Traders returning to their desks after a relatively quiet 4th of July session will have their work cut out for them today with key events ahead and important news to digest. The major event of the day will clearly be the release of the FOMC minutes from Fed's last meeting bringing the Dollar to the fore. At the same time, the Euro and the Pound will be in play. Comments from the ECB on the bank's tightening path and from Brexit minister Davies on the progress of negotiations will take their toll on the price action today.
Starting our review with the Dollar, the US currency was on the defensive yesterday when the US markets were closed for the Independence Day celebrations. Nevertheless, Dollar bulls are eager to receive fresh stimulus from the Fed minutes today which are expected to reveal a broad consensus among the FOMC members on the need to raise interest rates 4 times this year. Furthermore, with the US tariffs against China pending for tomorrow, the Dollar might gain versus the higher beta currencies but struggle against the safe haven Yen. Dollar/Yen is edging higher this morning targeting the 111.00 figure but a break above this might be difficult to come right now.
The Euro is on the ascendancy this morning following comments from ECB officials that the market might be mispricing the odds for a rate hike earlier than December 2019. According to the story, some ECB officials are “uneasy that investors aren't betting on an interest rate hike until December 2019” and the prospect of the central bank growing more hawkish is helping the Single currency move higher at this time. Again, we need to be aware of a risk-off tilt when the US imposes tariffs tomorrow but in the short term a break above 1.17 opens up the 1.1740 area as the next target.
The British Pound will also remain front and center today ahead of Friday's meeting between PM May and her cabinet to decide the future relationship with the EU post-Brexit. The surprise in the Services PMI data yesterday propelled the Pound to 1.3250 but fresh news suggest that Brexit minister Davies is opposing Theresa May's Brexit proposal and talks on Friday could get ugly. We remain cautious over the Pound today as there's significant risk to the downside on the back of this news and ahead of a potential US Dollar rally; the support lies around the 1.3150 area and a break lower will drive prices towards 1.31.
Commodities had a quiet trading day yesterday with both Gold and Oil trading in a sideways manner. The yellow metal is hovering around $1,255 this morning unable to extend its rally and with momentum slowing down short-sellers might jump on the opportunity. It will be key to see what kind of support the Dollar will gather ahead of the Fed minutes' release but a technical break below $1,252 will expose the $1,245 area. Oil is trading sideways as we expected as the rally was indeed overstretched; after the prized commodity catches its breath though a break above $75 has the potential to drive prices to the $77 area.
Equities in Asia are trading below water with losses in the Chinese market spreading a bearish bias in the regional bourses. The European and US futures are pointing towards a muted opening bell but we need to keep our guard up over the next 48 hours: the combination of a more hawkish Fed confirmed in today's minutes and Trump's intention to slap China with more levies will dampen any risk appetite. Equity markets continue to trade just above key support levels and a break below them has the potential to trigger a frenzied sell-off ahead of the weekend.
MARKET EVENTS TO WATCH
- BOE Governor Carney Speaks in Newcastle - 2pm
- US Initial Jobless Claims - 4.30pm
- US ISM Non-Manufacturing/Services - 6pm
- FOMC Meeting Minutes - 10pm
All times are GMT +4.