USD tries to stem the tide

Overnight Headlines

*USD fell to a one-month low post-Fed “some ground to cover” outlook

*US equities rallied with US GDP and jobless claims disappointing

*Gold jumped over 1.1% and through the 200-day SMA

USD was around 0.5% lower and hit the lowest level since 29 June. This comes the day after the Fed disappointed the hawks after the FOMC meeting. Expectations of continued stimulus linger over dollar bulls. USD/JPY dipped on US GDP data and is trading around 109.50 even with firmer equities. GBP topped 1.3981 while EUR rose to 1.1892. Eurozone CPI and US Core PCE data to keep an eye on today.

US equities closed in the green despite weaker than expected US growth data. This cemented expectations the Fed would maintain its pandemic stimulus a while longer. US GDP grew at 6.5% in Q2 missing the 8.5% rise expected by analysts. But consumer spending did surge suggesting the US consumer is still firing on all cylinders. The Nasdaq rebounded slightly after notching its worst day in two and a half months earlier in the week. Upbeat earnings in Europe helped markets to new record highs. But, Asian bourses have slipped this morning and US futures are firmly in the red on disappointing Amazon results backing up other big tech weak guidance.

Market Thoughts –  Data releases to finish the week

A busy week of economic releases finishes with the flash estimates of July inflation and Q2 GDP out of Europe this morning. CPI is expected to nudge back up to 2% in July from 1.9% in June. The more important core print remains subdued and is forecast at 0.9% so still way off the ECB’s target. Prelim GDP readings for the second quarter should be buoyant with a bounce back by 1.5% over the quarter. This comes after contracting by 1.3% in the first quarter.

The Fed’s favoured inflation metric is released this afternoon and is forecast to have increased by 0.7% m/m from 0.5% in May. The y/y reading shot up to 3.4% in the prior month, the largest gain since April 1992. Supply constraints and worker shortages are boosting wage growth. But at the moment, the market has been still digesting the Fed meeting, and potentially slower timelines for taper talk.

Chart of the Day – USD/CAD broken bullish channel

We get Canada monthly GDP numbers later today which should confirm an ongoing solid recovery. Oil prices and risk sentiment are key drivers of USD/CAD with the wait-and-see Fed helping the pair break down yesterday out of its near-term range. We’ve chosen a four-hour chart to show the break of trend support. Equally, the daily chart would show this and the break of the June/July bull trend channel. Support was found near the 1.2423 low and prices are now consolidating. A second week of losses looks bad for this pair with a lower high potentially forming the next part of the leg lower. The 50% retrace of the May/July move sits around 1.2412.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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