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Summary The message from the June ISM report is that service activity is cooling rather than buckling. Business activity rose during the month and while new orders declined, the index remains above the 50-threshold designating expansion from contraction. Service-providers continue to contend with an array of supply issues, which are limiting capacity and keeping the heat turned up on prices. Source: Institute for Supply Management and Wells Fargo Economics Read the full report

FOMC will release the minutes of the June policy meeting on Wednesday, July 6. Markets have nearly fully priced in another 75 basis points rate hike in July. Investors will pay close attention to discussions around the September rate decision. The US Dollar Index (DXY), which tracks the greenback’s performance against a basket of six major currencies, surged above 106.00 and reached its highest level in nearly two decades on Tuesday. The widening policy divergence between the US Federal Reserve and other major central banks, especially the European Central Bank, continues to boost the dollar. Additionally, the currency capitalizes on safe-haven flows with investors growing increasingly worried about a global recession. The US Federal Reserve will release the minutes of its June meeting, at which it decided to hike the policy rate by 75 basis points (bps), on Wednesday, July 6.  Neutral scenario The CME Group FedWatch Tool shows that markets are pricing in a 93% probability of another 75 bps rate increase in July. Hence, it would be surprising to see a market reaction in case the Fed’s publication confirms such a policy move later in the month. Cleveland Fed President Loretta Mester, San Francisco Fed President Mary Daly… Read More »FOMC June Minutes Preview: Opportunity for dollar correction?

A combination of factors dragged EUR/USD to its lowest level since December 2002 on Tuesday. A further rise in gas prices fueled recession fears and weighed heavily on the shared currency. Aggressive USD buying also contributed to the selling bias and confirmed a fresh bearish break. The EUR/USD pair plunged to its weakest level since December 2002 on Tuesday, and the steep intraday decline was sponsored by a combination of factors. The shared currency was pressured by a big jump in natural gas prices, which could drag the Eurozone economy faster and deeper into recession. Moreover, the risk of gas shortages that could disrupt industrial activity across the region if Russia cuts off supplies forced investors to trim ECB tightening bets. This comes on the back of German Bundesbank chief Joachim Nagel's caution on Monday against the use of the anti-fragmentation tool to shield highly indebted countries from surging borrowing rates. Apart from this, a blowout US dollar rally further contributed to the pair's overnight slump. The Federal Reserve’s non-stop chatter about rate hikes to curb soaring inflation continued lending support to the USD. Apart from this, the prevalent risk-off environment lifted the safe-haven buck to a fresh two-decade high.… Read More »EUR/USD Outlook: Bears now await hawkish FOMC minutes before the next leg down

A recession has started, but what will it look like? Nonfarm Payrolls and Employment Levels from BLS, chart by Mish Despite fantasy soft landing theories by the Fed, president Biden, and Treasury Secretary Janet Yellen, a Recession Has Clearly Started Some say it's too early to make the call and jobs are too strong. Others say it takes two quarters of negative GDP. However, it doesn't take two quarters of negative GDP. The NBER is the official arbiter of recessions and the committee looks at a variety of factors.  The NBER's definition emphasizes that a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. In our interpretation of this definition, we treat the three criteria—depth, diffusion, and duration—as somewhat interchangeable. That is, while each criterion needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another. For example, in the case of the February 2020 peak in economic activity, the committee concluded that the subsequent drop in activity had been so great and so widely diffused throughout the economy that, even if it proved to be quite brief, the downturn should… Read More »Expect a long but shallow recession with minimal job losses

While the calendar's second half of the year started last Friday, it will probably not begin in the markets until the upcoming US jobs data is released this Friday. It is worth sorting out where the US currency currently stands on the forex market. The Dollar Index has climbed to a 20-year high in the middle and at the end of June after a 12-month upward move. That's an impressive age for a currency market, but it still takes more than old age to change a direction. To assess the chances of a trend reversal in the USD, investors and traders should now pay closer attention to the labour market data and the Fed's reaction. Weak employment growth data could confirm the current level of the Dollar Index as unbreakable. However, we shall still have to wait for data assessments from the Fed to confirm this. However, another option is more likely. High inflation could stimulate the recovery of the labour market as more and more people will look for earning opportunities. This would pave the way for another 75-point key rate hike by the Fed in the second half of July, allowing interest rates to reach neutral levels in… Read More »NFP this week will test the Dollar’s year-long trend

EUR/USD – 1.0432 Despite euro's selloff to a 2-week bottom at 1.0367 in New York Friday, subsequent strong short-covering rise to 1.0462 in Europe yesterday suggests choppy trading above May's 5-year trough at 1.0350 would continue and range trading is seen before prospect of another fall but below 1.0350/60 needed to extend to 1.0320/30. On the upside, only a daily close above 1.0462 would risk stronger retracement towards 1.0488, break, 1.0505/10. Data to be released on Tuesday : New Zealand business confidence, Australia AIG construction index, services PMI, RBA interest rate decision, Japan Jibun Bank manufacturing PMI, China Caixin manufacturing PMI, France industrial output, SnP global services PMI, Italy SnP global services PMI, Germany SnP global services PMI, EU SnP global services PMI, UK SnP global services PMI. Canada building permits, US durables ex-defense, durable goods, factory orders and durables ex-transport.

Summary Total construction spending dropped 0.1% during May. Overall spending is now up 9.7% on a year-over-year basis through May. Residential spending, which posted a 0.2% gain in May, is up 18.7% over the past year. By contrast, nonresidential outlays which fell 0.6% over the month are up just 1.0% over the past year as of May. Read the full article

The second half has picked up where the first one left off, as stocks fall and the dollar rises. Stocks in the red as second half begins “The losses of the first half do not seem to have created any immediate desire to buy the dip it seems. An initial recovery for US markets from the lows of the morning has given way to more losses, and even the prospect of a long weekend in the US hasn’t tempted the dip buyers in. There is a growing unease about the summer, especially with a potentially very gloomy Q2 earnings season nearly upon us. It really does look like we have another big leg lower before this bear market is done.” Dollar nearly back at June highs “Given the pessimism that seems to prevail at present, it is hardly surprising that the dollar is enjoying fresh safe haven flows. Even without strong inflation the greenback has plenty to recommend it as thoughts turn to global recession, but the solidly of price rises means that the dollar’s appeal is as strong as it was at the beginning of the year.”

XAG/USD Spot silver broke through psychological $20 support for the first time in two years and hit the lowest since July 2020 on Friday. The metal remains under increased pressure for three months on global economic and geopolitical turmoil which threatens of further deterioration that could push many economies into recession, denting metal’s strong industrial exposure. Bearish techs on daily chart add to negative signals generated on break through pivotal supports at: $20.66 (50% retracement of $11.23/$30.10); 20.42 (200WMA) and psychological $20 level, though weekly close below $20 is needed to confirm and open way for extension towards target at $18.44 (Fibo 61.8%). Silver is also on track for the fifth straight weekly drop, with this week’s fall being the biggest since the third week of June 2021 and large bearish weekly candle is expected to heavily weigh on the action in coming sessions. Caution on oversold conditions on daily chart which signal possible price adjustment, with upticks to offer better opportunities to re-join bearish market. Res: 20.00; 20.42; 20.66; 20.93. Sup: 19.37; 19.00; 18.44; 17.75.

The upcoming stagflation might be less severe than in the 1970s. So is the Fed’s reaction, which could mean good news for gold. There are many terrifying statements you can hear from another person. One example is: “Honey, we need to talk!” Another is: “I’m from the government and I’m here to help.” However, the scariest English word, especially nowadays, is “stagflation.” Brrr! I’ve explained it many times, but let me remind you that stagflation is a combination of economic stagnation and high inflation. This is why it’s a nightmare for central bankers as they should ease monetary policy to stimulate the economy and simultaneously tighten it to curb inflation. Although we haven’t fallen into recession yet, the pace of GDP growth has slowed down recently. According to the World Bank’s report Global Economic Prospects from June 2022, “the global economy is in the midst of a sharp growth slowdown” and “growth over the next decade is expected to be considerably weaker than over the past two decades.” The U.S. growth is expected to slow to 2.5 percent in 2022, 1.2 percentage points lower than previously projected and 3.2 percentage points below growth in 2021. This is why more and… Read More »Stagflation with Powell could make gold happy