The end of the month flows favour a stronger US dollar. Later today, the ADP (private payrolls) release may lead to rising volatility as traders prepare for the NFP report.
Summer trading conditions mean less volatility than usual. This is what is happening in financial markets, as the lack of economic data so far in the trading week led to tight ranges.
The equity markets in the advanced economies trade close to their highs. The Dow Jones sits above 34,000 after it recovered lost ground in June, and the Nasdaq 100 has reached a new high.
In Germany, the DAX index opened almost flat, down 0.23%, while FTSE 100 in the United Kingdom trades at 7,077.
On the commodity front, oil is unchanged on the day, sitting above $73. Gold broke lower yesterday, as support in the $1,770 area gave way. Nevertheless, there was little or no follow-through.
The main event of the trading month was the Fed’s hawkish message delivered at the June meeting. The dot plot suggested two possible rate hikes in 2023, while the market expected only one.
Naturally, the US dollar reacted and it strengthened across the board. Equities dropped too.
But since the middle of the month when the meeting took place, equities recovered all the lost ground, and some. It was not the same for the US dollar, though.
The greenback gave back some of its post-FOMC gains, but not all of them. As such, it is pressing against its peers at the end of the trading month, with the bias for a further rally as we get closer to the end of the month flows.
Today we will have a glimpse into the US labour market. The ADP or private payrolls are out, and traders look for clues about how the labour market performed lately. On any positive surprise, the expectations will grow that the NFP will also print better than expected. Because the Fed’s inflation-targeting framework is complete, with inflation running above its 2% target, the focus now shifted toward the labour market.
For those trading the Canadian dollar, the Canadian GDP is due today. The market expects the economy to grow by 3% on the month, and any positive or negative surprises may affect the currency.
Markets to Watch
Dax index, EUR/USD, GBP/USD – markets in focus today.
The DAX index chart tells the story of the month (and the year) for European equities. It opened the last trading day of the month on an all-time high, and all corrections were bought aggressively.
During the last couple of months the DAX index’s price action evolves in a rising wedge – a reversal pattern. A drop below 15,200 means that the market broke the lower edge of the pattern and it also invalidated the series of higher lows. Without such a move, the price action remains bullish for the month ahead.
The US dollar strength for the month is visible on the EUR/USD pair. It dropped from 1.21 on the Fed’s hawkish statement and remains close to the monthly lows. Any further strength in the dollar should send the EUR/USD lower, threatening to break below the April 2021 lows at 1.17.
Similar price action was seen on the GBP/USD pair in June. Cable, as it is also called, dropped four big figures this month (four hundred pips), and the bounce following the Fed’s message was quickly sold. Thus, the bias moving forward is that the market will pressure the April lows too. The double bottom formation in 1.37 looms large, and a break there implies more strength for the dollar.
Winners and Losers
Oil and equities are the monthly winners. Also, the US dollar strengthened on the back of a hawkish Fed. Euro lost ground in June.