Midweek Market Insights: A Mixed Bag as Indices Tumble and the Dollar Strengthens
02 August 2023
Hello traders! As we step into Wednesday, the financial markets have thrown us quite a handful of significant moves and data points to dissect from Tuesday's action.
First and foremost, the spotlight was unmistakably on the indices. What we saw might be just a correction for now, and while some might be quick to term it a reversal, let's tread with caution. Only time will tell whether this is the beginning of a full-blown trend reversal or just a temporary blip. For now, all we can confirm is a bearish correction.
Shifting our gaze to the currency markets, the Australian dollar was undeniably the center of attention. The Reserve Bank of Australia's decision to hold rates steady at 4.1% was a curveball for many, leading to a pronounced drop in the Aussie dollar. It was noteworthy to see the New Zealand dollar, which often moves in tandem with its Australian counterpart, being dragged down, making it the second weakest currency for the day.
From the US, we had the ISM manufacturing PMIs which came in a tad softer than anticipated at 46.4, a hair below the forecasted 46.9. Today's data parade kicked off with the New Zealand employment numbers. While the unemployment rate saw a bump to 3.6%, the employment change provided a silver lining, registering a positive surprise at 1%.
For those keeping an eye on today's data slate, the ADP non-farm employment change from the US, projected to be 191,000, stands out as the main event.
In the FX corridors, the New Zealand and Australian dollars swapped places in the weaklings' category, with the Kiwi dollar leading the downturn. Contrasting this, the Japanese yen and the US dollar are flexing their muscles, gaining ground against their peers. As a result, the EURUSD is being nudged closer to its long-term uptrend line. Moreover, the NZDUSD's breach below its long-term uptrend line presents potential shorting opportunities for those with a bearish inclination.
Over to the equity arena, the bearish undertones seem set to spill over into Wednesday. The DAX, in particular, raises eyebrows. With what looks like a false breakout above 16350 points and the formation of a potential evening star pattern, traders should be bracing for a deeper bearish correction.
Rounding up with commodities, the dollar's recent vigor is taking the shine off precious metals. However, oil seems impervious to this, holding its ground commendably. Brent crude, in particular, seems to be setting its sights on the $88 per barrel mark, a crucial resistance that held firm for the better part of the first half of 2023.