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Check out the brand new DailyFX trading forecasts for Q3

MARKET DEVELOPMENTS – USD FIRMS AHEAD OF FOMC RATE DECISION

US equity futures trading in mixed fashion with the Nasdaq 100 (+0.3%) supported by strong earnings from Apple after market, while the DJIA (-0.1%) is the laggard amid a step up in the trade dispute between China and the US. Latest reports stated that the US were looking at 25% tariffs as opposed to 10% tariffs on $200bln worth of Chinese goods.

USD: The greenback is trading with marginal gains ahead of today’s FOMC rate decision (Preview). The meeting itself is unlikely to provide much in the way of fireworks with no press conference or forecasts. As such, risk premiums are muted with around a 50pip break-even in USDJPY. ADP report had surpassed expectations at 219k (Exp. 185k), however a minimal reaction was observed in the USD.

NZD/AUD: The New Zealand Dollar is among the worst performers amid the disappointment in labour market data, whereby the unemployment rate had missed expectations, while a larger miss was seen in the wage data. Consequently, the weakness in the Kiwi also weighed on the Aussie, while the latter had also been hampered by the continued softness in the Chinese Yuan, coupled with the intensifying US-China trade dispute. Alongside this, China's manufacturing sector grew at the slowest pace since November 2017 as export orders declined yet again in sign of a worsening outlook for the Chinese economy

GBP: UK Manufacturing PMI slipped to a 3-month low at 54 in July, also missing expectations of 54.2. This was also coupled with a downward revision to 54.3 from 54.4 for the prior months reading. GBP and the FTSE 100 saw a very muted reaction to the soft report, given that this is a final reading, while this is unlikely to alter the BoE’s decision tomorrow.

Crude Oil: Brent and WTI crude futures are down over 1% breaking below $74 and $68 respectively. One of the reasons for soft oil prices was due to yesterday’s API crude oil inventory report, which showed a surprise build in crude stocks of 5.6mbpd vs. Exp. -2.8mbpd. Consequently, this provides an indication as to how the DoE crude oil inventory report may take shape, which is scheduled for release at 1430GMT.

DailyFX Economic Calendar: Wednesday, August 1, 2018 – North American Releases

USD Firms Ahead of FOMC, AUD and NZD Slide on China Woes - US Market Open

DailyFX Webinar Calendar: Wednesday, August 1, 2018

USD Firms Ahead of FOMC, AUD and NZD Slide on China Woes - US Market Open

IG Client Sentiment Index: NZDUSD Chart of the Day

USD Firms Ahead of FOMC, AUD and NZD Slide on China Woes - US Market Open

NZDUSD: Data shows 68.2% of traders are net-long with the ratio of traders long to short at 2.15 to 1. In fact, traders have remained net-long since Apr 22 when NZDUSD traded near 0.7276; price has moved 6.5% lower since then. The number of traders net-long is 4.6% higher than yesterday and 10.4% lower from last week, while the number of traders net-short is 11.3% lower than yesterday and 20.6% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger NZDUSD-bearish contrarian trading bias

Five Things Traders are Reading

  1. Preview for August FOMC Meeting and Outlook for US Dollarby Christopher Vecchio, CFA, Sr. Currency Strategist
  2. Bitcoin, Ether, Ripple Analysis - Support Needs to Hold | Webinar” by Nick Cawley, Market Analyst
  3. Crude Oil Analysis: API and Intensifying Trade War Weigh on Oil Pricesby Justin McQueen, Market Analyst
  4. Trading Outlook for USD Index, USD/CAD, GBP/USD, Gold Price & Moreby Paul Robinson, Market Analyst
  5. EURUSD Analysis: Euro Struggling to Break Higher, FOMC Loomsby Nick Cawley, Market Analyst

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX