Spreadex Market Update
Flight to Safety Prevails as Global Equities Fall on US Sovereign Rating Downgrade
Global financial markets experienced turbulence as a flight to safety became the defining trend. Fitch's downgrade of the US sovereign rating triggered a chain reaction, impacting various asset classes. Unexpectedly strong ADP employment data pushed the dollar higher, causing pressure on EUR/USD. Additionally, WTI crude oil prices tumbled despite the EIA confirming an API draw, while the BOJ's unplanned bond purchase influenced USD/JPY. Soft economic data in Australia added to the mix, sending the AUD below the 66-cent barrier.
Key Factors for Today
- Fitch's Downgrade of US Sovereign Rating Impacts Global Equities
- ADP Report Boosts Dollar, Putting Pressure on EUR/USD
- WTI Crude Tumbles Despite EIA Confirming API Draw
- BOJ's Unplanned Bond Purchase Pushes USD/JPY Towards June Top
- Soft Data in Australia Sends AUD Under 66-cent Barrier
Market Movers
- The ADP report revealed an impressive addition of 324,000 jobs, surpassing expectations of 190,000.
- The Bank of Japan's surprise announcement of an additional ¥400 billion bond purchase in 3-10 JGBs aimed to defend the new upper bound of YCC.
- Australia faced disappointing economic data as Q2 retail sales volume fell as expected, leading to a year-on-year drop of 1.4%. Economic Calendar
Economic calendar
- EA HCOB Services PMI
- S&P Global/CIPS Services PMI
- BOE Interest Rate Decision
- Initial Jobs Claims
- ISM Services PMI
- Factory Orders
The Big News
Financial Markets on Edge as Investors Seek Safe-Havens after US Sovereign Rating Downgrade
The financial markets were on edge as investors sought safer assets following Fitch's decision to downgrade the US sovereign rating. This move was the first since the outbreak of the pandemic and underscored growing concerns about the US economy's resilience. The downgrade triggered a global equity sell-off as investors sought refuge in traditional safe-havens, such as government bonds and precious metals.
Upbeat ADP Employment Report Bolsters US Dollar, EUR/USD Faces Pressure Amidst Labor Negotiations
The upbeat ADP employment report added fuel to the fire, further bolstering the US dollar's strength. However, the risk sentiment took a hit amidst contentious labour negotiations in the automobile industry, pushing up the yield curve. The resultant pressure on EUR/USD led traders to target the $1.09 and $1.0880 levels, with resistance expected at $1.0965.
WTI Crude Prices Face Downturn Despite EIA Drawdown, Focus Shifts to OPEC Meeting
WTI crude oil prices faced a significant downturn despite the EIA confirming a large drawdown in inventories. Market participants had already priced in the data, and the stronger dollar added to the bearish sentiment. The focus now shifted to OPEC's upcoming meeting, with prices hovering near $77.30/bbl, potentially targeting the regional top at $82.50/bbl.
Bank of Japan's Unplanned Bond Purchase Sparks USD/JPY Re-evaluation and June High Prospects
The Bank of Japan's unexpected bond purchase announcement had traders reevaluating their positions in USD/JPY. The central bank aimed to defend its new upper bound of Yield Curve Control (YCC), leading to intraday reversals in the currency pair, but ultimately exposing the possibility of retaking June's high.
Soft Economic Data in Australia Raises Concerns, AUD/USD Dips Below $0.66 Mark
Australia faced its own set of challenges as soft economic data suggested potential hurdles for the country's growth. The decline in retail sales volume and slower exports raised concerns about the upcoming GDP figure, hinting at a possible slowdown in the economy. AUD/USD dipped below the crucial $0.66 mark, signaling a potential move towards June's bottom at $0.6458.
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