Bulls Pause Amid Downbeat Tech Earnings and Economic Data

Equity markets took a breather as bulls pulled back following disappointing tech earnings and concerns about inflation. While the European Union narrowly avoided a technical recession, the US business outlook disappointed. Amidst these developments, central banks in the UK and Japan are considering their options to address persistent inflation.

Key Factors for Today

• Market Pullback as Bulls Take a Break: Equities experienced a mild pullback as investors engaged in profit-taking amid downbeat tech earnings.
• EU Avoids Technical Recession: The final Eurozone Q1 GDP was revised up to 0.0% from -0.1%, allowing the shared economy to avoid a technical recession by a narrow margin.
• US Business Outlook Disappoints: The July Philadelphia Fed business outlook survey fell to -13.5, elevating worries about lingering inflationary pressures.
• BOE Considers Aggressive Tightening: BOE's Deputy Governor Dave Ramsden suggested further tightening might be necessary if inflation persists, potentially impacting the rate at which the balance sheet shrinks.
• Japan's Inflation Rises: Japan's inflation climbed to 3.3% annually, raising concerns for the BOJ, which is unlikely to make policy changes at the upcoming meeting.

Market Movers

• EUR/USD Weakens: The euro slid 0.62% to $1.1128 against the dollar, registering a 3-day losing streak and exposing the $1.10 handle. Resistance is expected at $1.1175.
• Gold Reaches 2-Month High: Gold briefly hit $1988/oz before reversing to $1969/oz for a negative session. Recapturing $1977/oz may flip sentiment again.
• Cable Falls: GBP/USD declined 0.57% to $1.2865, distancing itself from the $1.30 resistance, with a bearish chance at $1.2760.
• USD/JPY Bulls Attempt Reclamation: USD/JPY bulls are trying to reclaim 140.00, with a takeover possibly leading to 141.32, while a failure could open the door to 139.00.
• FX Relative Performance: Aussie remained unchanged, Kiwi dipped 0.14%, Euro rose 0.10%, Franc increased 0.05%, Loonie remained flat, Cable led 12% higher, and the Japanese Yen was 0.05% lower.

Economic Calendar

• UK Retail Sales
• Canada Retail Sales
• Canada New Housing Price Index
• Spain Consumer Confidence

The Big News

Eurozone Escapes Recession but Inflation Concerns Weigh on Euro's Performance

 The European Union narrowly avoided a technical recession in the first quarter of the year as the final Eurozone GDP was revised up to 0.0% from a previous estimate of -0.1%. ECB official Yannis Stournaras expressed concern about falling inflation and cautioned against excessive tightening, advocating for only one more rate hike next week. However, the euro continued its slide against the dollar, reaching $1.1128, with potential support at $1.10.

Disappointing US Business Outlook Triggers Inflation Concerns and Market Volatility

The US business outlook disappointed with the July Philadelphia Fed business outlook survey plummeting to -13.5, worse than the expected -10. The surge in prices received further fuelled worries about lingering inflationary pressures. Despite a drop in weekly jobless claims, tech shares were impacted following a gloomy outlook from TSMC. Gold experienced a volatile session, hitting a 2-month high at $1988/oz before settling at $1969/oz. A break above $1977/oz could shift the sentiment again.

BOE Signals Tightening Measures Amid Falling Inflation, While UK Consumer Confidence Dips Impact GBP/USD Pair

Over in the UK, BOE's Deputy Governor Dave Ramsden acknowledged a significant fall in inflation but indicated the need for further tightening if inflation remains persistent. This suggests the possibility of increasing the rate at which the balance sheet shrinks. Meanwhile, UK July Consumer Confidence fell below expectations at -30 compared to the -25 forecast, contributing to the decline in GBP/USD, which touched $1.2865. The pair now faces resistance near $1.30, and a bearish opportunity at $1.2760.

Surging Inflation in Japan Sparks Speculation Over BOJ Policy Changes and Currency Market Movement

In Japan, inflation rose to 3.3% annually, surpassing expectations of remaining unchanged at 3.2%. The core rate also rose to the same level, raising questions about potential policy changes by the BOJ. However, former Japanese vice minister of Finance Mitsuhiro Furusawa suggested that the BOJ is unlikely to modify its YCC facility at the upcoming policy meeting. The Japanese government revised its growth forecast downward but raised its outlook for CPI, exceeding the BOJ's 2% target. USD/JPY bulls attempted to reclaim 140.00, setting their sights on 141.32, while a failure might lead to a decline towards 139.00.