Originally published by AxiTrader
Equities
Global equity markets came under pressure overnight. The Dow Jones finished the trading day with a loss of 0.75 percent, while the S&P 500 declined 0.90 percent. In Europe, there was a sea of red across markets as well. The German DAX fell back below 12.400 points and closed the day 0.60 percent lower. Investors in Asia will likely show greater risk aversion as well. Today's US employment data release is another important factor. Few traders want to take big risks ahead of that event.
What has been pushing stocks lower? Geopolitical tensions are one reason. US President Trump vowed today to confront North Korea "very strongly" after it conducted another missile test.
In Europe, there has been fear of the end of the “easy money”. The ECB surprised investors recently with an increasingly optimistic outlook. A rate hike is not something that will occur soon in the Euro Zone, but the central bank could signal a turn in its monetary policy in the near future. Further, the strong euro is also weighing on European stock markets. That is especially the case in Germany, where the economy relies a lot on exports.
The G20 meeting in Germany could also be interesting for markets. Trump criticized Germany for running a large trade surplus, and accused it of taking advantage of a weak euro (although the currency has appreciated quite a lot in the meanwhile). Investors will closely follow his comments. A more reserved Trump would be positive for the markets. Should he reiterate that the European trade partners are "taking advantage of the US", EU equities are likely to extend losses.
Australia
The S&P/ASX 200 closed the day with a loss of 0.10 percent at 5758 points. Bank stocks were the biggest drag on the ASX, and mining companies underperformed as well. Falling commodity prices and a general risk-off sentiment in markets kept the Australian dollar down. Overnight, it fell back below 0.76 USD and charts suggest that it will go for another test of 0.75 support.
Forex
Following a small rebound, the Greenback is again feeling the heat. The ADP nonfarm employment change figure for June arrived at 158k vs. 185k expected. While using the ADP data for predicting the NFP number hasn't really proved reliable, it added to the overall negative US dollar sentiment and traders seem to have lowered their expectations for tomorrow's data.
Wednesday's FOMC meeting minutes also weighed on the dollar. The members are increasingly split on the outlook for inflation, and there are still little details about the planned balance sheet reduction.
Unless US economic data starts to improve again, the short-term outlook for the US dollar is rather negative. Rate expectations have declined. The market is expecting only one more rate hike this year. More importantly, the Fed is no longer the only hawkish central bank amongst the developed economies.
This could be the main reason why the US dollar is getting less and less attractive. FX traders are not expecting any surprises from the Fed. A December rate hike is already priced in. Meanwhile, the optimism from the ECB, BoE and BoC was unexpected. While the ECB is far away from a rate hike, it could happen soon in the UK and Canada.
EUR/USD broke above a major resistance level at 1.1380 today, and the charts suggest that further gains are ahead. Should the currency pair clear the obstacle at 1.1450, an extension of the rally towards 1.16 seems quite likely.
GBP/USD rose overnight as well, but is struggling with resistance ahead of 1.30. On-going political uncertainty is likely to keep the Pound under pressure in the near-term, and should prevent any larger GBP rally.
Commodities
Oil prices collapsed after data showed an increase in US inventories. Support ahead of $45 held today, but is looking increasingly fragile. A daily close sub-$45 would be bearish and signal that WTI is likely to head back towards $42.
Meanwhile, gold is struggling, which is a bit surprising given the risk aversion and broad US dollar weakness at the moment. Perhaps Gold traders are waiting for the NFP figure. While the charts show mixed signals, sentiment and fundamentals point to a recovery towards $1250. If US data disappoints tomorrow, Gold is likely to gain momentum.