FOREX: Markets Build on USD Gains; EUR/JPY Sees Worst 2-day Return in Months
Jul-29 19:41
- Markets built on Monday's sharp dollar rally, tipping the greenback to a new monthly high in the process. The USD Index cleared 98.950 to print the best level since June 23rd as markets continue to absorb the details of the EU-US tariff agreement struck yesterday and the impending deadline for global reciprocal tariffs from Friday onwards.
- US and Chinese negotiators came to an agreement for an extension to the current deadline before reciprocal tariffs apply. The agreement still needs final approval from President Trump, however it does little to improve prospects of a trade deal in the very near-term.
- JPY traded well, prompting a second session of declines for EUR/JPY. The cross slipped well through Y172.00 as well as support seen into the mid-July lows of 171.37. Ishiba's leadership remains a key local focus. The governing LDP confirmed that its executive committee will call a General Assembly of members "in the near future". This could prove pivotal for the tenure of the PM, with markets pricing a more than likely chance that he will leave office before the end of the year. This raises the importance of the 171.53 20-day EMA for the near-term trend. A clear breach of this average would signal scope for a deeper correction and highlight potential for a move towards the 50-day EMA, at 168.89.
- Q2 Australian inflation data is the highlight of the Wednesday APAC session, and a cursory look at NZ developments given the high correlation between the two countries’ inflation rates suggests that Australia’s may also post a small decline. This result would still be above the RBA’s May Q2 forecast of 2.6%.
- The July Fed decision is also due. While markets see very little chance of a change in headline rates policy, much focus will be paid to any signals on the prospects of easing at the Fed ahead of year-end, particularly in the context of recent Trump criticism of Powell and his approach to policymaking.
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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.
