market relief

Trading in Asia overnight was mixed, as political tensions in the region remain tense in the wake of North Korea launching a missile yesterday – which turned out to be an intercontinental ballistic missile.

On top of that, the Caixin survey of Chinese services for June came in at 51.6, coming in wearker than the May reading of 52.8.

The European trading session yesterday experienced low volatility with the New York Stock Exchange (NYSE) closed, as the US celebrated the Fourth of July holiday.

The GBP/USD pair slipped in the past two sessions as subdued UK economic updates put pressure on the pound. After manufacturing and construction in the UK grew at a slower pace in June, the services PMI report will be released at 9.30am. The market is expecting a reading of 53.5, which would be a dip from May's 53.8. The service sector is by far the largest component of the British economy, and the Bank of England will want to see robust figures if it wants to consider tightening its monetary policy.

The US Federal Reserve will release the minutes from the June meeting at 7pm (UK time), and investors will get an insight into what the US central bank was thinking when it raised interest rates for the second time this year. The June rate hike was anticipated, but the comments about starting to reduce the size of the Fed’s balance this year came as a surprise.

Since then Janet Yellen, the chair of the Federal Reserve, announced there will be further monetary tightening, but that it will be ‘timely and predictable’. Fed member William Dudley said he won’t be taking his cues from US government bond yields when it comes to determining monetary policy. Patrick Harker foresees one more interest rate hike this year.

The US central bank don’t want companies or private individuals loading up on cheap credit, so it is in their interest to keep borrowers on their toes, and they have a track record of not being as hawkish as they are letting on. Since the June rate hike, the US dollar has lost ground to the euro and the pound, but made gains against the yen. Despite the broadly softer greenback, gold has been under pressure lately.

The oil resurgence continues, and the commodity has been aggressively moving higher over the past nine sessions. The tiny drop in the Baker Hughes rig count report, and the decline in production from the US last week gave bargain hunters added incentive. The price momentum is upward, but these dips in output are small in the grand scheme of things. Members of OPEC increased their output by 260,000 barrels per day. Nigeria and Libya, who are exempt from the production cut, made up for half the jump in output.

Forex snapshot

EUR/USD – 1.1300 is acting as support, and if it holds the resistance at 1.1400 and 1.1495 will be the next prices to watch. A drop back below 1.1300 could see it return to 1.1200.

GBP/USD – is receiving support at 1.2874 – the 50-day moving average. If the support holds, bulls will be looking to 1.2977, 1.3000 and 1.3047. A break below 1.2873 could bring the support at 1.2800 into play.

EUR/GBP – 0.8770 is providing support, and if the level holds the resistance at 0.8844 and 0.8880 will be the upside targets. A break below 0.8770 would bring the support at 0.8738 into play.

USD/JPY – is still above 113.00, and it is now acting as support, and bulls will be looking to the resistance at 114.36. A move below 113.00 will bring the 100-day moving average at 111.77 into play, and the next support level will be the 200-day moving average at 111.38.
 

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