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As I asked (and gave a hint), the dollar was diverging (vs weaker stocks and firmer bonds) but for how long?
It took awhile but the dollar finally adjusted.
Midday forex recap:
EURUSD is back above 1.1550 and along with a failure to reach 1.1516 puts 1.16 (and potential stops) in play.
USDJPY failed below 148 to cap its upside but lagging as its intra-day low at 146.61 is still some distance away.
GBPUSD lagged EURUSD in both directions. 1.35 is pivotal, Monday’s high at 1.3531 is closest resistance.
USDX 4 HOUR CHART
S&P and Nasdaq Futures Rise
S&P 500 futures rose 0.3% and Nasdaq 100 futures gained 0.4% on Tuesday, while the Dow Jones hovered around the flatline, following strong gains of over 1% in the previous session.
Investor sentiment remained upbeat, supported by corporate earnings and growing expectations of Federal Reserve rate cuts.
Palantir shares surged nearly 6% in premarket trading after the company raised its annual revenue forecast for the second time this year.
Pfizer advanced 2.4% after beating both earnings and revenue estimates.
In contrast, Caterpillar fell 3.6% following an earnings miss, and Vertex Pharmaceuticals tumbled 13.8% after announcing it would not move forward with late-stage trials for its next-generation pain treatment.
Meanwhile, megacap tech stocks were mostly higher before the opening bell, with Nvidia up 0.6%, Microsoft 0.5%, Apple 0.4%, Amazon 0.5%, Meta 0.3%, Broadcom 0.5%, and Tesla 0.4%, while Alphabet was little changed.
SP 500 Chart
EURUSD Technical Analysis – Aggressive dovish re-pricing weighed on the greenback
Fundamental Overview
The USD sold off across the board on Friday following a softer than expected NFP report. Overall, the data wasn’t as bad as one might think by just looking at the reaction but given that we were positioned for a strong report and the pricing got more hawkish after the Fed’s decision, the weaker data was enough to trigger a quick re-pricing.
In fact, the market is now pricing 59 bps of easing by year-end compared to just 35 bps before the NFP release. That’s a pretty quick change of heart. Over the weekend, we have Fed’s Williams opening the door for a cut in September and yesterday, Fed’s Daly echoed such sentiment. The NFP clearly made them a bit more worried, and a September cut is now basically a done deal.
It’s highly likely that more benign data will see Fed Chair Powell opening the door for a cut in September at the Jackson Hole Symposium.
On the EUR side, we haven’t got anything new in terms of fundamentals after the US-EU trade deal that set tariffs at 15%. Many ECB members are now taking a much more neutral approach to rate cuts. They will need significant negative data to force them to cut further. The market is pricing just 14 bps of easing by year-end, so another rate cut has basically a 50% chance of happening.
EURUSD Technical Analysis – Daily Timeframe
EURUSD Daily
On the daily chart, we can see that we have a key resistance around the 1.1575 level. This is where the sellers are stepping in with a defined risk above the level to position for a drop into the 1.1065 level next. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into a new cycle high.
USDJPY Analysis – Soft NFP led to a quick change of heart
Fundamental OverviewThe USD sold off across the board on Friday following a softer than expected NFP report. Overall, the data wasn’t as bad as one might think by just looking at the reaction but given that we were positioned for a strong report and the pricing got more hawkish after the Fed’s decision, the weaker data was enough to trigger a quick re-pricing.
In fact, the market is now pricing 59 bps of easing by year-end compared to just 35 bps before the NFP release. That’s a pretty quick change of heart. Over the weekend, we had Fed’s Williams opening the door for a cut in September and yesterday, Fed’s Daly echoed such sentiment. The NFP clearly made them a bit more worried, and a September cut is now basically a done deal.
It’s highly likely that more benign data will see Fed Chair Powell opening the door for a cut in September at the Jackson Hole Symposium.
On the JPY side, we haven’t got anything new since the BoJ left interest rates unchanged and revised inflation forecasts higher as expected at the last meeting. The yen, after some depreciation caused by dovish Governor Ueda’s comments, rallied strongly on the back of the soft NFP report and the dovish repricing for the Fed.
For more JPY appreciation we will need weak US data to increase the dovish bets on the Fed or higher inflation figures for Japan to price in more rate hikes than currently expected. Other potential positive driver could be signs of more fiscal support as that will likely put upward pressure on inflation.
USDJPY Technical Analysis – Daily Timeframe
USDJPY Daily
On the daily chart, we can see that USDJPY eventually sold off from the key resistance zone around 151.00 handle. The target for the sellers should be the major trendline around the 144.50 level. That’s where we can expect the buyers to step in with a defined risk below the trendline to position for a rally back into the resistance.
FX option expiries for 5 August 10am New York cut
There are just a couple to take note of on the board for the day, as highlighted in bold below.
They are all for EUR/USD layered in between the 1.1500 to 1.1600 mark. And the expiries are also resting in and around the 100 and 200-hour moving averages, seen at 1.1499 and 1.1589 respectively. As such, price action will have more reason to continue to track in between the two key hourly moving averages in European trading.
That before we get to US trading where the ISM services PMI might offer something for traders to act upon.
ISM Services PMI due today… watch the headline and the jobs component.
See our Economic Data Calendar
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