26/07/2024
Written by: Ian Morley
Summary:
Yesterday’s trading session brought the volatility we anticipated, particularly in the USD. The day began with the USD showing weakness due to the impact of Nvidia’s earnings report. However, lower-than-expected jobless claims numbers reinforced confidence in the resilience of the US economy, leading to a recovery in the USD despite a slight miss on the PMI print. Both EU and UK PMI figures surpassed expectations, fuelled by growth in their respective service sectors. Additionally, three Fed members continued to advocate for delaying rate cuts, expressing concerns about January’s inflation surge and the need for more evidence before considering rate adjustments. UK consumer confidence declined in February, indicating a cautious outlook among households.
Speeches:
• EUR – ECB De Cos, Schnabel
Market Insight:
Today, attention is focused on Europe with the release of Germany’s IFO sentiment figures and, importantly, the ECB’s 1 and 3-year inflation expectations. Despite the EUR’s recent gains against the USD and GBP, markets may increase the likelihood of rate cuts if inflation expectations continue to ease, potentially impacting the EUR negatively. There is consensus among our client base that a combination of favourable interest rate expectations and growth prospects favouring the UK could drive GBPEUR trading back to 2023 highs. Consequently, demand for Limit Orders at these levels has been increasing. Next week will see the release of European inflation figures for February.
Despite recent data tempering rate cut expectations by the Fed and driving treasury yields to November 23 highs, the USD is poised to end its first negative week of 2024, supported by ongoing stock market optimism. This optimism has led clients to place limit orders targeting earlier highs seen this month. Next week’s focus in the US will be on the second estimates of Q4 growth and the Fed’s preferred inflation measure, core PCE.
Analysis:
As predicted in yesterday’s report, following Nvidia’s earnings, EURUSD briefly reverted towards its 50-day moving average. However, rates swiftly returned to the opening price, indicating a potential end to optimism on EURUSD. Today, attention is on ECB inflation expectations.