Forex Today: The prospects of a US soft landing remain challenged by data

Meaningful European data remains limited in the front half of the trading week, and Thursday will see Fiber traders with their hands full thanks to an update to pan-European Retail Sales in July followed by US preview labor figures before Friday’s NFP jobs dump.

Pan-EU Retail Sales for the year ended in July are expected to recovery slightly, forecast to print at 0.1% YoY compared to the previous period’s -0.3% decline. European Gross Domestic Product (GDP) figures are also slated for Friday, and growth is broadly expected to hold steady at previous figures in the second quarter.

ISM’s US Manufacturing PMI for August came in below expectations, printing at 47.2 and missing the median market forecast of 47.5. Despite a soft rebound from July’s multi-month low of 46.8 failed to galvanize markets, giving already flighty investors a perfect excuse to pull back from a recent lopsided tilt into bullish expectations.

Friday's US Nonfarm Payrolls (NFP) report looms large. It represents the last round of key US labor data before the Federal Reserve (Fed) delivers its latest rate call on September 18. Friday's NFP print is widely expected to set the tone for market expectations regarding the depth of a Fed rate cut, with investors fully priced in on the start of a new rate-cutting cycle this month.

EUR/USD price forecast

Fiber has slumped back into near-term technical barriers, but bidders continue to come out of the woodwork in an effort to keep bids on-balance even if they can’t quite pull out a bullish recovery.. EUR/USD popped into a 13-month high just above 1.1200 early last week, and a near-term pullback in Greenback flows sees bids scrambling to hold onto bullish chart paper.

The pair is still trading well north of the 200-day Exponential Moving Average (EMA) at 1.0845. Despite holding deep in the bull country, EUR/USD is still facing a steepening bearish pullback as shorts congregate targets just above the 50-day EMA at 1.0956.

Source: FXSTREET

The USD/CAD pair trades on a weaker note around 1.3545 during the early Asian session on Wednesday. The weaker-than-expected US ISM Purchasing Managers Index (PMI) drags the Greenback lower. The Bank of Canada (BoC) interest rate decision will be the highlight later on Wednesday, with a 25 basis points (bps) rate cut expected.

The business activity in the US manufacturing sector continued to contract, albeit at a softer pace in August. The US ISM Manufacturing PMI rose from an eight-month low in July at 46.8 to 47.2 in August. This figure was below the market consensus of 47.5 and register the lowest reading since November

The cautious mood ahead of the highly-anticipated US August Nonfarm Payrolls on Friday might provide some support to the US Dollar (USD) and cap the pair’s downside. This event will be closely watched as it might offer some hints about how much the US Federal Reserve (Fed) will cut interest rates. Financial markets have priced in around a 62% chance of a 25 basis points (bps) rate cut by the Fed in September, while the odds of a 50 bps reduction stand at 38%, according to the CME FedWatch tool.

On the Loonie front, the BoC is widely expected to deliver a third consecutive interest rate cut on Wednesday amid easing inflationary pressure in the Canadian economy. Investors see the Canadian central bank to lower its benchmark interest rate by a quarter percentage point to 4.25% followed by several more reductions over this year and 2025. “The Bank of Canada is likely to interpret (last week’s GDP) data as supportive of maintaining its easing bias, with three more quarter-point cuts expected by year-end.” noted Maria Solovieva, TD.

Meanwhile, the further decline in crude oil prices continues to undermine the commodity-linked Canadian Dollar (CAD). It's worth noting that Canada is the largest oil exporter to the United States (US), and lower crude oil prices tend to have a negative impact on the CAD value.

Source: FXSTREET

A long-awaited United States Federal Reserve interest rate cut could push Bitcoin down — the opposite direction of many market participants’ expectations — and possibly cause its price to dive to levels not seen since February, analysts say.

“If we were to speculate, we would caution to expect a 15-20 percent decline when rates are cut this month, with a bottom of $40-50k for BTC,” Bitfinex analysts wrote in a Sept. 2 note.

Bitfinex’s analysts backed up their claims by reiterating that September has historically been a “volatile month” for Bitcoin, and the anticipated Fed rate cut only adds another “layer of complexity, potentially exacerbating the market’s volatility.”

“This logic could be negated quite easily if macroeconomic conditions change.”

“These are uncertain times for traders,” the note added. The Fed interest rate decision is scheduled to take place on Sept. 18, and the market sentiment is optimistic that it will lower rates after dovish comments from Fed Chair Jerome Powell in August saying that “the time has come.”

Investors often view perceived riskier assets like Bitcoin as more attractive when interest rates are cut, as traditional assets like bonds and term deposits become less lucrative.

Bitcoin is down 2.67% over the past seven days. 

A 20% drop from its current price will place it around $46,000, which it last traded at on Feb. 8. It’s also a level that 10xResearch head of research Markus Thielen said is the point Bitcoin needs to reach before a bull run begins.

Thielen said in early August that “to ideally time the next bull market entry, we aim for Bitcoin prices to fall into the low 40,000s.”

The Bitcoin Layer analyst Joe Consorti wrote in a Sept. 3 X post that “$60,000 is no longer a blow-off top level dominated by speculators, it is a consolidation zone where long-term, mature holders accumulate and HODL.”

Meanwhile, crypto trader Daan Crypto Trades opined that Bitcoin is “still fighting around its Bull Market Support Band.”

“Doesn’t seem to want to move away from it to either side at this point,” they added.

Source: COINTELEGRAPH

(Sept 3): Oil plummeted — erasing its gains for the year — after a prospective deal to restore supplies from Libya turned traders’ attention back to concerns about tepid global demand for crude.

Global benchmark Brent dropped 4.9% to settle below $74 a barrel after earlier touching the lowest intraday price since mid-December 2023. The plunge came after a Libyan central banker said a deal that would revive the OPEC nation’s output appears imminent.

With more than half a million barrels of Libyan crude possibly coming back into the market, the focus is once again on tepid global oil consumption. Economic concerns in key consumer countries — including China and the US — have weighed on sentiment in recent months, with only occasional geopolitical concerns and minor supply disruptions masking the angst. Looking ahead, the market is bracing for OPEC+ to gradually restore production, starting with 180,000 barrels of daily supplies within weeks. 

“A toxic mix of excess supply, sliding demand, bearish technicals, and bad product fundamentals are conspiring to destroy crude oil today,” said Robert Yawger, director of the energy futures division at Mizuho Securities USA.

The concerns about China have only grown louder in recent days after a drumbeat of economic data over the weekend raised doubts that the world’s top crude importer may struggle to meet this year’s economic growth target.

Options are signaling the market is now anticipating a lower risk of futures spiking. The bias toward puts in Brent’s second-month options skew has deepened to the most bearish since early June as traders continue to protect against price drops.

The US, meanwhile, is laying the groundwork for new sanctions on Venezuelan government officials in response to Nicolás Maduro’s disputed reelection, according to documents seen by Bloomberg. The measures target key leaders that the US says collaborated with Maduro to undermine the July 28 vote.

Source: Theedgemarkets

(Sept 4): Stocks posted their worst day since the Aug. 5 market meltdown, with the S&P 500 falling more than 2%, as growth and monetary anxieties combined to torch risky assets much as they did a month earlier.

Just as in the August episode, tech got hit the hardest, with Nvidia Corp. driving a plunge in chipmakers. And the parallels don’t stop there. The yen jumped, a closely watched manufacturing gauge again missed forecasts, and oil plummeted on concern about tepid global demand. Wall Street’s “fear gauge” - the VIX - soared. Treasury yields tumbled, with traders keeping their bets on an unusually large half-point Federal Reserve rate cut this year.

The S&P 500 and the Nasdaq 100 saw their worst starts to a September since 2015 and 2002, respectively. With inflation expectations anchored, attention has shifted to the health of the economy as signs of weakness could speed up policy easing. While rate cuts tend to bode well for equities, that’s not usually the case when the Fed is rushing to prevent a recession. 

Traders are anticipating the Fed will reduce rates by more than two full percentage points over the next 12 months — the steepest drop outside of a downturn since the 1980s. The trepidation after the latest rise in unemployment will leave traders “on edge” until Friday’s payrolls data, said Ian Lyngen and Vail Hartman at BMO Capital Markets.

“This week’s jobs report, while not the sole determinant, will likely be a key factor in the Fed’s decision between a 25 or 50 basis-point cut,” said Jason Pride and Michael Reynolds at Glenmede. “Even modest signals in this week’s jobs report could be a key decision point as to whether the Fed takes a more cautious or aggressive approach.”

The S&P 500 dropped to around 5,530. The Nasdaq 100 and the Russell 2000 each lost over 3%. The Dow Jones Industrial Average fell 1.5%. The $22 billion VanEck Semiconductor ETF saw its biggest plunge since March 2020. Nvidia tumbled 9.5%, erasing $279 billion in a record one-day wipeout for a US stock. The US Justice Department sent subpoenas to Nvidia and other companies as it seeks evidence that the chipmaker violated antitrust laws.

US 10-year yields fell seven basis points to 3.84%. A record number of blue-chip firms tapped the corporate-bond market, taking advantage of cheaper borrowing. The yen climbed as Bank of Japan’s Kazuo Ueda reiterated the central bank will continue to raise rates if the economy and prices perform as expected.

The Morgan Stanley strategist who foresaw last month’s market correction says firms that have lagged the rally in US stocks could get a boost if Friday’s jobs data provide evidence of a resilient economy. A stronger-than-expected payrolls number would likely give investors “greater confidence that growth risks have subsided,” Michael Wilson wrote.

The equity-market rally may stall near record highs even if the Fed starts a highly anticipated rate-cutting cycle, JPMorgan Chase & Co. strategists said earlier this week. The team led by Mislav Matejka noted that any policy easing would be in response to slowing growth, making it a “reactive” reduction.”

“We are not out of the woods yet,” Matejka wrote in a note, reiterating his preference for defensive sectors against the backdrop of a pullback in bond yields. “Sentiment and positioning indicators look far from attractive, political and geopolitical uncertainty is elevated, and seasonals are more challenging again in September.”

September has been the biggest percentage loser for the S&P 500 since 1950, according to the Stock Trader’s Almanac. A contrarian sentiment gauge from Bank of America Corp. rose to its highest level in nearly two and a half years last month — creeping closer to a “sell” signal for US stocks.

To Callie Cox at Ritholtz Wealth Management, aside from the macro picture, there’s also the fact that we’re entering what’s often a “miserable time” of the year for equities.

“While history isn’t gospel, it’s not crazy to think that this September could be especially volatile,” Cox noted. “But this isn’t the conclusion to draw from decades of seasonal market data. Instead, your attention should be on why this is a “buyable dip, because there are a lot of reasons to be optimistic here.”

Among those, she cited: earnings growth, the Fed about to start easing policy against the backdrop of controlled inflation and the fact that investors are sitting on a massive pile of cash “that could make its way back into stocks.”

“A key lesson from the last few weeks is that big-tech stocks have not proven defensive during the recent market pullbacks,” said Philip Straehl at Morningstar Wealth. “While there is little evidence of a slowdown in AI spending, valuations have set a high bar for incoming corporate and macro data.”

Rich Ross at Evercore says the S&P 500 has had at least a 5% drawdown from the August/September highs in nine of the last 10 years.

“This year should be no different after the late August squeeze into resistance at an all-time high,” Ross noted. “The S&P has a strong downside bias buttressed only by a bent towards ‘low volatility’ defensives and financials — which benefit from lower rates and steeper curves.”

As investors navigate through the historically weak September, Anthony Saglimbene at Ameriprise remarked the October-December period is the S&P 500’s strongest three-month stretch.

“In our view, investors should remain focused on using volatility to their advantage,” Saglimbene said. “Importantly, lean on time-tested dollar-cost averaging strategies and portfolio diversification to weather a potentially bumpier push into year end.”

Marking the start of a busy week for economic data, a report showed US manufacturing activity shrank in August for a fifth month. 

This coming Friday, the August jobs report is expected to show payrolls in the world’s largest economy increased by about 165,000, based on the median estimate in a Bloomberg survey of economists. 

While above the modest 114,000 gain in July, average payrolls growth over the most recent three months would ease to a little more than 150,000 — the smallest since the start of 2021. The jobless rate probably edged down in August, to 4.2% from 4.3%.

While the Fed is finally coming around to cutting rates, it does not feel like stringing out a bunch of 25 basis-point rate cuts will do the job, said Neil Dutta at Renaissance Macro Research. Under that scenario, it will take a long time to return the funds rate to neutral and in the process, you’ll keep policy restrictive, keeping open downside risks to growth.

“That muddling through scenario will probably risk further increases in the unemployment rate. So, if they aren’t going 50 in September, they are going to need to go 50 at some point later this year,” he concluded.

Source: Theedgemarkets

Additional takeaways from the Australian GDP data

Subdued household demand detracted 0.1% from GDP growth.

Government consumption added 0.3%.

Domestic final demand contributed 0.2%.

Household consumption was weak due to reduced discretionary spending.

Investment did not contribute to growth, as net transfers of second-hand assets resulted in a detraction from total private investment (-0.1%) and was offset in public investment (+0.1%).

Net trade contributed 0.2% percentage points to GDP, with a rise in exports (0.5%) and a fall in imports (-0.2%).

Inventory change detracted 0.3% from GDP, with a smaller build-up in inventories compared to the March quarter.

household savings rate was unchanged at 0.6% of household income.

GDP Chain Price Index -0.9% (prior +0.8%).

Source: FXSTREET