FOREX: EUR Seals Worst Session of the Year as Markets See Flaws in EU-US Deal
Jul-28 19:28
- EUR sank sharply against all others in G10 Monday, swiftly reversing the opening bid on the back of the EU-US trade deal headlines. The scale of Monday's reversal signals the markets' surprise at the terms of the EU-US trade deal. The 15% export tariff, minimal industry carve-outs and reduction of many tariffs to zero for EU-bound US products have opened the
deal up for criticism - particularly in France. This leaves risks to growth larger than the ECB had anticipated, even as the worst case scenario has been avoided. - Resultantly, cracked through first support with very little difficulty, nearing the 50-dma as the next key level at 1.1564.
- Spillover sales helped trigger GBP and CHF weakness, both of which hit multi-week lows. In GBP/USD, spot is now through the bear trigger at 1.3365, the Jul 16 low, has been cleared. This confirms a resumption of the downleg that started Jul 1. Monday’s moves open 1.3335 initially, the May 20 low. Note that a break of 1.3365 would also confirm a breach of the trendline drawn from the Jan 13 low - cancelling a false break scenario.
- Oil prices fared very well. Both WTI and Brent crude futures rose over 2.5% intraday on the back of Trump cutting the imposed deadline on Russia to halt fighting in Ukraine down to 10-12 days from 50 days previously. This brings forward the threat of secondary sanctions on Russian trade partners - and could further cut off the international energy market from Russian supply. Compounding the market move, Russia proceeded with an export ban on gasoline to ensure domestic supply.
- Firmer oil prices helped contain losses for CAD, NOK against the USD - helping NOK/SEK rally back above the 100-dma in the process.
- Focus Tuesday shifts to ECB inflation expectations data, advance trade balance data, wholesale inventories numbers for June. Meanwhile, the JOLTS jobs openings data will be watched carefully for clues ahead of Friday's NFP print. Central bank speak remains quiet as the Fed remain inside their pre-decision media blackout period.
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Jun-27 20:16
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
Jun-27 20:01
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
Jun-27 20:00
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
