Daily Market Reviews

Economic Calendar for August 4, 2016

Time (GMT) Currency Event Previous Forecast
02:30 AUD Retail Sales m/m 0.2% 0.3%
09:00 EUR ECB Economic Bulletin    
12:00 GBP BOE Inflation Report    
12:00 GBP MPC Official Bank Rate Votes 0-1-8 0-9-0
12:00 GBP Monetary Policy Summary    
12:00 GBP Official Bank Rate 0.50% 0.25%
12:30 GBP BOE Gov Carney Speaks    
13:30 USD Unemployment Claims 266K 265K
15:00 USD Factory Orders m/m -1.0% -1.8%

Global Market Overview

The Euro was broadly weaker on Wednesday following PMI data from across the region that was in-line with expectations.  The Pound finished mostly unchanged as traders were cautious ahead of today’s monetary policy meeting from the Bank of England.  The USD firmed broadly following better than expected employment and manufacturing data.  The Yen ended the day mixed, taking a pause in the recent strength we’ve seen from the Japanese currency.  Gold declined off its two year high as the strong USD weighed on the precious metal.  Crude rallied back above $40 a barrel following data showing a surprise drop of 3.3 million barrels in gasoline reserves.

Daily Currency Pair Analysis

EUR/USD – The pair found resistance above the 1.1200 level and fell steadily below that level during the European session.  The fall intensified during the U.S. session after better than expected manufacturing and employment data from the U.S. boosted the USD broadly against rival currencies.  By the close the pair was trading at the 1.1150 level and near its session low.  This puts the pair back in the range of 1.1000 to 1.1150 that we’ve seen since after the Brexit vote, indicating that it is not ready to break higher yet, despite falling chances of a U.S. interest rate hike this year.

USD/JPY – The pair gained for just the second time in the past ten sessions as strength in the USD following better than expected U.S. economic data helped to keep the pair above what is looking like support at the 101.00 level.  This support stretches down to the psychologically important 100.00 level and corresponds with the lows put in during the first half of 2014.  This is a very important level for the pair along with the 98.00 level just below as both are long term support levels.  If we see a break below the 98.00 level we could get a drop below the 90.00 level by the end of 2016.  And while it seems unimaginable now, the 76-78.00 levels seen in 2011 and 2012 could be a possibility if the U.S. continues to delay raising interest rates while the Bank of Japan continues to disappoint traders in their monetary and fiscal stimulus measures.

USD/CAD – The pair fell below the 1.3100 level late in the session as crude rallied back above the $40 a barrel level.  The short term trend in the pair is still up, but that could change with a close below the 1.3000 level.  While the pair has begun to recover its correlation with crude, there is still some lingering effects from the weak USD, though improving economic data from the U.S. could erase that as it seems traders are more willing to push the pair lower on USD weakness than they are to send the pair higher on USD strength, as we saw yesterday when the pair responded to the rally in crude rather than the rally in the USD.

GBP/USD – The pair remained at the top of its range, trading back and forth over the 1.3300 level Wednesday before finishing the session basically unchanged.  Traders were understandably cautious ahead of today’s Bank of England monetary policy meeting, at which the BoE is widely expected to lower interest rates.  The question on everyone’s mind though is by how much.  Initial data has shown a definite negative impact on the U.K. economy following the Brexit, so there is some question if a 25 basis point drop will be enough.  If markets get less than hoped for from the BoE we could actually see this pair rally higher, with the 1.3650 level as an upside target.  A 50 basis point rate cut will certainly send the pair lower, with support seen at the 1.3100 level and then the 1.2900 level.

Commodity Update

Gold – Gold dropped off its two year high Wednesday with the strong USD weighing on the precious metal.  Yesterday’s strong employment and manufacturing data from the U.S. could keep pressure on gold today, but Friday will see the non-farm payrolls report released in the U.S. which could lift gold higher if it is weaker than hoped for by markets.

Oil – Crude bounced late Wednesday, surging back above the $40 a barrel level after traders were surprised by a larger than expected drop in gasoline inventories.  The gains came despite a rise in crude inventory levels as markets have been more focused on the refined crude product levels recently.