate lift to 0.75 percent. Last meeting there were three dissenters that opposed holding rates. Despite a higher interest rate the comments from Bank of England Governor Mark Carney will be in focus as he could add a dovish tone as political uncertainty will surely make the job of protecting the UK economy harder.

Market events to watch this week:

Tuesday, July 31
10:00am USD CB Consumer Confidence
Wednesday, August1
4:30am GBP Manufacturing PMI
8:15am USD ADP Non-Farm Employment Change
10:00am USD ISM Manufacturing PMI
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
2:00pmUSD Federal Funds Rate
Thursday, August2
4:30am GBP Construction PMI
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
7:30am GBP BOE Gov Carney Speaks
Friday, August3
4:30am GBP Services PMI
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate
10:00am USD ISM Non-Manufacturing PMI

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

U.S dollar firmer on GDP expectations

Friday July 27: Five things the markets are talking about

Euro stocks have found some traction after a mixed performance overnight in Asia, as investors remain upbeat over the tentative trade truce between the U.S and the E.U.

President Trump and E.C Commission President Juncker agreed, in principle, not to impose new tariffs while the two economies sorted out their differences. The truce comes as Sino-U.S trade relations remain on edge.

Aside from corporate balance sheets, capital markets remains focused on trade and central bank policy – BoJ (July 30), Fed (Aug. 1) & BoE (Aug. 2).

Today’s advanced U.S GDP will be an important print (08:30 am EDT) – Trump and his economic team are convinced that the GDP numbers will be strong.

Trumps advisers have been privately telling associates that GDP growth should rise to +4.3% or +4.4% for Q2. The President is even more optimistic, telling anyone who will listen he expects a +4.8% headline – anything close and the president will be accused of leaking data. The danger for the U.S dollar is a weaker headline print below +4%.

This morning’s U.S data may provide support for the Fed’s tightening path, while in Japan, reports suggest the BoJ is debating ways to reduce the side effects of their yield-curve control policy.

Note: The ECB indicated yesterday that it will stick to its plan to end bond purchases and pledged to keep interest rates unchanged “at least through the summer of 2019.”

1. Stocks mixed results

In Japan, equities closed higher overnight, taking solace from signs of reconciliation between the U.S and Europe over trade issues. The benchmark Nikkei share average hit a one-week closing high and ended the week +0.56% firmer. The broader Topix ended +0.57% higher.

Down-under, the Aussie’s stock benchmark topped early July’s best in notching another eleven-year closing high – the S&P/ASX 200 rose +0.9% as BHP Billiton rose +2.3%. In S. Korea, the Kospi cooled following Thursday’s outperformance, but still rose further, allowing the index to narrowly avoid a sixth-decline in seven-weeks. It rose +0.3%, both today and on the week.

In Hong Kong, stocks ended flat as expectations of more stimuli from Beijing offset worries over a China economic slowdown. The Hang Seng index rose +0.1%, while the China Enterprises Index gained +0.2%.

In China, bourses ended down overnight, as investors remain cautious amid concerns over the Sino-U.S trade friction. The blue-chip CSI300 index ended -0.4% down, while the Shanghai Composite Index closed -0.3% lower.

In Europe, regional bourses are pushing higher, continuing the positive momentum, with largely positive earnings helping fuel sentiment.

U.S stocks are set to open ‘unchanged’.

Indices: Stoxx600 +0.1% at 391.1, FTSE +0.2% at 7681 DAX +0.3% at 12846, CAC-40 +0.0% at 5480, IBEX-35 +0.9% at 9866, FTSE MIB +0.3% at 21,932, SMI +0.1% at 9153, S&P 500 Futures flat

2. Oil markets ease after three days of gains, gold higher

Oil prices are a tad lower in quiet trading after three-days of gains, but took support from Saudi Arabia halting crude transport through a key shipping lane, falling U.S stock levels and easing global trade tensions.

Brent futures are down -5c at +$74.49 a barrel – it’s heading for a near +2% gain this week, the first weekly increase in four. U.S West Texas Intermediate (WTI) futures are -5c lower at +$69.56, after rising nearly +0.5%on Thursday. The contract is heading for a -1.3% weekly loss, a fourth-week of declines.

On Thursday, Saudi Arabia said that it was “temporarily halting” all oil shipments through the strategic Red Sea shipping lane of Bab al-Mandeb after an attack on two oil tankers by Yemen’s Iran-aligned Houthi movement.

Note: An estimated +4.8M bpd of crude oil and refined petroleum products flow through this waterway towards Europe, the U.S and Asia.

This week’s EIA report showed that crude inventories fell -6.1M barrels in the week to July 20, compared with a market expectation for a decrease of -2.3M barrels.

Ahead of the U.S open, gold prices have edged a tad higher overnight as the dollar slipped against G10 pairs ahead of U.S GDP data that could shed light on the pace of rate hikes stateside. Spot gold is up +0.1% at +$1,223.96 an ounce. U.S gold futures, for August delivery are -0.2% lower at +$1,223.20 an ounce.

Note: The ‘yellow’ metal is on track for its third consecutive weekly decline.

3. Euro yields barely move

Eurozone government bond yields have barely moved in this week’s post-ECB meeting environment, even as the central bank stopped short of providing details on reinvestments. The 10-year Bund yield is trading at +0.40%, unchanged on the day.

Note: Later this morning, both France and Spain are scheduled to announce details of their respective auctions for next week.

Stateside, U.S bond prices are a tad weaker, falling after the ECB said it would hold its benchmark interest rate steady and the U.S. reported progress on a revamped Nafta agreement.

The yield on the benchmark 10-year Treasury note is at +2.975%, up from 2.936% Thursday.

Yesterday, Draghi confirmed the ECB’s plans to gradually phase out easy-money policies, but signalled the central bank would likely hold interest rates steady until the end of next summer. The move continues to highlight a widening policy divergence with the Fed.

4. Dollar firmer on GDP expectations

The USD is firmer on high expectations for this morning’s U.S Q2 GDP with some speculation of a +4.4 to +5% print.

After this morning’s release, the markets focus will quickly shift to next week’s BoJ’s policy meeting (July 30/31), which could prove to be significant for the JPY (¥111.19) as some analysts believe that BoJ could opt to raise the 10-year government bond yield target from +0.0% to +0.1%. Nevertheless, the majority believes that Japanese policy makers will keep its policy steady after authorities again conducted a fixed-rate JGB Bond purchase operation (second operation this week) to keep their yield control target around +0.00%.

EUR/USD (€1.1625) trades sideways in the aftermath of the ECB policy decision with the pair remaining stuck in the tight €1.16-1.17 range it has been for the past month.

5. French consumer spending sluggish in June

Data this morning showed that French consumer spending was lethargic last month, with household expenditure staying ‘virtually flat,’ according to statistics agency Insee.

Digging deeper, consumer spending rose +0.1% on month in June, well below market expectations for a rise of +0.5%.

Spending was up +0.3% on year – the agency also revised May’s figure for household expenditure on goods to +1.0% from +0.9%. Consumption in food and energy was stable in June, with a slight rise in engineered goods and a slowdown in durables.

Forex heatmap

Dollar Rebounds in Anticipation of Q2 GDP Release

The US dollar is higher across the board against major pairs on Thursday. The first estimate of second quarter gross domestic product (GDP) in the US will be published on Friday, July 27 at 8:30 am EDT by the Bureau of Economic Analysis. The dollar gained ground on the euro after the European Central Bank (ECB) held interest rates unchanged as expected but said rates would be steady a year from now. The first release of GDP data for the second quarter is released 30 days after the end of the quarter with economists and analysts expecting it to be one of the best quarters in recent years. How good will the final number be has been the subject of commentary from President Trump and other members of his administration while some forecasters are lowering their estimates after a disappointing durable goods order data point.

  • US 2Q GDP forecasted at 4.1 percent
  • President Trump has told associates GDP is around 4.8 percent
  • Some forecasters have cut their estimates due to recent soft data

EUR Lower as ECB Plays it Safe

The EUR/USD lost 0.57 percent on Thursday. The single currency is trading at 1.1661 after the central bank kept rates and the quantitive easing program unchanged. The July meeting was almost a beat for beat replay of the June meeting, leaving investors with almost no new information. There was no clear guidance on the vague meting of summer of 2019 as the time horizon to lift rates.



The US GDP release will be the main market event of the week as it could come in above 4 percent. There is an open debate between economists on how much did the Trump tax cuts influenced the positive momentum. The U.S. Federal Reserve is scheduled to meet for two days next week. There are no expectations of a rate lift, but the data has so far validated the two rate hikes and more to come.

The meeting between Donald Trump and Jean-Claud Juncker was a win for the USD as it seemed Europe had conceded to American demands even if the goal is to reach zero tariffs. With trade tensions easing the market turned to monetary policy and growth divergence ahead of the Q2 GDP release on Friday morning.

The USD will face a serious challenges in August. Central banks are expected to close the monetary policy gap and retaliations from China on trade could end up hurting the American economy in the long term. Politics will also add some uncertainty to the US dollar as midterm elections approach with a forecasted Democratic win that change the power dynamics in Washington.

Brexit Fears Overpower BoE Rate Hike Expectation

The GBP/USD lost 0.59 percent on Thursday. The currency pair is trading at 1.3110 as the USD rebounded from yesterday’s losses. The Bank of England (BoE) is heavily anticipated to lift rates next week after the last monetary policy committee had three members who dissented from holding rates. Investors are pricing in a 81 probability of higher interest rates on Thursday but the divorce between the United Kingdom and Europe put more pressure on sterling.



The lack of an unified front within the Conservative party on which Brexit to pursue has left Prime Minister Theresa May with just eight months to figure out a lot of issues. The GBP has fallen as more uncertainty grips investors hopes of a comprehensive trade deal that keeps the UK as a participant of the single market.

Loonie Lower Despite NAFTA Optimism

The USD/CAD gained 0.20 percent in the last 24 hours. The currency pari is trading at 1.3072 ahead of the release of the second quarter GDP data in the US. The pair almost touched 1.32 at the at the beginning of the week, but a rebound from the loonie took the currency to near 1.3050. The optimism surrounding the NAFTA renegotiation was behind most of the move with the Canadian currency touching a six week high. The meeting between US President Trump and EU Commission chief Jean-Claude Juncker had a positive outcome although it was scarce on details and did not directly address the tariffs on steel and aluminum that will remain in place.



The change in leadership in Mexico gave the locked NAFTA negotiations a chance for a fresh start. The comments from advisors to elected-president Andres Manuel Lopez Abrador have been pro-NAFTA and the Trump administration came out in support of a quick resolution. It is unclear if the US is willing to drop the two more contentious issues it has pushed on the table, the sunset clause and the higher American percentage of US parts on autos. U.S. Trade Representative Robert Lighthizer has said that the negotiation is in its finishing stages, but so far the biggest issues remain up in the air.

Market events to watch this week:

Friday, July 27
8:30am USD Advance GDP q/q

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Draghi’s assessment at ECB press conference

The ECB has made no changes to its policy or forward guidance, and comments during the press conference are likely to confirm the bank’s optimistic but cautious stance.

“Prudence, Patience, Persistence Will Continue to Guide Policy”

Draghi’s assessment in press conference:

  • Urges “Decisive Steps” to Complete Banking Union, Capital Mkt Union
  • Monetary Analysis Confirms Need for Ample Degree of Stimulus
  • Recovery in Private-Sector Loan Growth Ongoing
  • Underlying Inflation Expected to Rise Gradually Over Medium Term
  • Underlying Inflation Expected to Pick up Towards Year-End
  • Uncertainty Concerning Inflation Outlook Receding
  • Domestic Cost Pressures Strengthening
  • Underlying Inflation Remains Generally Muted Despite Recent Pick Up
  • Headline Inflation to Hover Around Current Level until Year-End
  • Rise in HICP in June Reflects Higher Energy Prices
  • Risk of Heightened Fincl Market Volatility Warrants Monitoring
  • Risks Related to Global Factors Remain “Prominent”
  • Data Point to Growth in Line With Staff Estimates
  • Expansion in Global Demand Should Continue, Underpinning Exports
  • Econ Growth Expected to Remain Solid, Broad-based
  • ECB Stands Ready to Adjust All Instruments if Needed
  • Significant Stimulus Still Needed to Underpin Inflation
  • Incoming Data Consistent With Solid, Broad-based Growth
  • Exchange Rate is No Policy Target
  • Euro Has Appreciated Considerably in Last 1.5 Yrs Despite Ample Stimulus

Trump and Juncker to set the dollar’s tone

Wednesday July 25: Five things the markets are talking about

Euro equities have found some support, following Asian stocks as earnings season continues, although trade tensions remain to the fore ahead of today’s meeting between President Trump and E.C chief Jean-Claude Junker.

Most G10 currency pairs trade in a tight range awaiting today’s development from the U.S/EU meeting. In fixed income, most U.S Treasuries prices have edged a tad higher along with E.U government bonds.

Markets are struggling to build on Tuesday’s upbeat session as trade relations worries between the world’s biggest economic powers return to the fore.

Elsewhere, the AUD (A$0.7419) has had a mixed reaction with G20 currency pairs after inflation data missed estimates last night, backing the case for the Reserve Bank of Australia (RBA) to keep interest rates at a record low. The pound (£1.3155) is currently on to gains initiated by PM May taking control of Brexit talks.

In commodities, crude prices are higher, supported by lower inventory levels.

On tap: As the week continues, more corporate earnings come on line, while the ECB’s monetary policy will be the markets focus on Thursday. On Friday, Trump and his economic team are increasingly convinced the GDP numbers will be strong – he expects Q2 GDP to rise to as much as +4.8%!

1. Stocks get the green light

Overnight, Japanese stocks rallied for a second consecutive session, supported by gains in steelmakers and metal producers, as the market welcomed China’s pledges of a more forceful fiscal policy.

The benchmark Nikkei share average rallied +0.46%, expunging a significant of Monday losses on hearsay reports that the BoJ may adjust its policy at next weeks monetary policy meeting (July 30/31). The broader Topix gained +0.47%.

Down-under, Aussie stocks underperformed as the major banks faltered again following a soft CPI print. The S&P/ASX 200 fell -0.3%, with only the resources sectors showing a meaningful gains, supported by higher commodity prices. In S. Korea, the Kospi struggled overnight, barely getting back into positive territory. The benchmark fell -0.3% to move back toward its 14-month lows. Drug stocks were a noted sore point, while tech stocks eliminated those declines.

In Hong Kong, stocks rallied overnight led by the energy sector as investor sentiment improved on signs that the PBoC is loosening monetary and fiscal policies to prevent a domestic economic slowdown. The Hang Seng index rose +0.9%, while the China Enterprises Index also gained +0.9%.

In China, equities ease after three-straight days of gains. The blue-chip CSI300 index ended down -0.1% while the Shanghai Composite Index also eased -0.1%.

In Europe, regional bourses trade mixed amid another busy day for earnings.

U.S stocks are set to open in the ‘red’ (-0.1%).

Indices: Stoxx600 -0.1% at 388.0, FTSE -0.6% at 7659, DAX -0.2% at 12662, CAC-40 +0.2% at 5444, IBEX-35 -0.3% at 9742, FTSE MIB +0.1% at 21,897, SMI +0.1% at 9016, S&P 500 Futures -0.1%

2. Oil rises as U.S crude inventories fall, gold higher

Oil prices remain supported after U.S data yesterday showed that domestic crude inventories fell more than expected last week, easing worries about oversupply.

Global benchmark Brent crude was up +50c, or +0.7% at +$73.94 a barrel, after gaining +0.5% yesterday. U.S light crude is +5c higher at +$68.57, having risen nearly +1% in its previous session.

API data yesterday showed that U.S crude inventories fell by -3.2M barrels in the week to July 20 to +407.6M barrels. Consensus was expecting a decrease of -2.3M barrels.

Dealers will take their cues from today’s DoE report (10:30 am EDT).

Ahead of the U.S open, gold prices have inched higher as the ‘big’ dollar held steady ahead of today’s U.S and E.C meetings. Spot gold is up +0.2% an ounce. U.S. gold futures for August delivery are +0.1% higher.

3. Yields play in a tight range

Most sovereign bond yields continue to consolidate as dealers search for fresh impetus to head in a new direction. The economic calendar provides no new hints ahead of tomorrow’s ECB meeting.

However, today’s meeting between E.C Commission President Jean-Claude Juncker and President Trump could fuel further trade concerns, while cross-market themes and the lack of market liquidity can still provide erratic price moves.

The yield on U.S 10-year Treasuries has dipped -1 bps to +2.94%. In Germany, the 10-year Bund yield has fallen -1 bps to +0.39%, while in the U.K, the 10-year Gilt yield has decreased -1 bps to +1.264%.

4. FX markets trade sideways

The FX market trades in a tight range ahead of the today’s key Trump/Juncker trade talks stateside.

The EUR/USD (€1.1703) is slightly higher, but contained within this months trading range. E.U data continues to take the back-stage ahead of tomorrows ECB policy decision.

Note: The ECB is widely expected to leave its key policy settings and guidance unchanged after it announced its plans for monetary policy beyond September last month

USD/JPY (¥111.14) is holding above the psychological ¥111 level as fixed income dealers price-in that the BoJ would not likely make any policy changes until at least October.

Elsewhere, China is letting the yuan slide primarily to combat a slackening economy, as the government rolls out more pro-growth measures amid an intensifying trade feud with the U.S.

5. German July Ifo business expectations lowest in four-months

German data this morning revealed that domestic business expectations fell further this month, albeit only marginally, according to the Ifo Institute’s monthly survey.

While the Ifo measure of the current business situation improved a bit, the expectations component hit its lowest level in two-years.

The Ifo business-climate index fell to 101.7 from 101.8 in June.

Note: It marks the lowest reading in 16-months.

“The German economy continues to expand, but at a slower pace,” said Clemens Fuest, the president of the Ifo Institute.

Digging deeper, uncertainty about global trade policy remains high, with potential tariffs on the auto sector being a key concern for Germany.

Forex heatmap

Aussie falters as CPI misses estimate

But inflation climbs into RBA’s target range

Despite headline CPI coming in below economists’ forecasts, it crawled into the RBA’s 2-3% target range for the first time in over a year. Headline CPI rose 2.1% y/y in Q2, up from 1.9% in Q1 but just below estimates of a 2.2% increase. Trimmed mean CPI, the RBA’s preferred measure, rose 1.9% y/y, matching analysts’ estimates, just shy of the lower target band threshold. The last time annual trimmed mean CPI was within the target range was in Q4 2015. Looks like the RBA still has a lot to do to spur inflation and, as you might expect, market pricing is implying that the cash rate will remain unchanged for a considerable period of time, with a less than 50% chance of a hike in the next 12 months.

The reaction in currency markets was a tad volatile. Initially AUD/USD surged to a two-week high of 0.7449 before reversing direction to 0.7398. The pair is currently trading at 0.7399.

AUD/USD 30-Min Chart

Source: Oanda fxTrade

China stimulus chatter fails to rally risk appetite

There is growing speculation that China might be getting ready to introduce a new set of stimulus measures. This comes as Chinese officials keep repeating that they have adequate tools to counter any developments in the economy. China’s Ministry of Industry and Information Technology said yesterday it would appropriately help handle China/US trade dispute and boost steady growth of industrial economy.

China stocks have risen almost 7% in the last three days on this speculation and are taking a slight breather today, easing back 1.3%. The yuan is still trading on the weak side, down 0.06% versus the US dollar, after touching a near-15 month low yesterday. The yuan has fallen as much as 9.3% versus the US dollar since March. No doubt this will irk US President Donald Trump, though China did counter his recent accusations yesterday with the Foreign Ministry saying China has no desire to boost its exports through competitive devaluation, adding that sound economic fundamentals are providing support to the currency.

U.S dollar boosted by higher Treasury yields

German sentiment to remain weak

German sentiment indicators feature heavily in today’s European data deck. The IFO surveys for July are expected to remain at low levels with the expectations index seen sliding to 98.1 from 98.6 in the prior month. That would be the lowest reading since December 2012. The rest of the calendar sees UK mortgage approvals, CBI trades survey and US new home sales for June.

You can see the full MarketPulse data calendar here: https://www.marketpulse.com/economic-events/

Source: MarketPulse