Morning brief for July 6

Morning brief for July 6

The US dollar suffered losses overnight following a bit divided FOMC meeting minutes which disappointed investors expecting confirmation of Janet Yellen’s hawkishness. There were several rather than just a few members who expressed their concerns that inflation rates might not pick up to the extent that it would justify a further normalization of monetary policy. Fed’s official failed to express an undivided opinion on when to start balance sheet run-off. Some wished it happened in August – September, others asked for deferral pointing out at easing financial conditions. A formal announcement will probably come at the Fed’s July meeting.

Mixed minutes didn’t result in an extreme USD depreciation, though. Traders remain focused on Friday’s labor market report with quite strong data (latest ISM report indicated that manufacturing jobs are currently on the rise). The euro stabilized against the USD. It holds firmly around 1.1340 for the third day now. In the past few sessions, we see some improvements in the Eurozone official data (upgraded German manufacturing and service sector activities, higher PMI indices (expect Italian PMI) and a rebound in retail sales). The positive data flow undoubtedly strengthened the currency’s resilience to the greenback’s assaults.

Today traders should focus on the ADP employment survey – a major pre-NFP report, and more importantly the ISM non-manufacturing survey. Also, we will receive the ECB account of the last monetary policy meeting at 2:30 pm MT time. We don’t expect it becomes a tailwind for the euro given the biased commentaries from various ECB’s officials. Most likely, it will show that not everyone in the central bank recognized the need to reduce monetary policy stimulus.

Aussie added a few points in the Asian session on the big Australian surplus announcement but failed to hold its gains and bounced back to 0.7600. But we cannot take the following dip for the start of the bearish reversal. Most likely it is a continuation of the post-RBA’s consolidation phase. AUD/USD will likely trade sideways within the range of 0.7535 – 0.7680 in the upcoming sessions.

USD/CAD moved higher in Tokyo morning as a drop in oil prices capped the recent Bank of Canada’s inspired rally of the Loonie. Brent and WTI futures fell following comments from Russia that it doesn’t want deeper production cuts. In today’s spotlight – Canada’s building permits and trade balance data coming at 3:30 pm MT time.

Sterling is trading at 1.2940 in the broad consolidation range of 1.2820 – 1.3030. A break of its upper border will allow the GBP to hit higher levels. But this might happen only if today’s economic data out of the US is below the market’s expectations. There are no UK releases scheduled for today. The focus will on tomorrow’s industrial production and trade balance reports that might disappoint traders given the lower PMI we got earlier.    

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