FX Weekly Recap: July 31 – August 4, 2023

Headline consumer inflation was down 0.1% m/m (1.6% y/y) as expected in July, core CPI dipped by 0.2% (-1.7% y/y)

🔴 Bearish Headline Arguments

Atlanta Fed Gov. Bostic: “We are in a phase where there is some risk of overtightening

ISM Services PMI for July 2023: 52.7 vs. 53.9 previous; prices index was up 2.7 to 56.8; employment index fell by -2.4 for 50.7

Chicago Fed Pres. Goolsbee: “When you’re around the transition point, every meeting is a live meeting”

ISM manufacturing PMI clocked in at 46.4 in July (vs. 46.0 in June), reflecting slower rates of contraction

HCOB Eurozone Manufacturing PMI for July: 42.7 vs. 43.4 previous

Euro Area unemployment rate for June 2023: 6.4% (6.6% forecast; 6.4% previous)

But the RBA decided to keep its interest rates steady at 4.10% on Tuesday, and set the expectation that while open to further hikes, future decisions will be data dependent.  This likely sparked the downtrend in the chart above, which didn’t lose steam until Thursday when traders stayed in the sidelines ahead of the U.S. NFP report.

Industrial production rebounded by 2.0% m/m in June (vs. 2.5% expected, -2.2% in May) led by cars and electronic devices

On  Monday, BOJ reportedly bought about 300B JPY (2B USD) worth of bonds in an unscheduled operation after Japanese bond yields temporarily surged to 0.605%, the highest since June 2014

Overlay of NZD vs. Major Currencies Chart by TV

RBA Statement on Monetary Policy highlighted the slowdown in inflationary pressures during June quarter but says rates may need to go higher

🔴 Bearish Headline Arguments

Overlay of CHF vs. Major Currencies Chart by TV

European Central Bank Chief Economist Philip Lane sees inflation rate falling markedly in 2023, suggesting interest rates may be close to peaking.

GBP Pairs

Overlay of GBP vs. Major Currencies Chart by TV

RBA kept its rates unchanged at 4.10% in August. In its statement, RBA shared that “Some further tightening of monetary policy may be required” but will “depend upon the data.”

Germany’s unemployment rate unexpectedly fell from 5.7% to 5.6% in July, with the number of people out of work decreasing by a net of 4,000 despite the companies’ demand for labour remaining “strained.”

Overlay of CAD vs. Major Currencies Chart by TV

Volatile Australian building approvals fell by 7.7% m/m in June after a 20.5% jump in May

The dollar lost against its counterparts (but JPY) on Monday as optimism over a soft landing in the U.S. increased risk appetite.

The Aussie was never able to recover from the 1-2 punch of the dovish RBA event and broad risk aversion sentiment, ending the week as the biggest loser among the major currencies.

🟢 Bullish Headline Arguments

Germany’s trade surplus widened from 14.4B EUR to 18.7B EUR in June as exports (+0.1% m/m) outpaced imports (-3.4% m/m)

🔴 Bearish Headline Arguments

Retail sales volume fell by 0.5% q/q in Q2, their third consecutive decline, as consumers respond to cost-of-living pressures

The unemployment rate ticked up from 3.4% to 3.6% in Q2 2023- a two year high – as strong labour demand was met with more people looking for work

🔴 Bearish Headline Arguments

The currency saw some buying against the comdolls on Tuesday when the “riskier” assets were getting killed by risk aversion.

And then there’s the BOE’s “hawkish hike” on Thursday, which initially dragged GBP lower before traders focused on the “hawkish” part and pulled the currency back up to near its open prices.

🟢 Bullish Headline Arguments

S&P Global / CIPS UK Services PMI for July: 51.5 vs. 53.7; “another strong rise in average cost burdens was reported by service sector companies during July”

CHF Pairs

Overlay of CHF vs. Major Currencies Chart by TV

Germany import prices for June: -11.4% y/y (-10.7% y/y forecast; -9.1% y/y previous), largely attributed to lower energy prices

Mortgage Approvals in June: 54.7K (47K forecast) vs. 51.1K in May

The Swiss franc saw red to start the week, but found its footing quickly back into the Green as broad risk sentiment shifted strongly negative late in the Tuesday U.S. session.

SECO consumer sentiment only up from -30 to -27 in July (vs. long-term avg of -6) as high prices continued to squeeze household budgets

USD the most gains, helped along with higher bond yields from the U.S., but the euro outperformed as well.

Threats of “higher for longer” interest rates narrative and global growth concerns soon took over the broader markets, however, and the safe haven soon saw buying support against its major counterparts except for the U.S. dollar.

🟢 Bullish Headline Arguments

Missed the major forex headlines? Here’s what you need to know from last week’s FX action:

USD Pairs

Overlay of USD vs. Major Currencies Chart by TV

BRC: Prices in UK stores fell for the first time in two years, down by 0.1% in July compared to June

Chicago PMI in July: 42.8 (43.0 forecast; 41.5 previous)

EUR ended the week higher against the forex majors, with exception to this week’s King of the Hill, the U.S. dollar.

🟢 Bullish Headline Arguments

A disappointing business survey update dragged the safe haven lower on Wednesday, but that was quickly reversed as franc traders turned their attention back to broad risk aversion sentiment, which dominated for the rest of the week.

🟢 Bullish Headline Arguments

Risk-taking and the BOJ intervening in the bond markets dragged the yen to its intraweek lows in the first half of the week.

The currency gave back some of its gains after the U.S. NFP release gave traders a weaker-than-expected update for July, but not enough to lose the top spot by the Friday close.

🟢 Bullish Headline Arguments

U.K. S&P Global/CIPS manufacturing PMI fell to 45.3 in July, its lowest reading since May 2020, as contraction in output, new orders, and employment accelerated

HCOB Eurozone Services PMI Business Activity Index for July: 50.9 vs. 52.0 previous; “the overall rate of input cost inflation fell further beneath its long-run average“; Employment growth was sustained despite falling slowing business activity

U.S. Non-Farm Payrolls for July: 187.0k (190.0k forecast; 185.0k previous); Unemployment rate dipped to 3.5% (3.6% forecast/previous)

EUR Pairs

Overlay of EUR vs. Major Currencies Chart by TV

Job cuts in July: 23.6K vs. 40.7K cuts in June

Japanese consumer confidence improved from 36.2 to 37.1 in July

Overlay of GBP vs. Major Currencies Chart by TV

Housing starts dropped 4.8% y/y in June (vs. -0.2% expected) after a 3.5% uptick in May

au Jibun Bank Japan Services PMI for July: 53.8 vs. 54.0 in June; “Japanese service providers registered a reduction in employment levels for the first time since the start of the year”

منبع: https://www.babypips.com/news/forex-weekly-recap-2023-08-04

ADP National Employment Report for July: 324.0k (210.0k forecast; 455.0k previous)

🔴 Bearish Headline Arguments

S&P Global / CIPS UK Construction PMI for July: 51.7 vs. 48.9

🔴 Bearish Headline Arguments

Melbourne Institute’s inflation gauge showed 0.8% price acceleration in July, much higher than June’s 0.1% uptick

Australia prints 11.32B AUD trade surplus in June (vs. 11B AUD expected, 11.79B AUD in May) as imports (-3.9%) shrank faster than exports (-1.7%)

Germany’s retail sales for June: -0.8% m/m (0.0% m/m forecast; 1.9% m/m previous)

S&P Global US Services PMI for July: 52.3 vs. 54.4; “Inflationary pressures remained historically elevated in July, as service providers, in particular, continued to register marked increases in input costs and output charges, often attributed to hikes in wages.

Like other risk assets, AUD gained pips across the board on Monday, likely benefiting from a sudden shift in expectations that the Reserve Bank of Australia may hike interest rates by 25 bps on Tuesday.

On Thursday, BOJ launched a second unscheduled bond-buying operation, said it would buy 400B JPY ($2.8B) worth of securities after the 10-year note hit a fresh nine-year high of 0.65%

JOLTS job openings declined by 34,000 to their lowest levels since April 2021, with layoffs and resignations pointing to less confidence in the labor market

From then, USD traders flipped focus to safe haven mode and was likely helped along by higher U.S. Treasury yields and “higher for longer” Fed speculation.

Overlay of AUD vs. Major Currencies Chart by TV

The dollar did suffer a setback in the early Asian session on Wednesday after Fitch downgraded the U.S.’ credit rating but the Greenback but quickly stabilized through the Thursday session.

Global growth concerns and the prospect of “higher for longer” global interest rates got traders selling the comdolls and buying safe haven currencies this week.

Canada Employment Change for July: -6.4k (20.0k forecast; 59.9k previous); unemployment rate: 5.5% vs. 5.4% forecast/previous

M4 Money Supply for June: -0.1% m/m vs. 0.3% m/m previous

Overlay of EUR vs. Major Currencies Chart by TV

ANZ’s business outlook survey showed that a net of 13.1% respondents expected the New Zealand economy to get worse in July, an improvement of 5 points from June

The unemployment rate edged lower from 2.6% to 2.5% in June, the lowest since January

🔴 Bearish Headline Arguments

With not a lot of major economic data out from Canada until Friday, CAD mostly took its cues from crude oil price movements, up until the closely watched Canadian jobs report.

Procure manufacturing PMI contracts further, down from 44.9 to 38.5 in July

AUD Pairs

Overlay of AUD vs. Major Currencies Chart by TV

Home-building consents dip by 2.6% q/q in Q2, down to their lowest levels since Q3 2020 as higher interest rates and a property slump slow construction

JPY Pairs

Overlay of JPY vs. Major Currencies Chart by TV

Euro Area flash consumer prices for July: 5.3% y/y (5.2% y/y forecast; 5.5% y/y previous); Core CPI came inline with June at 5.5% y/y (5.4% y/y forecast)

Nationwide: U.K. house prices dropped by 3.8% y/y in July, the largest decline since 2009

It was net green against the majors as higher oil prices offset the broad risk-off sentiment that dominated many asset classes this week.

BOJ’s June meeting minutes showed that members did not see an imminent need to tweak YCC policies despite doing so in July

Credit rating agency Fitch downgraded U.S. long-term credit grade from AAA to AA+, citing “Expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades.

Fed bank lending survey showed U.S. banks reporting tighter credit, weaker loan demand in Q2 2023

Despite mixed PMI and corporate earnings reports, the euro saw some of the “safe haven” action in the first part of the week as traders focused on selling “riskier” assets like the comdolls. The Euro area’s stronger-than-expected flash CPI read likely brought in fundie buyers, along with PMI updates signaling a potential stabilization in negative business sentiment.

Canada Ivey PMI for July: 48.6 vs. 50.2 previous; Employment Index at 54.2 vs. 57.6 previous; Prices Index at 65.1 vs. 60.6 previous

NZD Pairs

Overlay of NZD vs. Major Currencies Chart by TV

France’s HCOB manufacturing PMI fell from 46.0 to 45.1 in July, the lowest since May 2020.

The common currency took a chill pill in the second half of the week as it traded inside ranges.

On Thursday, the BOE raised its key interest rate by 25 bps as expected to 5.25%; warned that interest rates will likely stay high for some time.

RBA Statement on Monetary Policy highlighted a slowdown in inflationary pressures during the June quarter but says rates may need to go higher

CAD Pairs

Overlay of CAD vs. Major Currencies Chart by TV

But on Friday, oil‘s strong rally higher wasn’t enough to offset a disappointing Canadian jobs update that included net job losses and a tick higher in the unemployment rate in July. We also got the latest Ivey PMI report signaling contractionary conditions for businesses, likely drawing in further fundamental sellers ahead of the weekend.

🟢 Bullish Headline Arguments

S&P Global Canada Manufacturing PMI for July: 49.6 vs. 48.8 June

🔴 Bearish Headline Arguments

The comdoll started falling against “safer” bets as soon as China printed a contracting Caixin manufacturing PMI in early Tuesday. Its selling accelerated during the U.S. credit rating downgrade before eventually settling into tight(ish) ranges in the second half of the week.  An argument can also be made that the bearish moves were in sympathy with the fall in the Aussie, a behavioral pattern often seen, likely due to the close trading and geographical relationship between New Zealand and Australia.

🟢 Bullish Headline Arguments

Overlay of USD vs. Major Currencies Chart by TV

With the markets eyeing the other major markets’ data releases, the British pound traded in wide ranges against its major counterparts.

There were not a lot of top-tier reports from New Zealand this week, so NZD mostly traded as a “risk” asset and countercurrency to its counterparts.

Weekly jobless claims rose by 6k w/w to 227k; continuing claims rose by 21k to 1.7M; productivity rose 3.7% q/q in Q2 vs. -2.1% in Q1; unit labor costs rose by 1.6% q/q vs. 4.2% q/q/ previous

Spain loses a net of 11K jobs in July (vs. -38.2K expected, -50.2K previous)

Overlay of JPY vs. Major Currencies Chart by TV

Retail sales grew by 5.9% y/y in June (vs. 5.4% expected, 5.8% in May); monthly retail trade is down by 0.4% (vs. 0.2% expected, 1.4% gain in May)

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