Weekly Market Outlook: August 6th - August 11th
Forex
USD
The US economic outlook is declining, which might force the Fed to pivot to an even more dovish policy, with multiple rate cuts within the year.
The dollar plummeted after the Fed policy meeting on Wednesday and dropped even further after the release of US labor data on Friday. The dollar index was at 104.6 at the beginning of last week but dropped to 103.2 by the end of the week. US treasury yields continued to decline, putting pressure on the dollar, with the US 10-year bond yield dropping from 4.20% to 3.79% last week.?
The Federal Reserve kept interest rates steady on Wednesday but signaled a rate cut in September. The US Federal Reserve kept interest rates unchanged at its policy meeting in July, within a target range of 5.25% to 5.50%, as expected. The US Federal Reserve has held interest rates steady since last July. The FOMC statement released after the meeting had a dovish bias, putting pressure on the dollar.
Fed Chair Jerome Powell’s press conference after the meeting had dovish undertones, driving the dollar down. Powell stated that the central bank aimed to keep interest rates steady in July and to discuss the possibility of a rate cut at a future meeting. Powell also stated that inflationary pressures in the US are still elevated. He stressed, however, that Q2 inflation readings are adding to the Fed’s confidence that inflation is cooling and that the overall state of the US economy is moving closer to a point where it would be appropriate to reduce interest rates.?
Markets interpreted Powell’s comments to mean that the central bank is planning to start cutting interest rates in September. Many analysts feel that a Fed rate cut is long overdue, currently, a 25-basis points rate cut in September is fully priced in. Moreover, after Powell’s speech, market odds of a second rate cut within the year have gone up. The US economic outlook is declining, which might force the Fed to pivot to an even more dovish policy, with multiple rate cuts within the year.
The US economy is slowing down from prolonged tightening, raising recession concerns. The US labor report released last week was disappointing, raising concerns over the health of the American economy. US unemployment is on the rise according to data released on Friday. The US unemployment rate shot up to 4.3% in July, surpassing expectations of 4.1%. Non-Farm Payrolls (NFPs) on Friday, showed that the US economy added only 114k jobs in July, falling short of the 175k new jobs expected and the previous reading of 179k in June.
In addition, Manufacturing PMI data on Thursday showed that the US manufacturing sector is contracting at an alarming pace. The ISM Manufacturing PMI index dropped to 46.8 in July from 48.5 in June, showing that the US manufacturing sector has moved deeper into contractionary territory.?
Economic activity data released on Tuesday for the US were more optimistic, providing support for the dollar. CB Consumer Confidence, which is a leading indicator of consumer spending, rose to 100.3 in July, surpassing estimates of a 99.7 print, as well as June’s reading of 97.8. JOLTS Job Openings data showed that the US economy opened 8.18M new jobs in June, exceeding expectations of 8.02M new jobs.?
US inflation has dropped to its lowest level in three years, raising the odds of a rate cut in September. Headline inflation cooled to 3.0% year-on-year in June from 3.3% in May against expectations of 3.1%. Monthly inflation shrank by 0.1% in June against the 0.1% growth expected. Core inflation, which excludes food and energy, rose by just 0.1% in June from 0.2% in May dropping below expectations of 0.1% growth. Signs that inflationary pressures are easing might induce the Fed to start cutting interest rates in September.
GDP data showed that the US economy expanded by 2.8% in Q2 of 2024, surpassing expectations of 2.0% growth. US economic growth in Q1, however, was revised downward, showing that the economy expanded by just 1.4% in the first quarter of the year.?
Economic activity data coming up this week are likely to affect the dollar. On Monday, we have US Services PMI data, on Tuesday Trade Balance, and Thursday US Unemployment Claims.?
EUR
German GDP data showed that the Euro Area’s leading economy contracted by 0.1% in the second quarter of the year.
EUR/USD skyrocketed to the 1.091 level last week as the dollar plummeted. If the EUR/USD pair declines, it may find support at 1.078, while resistance may be encountered near 1.095.
Key economic activity indicators were released this week for the EU. Final Manufacturing PMI data released on Thursday for the EU were in line with expectations. Final Manufacturing PMI rose slightly to 45.8 in July against 45.6 in June, beating expectations of 45.6. The EU manufacturing sector continues to contract putting pressure on the Euro. Germany's manufacturing sector continued to shrink, with Final Manufacturing PMI dropping to 43.2 in July from 43.5 in June.?
Preliminary Flash GDP data released on Tuesday showed that the Eurozone economy expanded by 0.3% in Q2 of 2024, exceeding estimates of 0.2% growth. The Eurozone economy also expanded by 0.3% in the first quarter of 2024.?
German Preliminary GDP data, however, showed that the German economy contracted by 0.1% in Q2 of 2024, falling short of expectations of 0.1% growth. Germany is the Eurozone’s leading economy and a pessimistic economic outlook puts pressure on the Euro. In addition, German Preliminary CPI data released on Tuesday showed that inflation in Germany rose by 0.3% in July. This was in line with expectations but exceeded June’s print of 0.1%, indicating that the rate of disinflation is slowing down.?
Eurozone inflation eased to 2.5% in June from 2.6% in May putting pressure on the Euro. Core CPI, which excludes food and energy, however, rose by 2.9% on an annual basis in June against expectations of a 2.8% print.?
The ECB kept interest rates steady at its monetary policy meeting in July, after lowering its Main Refinancing Rate by 25 basis points to 4.25% in June. ECB President Christine Lagarde has stated that the central bank’s policy will remain data-driven. Markets expect that the ECB will cut interest rates again in September. The central bank’s policy outlook, however, will likely depend on the progress of disinflation in the EU over the coming months. Eurozone inflation remains sticky and may slow down the pace of future rate cuts.
GBP
The BOE lowered its official rate from a 16-year high of 5.25% to 5.00% at its monetary policy meeting on Thursday.
GBP/USD edged lower last week plummeting to 1.270 after the BOE policy meeting on Thursday, then paring some of the week’s losses on Friday and rising back to 1.280. If the GBP/USD rate goes up, it may encounter resistance near 1.304, while support may be found near 1.261.?
The BOE cut interest rates by 25 basis points at its monetary policy meeting on Thursday. The BOE lowered its official rate from a 16-year high of 5.25% to 5.00%. BOE policymakers narrowly voted 5-4 in favor of a rate cut on Thursday, putting pressure on the Sterling.
Odds of a rate cut on Thursday were approximately 60% and the rate cut took markets by surprise, putting pressure on the Sterling. In addition, BOE rate cut odds within the year are on the rise and many analysts are predicting two rate cuts in 2024.?
BOE Governor Andrew Bailey, however, stated that the central bank would move forward cautiously, as policymakers are still concerned about whether inflation pressures in the UK have eased sufficiently.?
Price pressures in the UK are easing, raising the odds of a BOE rate cut by September. British headline inflation remained steady at 2.0% year-on-year in June, beating slightly expectations of a drop to 1.9%. Annual Core CPI, which excludes food and energy, also remained steady at 3.5% in June. British inflation has consistently been down to the BOE’s target 2% target since May, indicating that the BOE’s hawkish monetary policy has been paying off.?
The British economy is showing signs of improvement, reducing the odds of a dovish pivot by the BOE. GDP data showed that the British economy expanded by 0.4% in May following stagnation the month before and against expectations of 0.2% growth. Moreover, the British economy expanded by 0.7% in the first quarter of the year against initial estimates of 0.6% growth. The UK slipped into recession last year as the economy contracted by 0.3% in the final quarter of 2023.?
JPY
BOJ Governor Kazuo Ueda expressed concern for the Yen’s weakness and revealed that it was one of the reasons for the rate hike.
The Yen benefitted from the dollar’s decline last week and USD/JPY dropped to the 146.5 level, its lowest reading since March. If the USD/JPY pair declines, it may find support near 146.3. If the pair climbs, it may find resistance near 162.0.
In a surprise move, the BOJ pivoted to a more hawkish policy at its meeting on Wednesday. BOJ policymakers voted 7-2 in favor of a rate hike, raising interest rates by 15 basis points. The BOJ had already hiked interest rates in March, ending its negative interest rate policy. The BOJ raised interest rates further on Wednesday bringing its benchmark interest rate to 0.25% from 0.10%.?
Moreover, the BOJ unveiled a plan to taper its huge bond-buying program on Wednesday, gradually shifting to a more hawkish policy. The BOJ announced that it will reduce Japanese government bond purchases by around 400 billion Yen each quarter and will reduce monthly purchases to 3 trillion Yen in the three months from January to March 2026.
BOJ Governor Kazuo Ueda’s speech after the policy meeting was more hawkish than anticipated, boosting the Yen. For the first time, Ueda expressed concern for the Yen’s weakness and revealed that it was one of the reasons for the rate hike. The BOJ Governor also mentioned in his speech the Fed rate decision later on Wednesday, expressing hopes for a dovish outcome. In addition, Ueda left the door open to further rate hikes this year, stating that the BOJ does not see the 0.50% interest rate as a barrier to raising interest rates.?
The disparity between the low BOJ interest rate and the high interest rates of other major central banks, especially the Fed’s, had driven the Yen into oversold territory. By gradually closing the gap between its interest rate and that of other major banks, Japan is hoping to boost its ailing currency and avoid the need for another intervention to support the Yen.?
BOJ officials had been attempting to boost the Yen for months, warning traders against speculative short-selling of the currency. The Japanese government finally intervened to support the Yen earlier in July, although BOJ officials have not officially admitted to an intervention. Analysts estimate that the BOJ spent approximately $38.4 billion in July to prop up the Yen. The BOJ also intervened to support the Yen in 2022 and again this year in late April and early May, when USD/JPY surged above the 160.0 level. Fears of another intervention have been preventing speculative short-selling of the Yen in the past few weeks, boosting the currency.?
On the data front, inflation in Japan remains weak but rising. Headline inflation rose to 2.5% year-on-year in May from 2.2% in April. BOJ Core CPI rose to 2.1% on an annual basis in May from 1.8% in April, exceeding expectations of 1.9%. Rising inflation in Japan increases the odds of another BOJ rate hike later in the year. Tokyo Core CPI rose to 2.1% year-on-year in June from 1.9% in May against estimates of a 2.0% reading.?
Preliminary GDP data for Q1 of 2024 for Japan showed that the country has slipped into recession. Japan’s economy shrank by 0.5% in the first quarter of the year against expectations of a 0.3% drop. Japan’s economy registered a small expansion by 0.1% in the final quarter of 2023, showing that the country’s economy is shrinking. Recession concerns limit the odds of a BOJ hawkish pivot in the coming months.
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Gold
Gold prices gained strength last week after a rocket strike in the Israeli-occupied Golan Heights raised concerns of an all-out war in the region.
Gold prices exhibited high volatility last week, skyrocketing to $2,480 per ounce mid-week, then plummeting to $2,440 per ounce on Friday. If gold prices rise, resistance may be encountered near $2,484 per ounce, while if gold prices decline, support may be encountered near $2,350 per ounce.?
Gold prices have experienced a meteoric rise in the past few months and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high.?
Gold prices gained strength last week after a rocket strike by Hezbollah in the Israeli-occupied Golan Heights over the weekend raised concerns of an all-out war in the region. Reports that Hamas leader Ismail Haniyeh was killed by an Israeli missile strike in Iran drove gold prices up last week. The death of the Hamas leader is likely to lead to retaliatory attacks against Israel and aggravate the situation in the Middle East further.?
Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar plummeted after the Fed policy meeting on Wednesday and dropped even further after the release of US labor data on Friday. The dollar index was at 104.6 at the beginning of last week but dropped to 103.2 by the end of the week. US treasury yields continued to decline, putting pressure on the dollar, with the US 10-year bond yield dropping from 4.20% to 3.79% last week.???
Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The Federal Reserve kept interest rates steady within a target range of 5.25% to 5.50% at its policy meeting on Wednesday but hinted at a rate cut in September. The FOMC statement released after the meeting had a dovish bias, boosting gold prices.
Fed Chair Jerome Powell’s press conference after the meeting also had dovish undertones, propping up gold prices. Powell stated that the central bank aimed to keep interest rates steady in July and to discuss the possibility of a rate cut at a future meeting.?
Markets interpreted Powell’s comments to mean that the central bank is planning to start cutting interest rates in September. Currently, a 25-basis points rate cut in September is fully priced in. Moreover, after Powell’s speech, market odds of a second rate cut within the year have gone up.
Oil
Oil prices plummeted last week, as global economic concerns outweighed increased geopolitical tensions in Israel.
Oil prices were volatile last week, with WTI price rising to $79.4 per barrel mid-week, then plunging below $74.0 per barrel on Friday. If oil prices retreat, they may encounter support near $72.5 per barrel, while resistance may be found near $84.7 per barrel.
Oil prices plummeted at the end of last week, as global economic concerns outweighed increased geopolitical tensions in Israel. The US labor report released on Friday was disappointing, raising concerns over the health of the American economy.
In addition, concerns about decreasing oil demand in China, the world’s largest importer, are putting pressure on oil prices. Oil demand outlook in China has been decreasing after the release of disappointing Chinese economic data.?
Oil prices are kept in check by high central banks’ interest rates. The US Fed is keeping interest rates at a 23-year high, restricting economic growth and limiting the oil demand outlook as a result. The Federal Reserve kept interest rates steady within a target range of 5.25% to 5.50% at its policy meeting on Wednesday but signaled a rate cut in September.
Fed Chair Jerome stated that the central bank aimed to keep interest rates steady in July and to discuss the possibility of a rate cut at a future meeting. Increased rate cut expectations are propping up oil prices.?
Supply concerns provide support for oil prices on global geopolitical risks. The ongoing crisis in the Middle East threatens to disrupt oil distribution. Tensions in the area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution.?
Oil prices spiked early last week after a rocket strike by Hezbollah in the Israeli-occupied Golan Heights over the weekend raised concerns of an all-out war in the region. Reports that Hamas leader Ismail Haniyeh was killed by an Israeli missile strike in Iran drove oil prices up on Wednesday. The death of the Hamas leader is likely to lead to retaliatory attacks against Israel and aggravate the situation in the Middle East further.?
OPEC+ has decided to extend most of its voluntary production cuts into 2025 to boost oil prices. OPEC, however, announced that it would gradually phase out oil production cuts and laid out plans for restoring production levels within 2025.?
Cryptocurrencies
Stock markets crashed after the release of the US labor report last week putting pressure on cryptocurrency prices.
Bitcoin price went into freefall last week, dropping from $70,000 at the beginning of the week to $59,000 over the weekend. If BTC price declines, support can be found at $56,500, while resistance may be encountered at $70,000.?
Ethereum's price started the week near $3,400 but plummeted to $2,700 during the week and over the weekend, its lowest price since February. If Ethereum's price declines, it may encounter support near the psychological level of $2,500, while if it increases, resistance may be encountered near $3,560.
Crypto markets plummeted after stock markets took a nosedive last week. Crypto markets have been known to follow the overall trends of stock markets, especially of tech stocks. US stock markets crashed after the release of the US labor report last week putting pressure on cryptocurrency prices. The US labor report released last week was disappointing, raising concerns over the health of the American economy.
Cryptocurrency prices are also affected by central banks’ interest rates. High interest rates are restricting economic growth putting pressure on risk assets, while the promise of rate cuts boosts crypto markets. Federal Reserve kept interest rates steady within a target range of 5.25% to 5.50% at its policy meeting on Wednesday but signaled a rate cut in September.
Fed Chair Jerome Powell’s press conference after the meeting had dovish undertones, propping up cryptocurrencies. Powell stated that the central bank aimed to keep interest rates steady in July and to discuss the possibility of a rate cut at a future meeting. Currently, a 25-basis points rate cut in September is fully priced in. Moreover, after Powell’s speech, market odds of a second rate cut within the year have gone up, providing support for risk assets.?
The US Securities and Exchange Commission (SEC) recently approved Ethereum spot exchange-traded funds (ETFs), propping up the cryptocurrency. The rally of Ethereum was short-lived, however. After an impressive opening on the first day, the performance of ETH spot ETFs was underwhelming.
Fluctuating risk sentiment is causing volatility in crypto markets. Crypto markets have been under pressure by the war in Gaza. Fears that the war will spread in the Middle East are promoting a risk aversion sentiment putting pressure on risk assets such as cryptocurrencies. A rocket strike by Hezbollah in the Israeli-occupied Golan Heights over the weekend raised concerns of an all-out war in the region, putting pressure on cryptocurrencies. Crypto markets plummeted on Wednesday on reports that Hamas leader Ismail Haniyeh was killed by an Israeli missile strike in Iran. The death of the Hamas leader is likely to lead to retaliatory attacks against Israel and aggravate the situation in the Middle East further.
Read the full article for more information, and take a look at this week's important Forex calendar events.
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