US dollar highlights:
USD gaining momentum after odds are decreasing that the Federal Reserve will cut rates by 50bps next week. Instead, markets are expecting a 25bps rate cut during the next FOMC meeting on July 30-31. June Durable goods orders increased by 2.0% (versus 0.7% gain expected) and Initial Jobless Claims for last week was 206K (lower than expected 219K). Markets will focus on the Q2 GDP Growth Rate today (expecting 1.8% improvement). Meanwhile, more volatility is expected next week as trade talks with China resume (in Beijing) and the Fed rate cut (already priced in). The Fed is under pressure as the factory-sector slowdown increases.
Canadian dollar highlights:
CAD support due to higher crude oil prices while political tensions escalate in the Middle East. The International Energy Agency also reported that U.S. crude oil inventories decreased by 10.84 million barrels last week. Meanwhile, average weekly earnings increased 3.4 yearly in May (the largest gain since February 2018 and previously revised to 2.6% in April).
EUR reached a 2-year low after the European Central Bank kept Interest Rates on hold at 0% (as expected); however, forward guidance was changed, and they expect rates to remain “at their present or lower levels” at least through the first half of 2020. More quantitative easing preparations are being considered and the central bank also “tasked the relevant Eurosystem Committees with examining options”. In addition, the central bank will act if inflation continues below the 2% target. These dovish statements will keep EUR vulnerable and defensive. In addition, Germany’s economy continues to slow as business sentiment and industrial production have been affected by the global trade slowdown.
British pound highlights:
GBP defensive after new Prime Minister Boris Johnson appointed Dominic Raab as foreign secretary and Jacob Rees-Mogg as leader of the House of Commons (previously head of the European Research Group). Johnson also appointed Dominic Cummings as a senior advisor (who may organize Johnson’s election campaign and the leader of the Vote Leave campaign). Markets view these appointments as supporting a hard Brexit by October 31. Johnson said that the European Union has every reason to want to compromise on Brexit.