Daily Forex News By XtreamForex

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Dollar rebounds from one/month low yen under pressure after BOJ meeting
The U.S. dollar edged higher in early European trade Friday, rebounding after hefty overnight losses following weak economic data, while the Japanese yen weakened as the Bank of Japan maintained its interest rates at very low levels.

At 01:45 ET (05:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 101.787, after sliding around 0.8% overnight to a new one-month low.

The dollar received a boost earlier in the week when the U.S. Federal Reserve forecast at least two more hikes this year, despite pausing its series of rate hikes, as inflation continued to trend above the central bank’s target range.

But a swathe of weak U.S. economic readings, including slowing industrial production and sluggish retail sales, raised questions over just how much higher the Fed can raise interest rates.

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Dollar in demand as modest China rate cut hits sentiment
The U.S. dollar gained in early European trade Tuesday, with this safe haven in demand as a rate cut by China’s central bank failed to assuage investor concerns over slowing economic growth.

At 01:55 ET (05:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 102.118, rebounding from its recent one-month low.

China’s central bank, the People’s Bank of China, cut its benchmark loan prime rate by 10 basis points earlier Tuesday, a move that had been widely telegraphed as Beijing struggles to shore up a slowing economic recovery.

However, this size of the rate decrease disappointed some who fretted that this would not be enough to shore up confidence, with the Chinese property sector particularly hard hit.

USD/CNY rose 0.2% to 7.1769, with the yuan trading just shy of its lowest level since late November, with traders looking for a wider stimulus package from Chinese authorities but receiving a lack of concrete measures from a cabinet meeting on Friday.

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Dollar firm ahead of Powell testimony, sterling up on hot inflation

The dollar was firmer on Wednesday leading into Federal Reserve Chair Jerome Powell’s appearance before Congress where he is expected to strike a hawkish tone, while sterling firmed slightly after hotter-than-expected British inflation data.

The annual pace of British consumer price gains was steady at 8.7% in May, against hopes it had cooled since April. Sterling briefly rose as far as 0.3% against the dollar to $1.2803 before settling back to $1.2765.

It also rose slightly on the euro and yen, as traders were betting the Bank of England would need to take rates higher. Markets now price another 150 basis points of hiking for a peak at 6% in a year’s time.

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Trade Deficit in New Zealand Grows Despite Boost in China Exports
Despite a boost in exports to China, New Zealand’s trade deficit broadened in May. The deficit increased from NZ$17.02 billion to NZ$17.12 billion, falling just short of economists’ prediction of NZ$17.24 billion.

Concurrently, the monthly trade surplus shrank from NZ$236 million to NZ$46 million. A substantial rise in milk powder, butter, and cheese exports (+21%) contributed to the export growth, while crude oil (-52%) and logs, wood, and wood articles (-15%) exports experienced declines.

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German Economy Slows in June as Businesses Encounter Weakening Demand Conditions
The German economy experienced a marked loss of momentum during the latter part of the second quarter, according to the latest ‘flash’ PMI survey conducted by Hamburg Commercial Bank. Weakening demand conditions led to a significant slowdown in business activity growth, while company expectations hit a six-month low and job creation rates also dropped. Inflation pressures eased in June, with manufacturers recording the first decline in output prices in over two and a half years. Although service sector costs and selling prices continued to increase, driven partly by higher wages and rising interest rates, inflation rates showed signs of deceleration.

The HCOB Flash Germany Composite PMI Output Index exhibited a substantial decline in June, falling from May’s 53.9 to 50.8. Despite remaining above the 50.0 thresholds indicating growth, this reading pointed to a sharp deceleration in the expansion rate, reaching a four-month low. The decline resulted from both a slower increase in service sector business activity (index down from 57.2 in May to 54.1) and a deepening downturn in manufacturing output (index dropping from 47.4 to 44.2).

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Inflation and Recession Worries Take Center Stage This Week

US
The US Federal Reserve (Fed) is anticipated to end its rate-hiking campaign shortly. Attention will turn to Personal Consumption Expenditures (PCE) readings, hoping for a decline in inflation. A decrease in inflation may boost swap futures’ confidence in one more Fed rate hike. Wall Street will keep a close eye on the Conference Board’s consumer confidence reading and Friday’s Personal Income and Spending data release.

Key Fed events include Fed’s Williams speech at the Bank for International Settlements, Fed Chair Powell’s address at the ECB’s global banking forum in Portugal, and the announcement of annual banking stress test results.

Eurozone
ECB President Christine Lagarde’s early-week appearances will garner significant attention due to recent interest rate hikes amidst ongoing inflation. Investors will closely watch the flash Harmonized Index of Consumer Prices (HICP) data on Friday.

The ECB has cautioned that significant data improvement is required to prevent another rate hike next month. A minor shift in the opposite direction could prompt the ECB to increase rates again in July before reevaluating in September. Inflation data from individual countries earlier in the week may offer insights into Friday’s expectations.

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US Markets See Lower Close in Quiet Trading; Big Tech Pullback Impacts Nasdaq

US indices showed varied performance in a subdued trading session. The Nasdaq index experienced a decline of over 1% as Big Tech companies retreated, making it the poorest-performing index of the day. Tesla shares took a significant hit, falling by 6% following a downgrade from Goldman Sachs. Other major tech players, including Meta, Amazon, and Microsoft, also saw declines ranging from 2% to 3%.

Contrarily, the Russell 2000 index ended in positive territory, benefitting from a rebound in regional banking stocks. The Nasdaq 100/Russell 2000 ratio faced strong resistance at 8.2, historically signaling potential overvaluation of the tech sector compared to the broader market.

FX Market Update: Stable US Dollar in Calm Session
The US Dollar (USD) maintained stability during a calm trading session with limited news flow. The US Dollar Index traded within a narrow range, reaching a low of 102.610 and a high of 102.830. Traders awaited central bank speakers and upcoming US data releases, anticipating potential market volatility.

Among G10 currencies, the New Zealand Dollar (NZD) outperformed its counterparts, while the Australian Dollar (AUD) remained relatively steady against the USD. Positive discussions between New Zealand and China regarding participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) contributed to the NZD’s strength. As a result, the NZD/USD pair reached a high of 0.6177, causing the AUD/NZD pair to decline and approach the 1.08 level.

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Xi Jinping of China Eases Foreign Investor Concerns Over Policy Uncertainties
In a bid to alleviate concerns and uncertainties, Chinese President Xi Jinping has recently assured foreign investors of his government’s unwavering commitment to addressing economic issues and unpredictable policy-making. Amid a backdrop of global apprehension, Xi underscored China’s dedication to development, openness, and the protection of foreign investors’ rights during his recent visit to Beijing, as reported by Xinhua News Agency.

China’s economy has been grappling with a slower recovery pace, particularly post-Covid Zero policies. This has led to intensified efforts by the nation to attract foreign investors. Compounding this situation are the endeavors by Western powers, including the US and Europe, to reduce their reliance on China, thereby creating an air of uncertainty about the country’s future growth prospects.

During the “Summer Davos” dialogue in Tianjin, Chinese Premier Li Qiang spoke emphatically about China’s readiness to collaborate with global entrepreneurs. He cautioned against the politicization of economies, urging CEOs to ensure the security of their supply chains, a sentiment he echoed during his recent visit to Germany.

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Bank of Japan’s Chief Defends Monetary Easing Amid Yen’s Decline
Kazuo Ueda, the current head of the Bank of Japan, has publicly supported the institution’s continuous implementation of monetary easing policies, despite the ongoing depreciation of the yen. He justified this by pointing out that, although the headline inflation rate is above the set target of 2%, the core inflation rate remains below this benchmark.

Ueda made these comments while attending the ECB Forum on Central Banking in Portugal. This event was attended by officials from the central banks of the United States, Europe, and the United Kingdom. During his address, Ueda noted that the value of the Japanese currency is subject to a multitude of influences, including the policy decisions made by these international central banks.

Despite his defense of the current monetary policy, Ueda expressed some uncertainty about the stability of inflation rates in Japan over the forthcoming years. However, he did acknowledge that should the central bank gain substantial confidence in future inflation stability, they would consider adjusting their policy approach accordingly.

The stance of the Bank of Japan stands in stark contrast to the fiscal strategies employed by the central banks of the US, UK, and Europe. These institutions have chosen to hike interest rates as a means of battling inflation, whereas the Bank of Japan has opted for an approach centered around ultra-low rates and market liquidity enhancements.

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USD/JPY steadies near YTD peak below 145.00 ahead of US PCE Index

The USD/JPY currency pair is currently holding steady near its year-to-date (YTD) peak, hovering just below the 145.00 level. This comes as the pair trades comfortably in the 144.55-144.60 region, a clear sign of its recent upward momentum. The pair’s movement has been closely monitored by investors and traders alike, especially given its performance in the past few weeks.

The surge of the USD/JPY beyond the 145.00 mark has led to speculation about a potential intervention from Japanese authorities. These speculations have caused a shift in investor sentiment, leading them to temper their bullish positions on the pair. Adding to this, the Japanese Finance Minister issued a warning about potential government actions if the Yen weakens excessively. This, coupled with a generally cautious market atmosphere, has provided some support for the JPY.

Investors are also grappling with concerns about the economic challenges that could arise due to increasing borrowing costs. These concerns have been further amplified by less than impressive macroeconomic data coming out of China. This, combined with a somewhat subdued action in the US Dollar, has put a cap on the USD/JPY pair’s movement.

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The GBP/USD pair is fluctuating within a limited range, hovering around the 1.2700 mark
As the new week unfolds, the GBP/USD pair is navigating within a tight range, lingering around the 1.2700 mark. This limited fluctuation indicates a lack of significant momentum for the currency pair, which could be indicative of market participants’ cautious approach in the face of uncertain market conditions.

Simultaneously, the GBP/JPY cross is displaying an impressive performance, enticing fresh buyers and making steady progress towards its highest point since December 2015. The pair is currently trading within the region of 183.70-183.65, marking a daily increase of over 0.20%. The pair seems ready to extend the strong upward trend it has exhibited over the previous quarter.

This positive trajectory can be partially attributed to the Japanese Yen’s (JPY) relative underperformance. The Bank of Japan’s (BoJ) dovish stance has triggered a fresh wave of JPY selling. Market players appear convinced that BoJ’s negative interest rate policy will stay in place until at least next year. Further supporting this sentiment, BoJ Governor Kazuo Ueda recently dismissed the possibility of any immediate changes to the ultra-loose monetary policy settings and indicated no plans to adjust the yield curve control measures.

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USD/CAD Sees Modest Gains Near 1.3230-35, Awaits FOMC Minutes

The USD/CAD pair has been a focal point for investors during Wednesday’s Asian session. This currency pair saw an uptick in buying, allowing it to recover from its weekly low of approximately 1.3200 achieved on Tuesday. At present, spot prices are hovering around the 1.3230-1.3235 range, reflecting a modest rise of nearly 0.10% for the day. Various factors on the global stage contribute to this mild gain.

A key worry influencing the market is the potential for a worldwide economic downturn, which could drastically affect fuel demand. This concern is currently overshadowing the anticipated supply squeeze due to production reductions announced by major exporters, specifically Saudi Arabia and Russia. These declarations have put Crude Oil prices under pressure, which directly impacts the USD/CAD pair.

Domestic issues also play a role in the performance of the pair. Last week’s Canadian data showed a weakening economy, with consumer inflation reaching a near-two-year low in May. This development is seen as a blow to the commodity-linked loonie and has influenced the pair’s movement. These elements, combined with a minor surge in the US Dollar (USD), have helped the USD/CAD pair gain traction.

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US Dollar Index: DXY surpasses 103.00 amid Fed forecasts and China Concerns pre-US data
The US Dollar Index (DXY) oscillates near a weekly high of around 103.40, as market participants anticipate key US data and risk factors that could sustain the bullish trend of the DXY during Thursday’s early Asian session.

The index maintains its momentum after a three-day winning streak, primarily driven by concerns surrounding a hawkish Federal Reserve (Fed) and fears induced by China while downplaying weaker US data. According to recent Federal Open Market Committee (FOMC) minutes, nearly all members agreed on halting the rate hike trajectory, with some policymakers leaning towards a July rate increase of approximately 0.25%. This suggests a hawkish tilt at the US central bank, fueling the US Dollar Index.

Meanwhile, China’s disappointing Caixin Services PMI for June, which fell to 53.9 from 57.1, adds to escalating US-China tensions. Beijing’s fresh warnings of additional trade restrictions dampen sentiment and boost the DXY. Recent announcements from China about sudden controls on exports of certain gallium and germanium products, effective from August 1, represent the latest response to US restrictions on AI chip shipments to Beijing.

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USD/CAD Hits New 3-Week High Above 1.3370 as Investors Eye Canada/US Job Data

The USD/CAD pair has recently reached a new three-week high, hitting 1.3375 during the London trading session. This rally of the Loonie asset comes in spite of the prevailing weakness in the US Dollar Index (DXY), rising oil prices, and the anticipated additional interest rate hike from the Bank of Canada (BoC).

In Europe, S&P 500 futures have continued their downward trend initiated on Thursday. This came after the United States labor market demonstrated more resilience than anticipated, causing market sentiment to turn bearish. Investors are currently exercising extreme caution as they await the upcoming second-quarter result season and further labor market data.

The US Dollar Index (DXY) has found support near the 103.00 mark. As the Nonfarm Payrolls (NFP) data release draws closer, fluctuations in the USD Index are expected. Analysts at RBC Economics predict that the US jobs report for June will reflect a substantial increase in payroll employment by 260K, albeit a decrease from the +339K in May. However, this still signifies a high level of employment. They also anticipate a slight rise in the Unemployment Rate to 3.8%, calculated separately from the household survey, up from 3.7% in May.

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EUR/GBP Drops to 0.8550 Amid UK Job Woes, Lackluster German Inflation

The EUR/GBP exchange rate has recently experienced a significant drop to 0.8550, marking a significant shift in the currency markets. This movement is not random; it reflects a complex interplay of various factors influencing both the Euro and the British Pound.

From the Euro’s perspective, several elements play a substantial role. Economic indicators such as inflation rates, GDP growth, and unemployment rates within the Eurozone can cause fluctuations in the value of the Euro. Large economies like Germany and France often have a more significant impact due to their size and influence. For instance, the recent unimpressive German inflation data has potentially contributed to the weakening of the Euro.

Political events within the Eurozone, such as elections, policy changes, or unexpected announcements, can also cause substantial currency movements. Changes in the European Central Bank (ECB) policies are particularly impactful. The ECB’s decisions on interest rates, quantitative easing programs, and other monetary policies directly influence the value of the Euro. In this context, the mixed central bank talks and data from the Eurozone have likely played a role in the EUR/GBP rate’s recent decline.

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AUD/JPY Cross Gains Momentum, Surpassing 100-hour SMA after Hitting Two-day High
The AUD/JPY cross is showing signs of momentum, pushing past the 100-hour Simple Moving Average (SMA) and reaching a two-day peak. This trend mirrors the progress of the EUR/USD pair, which is also advancing towards a fresh 2023 high close to 1.1150. The performance of both pairs has been influenced by a general weakening of the US dollar.

The AUD/JPY cross has managed to ascend to a two-day high, notably breaking through the 100-hour SMA. Market observers are now keenly waiting for the release of the Producer Price Index (PPI), an important economic indicator due later today.

Meanwhile, recent data from the US Bureau of Labor Statistics (BLS) reveals that the country’s Consumer Price Index (CPI) fell to 3% year-on-year in June, down from 4% in May. This figure came in slightly lower than the market estimate of 3.1%. Concurrently, core CPI inflation, which excludes unpredictable food and energy costs, slipped from 5.3% to 4.8%. Despite these decreases, both the CPI and core CPI saw monthly increases of 0.2%, not quite meeting analysts’ forecasts.

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US Inflation Slows; Equity Markets Rally on Earnings News

The slowing down of US inflation has been a welcome development in the financial markets. Along with positive earnings news, this has contributed to a robust rally in equity markets. The EUR/JPY pair, however, has seen only a slight recovery from its intraday low, hovering around 154.80 as we head into Friday’s European session.

This performance of the EUR/JPY pair seems to reflect the recent bounce in Treasury bond yields, while also mirroring underwhelming data from Japan. Amid relatively slow trading hours, the US 10-year and two-year Treasury bond yields are showing modest gains around 3.78% and 4.65% respectively. This is after hitting a two-week low the previous day, indicating some form of recovery.

In Japan, the Government Bond (JGB) yields for 10-year have retreated from an 11-week high. This comes as the bond yields from Europe and Germany await the opening bell for their next move. Furthermore, Japan’s Industrial Production for May dropped significantly to -2.2% MoM and 4.2% YoY, compared to the previous figures of -1.6% and 4.7% respectively. This suggests a significant slowdown in Japan’s industrial sector. Capacity Utilization also fell sharply to -6.3%, a stark decline from the market forecast of -2.5% and previous readings of 3.0%.

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EUR/USD Volatility Rises Above 1.1200 Ahead of US Retail Sales

As the anticipated US Retail Sales data for June looms, the EUR/USD pair has experienced a noticeable increase in volatility, crossing the significant 1.1200 threshold. This major currency pair has found a degree of stability as investors from around the globe eagerly await these crucial figures that will undoubtedly influence their financial strategies and future market moves.

During the Asian trading session, S&P500 futures have logged some losses, signaling a cautious sentiment among market participants as we delve into the second-quarter earnings season. Additionally, US equities faced some downturns last Friday, with investors expressing apprehension that corporate earnings might experience fluctuations due to the Federal Reserve’s assertive tightening policies and the strict credit standards established by commercial banks to preserve asset quality.

Simultaneously, the US Dollar Index (DXY) is witnessing a decrease in volatility after forming a base just below the 100.00 level. It is projected that the DXY will exhibit significant movement following the announcement of the US Retail Sales data. The market consensus suggests an increased growth in monthly retail demand at a faster rate of 0.5%, a notable increase from the previous 0.3%. Excluding automobiles, retail demand is expected to see an upturn of 0.3%, a slight rise from the last recorded figure of 0.1%.

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