Forex Fundamental News Facts for 3rd September, 2024

Forex Fundamental News Facts for 03rd September, 2024

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[Quick Facts]
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1. Asian Market Update.
2. The Oil market update over Houthis, who recently Hit Two Tankers In The Red Sea
3. Facts finding on Dollar behaviour for the upcoming US election.
4. Dollar Firm Ahead of Fundamental News.
5. A very cautious September.
6. Technical Analysis on some instruments.

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[News Details]
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1.Asian Market Update:

Asia-Pacific markets experienced a general decline on Tuesday as investors scrutinized South Korea’s inflation data for August. The country’s consumer price index (CPI) increased by 2% year-on-year, marking the lowest rise since March 2021. This was a decrease from July’s 2.6% and aligned with economists’ expectations from a Reuters poll. On a monthly basis, the CPI rose by 0.4%, slightly above the forecasted 0.3%.
In Japan, the Nikkei 225 saw a slight dip of 0.15% in afternoon trading, while the Topix index rose by 0.42%. South Korea’s Kospi index fell by 0.34%, and the Kosdaq index dropped by 0.66%. Australia’s S&P/ASX 200 also edged down by 0.16%.
Mainland China’s CSI 300 managed a slight gain as it attempted to recover from a seven-month low reached on Monday. Conversely, Hong Kong’s Hang Seng index declined by 0.37%.
In the U.S., markets were closed on Monday due to the Labor Day holiday. However, futures tied to major U.S. indexes showed a downward trend ahead of Tuesday’s session. The Dow Jones Industrial Average futures slipped by 57 points (0.14%), S&P 500 futures decreased by 0.12%, and Nasdaq-100 futures fell by 0.26%.

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2. The Oil market update over Houthis, who recently Hit Two Tankers In The Red Sea:

The Yemeni Houthis recently attacked two oil tankers in the Red Sea, one of which was Saudi-flagged. According to U.S. military sources, the targets included the Panama-flagged Blue Lagoon I and the Saudi-flagged Amjad. The Houthis claimed responsibility for the Blue Lagoon I attack but did not mention the Saudi vessel. The Blue Lagoon I was en route from Russia’s Ust Luga port, carrying Russian crude oil. Despite the attacks, both tankers sustained minimal damage and continued their journeys. The Saudi-flagged Amjad can hold up to 2 million barrels of crude, while the Blue Lagoon I has a capacity of 1 million barrels. The Joint Maritime Information Center noted that the Blue Lagoon I was targeted due to its company’s recent port calls in Israel. The U.S. Central Command condemned these actions as destabilizing to global commerce and hazardous to maritime ecosystems.

The Houthis have been attacking vessels in the Bab el Mandeb strait since last November, initially targeting Israeli ships and those of Israeli allies. Efforts by the U.S. and European allies to halt these attacks have so far been unsuccessful.

Brent crude oil prices have been under significant selling pressure, recently dropping to $77.21 per barrel. Although there has been a slight recovery, market sentiment remains bearish. Investors are reacting to OPEC data indicating that eight OPEC+ members plan to increase production by 180,000 barrels per day. This expected rise in supply, coupled with weakening demand from major economies, is casting a shadow over the oil market. A U.S. Department of Energy report highlighted a drop in oil consumption in June to levels not seen since the summer of 2020.
However, production issues in Libya, where the largest local oilfield has halted production due to state-imposed force majeure, are providing some support for oil prices. This disruption could pose supply challenges for major oil consumers and temporarily cushion the impact of broader negative trends.

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3. Facts finding on Dollar behaviour for the upcoming US election:

The outcome of U.S. elections can significantly influence stock markets, as investors react to potential changes in economic policies, regulatory landscapes, and fiscal priorities introduced by new administrations. From presidential races to congressional shifts, the political climate creates ripples that affect market behavior, often leading to volatility and strategic adjustments in investment portfolios. Understanding these dynamics is crucial for market participants seeking to navigate the uncertainties and opportunities that elections present.

Performance of U.S. Stocks and Bonds Pre-Election:
Historically, the S&P 500 has averaged a 7% rise during U.S. presidential election years since 1952. While a 7% gain is notable, it is significantly lower than the 17% average S&P 500 gain in the year prior to an election year and below the approximate 10% average annual total return for the S&P 500 in a typical year. In the bond market, returns are also strong. From 1976 to 2020, the Bloomberg US Aggregate Bond Index returned an average of 7% annually in election years, without posting a negative return in any election year during this period.

Presidential Election Cycle Theory:
The Presidential Election Cycle Theory, proposed by Stock Traders Almanac, suggests that stock performance follows a predictable pattern aligned with the four-year presidential term. According to the theory, the first two years tend to be the weakest for stocks as the president focuses on fulfilling their manifesto, but the market improves in the latter half of a term as the president seeks to initiate economic growth to secure re-election. However, recent history has challenged this notion. For instance, during Donald Trump’s presidency, the S&P 500 surged 19% in his first year and 29% in his third, contradicting the theory’s expectation of weaker initial years. Additionally, in each of President Barack Obama’s two terms, the first year saw the best annual performance, with the S&P 500 rallying 23% in 2009 and 30% in 2013. It’s important to note that corporate earnings, central bank policy, and macroeconomic shocks tend to play a very significant role in determining equity market performance, often much more so than the impact of elections.

Preference for Democrat or Republican Presidents:
Analysis from Allianz shows that U.S. equities perform better when Democratic presidents are in power. The U.S. equity market delivered a return of 13.8% in nominal terms under Democrats versus 8.9% under Republican presidents. When adjusted for inflation, real returns were 9.7% compared to 5.1%. However, it’s crucial to approach this information with caution. Macroeconomic events and factors beyond party control can significantly impact market performance. For instance, both Trump and Biden faced the unprecedented challenge of the COVID-19 pandemic, which caused major market disruptions regardless of their policies. This macro randomness can also be applied to more historic presidents. Republican Calvin Coolidge’s time in office saw exceptional equity returns during the mid-1920s, yet the Republicans also presided over the 1929 Wall Street crash under Herbert Hoover, who ended up with an annual average return of -27.19%. While it’s easy to pick out the most striking numbers and draw conclusions, each presidency has its own challenges, often not directly resulting from the President’s actions. To a large degree, markets react to events and what they see approaching in the distance. Often, investing in an index like the S&P 500 for a long period has historically been a successful strategy for generating long-term returns rather than trying to time politics and elections. Simply missing the best ten days of the S&P 500 from 1994-2023 would have resulted in a return 54% lower than being fully invested for the entire period. Missing the thirty best days would result in a return 83% lower than being fully invested over the period.

Impact of a United or Divided Government:
Contrary to the UK, which is a parliamentary democracy with a fusion of legislative and executive powers, in the USA, power is strictly separated. One party may control the Presidency, while another may claim a majority in one or both houses of Congress (the Senate and House of Representatives). A divided government can limit the president’s policy ambitions and affect market returns. However, contrary to expectations, a divided government doesn’t always hamper market performance. Data from Allianz suggests that the S&P 500 performed best under Democrat presidents without a majority in Congress, delivering a 17.2% return in nominal terms. Returns were virtually as good for a Republican president with a Republican majority in Congress (16.8%). Equity returns were 11.3% under Democrat presidents with a majority in Congress. The lowest equity returns by far came under Republican presidents without a majority in Congress (7%). Results in real terms followed a similar pattern, except that the best returns came under a Republican president with a Congress majority. These figures underscore the importance of considering the entire political landscape, not just the presidency, when evaluating potential market impacts.

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4. Dollar Firm Ahead of Fundamental News:

The dollar has shown a slightly firm tone this week, although overall forex market activity has been relatively quiet. Last month’s sharp decline in US stocks was triggered by disappointing ISM manufacturing data, which was further exacerbated by the non-farm payrolls report. Given this context, today’s data release could cause market volatility if there are any surprises.

The US manufacturing sector has been contracting since late 2022, as indicated by the ISM index. A brief uptick to 50.3 in March, signaling a return to expansion, was short-lived, with the index falling for four consecutive months to a low of 46.8 in July. For August, a modest recovery to 47.8 is anticipated, but any negative surprise could reignite recession fears and market jitters.

In Europe, attention is on Swiss CPI and GDP figures. Outgoing SNB Chair Thomas Jordan has expressed concerns over the impact of a strong Swiss Franc and weak European demand on Swiss industry. If today’s GDP data disappoints, it could heighten concerns at the SNB, while a lower-than-expected inflation reading might provide the central bank with the flexibility to consider a 50 bps rate cut this month, rather than the widely anticipated 25 bps.

The Australian Dollar (AUD) has been declining against the U.S. Dollar (USD) due to rising Treasury yields. However, the downside for the AUD/USD pair might be limited due to dovish sentiments surrounding the Federal Reserve (Fed). The USD could face challenges from increasing expectations of a 25 basis point rate cut by the Fed.

The New Zealand Institute of Economic Research (NZIER) expects the Reserve Bank of New Zealand (RBNZ) to implement another interest rate cut during its October meeting. This follows RBNZ’s decision in August to bring forward its easing cycle in response to a deteriorating economic outlook. However, NZIER notes that the pace of further easing remains highly uncertain, with a potential pause in November depending on how quickly demand recovers.
Weaker demand has become a significant concern for businesses, with 61% of firms identifying it as the primary constraint on their operations. This declining demand is also impacting the labor market, with companies reducing hiring in response to the softer economic environment.
Looking ahead, NZIER forecasts GDP growth to remain subdued over the next year, contributing to a further decline in inflation. The institute predicts that annual CPI inflation will fall back within RBNZ’s target band by the end of this year, underpinning its expectation for another Official Cash Rate (OCR) cut in October. However, the uncertainty surrounding the economic recovery suggests that any further rate cuts after October will be closely tied to the extent of demand recovery, with the November meeting likely to be a key decision point.
New Zealand’s terms of trade improved in the second quarter of 2024, rising by 2.0%. This increase was driven by a 5.2% rise in export prices, which outpaced the 3.1% increase in import prices. However, the value of exports decreased by 1.5% to NZD 16.6 billion, largely due to a 4.3% drop in export volumes, even as higher prices provided some support.
Dairy products played a significant role in the export dynamics, with prices rising by 8.0%. Despite this, dairy export volumes fell sharply by 10%, leading to an 8.0% decline in the overall value of dairy exports. The meat sector performed better, with prices rising by 7.3%, volumes increasing by 4.1%, and the total value of meat exports up by 6.5%.
On the import side, the total value rose by 4.0% to NZD 18.9 billion, supported by a 3.2% increase in import volumes. Petroleum and petroleum products were notable contributors, with prices up by 4.0%. However, petroleum volumes declined by 8.0%, leading to a 4.4% decrease in the overall value of these imports.
Looking ahead, Swiss CPI and GDP are the main focuses in the European session. Later in the day, US ISM manufacturing will take center stage.

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5. A very cautious September:

August concluded positively with U.S. economic data showing stability in the PCE and core PCE indices, while personal spending exceeded expectations. However, the U.S. saving rate dropped to 2.9%, the lowest since 2022. This data, combined with strong growth and easing pressures, supports the Federal Reserve’s potential rate cuts in September and the remaining meetings of the year.

Market Performance:
The Dow Jones reached a new record, the S&P 500 closed just below a record high, and the Nasdaq 100 fell due to investor concerns despite Nvidia’s strong results. The shift towards looser monetary policy is benefiting cyclical stocks, causing a rotation from tech to non-tech sectors, leaving the tech-heavy Nasdaq behind its peers and European stocks.

European Market and Inflation:
The European Stoxx 600 index hit a new all-time high after Eurozone inflation data showed progress towards the ECB’s 2% target, reinforcing rate cut expectations. The EUR/USD fell below 1.1050, with potential to drop further if Fed and ECB expectations continue to favor rate cuts.

Energy Prices and Global Concerns:
In the U.S., natural gas prices have stabilized around $2, while crude oil prices are pressured by higher OPEC+ supply and sluggish Chinese growth. U.S. crude fell over 3% last Friday and continued to decline in Asia. In contrast, Europe faces rising natural gas prices due to the ongoing Ukraine war and tensions with Russia.

Upcoming U.S. Jobs Data:
Attention shifts to U.S. jobs data this week, crucial before the Fed’s expected rate cuts in September. Analysts predict fewer job openings and a slight decrease in the unemployment rate. Strong data could limit rate cuts to 50 basis points this year, while weak data might support more aggressive cuts.

Global Market Movements:
Volkswagen’s factory closures in Germany led to a rise in its shares, while the EUR/USD rebounded due to a softer U.S. dollar and cautious ECB comments. The Canadian dollar weakened ahead of the Bank of Canada’s expected rate cut. The U.S. dollar could recover if upcoming jobs data is strong, impacting various asset classes.

Commodities and Global Trade:
Gold remains below $2500 per ounce, and U.S. crude struggles near summer lows. European manufacturing data remains weak, and China’s efforts to boost its economy show limited enthusiasm. Iron ore and copper futures have declined, affecting Australia’s economy, which relies heavily on commodity exports.

September is historically challenging for equities and credit, with uncertainties around Fed decisions, geopolitical tensions, and energy crises. Investors should brace for potential volatility and market shifts.

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6. Technical Analysis on some instruments.:

Brent:

H4 Chart: Shows a previous growth impulse peaking at $81.85, followed by a correction down to $75.20, forming a broad consolidation range. A growth move towards $79.00 is expected. If breached, it may signal a continuation to $82.87. The MACD indicator supports this bullish scenario.
H1 Chart: Brent has formed a corrective structure down to $76.02 and is developing a growth structure towards $77.55. A successful breach could lead to further growth to $79.00, potentially continuing to $82.87. The Stochastic oscillator indicates potential for further price increases.
While short-term technical indicators suggest a possible recovery in Brent prices, the broader market context remains challenging due to increased supply forecasts and weak demand signals from vital global markets.

USD/CHF:

Daily Pivots: (S1) 0.8489; (P) 0.8513; (R1) 0.8542

Intraday Bias: Neutral, with more consolidations expected above 0.8399. Further decline is anticipated as long as 0.8540 resistance holds. A break of 0.8339 will resume the fall from 0.9223 and target 0.8332 low. However, considering bullish convergence in 4H MACD, a firm break of 0.8540 will confirm short-term bottoming and turn bias back to the upside for 0.8747 resistance.
In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium-term corrective pattern, with the fall from 0.9223 as the second leg. Strong support could be seen from 0.8332 to bring a rebound. Yet, the overall outlook will continue to stay bearish as long as 0.9243 resistance holds. A firm break of 0.8332, however, will resume the larger downtrend from 1.0146 (2022 high).

AUD/USD:

Australian Economic Indicators:
Private Capital Expenditure: Declined by 2.2% in Q2, reversing from a 1.9% expansion in the previous period, marking the first contraction since Q3 2023.
Consumer Price Index (CPI): Increased by 3.5% year-on-year in July, down from June’s 3.8% but slightly above the market consensus of 3.4%. This is the lowest CPI figure since March.
Technically, AUD/USD is extending its retreat from 0.6823. While further decline cannot be ruled out, strong support should be seen from 0.6696 to bring a rebound, and then resumption of the rise from 0.6348. However, a firm break of 0.6696 will indicate that a deeper correction is underway for a 38.2% retracement of 0.6348 to 0.6823 at 0.6642 and possibly below. The pair’s next move will largely depend on overall market risk sentiment as traders digest upcoming economic data.
The AUD/USD pair trades around 0.6780, positioned above the nine-day Exponential Moving Average (EMA), suggesting a short-term bullish trend. The 14-day Relative Strength Index (RSI) remains above 50, reinforcing the bullish trend. Resistance is at the seven-month high of 0.6798, with potential to push towards 0.6900. Support is around the nine-day EMA at 0.6767 and the 14-day EMA at 0.6743. A break below these levels could drive the pair towards 0.6575 and 0.6470.

EUR/USD and Gold Outlook

EUR/USD: Entering September in a corrective mode, influenced by Fed and ECB rate cut expectations. Key levels to watch include support at 1.1040 and resistance at 1.120 and 1.13.
Gold: Trading near the 2500 mark amid ceasefire pressures between Israel and Hamas. Resistance is at 2530, with support at 2465 and 2440. A break above 2530 could push gold towards 2580.

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🔥Important News releases on This WEEK :

02/09 Mon All Day USD Bank Holiday
02/09 Mon All Day CAD Bank Holiday
03/09 Tue 12:30pm CHF CPI m/m
03/09 Tue 8:00pm USD ISM Manufacturing PMI
03/09 Tue Tentative NZD GDT Price Index
04/09 Wed 7:30am AUD GDP q/q
04/09 Wed 6:30pm CAD & USD Trade Balance
04/09 Wed 7:45pm CAD BOC Rate Statement& Overnight Rate
04/09 Wed 8:00pm USD JOLTS Job Openings
04/09 Wed 8:30pm CAD BOC Press Conference
05/09 Thu 12:00am USD Beige Book
05/09 Thu 8:00am AUD RBA Gov Bullock Speaks
05/09 Thu 2:30pm GBP Construction PMI
05/09 Thu 6:15pm USD ADP Non-Farm Employment Change
05/09 Thu 6:30pm USD Unemployment Claims
05/09 Thu 7:45pm USD Final Services PMI
05/09 Thu 8:00pm USD ISM Services PMI
06/09 Fri 6:30pm CAD Employment Change & Unemployment Rate
06/09 Fri 6:30pm USD Average Hourly Earnings & Non-Farm Employment Change & Unemployment Rate
06/09 Fri 8:00pm CAD Ivey PMI

N.B. Time mentioned here is on Gmt +6

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Sources :
– #CNBC, #Bloomberg, #Reuters, #Yahoo Finance, CNN etc

Prepared to you by “Akif Matin“

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