It was surprisingly a busy weekend as Spain delivered a close national election, Barbie showed us the economy is still partying, Chevron reported impressive earnings, and as expectations turn downbeat for China to deliver significant stimulus this week.
Despite all the headlines, overnight both S&P 500 futures and the dollar were mostly little changed until the release of the flash PMIs.
EUR/USD tumbles after weak eurozone PMI data
The euro declined below the 1.1120 level against the dollar after European PMI data disappointed across the board. It didn’t matter if you looked at eurozone manufacturing or service data, it was all ugly. One of the reasons why the euro didn’t fall further has been the recent string of optimism being reflected by European firms. Despite all the complicated macro backdrop and disappointing Chinese recovery, so far most EU companies aren’t too overly downbeat with the outlook.
Sterling softened too but not as much as the services PMI remained in expansion territory and as manufacturing activity only fell a point more than forecast.
The US dollar held onto its gains against both the euro and the pound after the US flash PMI showed the world’s largest economy is hanging in there. The service sector softened more than expected, but manufacturing surprisingly rebounded almost back to expansion territory. A global slowdown is clearly not here, but expectations remain for the US economy to gradually weaken. Until we see the labor market weaken significantly, that should keep the risk of more Fed tightening on the table beyond this week.
The potential bearish butterfly reversal pattern that was identified last week is still intact. If EUR/USD bearish momentum remains, key support might target the 1.1025 level. Given this is a massive macro week, price might enter its pre-central bank trading ranges, which could see consolidation between 1.1050 and 1.1150.
Heading into this week, macro traders are expecting the Fed to signal that the downtrend with core inflation could support a one-and-done approach by the Fed, or at least a very long pause. Given how risk appetite has been fairly intact for US equities, it seems traders are counting on a rather dovish monetary stance by the Fed.
The BOJ will be interesting as the majority of analysts expect no major shifts, but a slight upgrade with their price forecasts. Hours before the BOJ decision, the Tokyo inflation report is expected to show core pricing pressures softened to the lowest levels seen since last summer. However, if the Fed decision ends up not being as dovish as expected and if Tokyo’s inflation report comes in hot, BOJ Governor Ueda might decide a tweak in Yield Curve Control is warranted. Ueda has been careful in signaling that more stimulus is needed, but a tweak could be justified on Friday.
Crypto – Bitcoin breaks below $29.5k
Bitcoin’s consolidating trading has seen price action reside closer to the lower boundaries as volatility disappears. Short-term support from the $29,500 level broke this early this morning and if bearish momentum builds, key support could target the $27,500 region. The crypto news flow has been uninspiring, with many traders focusing on OPENAI’s Sam Altman’s Worldcoin crypto project. It will take a fresh catalyst to excite Bitcoin traders and right now it seems the price action is destined for a broadening formation, potentially targeting the $27,500 and $31,500 zone.
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