US AM Digest: GBP Talked up by Carney, Trade Concession Hopes Buoy Stocks

2018-07-05 13:25:00

US Market Snapshot via IG: DJIA 0.4%, Nasdaq 100 0.6%, S&P 500 0.4%

Major Headlines

US Proposes to Stop Threats of EU Auto Tariffs
US ADP Misses Expectations for a 4th Straight Month
Trump Slams OPEC Again to Bring Down Oil Prices

USD: The USD is on the backfoot ahead of tomorrow’s tariff implementation on $34bln worth of Chinese goods, retaliation from China will likely follow, which continues to weigh on the greenback. Elsewhere, ahead of the NFP report, today ADP Employment Change figure underwhelmed expectations for a 4th consecutive month, subsequently adding to the pressure on the USD.

GBP: Upbeat comments from BoE Governor Carney has lifted the Pound this morning, alongside market expectations for an August rate hike, which now sits at 63%. Given the recent improvement in macro data, this has led the Governor to believe that weakness in Q1 had been due to temporary weather-related effects, as such, Carney has signalled his desire to raise rates in August. However, data remains key and will ultimately cement whether the BoE will hike in August. But for, GBPUSD has based out at around 1.3050, next move is for 1.3350-1.34 to be tested provided Brexit uncertainties ease, which in the event it does not eyes will be on 1.3100.

EUR: Initial resistance above 1.17 has been breached with the Euro finding support after ECB source reports that some members view a rate at the end of 2019 as too late, which is not anything new given that the ECB have suggested that the first live meeting is September 2019. Nonetheless, EURUSD has found some support with the pair eyeing next resistance at 1.1725.

Auto Names: Global auto names are trading at their best levels, with the DAX among the notable beneficiaries given that Daimler, BMW and Volkswagen make up 12.5% of the index. This came after reports that the US proposed to suspend EU auto tariff threats if levies are reduced. As such, a potential of trade concessions has improved risk sentiment.

DailyFX Economic Calendar: Thursday, July 5, 2018 – North American Releases

DailyWebinar Calendar: Thursday, July 5, 2018

IG Client Sentiment: GBPUSD Chart of the Day

GBPUSD: Retail trader data shows 69.2% of traders are net-long with the ratio of traders long to short at 2.24 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.4131; price has moved 6.3% lower since then. The number of traders net-long is 1.0% higher than yesterday and 5.2% lower from last week, while the number of traders net-short is 4.6% higher than yesterday and 6.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse higher despite the fact traders remain net-long.

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