US Retail Sales unchanged, Australian labour data mixed, UK and Canada Retail Sales dropped

Previous week's events (week 15 - 19.07.2024)

US economy

U.S. retail sales were unchanged in June, a display of consumer resilience that bolstered economic growth prospects for the second quarter. It did not change expectations that the Federal Reserve could start cutting interest rates in September amid cooling inflation

Retail sales increased 2.3% on a year-on-year basis in June. After a period of high inflation, households are trading down and seeking cheaper alternatives, as evident in earnings reports from major retailers and manufacturers.

Australia economy

Australian employment jumped well beyond expectations in June, yet the jobless rate still ticked higher as more people went looking for work, a mixed report that leaves open the question of whether interest rates need to rise further. The jobless rate still edged up to 4.1%, from 4.0%. Demand looks to be resilient and cost pressures could remain in place.

The RBA has held interest rates steady for five straight meetings now, but policymakers were pondering whether the current policy rate of 4.35% is restrictive enough as inflation remained high at 4% in the last quarter, above its target band of 2-3%.

UK economy

Retail sales volumes fell by more than expected in June. Sales volumes dropped by 1.2% last month after a 2.9% jump in May. While wages are now rising more quickly than inflation, it has slowed recently and held at the Bank of England's 2% target last month.

However, underlying inflation pressures have diminished hopes among investors for an interest rate cut on Aug. 1, the date of the BoE's next scheduled monetary policy announcement.

Canada economy

Canadian retail sales fell by 0.8% in May from April led by lower sales at food and beverage retailers. Sales were likely down 0.3% in June, the agency said in a flash estimate. In May, sales were down in eight of nine subsectors, representing 73.1% of retail trade. In volume terms, retail sales decreased 0.7%.

Inflation

UK inflation

Inflation in the U.K. eased less than expected and a key core measure of prices barely dropped. The consumer price index (CPI) rose by 2.3% in the 12 months to April, down sharply from March’s 3.2% increase and its lowest since July 2021.

Services inflation – a gauge of domestic price pressure for the BoE which is also a problem in other European countries – was much higher than expected, and petrol prices rose.

Interest Rates

ECB

The European Central Bank (ECB) kept interest rates unchanged as expected on Thursday but said September’s meeting and predicted that inflation would keep on falling. The ECB cut rates from record highs last month and the bank is proving more cautious about a follow-up step. Lagarde said growth was likely to have slowed in the second quarter and that investment activity along with poor industrial output point to muted expansion ahead. The comments reinforce expectations that weak activity will continue to suppress price pressures in the economy, allowing the ECB to cut rates further, perhaps once a quarter.

The September meeting will come at around the time that markets also see the U.S. Federal Reserve cutting. Markets are pricing in almost two ECB rate cuts for the rest of the year and a little more than five moves by the end of next year, a view no policymaker has openly challenged for weeks.

Currency markets impact – Past releases (week 15 - 19.07.2024)

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

Currency markets impact:

• The CPI data for Canada were released on the 16th of July. Canada’s inflation slowed to 2.7% in June, slightly more than expected, down from a 2.9% gain in May. The CAD depreciated greatly at that time as an initial response. At the same time, the U.S. retail sales changes were reported showing improved activity. All figures were reported higher than expected. This caused USD appreciation. The USDCAD jumped nearly 43 pips during the release of all these figures.

• The NZ CPI quarterly data release showed that New Zealand inflation slowed more than forecast to its weakest in three years in the second quarter. The annual inflation rate fell to 3.3% from 4% in the first quarter. CPI advanced 0.4% from three months earlier, less than the 0.5% estimate of economists. The NZD pairs experienced a moderate shock during the Asian session. The initial response was NZD depreciation followed by an immediate appreciation.

• The Consumer Prices Index for the U.K. rose by 2.0% in the 12 months to June 2024 according to the report at 9:00. On a monthly basis, CPI rose by 0.1% in June 2024, the same rate as in June 2023. The GBP appreciated after the release due to the beat in expectations.

• Australia’s employment change figure was reported on the 18th and was higher than expected while the unemployment rate ticked up as expected. The AUD appreciated for a short period of time before the effect faded. AUDUSD jumped just 16 pips before retracing back to the mean.

• The reports for the labour market condition in the U.K. showed that this month’s labour market figures continue to show signs of gradual cooling. The GBP initially was not affected by the news but soon it started to depreciate. GBPUSD dropped sharply and with volatile movements downwards after the news.

• The ECB decided to leave rates unchanged. The latest data has pointed to weaker growth and lower headline inflation but still sluggish core and services inflation. Wage measures show high growth that points to rather elevated rates for now. There was no significant impact on the market at the time of the release.

• The U.S. Unemployment claims were released 15 minutes later and reported way higher than expected. However, the market has not reacted to the news with a shock. The USD moved rather steadily to the upside soon after the news release.

• On the 19th, the U.K. retail sales report showed that volumes (quantity bought) are estimated to have fallen by 1.2% in June 2024, following a rise of 2.9% in May 2024. The GBP depreciated at that time but only for some time as the effect soon faded. The GBPUSD however is moving downwards steadily despite the low volatility.

• Canada's retail sales report showed further declines in retail sales. Retail sales decreased 0.8% in May. Sales were down in eight of nine subsectors, led by decreases at food and beverage retailers. Core retail sales were down 1.4% in May. Following an increase of 1.2% in April, core retail sales were down 1.4% in May. The CAD depreciated at the time of the figure release.USDCAD moved up near 30 pips.

Forex markets monitor

Dollar Index (US_DX)

On the 17th the dollar experienced serious weakening. The dollar index dropped heavily. After finding support, the index moved sideways until the next day when it reversed to the upside. An upward and rapid movement took place until it found resistance on the 19th. There was an absence of significant figure releases related to the U.S. last week.

EUR/USD

The EURUSD experienced an inverse than the U.S. index path since the USD was driving the market. On the 17th the USD depreciation caused the pair to jump until it found resistance at near 1.09460. It retraced to the 30-period MA and on the 18th the pair started to fall rapidly until the next day, on the 19th finding support at near 1.0875 before retracing to the MA again. The ECB decided to keep rates steady with the announcement taking place on the 18th but at the time of the release, the EUR was not affected greatly. The U.S. unemployment claims increased heavily, released on the 18th as well but the USD appreciated instead.

USD/JPY

The USDJPY experienced a strong and sharp drop on the 17th as the dollar started to weaken significantly against other currencies. No significant news at that date related to the USD or JPY. In addition, a potential intervention strengthening the JPY took place and the USDJPY dropped until the support near 170.74. On the next day, the 18th of July, some JPY strengthening took place again early during the Asian session but did not last long. The pair started to move upwards on an uptrend after it broke several resistance levels. After reaching resistance at near 157.90 it eventually remained on a sideways path.

Crypto markets monitor

BTC/USD

Since Friday, the 19th of July, Bitcoin moved to the upside rapidly reaching the resistance near 67,400 USD and remaining on a sideways path during the weekend near the mean at 67K USD. On Sunday Bitcoin moved to the upside breaking out from that range and reaching near 68,500 USD before retracing to the 30-period MA.

This week's events (week 22 - 26.07.2024)

Coming up:

• The Bank of Canada decides on rates and is expected to cut.

• PMI releases for both the Manufacturing and the Services sector of major regions.

• U.S. durable good orders report release.

• Core PCE price index figure release.

Currency markets impact:

• On the 24th the PMI figures will be released affecting probably the EUR, GBP and USD pairs during the day. Increased volatility is expected especially for the USD pairs around 16:45 upon the release of the Flash PMIs for the U.S. Recent business activity in the U.S. gave a grim picture. The USD could see further weakening if the PMIs are reported lower than expected.

• The Bank of Canada (BoC) is expected to decide on rates on the 24th and it is estimated that it will proceed with a cut by 25 basis points. CAD pairs could be affected greatly at the time of the release.

• News and figure releases at 15:30 on the 25th are going to shake the markets and USD pairs. GDP, Unemployment claims and durable goods orders. Expectations for durable goods orders are optimistic and could be exaggerated considering the recent economic indicators that show deterioration in business.

• The CPI data for Tokyo are going to be released on the 26th. It is expected that inflation will increase. JPY pairs could see more volatility at that time but no major shock is expected.

• The core PCE price index figure is released at 15:30 and because of its significance, the USD pairs could see a moderate intraday shock. The figure is expected to be reported higher. This figure has reduced significantly since February and it remains resilient for the upside. It could be the case that the forecast of a higher figure release will not be met.

Commodities markets monitor

US Crude Oil

On the 17th Crude oil experienced a jump to the upside crossing the 30-period MA on its way up. After reaching the resistance at near  82.25 USD/b it retraced and reached the 61.8 Fibo level at near 81.30 USD/b. This rapid retracement forced the price to cross the MA on the 18th and reach the resistance area near 80.5 USD/b. It retraced back to the upside after that with another crossover but soon reversed again to the downside, settling near the 80.5 USD/b mean. As per our previous analysis forecast, Crude oil dived on Friday, a drop of nearly 2.6 USD/b. No retracement took place and that’s why today there is now potential for that, completing a mean reversion with a target level of 79.45 USD/b.

Gold

On the 12th the price continued with retracement after the previous day’s peak. When it touched the 30-period MA it reversed to the upside to continue with a sideways path. A triangle formation was apparent as we mentioned in our previous analysis and a breakout to the upside led to the price reaching the resistance near 2,440 USD/oz. It broke that resistance on the 16th of July and moved further upwards. A triangle formation was apparent recently as depicted on the chart. On the 18th that triangle was broken to the downside and Gold’s price dropped sharply. On the 19th that drop continued steadily until it reached the support near 2,394 USD/oz with no retracement taking place the same day. On the 22nd the market opened with a gap upwards, however it seems that there is room for more future upward movement.

Equity markets monitor

SP 500 (SPX500)

Price movement

On the 17th of July, we finally saw a breakout to the downside reaching 5,620 USD as per our forecast in our previous analysis. It, however, continued with the downside until it reached the support near 5,590 USD before it retraced moving upwards back to the 30-period MA. On the 18th there was another breakout after the stock exchange opening that caused a sharp drop to the 5,530 USD before an intraday retracement took place. The level 5,540 was acting as a strong support coinciding with the 161.8 Fibo level. That eventually broke too on the 19th causing the index to reach 5,500 USD before retracing to the MA. The RSI is showing a slowdown and if the index crosses the 30-period MA on its way up it could spark a jump.