Market Drivers – US Session, August 2

US equities dropped on Wednesday following Fitch Ratings’ downgrade of the US government credit rating late on Tuesday. The Dow Jones lost 0.98%, and the Nasdaq plummeted 2.17%. US yields peaked after the release of US data and then pulled back, with the 10-year settling around 4.07% and the 2-year at 4.88%. Market participants will digest earnings results from Apple, Amazon, ConocoPhillips, Airbnb, among others on Thursday.

Economic Data

While on Tuesday, the decline in job openings showed signs of easing, the ADP private employment report came in stronger than expected and above the average of the last 12 months, with private employment rising by 324K, surpassing expectations of 189K.

Key Developments

The combination of risk aversion and soft US data boosted the Greenback. The US Dollar Index (DXY) climbed to 102.80, reaching the highest level since July 7. More US employment data is due on Thursday with jobless claims and unit labor cost. Also due is the Factory Orders report. All of this takes place ahead of Friday’s Nonfarm Payrolls (NFP). Early on Thursday, the Chinese Caixin Service PMI will be released.

EUR/USD posted its lowest close in almost four weeks after breaking an uptrend line. It remains under pressure below 1.0960, with the next support level at 1.0900. On Thursday, the final Eurozone PMIs are due, as well as the June Producer Price Index.

GBP/USD dropped for the third consecutive day and tested levels below 1.2700 on the back of a stronger US dollar. The Bank of England (BoE) will announce its monetary policy decision on Thursday, with a rate hike expected.

USD/JPY bounced all the way back from 142.30 to the 143.50 zone. The initial reaction to the US credit downgrade was offset by US jobs data, also helped by higher Treasury yields.

AUD/USD dropped below 0.6600 and accelerated to the downside, closing at 0.6540, the lowest since early June. Risk aversion, lower commodity prices, and the strong US Dollar offer a negative context for the Aussie. The bias is to the downside. Australia will report trade data and retail sales on Thursday.

NZD/USD fell below 0.6100 to 0.6068, a one-month low. Soft employment data from New Zealand supported expectations that the Reserve Bank of New Zealand (RBNZ) has ended its tightening cycle.

USD/CAD edged further higher to the 1.3350 zone and is looking at the June high at 1.3386. The Canadian Dollar hit monthly highs versus the Aussie and the Kiwi.

Crude oil prices ended a positive streak with a 2% slide. The WTI barrel pulled back under $80.00. Cryptocurrencies fell moderately, with Bitcoin at $29,130 and Ethereum at $1,840. Litecoin tumbled 5.85%.

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