2024-07-05 15:00

It is tricky to project asset prices over a three-month horizon at the best of times, never mind during a pivotal election in one of Europe’s largest economies and during a time when the Fed is likely to prepare for its first rate cut later this year. Nevertheless, this forecast endeavours to provide the most pertinent factors to consider for the euro in Q3 with an indication of significant FX levels to keep in mind throughout. French Snap Election: A Cause for Concern for Bond Market Investors After a heavy defeat in the European elections, French President Emmanuel Macron announced a snap parliamentary election catching everyone off guard. Macron and his party have suffered a loss of support most notably since the pension reform protests and hasn’t quite managed to recover as the right-wing opposition, the National Rally (RN), and a consortium of left leaning parties appeared to fill the void. Investors do not like uncertainty and a potential victory for RN could lead to standoffs when it comes to passing legislation as conflicts between the president and a RN majority in parliament could frustrate processes. Evolution of Voter Preferences over the Last Three Years Source: Politico, prepared by Richard Snow OAT-Bund spreads have widened to familiar levels, underscoring the impact of a potential political headache. RN have been known to be critical of the European Commission and could push against policies passed down from Brussels, especially the issue of deficit spending – something that concerns the bond market given France already breaches EU guidelines of 60% debt to GDP ratio with its near 110% figure. If first round elections on June 30th reveal anything close to the winning margin at the European election, then the French risk premium is likely to rise further and history warns us that the euro tends to sell-off when debt-laden countries face higher borrowing costs. Contagion risk among periphery nations will be chief among investor concerns if the political landscape is headed for change. French-German 10Y Bond Spread (Risk Premium) Source: TradingView, prepared by Richard Snow Fed Policy to Outweigh ECB Rate Impact While the ECB has already started to lower interest rates, anticipation around the Fed’s first cut is likely to be a major driver of EUR/USD price action in Q3. Market implied probabilities suggest the European Central Bank (ECB) is likely to pause for the next two meetings and reengage rate cuts in October and potentially again in December to cut a total of three times in 2024. This lack of urgency, at a time when US data is pointing to a rate cut later this year, could keep the euro supported in the absence of political instability in France. Implied Rates and Basis Points Source: Refinitiv, prepared by Richard Snow For the US April and May CPI data revealed disinflation is back on track after months of stubborn price pressures dented Fed officials’ confidence of a return to the 2% target. Economic growth is moderating but the labour market remains robust. Should services CPI and super core inflation reveal meaningful declines, short-term US yields are likely to see a sizeable drop, setting the scene for Fed officials to lower rates sooner than November and potentially cut twice in 2024 despite June’s updated dot plot which revealed only one cut in 2024. The Fed refrains from policy adjustments during US Presidential elections which means, if conditions permit, the Fed may eye September more seriously and in doing so the dollar could lose further ground to the euro. The latest ECB forecasts suggest that inflation is only likely to return to 2% after 2025 and the governing council anticipates an uptick in inflation in the short-term – potentially providing a tailwind for the euro in Q1. EU Inflation Ticks up in May – a Blip or Something to Watch out for? In addition, EU inflation in May jumped higher – to the annoyance of some ECB members after the rate setting council had essentially already committed to a cut in June. For now, it’s just one print but if June follows with a hot print of its own rate cut expectations may get trimmed back, adding further to a potential euro reprieve. EU Interest Rate, Inflation and Wage Growth Source: Refinitiv, prepared by Richard Snow https://www.dailyfx.com/news/euro-q3-fundamental-forecast-euro-path-dependent-on-french-politics-and-us-fed-policy-20240705.html

2024-07-05 12:51

US Dollar (DXY) Unchanged on Mixed US NFPs, Gold Grabs a Small Bid US dollar index little changed after US Jobs Report. Gold picks up a small bid. The June US Jobs Report (NFP) showed 206k new jobs created, compared to forecasts of 190k, but last month’s figure was revised markedly lower from 272k to 218k, a revision of 54k. The unemployment rate nudged higher to 4.1% from a prior reading, and forecast, of 4%, while average hourly earnings met forecasts of 3.9% y/y and 0.3% m/m. The US dollar is little changed after the release with the dollar index (DXY) trading on either side of 105. US interest rate expectations edged around 4 basis points higher and are currently fully pricing in two, 25 basis point rate cuts this year. US Dollar Index Daily Chart Gold remains in a multi-month range and is testing levels last seen in early June. Gold Daily Price Chart Charts using TradingView What are your views on the US Dollar and gold – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1. https://www.dailyfx.com/news/us-dollar-dxy-unchanged-on-mixed-us-nfps-gold-grabs-a-small-bid-20240705.html

2024-07-05 11:20

Euro (EUR/USD) Analysis and Charts EUR/USD’s impressive run higher continues The market shrugged off weaker German and French numbers Focus remains overwhelmingly on the US labor market The Euro was higher again against the United States Dollar on Friday as shaky eurozone economic data didn’t deflect markets from optimism that US interest rates could start to fall this year, possibly as soon as September. German industrial production shrank unexpectedly in May, official figures showed, with a 2.5% on-month contraction mocking the markets’ hopes for a 0.2% rise. France’s trade gap also yawned ahead of expectations, coming in at EUR8 billion ($8.6 billion), rather than the EUR7.2 billion tipped beforehand. At face value, this doesn’t look like the recipe for a seventh straight day of gains for EUR/USD, but that’s what we’re looking at. Of course, official US payroll data will be the ultimate decider. That’s coming up on top of the economic bill later in the global day. This week has already seen some evidence that the labor market is softening. Jobless claims rose by 238,00 in the week ending on June 29, slightly above forecasts. The financial markets are looking for a June rise of 190,000 nonfarm payrolls, well below April’s 272,000, and a steady overall jobless rate of 4%. Expect on-target or weaker data to keep early rate cuts very much on the table, while any upside surprises could see the Dollar take off once more, although bulls will have a lot to do if they’re going to counteract the considerable momentum weighing on the greenback against many major rivals. EUR/USD Technical Analysis EUR/USD Daily Chart Compiled Using TradingView EUR/USD has seen an impressive surge higher since the end of June when it bounced of the quite well-respected uptrend line which has been in place since the lows of October 2023. Bulls now eye resistance at the 1.08438 mark, which is also the first Fibonacci retracement of the rise to June 4’s significant high from the lows of mid-April, Above that lies the downtrend line from December 28 which has capped the market since and may continue to do so at least in the medium-term. The Euro may be running out of steam after such an impressive run higher and it may be getting ahead of the fundamentals. The Eurozone economy remains torpid and the chances of further interest-rate reductions is at least as high as it is in the US. How far any consolidation occurs below current levels could be key for EUR/USD sentiment. A test of nearby support at 1.07964 probably wouldn’t be too alarming for the bulls, but a probe lower toward 1.07 and below might set alarm bells ringing and put the market on alert for a deeper fall. --By David Cottle for DailyFX https://www.dailyfx.com/news/euro-ticks-up-despite-weaker-data-as-us-payroll-wait-dominates-20240705.html

2024-07-05 08:05

British Pound, FTSE, US NFPs GBP/USD and FTSE 100 Analysis and Charts Labour get the keys for No.10 after a landslide victory. Political certainty will underpin UK asset markets for now. US NFPs at 13:30 UK, revisions may be key. The Labour Party will be handed the keys to No.10 Downing Street later this morning after winning the UK general election by a record margin. With only a handful of seats still to be declared, Labour has already won 410 of the 650 seats available, over 200 more than at the last election in 2019. The incumbent Conservative party are currently polling just 119 seats, down 248 seats from the previous election. While Labour was expected to win the election by a large margin, the Conservative rout, including the loss of many of the parties ‘big hitters’ is seen as a major shift in UK politics. UK asset markets have been pricing in a large Labour majority ever since the general election was called and today’s lacklustre opening moves reflect this. The British Pound is barely changed against a range of other currencies, while the FTSE 100 is currently around 0.2% stronger. Financial markets like political certainty and this will likely shore up markets ahead of any major policy announcements. GBP/USD Daily Price Chart FTSE 100 Daily Price Chart Charts using TradingView Later in today’s session, the latest US Jobs Report (NFPs) will be released, a monthly data point that is closely watched across the market. The US Labor Department is forecast to 190k new jobs created in June, down from a hefty 272k seen in May. So far this year, three of the first four employment reports have seen their initial estimate revised lower, while last year eight out of the 12 initial estimates were revised lower. Nonfarm Payroll Employment - Revisions The US dollar index is currently testing trend support, a prior swing high, and both the 20- and 50-day simple moving averages. A lower-than-expected NFP reading today could see the DXY test the 200-dsma just above 104.50. US Dollar Index Daily Chart What is your view on the British Pound and the FTSE 100 – bullish or bearish?? You can let us know via the form at the end of this piece or contact the author via Twitter @nickcawley1. https://www.dailyfx.com/news/british-pound-ftse-steady-after-labour-landslide-us-nfps-now-key-20240705.html

2024-07-04 11:05

Japanese Yen (USD/JPY) Analysis and Charts USD/JPY is just a shade below 162.000 These are 38-Year Highs for the Dollar While the Yen lacks fundamental support, the technical now looks very stretched The Japanese Yen remains close to forty-year lows against the United States Dollar on Thursday. However, it has inched up through the session, with a nervous market wondering how much lower it can go without attracting some more official attention. The authorities in Tokyo intervened to prop their currency up in May when it last spiked up to current levels. However, the market was then thinned by a local holiday, increasing the action’s impact. There hasn’t been any sign of a repeat so far but traders seem reluctant to push USD/JPY much higher. Note, though, that the latest rise has been more orderly and so, perhaps, less likely to see Tokyo step in. Of course, interest-rate differentials still favor the greenback and, indeed, just about everything else against the Yen. That will remain so even if US interest rates are likely to fall this year. The Bank of Japan gingerly exited its decades-long zero-interest rate policy in March thanks to signs that long-dormant local inflation was at last internally generated rather than merely a function of global trends. But the Yen won’t see truly competitive interest rates for a very long time if indeed it ever does. The BoJ may tighten its monetary settings again at the end of this month given resilient inflation and some upbeat sentiment from major Japanese companies in the latest important ‘Tankan’ survey. However, while the fundamentals will continue to favor the Dollar for some time, the technical picture for USD/JPY is starting to look overstretched, as we will see below. There’s nothing much on the Japanese data calendar likely to move the currency this week, which will leave USD/JPY like most other markets hunkered down for Friday’s crucial official labor market data. Japanese Yen Technical Analysis USD/JPY Daily Chart Compiled Using TradingView The broad uptrend in place for all of this year looks very much entrenched, with a narrower, near-term channel from the start of June also not obviously threatened. However, USD/JPY now looks unsurprisingly overbought to judge by its Relative Strength Index. That’s hovering around the 70-level which suggests some froth at the top of the market. Perhaps more worryingly for Dollar bulls, the pair is now close to an astonishing 40 full Yen above its 200-day long-term average. With both of these in mind, it’s surely arguable that the path of least resistance. Reversals could find support around the 20-day moving average which is much closer to the market now at 158.52. Before that comes channel support at 159.11. --By David Cottle for DailyFX https://www.dailyfx.com/news/japanese-yen-ticks-up-as-nervy-usdjpy-hovers-around-intervention-levels-20240704.html

2024-07-04 08:04

GBP/USD and FTSE 100 Analysis and Charts GBP/USD boosted by US dollar weakness. FTSE 100 underpinned for now. Labour leader Sir Keir Starmer is set to be handed the keys to No.10 tomorrow with his party forecast to win the general election by a substantial margin. The latest YouGov MRP poll forecasts Labour winning 431 seats, the Conservative Party 102 seats, with the Liberal Democrats in third place with 72 seats. According to YouGov there are 89 seats where the two top parties are within 5% of each other, ‘What does this mean in practice? Our range for the number of Conservative seats is between 78 and 129 seats, while our range for the Liberal Democrats is between 57 and 87. That means at one end of the realistic possibilities is that we wake up on Friday to find Ed Davey (Liberal Democrats) is Leader of the Opposition. At the other end of possibilities is that the Tories are in a secure second place. The most likely outcome is the Conservatives just over 100 seats, the Liberal Democrats on around 72.’ The polling stations will close tonight at 22:00 UK and counting begins immediately. The BBC estimates that the first seats will be declared around 23:00 UK with the vast majority of seats declared by 06:00 UK on Friday. Sterling remains rangebound going into the election and will remain that way until the result is known. GBP/USD is trading on either side of 1.2750, boosted in part by a weaker US dollar. Wednesday’s US ISM report showed the economy contracting for the second time in the last three months, while the Business Activity Index slumped to 49.6 from 61.2, the first month of contraction since May 2020. US markets are closed today for Independence Day, while tomorrow sees the latest US Jobs Report released at 13:30 UK. GBP/USD Daily Price Chart The FTSE 100 is trading marginally higher in early turnover after both the Nasdaq 100 and the S&P posted fresh record highs overnight. FTSE 100 Daily Price Chart Charts using TradingView Retail trader data shows 44.15% of traders are net-long with the ratio of traders short to long at 1.26 to 1.The number of traders net-long is 15.38% lower than yesterday and 0.96% lower from last week, while the number of traders net-short is 12.02% higher than yesterday and 4.80% lower from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests FTSE 100 prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed FTSE 100 trading bias. What is your view on the British Pound and the FTSE 100 – bullish or bearish?? You can let us know via the form at the end of this piece or contact the author via Twitter @nickcawley1. https://www.dailyfx.com/news/british-pound-gbp-ftse-100-steady-as-the-uk-goes-to-the-polls-20240704.html