Markets were unsurprisingly very timid yesterday ahead of today's public holiday stateside. Looking at the respective currency indices, the EUR was the best performer despite manufacturing PMIs being revised lower than previous. The US numbers from ISM came in at their lowest since May 2020, showing that the recession in the sector has deepened. USD finished the day unchanged. GBP finished lower as well despite the manufacturing numbers coming in marginally better.
Early this morning the Reserve Bank of Australia held interest rates at 4.10% as widely expected citing the pause as needing more time to assess the impact of rates so far. Further hikes would be data dependent.
* Daily move - against G10 rates at 7:30am, 04.07.23
** Indicative rates - interbank rates at 7:30am, 04.07.23
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No major fireworks are expected today in the absence of US markets being closed, so we would expect trading within respective ranges before the major news flows from the US come out from tomorrow onwards. So far this morning USD trades are on the backfoot, with GBPUSD and EURUSD near resistance levels. We mentioned yesterday that perhaps USD is about to get started on a run higher with market pricing starting to believe more hikes to come from the Fed as well as data supporting the idea that the economy remains resilient compared to others. If you are in that camp, then present levels for buying USD should represent good value depending on your risk appetite and any budgets you have in place.
Yesterday we focused on GBPUSD breaking the June uptrend, and we can see similar price action on EURUSD. Interest rates expectations for the end of the year between Europe and the US are now only 22 bps from their peak of 150 bps back in April. Demand for USD seems to be picking up again, but it seems we’ll need to see more chinks in the armoury of the eurozone and the EUR in order to see a substantial drop on the pair. But nonetheless, should US data points this week continue to suggest the economy is strong as assessed by the job market then we could see a continuation of the break in the June uptrend.
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