Market Drivers – US Session – Thursday, July 7

Mohamed Abdelhamid 8 July, 2022 5:01 am Forex Market, Market Update

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, bounced off the lowest levels since September 2021 by the end of Thursday’s North American session. The inflation gauge recently flashed the 2.33% mark, reversing from the previous day’s multi-month low of 2.29%.

The recently improved inflation expectations fail to defy the recession fears signaled by the inversion of the 2-year and the 10-year Treasury yield curve.

US Dollar Index bulls take a breather around the 20-year high as the quote extends the previous day’s pullback to attack 107.00 during Friday’s Asian session. in doing so, the US dollar gauge versus the six major currencies portrays the market’s consolidation ahead of the key US employment data for June.

The US Treasury yields regain upside momentum and the Wall Street benchmarks closed with gains. However, the S&P 500 Futures print mild losses by the press time.

Given the market’s recent shift, the DXY traders should remain cautious ahead of the US jobs report. As per the expectations, the forecast suggest that the headlines Nonfarm Payrolls (NFP) will post the lowest monthly increase in jobs since April last year, by easing to 268K from 390K for June while the Unemployment Rate is likely to stay unchanged at 3.6% for the said month.

In addition to the pre-NFP paring of the DXY gains, the market players also benefit from the recent improvement in the risk appetite and drag the US dollar down. That said, repeated comments from the major central bankers and efforts to tame recession fears join headlines from China to help improve the mood.

Economic Data

Mixed data from the US also weighed on the DXY as US Initial Jobless Claims rose by 4,000 to 235,000 in the week ending July 2, versus 230,000 expected. With this, the 4-week moving average number was 232,500, up 750 from the previous week’s average.

The US goods and services deficit narrowed by $1.1 billion to $85.5 billion in May, marking the smallest monthly deficit in 2022.

Canadian economic activity expanded at its slowest pace in four months in June as prices cooled, Ivey Purchasing Managers Index (PMI) data showed on Thursday.

The seasonally adjusted index fell to 62.2 from 72.0 in May, its lowest level since February. The Ivey PMI measures the month-to-month variation in economic activity as indicated by a panel of purchasing managers from across Canada. A reading above 50 indicates an increase in activity.

Other Developments

Among the Fed speakers, CEO of the Federal Reserve Bank of St. Louis, James Bullard stated, per Reuters, “We’ve got a good chance at a soft landing.” Additionally, Federal Reserve Governor Christopher Waller said inflation is way too high and does not seem to be easing and the Fed has to apply a more restrictive policy.

China is up for $220 billion of stimulus with unprecedented bond sales, per Bloomberg. On the same line was news that diplomats from the US and China are up for meeting personally after the latest virtual meeting cited progress in trade talks. With this, Beijing is optimistic that it can help ease the US its inflation problem by solving the supply-chain riddle, the same gained fewer accolades from the experts though.

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