The Dow Jones Industrial Average continued its impressive winning streak, marking the longest rally since February 2017, with an 11th consecutive day of gains. The 30-stock Dow rose 0.52%, reaching 35,411.24 points, supported by a 0.40% rise in the S&P 500 and a 0.19% gain in the Nasdaq Composite. Energy stocks led the upward trend, particularly with a 1.7% surge in the S&P 500’s energy sector following positive oil and gasoline futures. Notably, Chevron’s nearly 2% increase came after the company reported better-than-expected preliminary second-quarter earnings. However, market participants remain cautious as the upcoming week includes significant earnings reports from approximately 150 S&P 500 companies and the Federal Reserve’s policy decision. Traders are eager to gauge Chair Jerome Powell’s remarks to understand the central bank’s approach to the economy’s soft landing and the potential quarter-percentage-point rate increase anticipated at the meeting’s conclusion on Wednesday.
Investors are closely monitoring the potential impact of the earnings reports and the Fed’s policy decision on the recent bullish run. The upcoming week is marked by substantial earnings releases from major companies, including Alphabet, Microsoft, and Meta, as well as industrial firms and big oil. Furthermore, traders are eagerly awaiting the release of the personal consumption expenditures index, the Fed’s preferred inflation gauge, at the end of the week. As these critical events unfold, Wall Street remains on the lookout for any signs of market volatility and potential shifts in economic sentiment.
On Monday, the overall market showed positive performance, with all sectors gaining 0.40%. The energy sector led the way with a notable increase of 1.66%, followed closely by financials and real estate, which rose by 1.01% and 1.00%, respectively. Consumer discretionary stocks also performed well, posting a gain of 0.52%. Communication services and consumer staples sectors saw modest growth with increases of 0.46% and 0.38%, respectively. Materials and information technology sectors showed moderate gains of 0.31% and 0.26%. However, the health care sector experienced a slight decline of 0.23%, while utilities had a marginal decrease of 0.28% on Monday.
Major Pair Movement
The dollar index strengthened by 0.26% as both the euro and sterling faced losses due to disappointing flash euro zone and UK PMI data. This rise in the dollar index was partially offset by a 0.25% drop in USD/JPY, which followed steady Japan PMI figures. Market participants were closely monitoring the upcoming meetings of major central banks, including the Federal Reserve, the European Central Bank (ECB), and the Bank of Japan (BoJ), all scheduled later in the week.
The dollar’s resilience was supported by a rebound in Treasury yields, which had initially fallen in response to lower European yields and mixed U.S. PMI data. However, the retreat in yields was short-lived, bolstered by increased corporate supply and expectations surrounding this week’s 2, 5, and 7-year Treasury auctions. The future direction of Treasury yields and the dollar hinges largely on the statements issued by the Federal Reserve after the expected 25 basis point rate hike on Wednesday. Market sentiment remains uncertain, given broader indications of a cooling U.S. economy and lower inflation, which may potentially favor rate cuts in the coming year.
During this period of central bank activity, investors were also closely monitoring the impact of Russian attacks on Ukraine ports, which contributed to a surge in wheat prices, and the ongoing recovery in fuel prices. Additionally, traders kept a keen eye on other crucial economic indicators such as German Ifo data and U.S. consumer confidence. The ECB is expected to implement a 25 basis point rate hike on Wednesday, with further increases largely priced in by year-end. Consequently, the euro experienced a decline of 0.49%, while sterling also faced a 0.23% drop, as the Bank of England (BoE) is likely to pursue a 25 basis point rate hike in August, followed by additional hikes to tackle higher inflation in the UK. USD/JPY experienced fluctuations in line with Treasury yields, fueled by lingering hopes that the BoJ would raise its JGB yield cap on Friday. Moreover, Japanese government efforts to limit yen depreciation, which contribute to cost-push inflation rather than demand-pull inflation, also influenced the currency pair’s movements.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Extends Decline as Eurozone PMIs Miss Expectations Ahead of Central Bank Meetings
The EUR/USD currency pair continued its downward trajectory, marking its fifth consecutive day of losses and reaching its lowest daily close since July 12. The euro’s correction lower follows its earlier peak at around 1.1300, which was the highest level in over a year. Economic data from the Eurozone, particularly the disappointing Manufacturing PMI at 42.7 and Services PMI at 51.1 in June, along with a Composite Index of 48.9, the lowest since November, raised concerns about the region’s economic strength and potential recession risks. Despite this backdrop of economic weakness, the European Central Bank (ECB) is still anticipated to implement a 25 basis point interest rate hike on Thursday, with the market closely watching the bank’s messaging for further cues.
As market participants positioned themselves for the Federal Reserve’s decision, US Treasury yields experienced a slight increase. The Fed is expected to raise its key rate by 25 basis points on Wednesday, making the central bank’s statements crucial for the direction of the US Dollar and financial markets overall. The US PMI data showed mixed results, with the Services PMI falling to 52.4 in July, below the expected 54, while the Manufacturing PMI rebounded to 49, exceeding the market consensus of 46.4. Amidst these developments, the DXY (Dollar Index) continued to rise, exerting downward pressure on the EUR/USD pair. Though some stabilization may occur prior to the Fed meeting, increased volatility is expected in the coming sessions. Key events to monitor include the German IFO survey and US housing data on Tuesday.
According to technical analysis, the EUR/USD pair is moving lower on Monday creating a push to the lower band of the Bollinger Band and creating a wider gap between the bands. The Relative Strength Index (RSI) is currently at 31, suggesting that the EUR/USD pair has the potential of moving lower.
Resistance: 1.1121, 1.1208
Support: 1.1022, 1.0950
XAU/USD (4 Hours)
XAU/USD Under Mild Pressure as US Dollar Gains Favor Amid Encouraging Data
Gold started the week facing mild pressure and remained at the lower end of the previous week’s range, with XAU/USD trading below $1,960 per troy ounce. The US Dollar saw some market favor after mixed yet encouraging data from the United States. S&P Global’s preliminary estimates of the July Purchasing Managers’ Index (PMI) showed a higher-than-expected increase in the Manufacturing PMI, reaching 49, its highest level in three months. However, the Services PMI, though still in expansionary territory, slowed to 52.4 from the previous 54.4. Despite this, US companies indicated continued business activity growth in July, with the service sector leading the expansion. Wall Street remained resilient, disregarding negative cues from international markets, as investors focused on upcoming earnings reports and significant events, including decisions on monetary policy from the US Federal Reserve and the European Central Bank. Furthermore, crucial economic indicators such as the preliminary Q2 Gross Domestic Product (GDP) estimate and the June Personal Consumption Expenditures (PCE) Price Index were also anticipated.
According to technical analysis, the XAU/USD pair moved lower on Monday but then managed to move back higher and try to reach the middle band of the Bollinger Bands. Currently, the price is slightly below the middle band. Additionally, the Relative Strength Index (RSI) is at 48, suggesting that the XAU/USD pair has returned to a neutral stance.
