Today, markets are relatively quiet with Canada and Australia observing bank holidays. However, the primary focus remains on the upcoming US ISM Services PMI, which will be released later in the American session.
Market Outlook for Traders: Currency Market Insights
EUR/USD Movements
In the European session, the EUR/USD is trading below the 1.0950 mark as traders await the US ISM PMI data. The pair continues to hold strong after gaining more than 1% on Monday, reaching its highest level since March near 1.0970. Despite the rally, the near-term technical outlook indicates overbought conditions.
USD Position Adjustments
Traders are adjusting their USD positions ahead of the US ISM Services PMI data, while risk-off flows dominate due to ongoing Middle East tensions. Disappointing labor market data from the US last Friday triggered an intense selloff of the US Dollar (USD). The Nonfarm Payrolls report showed an increase of only 114,000 jobs in July, missing expectations of 175,000, while the Unemployment Rate climbed to 4.3% from 4.1%.
GBP/USD Under Pressure
The GBP/USD has come under renewed selling pressure, trading below 1.2750 in the European session on Monday. Fears of a potential Iran-Israel war and US recession weigh on market sentiment, impacting risk-sensitive assets like the Pound Sterling. Although the pair closed in positive territory on Friday, it failed to maintain its recovery momentum at the start of the week.
Precious Metals and Market Sentiment
Gold Prices
Gold prices have recovered above $2,440 after a decline to near $2,410 in Monday’s European session. The precious metal faced selling pressure as profit-taking kicked in while attempting to recapture all-time highs above $2,480. Despite this, the overall outlook for gold remains strong, with 10-year US Treasury yields plunging to 3.67% and speculation of Federal Reserve rate cuts increasing.
Stock Indices and Geopolitical Tensions
European and US Stock Indices
Fears of a deepening conflict in the Middle East have caused risk-sensitive assets to sell off during the European trading hours. At the time of writing, the Euro Stoxx 50 is down 2.5%, and US stock index futures are losing between 1.5% and 3.8%. Reports of Iran preparing to attack Israel within the next 24–48 hours have forced investors to seek refuge at the beginning of the week.
Impact on Japanese Markets
The Nikkei closed down 5.8% on Friday, marking its worst one-day sell-off since 1987. This was driven by the Bank of Japan’s unexpected decision to raise its policy rate by 15 basis points, fueling a Japanese Yen rally. The rapid appreciation of the Yen has forced many market participants to unwind the yen carry trade, adding further strain on the market.
Cryptocurrency Market
Bitcoin and Ether Declines
Cryptocurrencies tumbled amid a global market sell-off spurred by recession fears. Bitcoin’s price sank more than 13% on Monday to $50,963.57, its lowest level since February. Ether also saw steep losses, dropping 17% to $2,271.21, bringing its three-day loss to 24%.
Upcoming Economic Events
Monday
The primary focus today will be the release of the US ISM Services PMI for July. Investors expect the headline PMI to rise to 51 from 48.8 in June. A better-than-forecast print could ease concerns over an economic downturn in the US and help the USD stage a rebound.
Tuesday
Australia’s RBA Rate Statement is expected, where the central bank will likely weigh up the decision to hike or hold its cash rate. Additionally, Britain will release its construction PMI, which could impact the GBP/USD.
Wednesday
New Zealand will release its Employment and Unemployment report, influencing the NZD/USD pair. Other significant reports include Canada’s Ivey PMI and the USA’s 10-year Bond Auction, which may impact the CAD and USD, respectively.
Thursday
The US weekly unemployment report, Retail Sales, and Philly Fed Manufacturing Index will be released, potentially affecting the dollar. Australia’s Employment report is also expected.
Friday
Britain’s GBP q/q and Retail Sales m/m outcomes may impact the pound. In the US, the Building Permits report and Preliminary UoM Sentiment will be released, influencing the dollar.
Conclusion
Amid escalating geopolitical tensions and fluctuating economic indicators, market volatility is expected to remain high. Investors and traders should stay informed and agile to navigate these turbulent times effectively.
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