The dollar index - which measures the U.S. dollar's strength against a basket of six influential currencies such as the euro, recovered from the early session's lows. The dollar index dropped during the late North American session following a surprising move by the rating agency Fitch's downgrade of the US credit rating to AA+ from AAA. Fitch Ratings is considered one of the three largest organizations in the credit rating space. Meanwhile, the US Treasury Secretary, Janet Yellen, disagreed with Fitch's downgrade. She said the move by Fitch was based on outdated data, noting the U.S. economy has rapidly recovered from the pandemic recession.
However, the dollar downside sentiment remained limited due to expectations of another 25-basis points rate hike by the Federal Reserve (Fed) in September. Fundamentally the king dollar is expected to be extra volatile in the rest of the week due to a busy economic calendar and all eyes remain on Friday’s US NFP data. The NFP data might influence the Federal Reserve’s decision on whether to act more aggressively.
Bears take control of global stock markets today, European and UK stocks opened slightly lower on Wednesday; the fall followed a pummelling Asian session session for Asian stocks and US stock futures. Wall Street came under pressure following a surprising move by rating agency Fitch, which downgraded the US government's top credit rating by one notch.
On the earnings front, PayPal, Shopify, CVS Health and Qualcomm are amongst those reporting the last quarter's financial results today.
Crude oil futures extend the recent gains after the release of the API crude inventory report. The API data showed the US crude inventories declined by 15.4 million barrels last week. The latest figure far exceeded market expectations for a 1.37-million-barrel draw. Today the attention now turns to the EIA weekly crude inventory report, which is set to be released later today.
In the currency market, pressured by the broad-based dollar strength, EURUSD lost its traction and dropped back to below 1.0970. In the absence of high-tier macroeconomic data releases, risk perception could drive the pair's action in the second half of the day. On the other hand, the Australian dollar remains the clear outperformer in the currency space during the early European session against the US dollar and other currency pairs.
The safe haven metal rebounded back to above $1950. The upside momentum was boosted after Fitch downgraded the US’s credit rating and the Atlanta Federal Reserve Bank President Raphael Bostic ruled out the need for a September rate hike but warned of the risk of over-tightening. Moving ahead to the North American session, gold traders and investors should closely monitor the release of the US ADP report on private-sector employment. US ADP Employment Change for July is expected at 189K compared to the previous 497K.
On the data front, U.S. ISM Manufacturing PMI accelerated in July but was lower than expected. ISM Manufacturing PMI advanced to 46.4 from 46 in July. This reading came in worse than the market expectation of 46.8. US JOLTS job openings come in at 9.58 million for June, showing a slight slowdown in demand for jobs.
Moving ahead today, the important events to watch:
US – ADP employment report: GMT – 12:15
US – EIA crude inventories: GMT – 14:30
Technical Outlook and Review
EURUSD: The currency pair retreats back to below 1.0980. On the downside, 1.0950 is the key support level, a breakdown through 1.0950 would negate that bias and suggest a test of the 1.0930/20 support regions. On the upper side, the Bulls need to see a confirmed break above 1.1050.
The important levels to watch for today: Support- 1.0950 and 1.0930 Resistance- 1.1020 and 1.1050.
GOLD: The metal slightly recovered from the early losses and moved back to 1950 after it found support buyers near a lower channel trend line. For today, 1940 remains the key support area to watch. On the flip side, if the metal breaks above 1956 it would open doors towards the next resistance area of 1962/64.
The important levels to watch for today: Support- 1945 and 1940 Resistance- 1956 and 1964.
Quote of the day – Are you willing to lose money on a trade? If not, then don’t take it. You can only win if you’re not afraid to lose. And you can only do that if you truly accept the risks in front of you. –Sami Abusaad