In recent weeks we have seen some strange price action across financial markets. During the second half of June, stock markets were rallying, risk assets such as commodity Dollars were also bullish while safe havens were also surging. That pointed to increased weakness in the USD, which accelerated as the weak economic data from the US accumulated.
Although, towards the end of last week, the USD started reversing higher ahead of the G20 summit. The summit went well, better than most were expecting which improved the sentiment further in financial markets. As a result, safe havens declined further on Monday. But, the USD weakness has returned again today, as safe havens turn bullish again, with GOLD near the highs and commodity currencies also on a bullish run.
Regarding the economic data, today was a services day, after the manufacturing report we saw yesterday. Yesterday we saw that manufacturing fell deeper in contraction in the Eurozone, which shows that this sector as well as the industrial sector, is in big trouble. On the other hand, the service sector is holding up well. Today’s reports showed that this sector expanded in most major Eurozone countries apart from France and it is far from falling in stagnation or worse, in recession like the manufacturing sector. At least, this sector is in decent shape, unlike the rest of the Eurozone economy.
The European Session
- Eurozone Services PMI – As we mentioned above, the services sector is performing quite well compared to the rest of the sectors in the Eurozone. This sector has remained away from contraction unlike manufacturing, apart from January when Italian services dipped slightly in contraction. But it returned into expansion in the following months and in May it dipped again just at stagnation. Today, Italian services were expected to remain in stagnation for May as well, but beat expectations of 50.0 points, coming at 50.5 points instead. Spanish services PMI also beat expectations today, coming at 53.6 points against 52.7 points expected, up from 52.8 in May. German services ticked 2 points higher, coming at 55.8 points for June from 55.6 points previously, which is a decent level. French services were the only negative number today, declining to 52.9 points from 53.1 points previously, but that didn’t affect the Eurozone figure which also came better than expected at 53.6 points from 53.4 points previously.
- UK Services PMI – UK services report came softer than expectations of 51.0 points today, falling to 50.2 points. The miss today brings this sector pretty close to stagnation again. Composite PMI came at 49.7 points against 51.0 expected, down from 50.9 previously. The fall below 50 points in the composite reading shows the first contraction since July 2016. Surveying firm Markit says that the economy has shrunk in Q2 amid Brexit and global worries.
- Seems Like Lagarde Will Succeed Mario Draghi – Yesterday we heard some rumours that Christine Lagarde, who is the head of the IMF, will likely succeed Mario Draghi as the head of the ECB. Today those rumours are getting stronger and Nowotny said early today that Lagarde is a good choice for the future of the central bank. Lagarde has always found good answers to challenges at the IMF, he added.
- FEDs Mester Feels Optimistic About Inflation – Cleveland Fed president, Loretta Mester, was speaking on Bloomberg TV earlier that the most likely outcome is that inflation moves back to 2%. Fed funds rate are around neutral right now, the Fed doesn’t discount markets but looks at many factors. We would like to see more inflation expectation data before reaching conclusions and are trying to assess how much growth is slowing. There’s a possibility that growth is slowing more than the Fed expects. Fed is not in a position to give policy advice to the POTUS and has no reason to think that Trump’s nominees will make the Fed more political
The US Session
- US ADP Non–Farm Employment Change – The ADP employment report came out pretty weak last month, at 27k, down from 230k in the previous month, although last month was revised higher to 42k today. That was a sign fo the main nonfarm employment report which gets released on Friday, which also showed some really weak figures last month. Today, this report was expected to come at 140k but missed expectations, coming at 102k which is not too weak, but it’s not at the normal range above 200k.
- US Final Services PMI – The report released last month, showing that services fell close to contraction in the US. The trend has been slowing for a few months, but last month this indicator fell to 50.7 points. That increased the worries about the slowdown of the US economy. Today, this indicator was expected to remain at the same level, but the activity picked up in June and the services PMI jumped to 51.5 points, which is a good sign.
- US ISM Non–Manufacturing PMI – The ISM non–manufacturing PMI has been the best-performing indicator of the US economy. Last month it jumped to 56.9 points but was expected to cool off today to 56.1 points. It missed expectations falling to 55.1 points, but this is still a very decent level.
- US Factory Orders – In February, we saw a negative turnaround for factory orders in the US. They fell by 0.5% that month, but made a strong comeback in March jumping 1.9% higher which was revised in the next month to 1.3%. But, they returned to negative territory in April, declining by 0.8%, which was revised lower to –1.2%. Today we were expecting to see another decline of 0.4%, but it came lower at –0.7%.
Trades in Sight
- The trend is bullish
- The G20 summit retrace is complete
- MAs are pushing the price higher
The bullish trend has resumed again
Gold turned pretty bullish last month, surging more than $100 higher as the sentiment in financial markets turned really negative. The price broke above the $1,400 level and reached as high as $1,440. But it retraced lower last week ahead of the G20 summit, just in case. That retrace is complete now and Gold resumed the uptrend once again, after finding support at the 100 SMA (green). Moving averages have been providing solid support for Gold during this time, so they should keep pushing the price higher. Today we saw another retrace lower during the European session but the retrace is complete now and Gold is forming a doji candlestick which is a reversing signal indeed.
The US ISM non-manufacturing slowed today, but it still remains at a decent shape. In Europe, it seems like Lagarde will take the top job at the European Central Bank. She is expected to be a dove, just like Mario Draghi, so the Euro is feeling sort of weak. Most major currencies have been gaining against the USD today but not the Euro.