Biden abandons re-election, PCE price index higher, BoC second cut, JPY halts strengthening

Previous week's events (week 22 - 26.07.2024)

US economy

U.S. President Joe Biden abandoned his reelection bid on Sunday under growing pressure from his fellow Democrats and endorsed Vice President Kamala Harris as the party’s candidate to face Republican Donald Trump in the November election.

The personal consumption expenditures (PCE) price index nudged up 0.1% last month after being unchanged in May. Consumer spending slowed a bit last month. Signs of easing price pressures and a cooling labour market could boost the confidence of Fed officials that inflation is moving toward the U.S. central bank's 2% target.

The increase in PCE inflation was in line with economists' expectations. In the 12 months through June, the PCE price index climbed 2.5%. That was the smallest year-on-year gain in four months and followed a 2.6% advance in May.

Excluding the volatile food and energy components, the PCE price index rose 0.2% last month. The so-called core PCE inflation gain was 0.182% before rounding. May's unrounded figure was revised up to 0.127% from the previously reported 0.083%. April's core PCE inflation was upgraded to 0.261% from the previously estimated 0.259% rise.

In the 12 months through June, core PCE inflation advanced 2.6%, matching May's rise. Core inflation increased at a 2.3% annualised rate in the three months through June, sharply slowing from the 2.7% pace in May.

The Fed tracks the PCE price measures for monetary policy.

Interest rates

PBC

The People's Bank of China (PBC) cut its key short-term policy rate for the first time in almost a year, stepping up support for the economy after growth disappointed and steering a shift toward a new policy benchmark.

BOC

The Bank of Canada (BoC) decided to cut its key interest rate by 25 basis points for the second month in a row, bringing it to 4.5% and said more reductions in borrowing costs were likely if inflation continued to cool in line with forecasts.

Economists expressed concerns about the prospect of weaker economic growth in the coming months, reiterating that a slowdown could trigger more rate cuts.

Currency markets impact – Past releases (week 22 - 26.07.2024)

Server Time/Timezone EEST (UTC+03:00).

Currency Markets Impact:

• On the 23rd, Existing Home Sales were reported lower, they slipped 5.4% in June. The Richmond Manufacturing Index showed a more-than-expected decline in July. No major impact was recorded in the market.

PMI releases:

Eurozone PMIs

The manufacturing sector PMI worsened in France, down to 44.1 in contraction. The Services sector PMI though was reported in expansion but close to the 50 level. The private sector came close to stabilising in July and the combined level of output across both sectors decreased marginally at the start of the third quarter.

Germany’s PMIs were also reported worse with manufacturing falling further in contraction. The private sector economy slipped back into contraction at the start of the third quarter. Labour market weakening was recorded. The latest inflation data showed a softening of the rate of increase in service sector output prices to the weakest since April 2021.

In the Eurozone the PMIs worsened but the services PMI stayed in expansion. New orders fell for the second month running and business confidence dropped to a six-month low. The rate of input cost inflation quickened. EUR depreciated after the release of the Eurozone PMIs but the effect was only intraday.

UK PMIs

PMIs for both sectors of the U.K. economy were reported to have improved and in expansion. Business growth jumped to a 15-month high with a strengthening of business confidence after a dip in June. Services activity growth accelerated slightly while manufacturing output rose to the strongest degree since February 2022.

US PMIs

The U.S. manufacturing sector PMI was reported at 49.5, worse than the previous figure. A turn to contraction. The services PMI though was reported to have improved and in expansion, a 56 figure which is considered relatively high. Business activity growth edged up to its fastest for 27 months in July, with the service sector leading the upturn. Manufacturing output slipped into decline for the first time in six months. Business confidence in the outlook fell for a second month, fueled in part by rising political uncertainty ahead of the Presidential Election.

Increasing divergence between manufacturing and services sectors in the U.S. according to the S&P Global PMIs. U.S. business activity experiences fast growth.

PMIs for the Eurozone show a grim picture, thus the initial market reaction with EUR depreciation at the time of the release.

The U.K. is in a better spot with PMIs reported to have improved and in the expansion area. A jump in business growth in the U.K. private sector was recorded.

• The Bank of Canada (BoC) decided to cut rates by 25 basis points meeting expectations. The move was widely expected by economists as inflation continues to cool and the Canadian economy shows signs of weakness. At the time of the release, at 16:45, the CAD started to depreciate. USDCAD jumped 30 pips.

• The U.S. Advance GDP growth for the second quarter was reported at 2.8%, which is higher than expected. Core durable goods grew by 0.50% while the regular durable goods figure experienced a surprisingly huge decline of -6.6% beating expectations of an increase instead of 0.3%. Unemployment claims were reported lower, at 235K, but remained high, near the expected figure. The impact on the market could have been better at that time, at 15:30 when all figures were released.

• The Tokyo CPI inflation figure was reported as expected. The JPY was appreciated early and after the release. The USDJPY dropped around 80 pips from 2:00 before it found support.

• The core PCE price index figure was released as expected at 0.20%. No major impact was recorded in the market.

Forex markets monitor

Dollar Index (US_DX)

The USD was barely affected last week as the U.S. news and figures did not manage to have a great impact. A sideways movement with low volatility for the dollar index. Currently, the index broke that consolidation, as depicted on the chart and moves rapidly to the upside. If the index breaks the resistance at 104.54 it could jump higher reaching the target level at near 104.80.

EUR/USD

The EURUSD experienced a nearly sideways movement since the absence of significant news for the U.S. left the USD barely affected. An upward 30-period MA was formed and the lowering of volatility levels as the end of the week was approaching formed a triangle. On the 29th of July, the triangle was finally broken and the pair dropped rapidly currently at 1.08350 with the potential to reach the support near 1.08285

USD/JPY

The USDJPY experienced a drop last week, a continuation of a massive downtrend that started on the 11th of June. This was the result of the JPY strengthening that started after the BOJ intervened to support the JPY. The U.S. news did not affect the USD much last week so the pair was mostly driven by the JPY. The pair reached the support at 152 eventually and retarced to 154.8 before continuing sideways showing that the JPY strengthening has halted.

Crypto markets monitor

BTC/USD

Since the 25th, Bitcoin started to move significantly higher reaching 69,500 USD before seeing a correction to the 66,500 USD level, as a retracement. It reversed to the upside quite significantly and broke the resistance showing signs that it will head towards the previous June peak at 72K USD.

This week's events (week 29.07- 02.08.2024)

Coming up:

• Switzerland, Australia and Eurozone inflation data releases.

• Fed, BoJ, BoJ rate decision release.

• Manufacturing PMI releases

• NFP and Earnings on Friday.

Currency markets impact:

• On the 30th the Consumer Confidence report and the JOLTS job openings report will take place. The USD pairs are expected to be affected greatly at 17:00. With the market to anticipate a rate cut in September. Any surprises to the downside might cause an intraday appreciation for the USD.

• On the 31st the inflation data for Australia will be released. It is expected that the annual figure will be lowered. This could be the case considering that the RBA has kept the rates elevated trying to have an impact on inflation. AUD pairs have a high chance of being greatly affected. An intraday shock will potentially be followed with a quick retracement.

• The BOJ will decide on rates and the JPY pairs could see intraday shock. There are various comments and expectations of a hike.

• On the same day, the inflation data for the Eurozone will be released. The figures are expected to be reported lower. The ECB has already decided to cut and put a halt to more incoming economic data. The EUR could see more volatility at the time of the CPI data release.

• The ADP- NF-employment change is expected to be reported higher. This does not coincide with the recent data showing deterioration in business. USD pairs could be affected greatly at the time of the release but no intraday shocks are expected.

• The Fed is deciding on rates at 21:00. However, the decision is already priced in as it is widely expected that there will be no change in interest rate policy on that date. USD pairs however could see more volatility during the press conference.

• The BoE is going to decide on rates as well on the 1st of August. It is expected that they are going to proceed with a cut. The inflation rate has stalled to 2% and since it is on the target level. The impact on the Economy is desired as the retail sales show and the negative impact on the labour market. GBP pairs could see an intraday shock even though the figure will be announced as expected.

• U.S. Unemployment claims are expected not to change much and probably this will be the case. No major impact is expected. The ISM manufacturing PMI could however cause the USD pairs to move.

• On the 2nd of August, the NFP figure and earnings report will be released. The NFP is expected to be reported lower, indicating that the economy is actually deteriorating. The unemployment rate is not expected to change. The USD pairs could see an intraday shock at that time regardless of the actual figures.

Commodities markets monitor

US Crude Oil

On the 24th Crude oil was not affected much but the U.S. Crude oil inventories only raised the volatility levels for a while before the price closed slightly higher. The price slowed down after the huge drop and moved sideways. On the 25th the price broke an important support area and moved lower. However, it found strong support near 76 USD/b and reversed to the upside quite strongly. It found resistance at near 78 USD/b after the reversal. On the 26th it eventually retraced back to the 30-period MA and the 61.8 Fibo. This drop, however, continued aggressively even beyond, with the price crossing the 30-period MA on its way down and reaching the support again at 75.8 USD/b before retracement took place. Volatility levels lowered and a triangle formation is now visible. Its breakdown could lead to the price again testing that 75.8 USD support. Its breakout upwards could lead the price to reach 78.2 USD/b.

Gold

On the 24th of July, Gold experienced a sharp drop that continued all the way down to 2,365 USD/oz, marking a nearly 24 USD drop. On the 25th the price moved steadily downwards until it reached the support at near 2,353 USD/oz. It reversed to the upside on the 26th and reached the 30-period MA. Mid-day, the price continued aggressively to move to the upside reaching again the mean level and resistance at 2,400 USD/oz. This reversal could lead the price to experience a retracement back to the 2,375 USD level if the resistance proves to be strong enough.

Equity markets monitor

SP 500

Price movement

On the 25th the index tried to break that support several times unsuccessfully but on market opening it actually broke that reaching the next support and psychological level at nearly 5,400 USD. It then soon reversed to the upside, suddenly reaching the 30-period MA and crossing the 61.8 Fibo. Later near the end of the N. American session experienced a sharp drop. Quite a volatile market. On the 26th the index started to experience a significant correction in order to reach the resistance near 5,500 USD. Currently, a triangle formation is formed. The index tests the intraday lows and could cause a breakdown of that triangle leading in the index to drop to 5,450 USD.