Investors this morning are focusing on the US Treasury’s visit to China, which will take place later this week. The Treasury Secretary, Janet Yellen, will be the second US official to travel to China in the past three weeks after the Secretary of State, Antony Blinken. As a result, US stocks have reacted positively due to potential eases to trade and regulation. The solid economic data from the previous week also positively influences the US stock market.
In addition, the US Dollar Index rose this morning in response to the scheduled China trip. The US Dollar Index rises again above 103.12 with an impulse wave measuring 0.20%. Last week, the Federal Reserve Chairman, Mr. Powell, said that a new interest rate hike “looks quite appropriate”, but continuing the trend towards easing inflationary pressures in the economy could act as a catalyst for extending the pause in the monetary tightening cycle. Therefore, the inflation data will likely determine the Federal Open Market Committee’s rate decision next Wednesday (12th).
Investor sentiment rose throughout the previous week while the recession risks subsided. The US Gross Domestic Product was considerably higher, reading 2.0%, the Weekly Unemployment Claims declined to a 4-week low, and the UoM Consumer Sentiment unexpectedly rose to 64.4. Most data point towards economic expansion or stagnation in the worst-case scenario. As a result, the market’s risk appetite improved as recession risks declined. Lastly, the PCE Price Index read 0.35, as markets were expecting. The data is neutral, and neither indicates a pause nor a hike. However, Friday’s employment data can clarify whether the Federal Reserve will likely hike.
EUR/USD - Dollar Surges Ahead of Yellen's China Visit
The exchange rate price saw investors purchase the Euro, as the PCE Price Index did not confirm another interest rate hike. However, this morning the price is forming an attempted correction as the Dollar gains momentum. The price of the EUR/USD has declined by 0.30% over the past 2-hours. Both currencies influence price action, and the exchange rate is not driven solely by one currency's strengthening. The US Dollar appreciates this morning against all currencies, while the Euro is declining against all currencies. The US Dollar appreciates as the economy outperforms competitors while inflation moderates.
The exchange rate throughout the day will mainly be affected by this afternoon’s ISM Manufacturing PMI. Markets expect the Manufacturing PMI to decline slightly from the previous month and remain below the 50.00 level. A PMI reading above 48.3 can further support the currency, while below 47.9 can pressure demand. However, traders should be cautious that tomorrow will be a bank holiday for the US and may result in less volatility. However, comments and reports about the outcome of talks between the US and China can create further price drivers. The news of the scheduled discussions this morning was already received positively by investors.
The price of the EUR/USD on a 4-hour chart is forming a downward trend pattern but with relatively large retracements. As a result, a downward trend can be seen, but with buyers regaining control at times. If the price breaks below 1.08340, the asset will receive a further downward trend signal from price action. However, above 1.09320, the low trend pattern would end. The price currently trades below the 75-day EMA, and the RSI trades below the 50.00 level. Both indicate a downward trend in the short to medium term.
SNP500 - Investor Sentiment Rises
Over the past week, the best-performing index was the SNP500 which rose for four consecutive days and rose 2.43% by Friday. The Dow Jones rose by 2.01% and the NASDAQ by 2.10%; however, the NASDAQ saw more frequent and more significant retracements. Additionally, the SNP500 also rose to a new 2023 price high. The SNP500 was also supported by a sudden drop in bond yields, making the investment less attractive. As a result, the stock market tends to see higher demand.
Additionally, during the previous week, the stock market was supported by President of the Federal Reserve Bank of Atlanta, Raphael Bostic, who said the need to keep the Federal Fund Rate unchanged at the July meeting, as inflation expectations are now below June levels. However, investors would like to see the Consumer Price data continue declining to lean towards a pause. In addition, investors will closely follow the meetings between US and Chinese officials. Previously, tensions between the two largest economies have resulted in poorer stock market performance. So far, investors are viewing two meetings in the period of 1-month as positive. Investors will be hoping for closer ties between the two economies.
Technical indicators point towards an upward trend with a retracement today or tomorrow. The only indication signaling a downward trend is the RSI which has formed a “divergence” signal.
Summary:
- The US Dollar Index rose this morning in response to the scheduled US-China talks. The US Dollar Index rises again above 103.12 and is increasing against all currencies.
- The best-performing index was the SNP500 which rose by 2.43% over the past week. European markets open higher, which also supports the bullish market sentiment.
- The market’s risk profile improves after positive economic data and lower bond yields.
- President of the Federal Reserve Bank of Atlanta, Raphael Bostic, advises the Fed should keep interest rates unchanged for now.
