USD’s drop halted, yet rate cut expectations are enhanced

The USD tended to stabilise yesterday and may have even gained a bit in today’s Asian session, yet fundamentals tend to provide a degree of uncertainty for the greenback’s recovery. On a monetary level, after the release of the weak US employment data for July, last Friday and the substantial downward revisions of the NFP figures of May and June, implying a rapid deterioration of the conditions in the US employment market, market expectations for the Fed to cut rates have been enhanced dramatically. It’s characteristic that Fed Fund Futures implied a market anticipation for the Fed to possibly remain on hold until the end of the year before the release, while today the market expects the bank to cut rates in the September and October meetings and marginally expects the bank to remain on hold in the December meeting. San Francisco Fed President Daly was quoted stating yesterday “We may do fewer than two cuts. The more likely thing is we need to do more”, which tends to underscore a dovish predisposition. Should we see other Fed policymakers also adopting a more dovish tone, we may see the market’s expectations for more rate cuts to come being enhanced and thus weighing on the USD. On the flip side, should Fed policymakers sound more cautious in regards to a possible extensive easing of the bank’s monetary policy, we may see the USD getting some support. Today we highlight the release of the US ISM non-manufacturing PMI figure for July and the indicator’s reading is expected to rise from 50.8 to 51.5 in July, which implies a faster expansion of economic activity in the US services sector. Should the indicator’s reading rise beyond market expectations we may see market worries for US macroeconomic outlook easing, thus supporting the USD, bearing in mind that the sister indicator for the manufacturing sector had unexpectedly dropped on Friday causing worries for the expansion of economic activity in the US economy.

USD/JPY continued to edge lower yesterday and during today’s Asian session aiming for the 146.25 (S1) support line. In its downward motion the pair seems to have broken the upward trendline guiding it, implying an interruption of the upward movement. Furthermore we note that the RSI indicator is at the reading of 50 implying a rather indecisive market which may allow for a stabilisation of the pair. Hence we temporarily switch our bullish outlook in favor of a sideways motion bias. Should the bulls regain control over the pair, we may see it breaking the 149.15 (R1) resistance line and start aiming for the 151.20 (R2) resistance level. Should the bears take over, we may see the pair breaking the 146.25 (S1) support line thus paving the way for the 142.20 (S2) support barrier.

Gold’s price edged higher yesterday technically but not clearly breaking the testing the 3365 (S1) resistance line now turned to support. Yet the Bollinger bands remain tight and the RSI indicator continues to remain close to the reading of 50, both rendering any possible bullish tendencies at the current stage as unconvincing, hence we maintain for the time being our bias for the sideway motion to continue. Should the bulls take over, we may see gold’s price breaking the 3365 (S1) resistance line and start aiming for the 3500 (R2) resistance level, which is an All Time High for gold’s price. Should the bears take over, we may see the pair breaking the 3245 (S1) support line thus opening the gates for the 3120 (S2) support level.

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Today we get the Czech republic’s preliminary CPI rates for July, France’s the Euro Zone’s and the UK’s final services and composite PMI figures for July, Euro Zone’s producer prices for June, Canada’s trade data for June, we highlight the release of the ISM non manufacturing PMI figure for July, while oil traders may be more interested in the release of the weekly API crude oil inventories figure. In tomorrow’s Asian session, we note the release of New Zealand’s employment data for Q2.