Oil Loses 1.5% as China's Growth Disappoints

China's GDP growth came out below market expectations! Looking at expectations from the Bloomberg survey, only one economist expected that the country's growth could be at such a “low level”. Of course, looking at the dynamics, growth of 6.3% y/y does not seem weak, although more was expected  (growth of 7.1% y/y). In the first quarter, growth was 4.5% y/y. It's worth remembering that in the second quarter of last year, China introduced very restrictive covid measures, including in the Shanghai region, which then severely limited economic growth. That is why the market expected that economy would grow much stronger. 

In quarterly terms, growth came out at 0.8% q/q, in line with market expectations and the growth in the previous quarter was 2.2% q/q. Industrial production for June grew stronger than expected at 4.4% y/y and retail sales were slightly below expectations at 3.1% y/y. So where is the problem with the Chinese economy? In the real estate market and in the "strong" yuan. The yuan is not weak enough to boost subdued exports. On top of that, real estate market sentiment remains very weak. At the same time, it seems that GDP data is not weak enough to lead to a further cut in interest rates. PBOC will decide on interest rates on July 20 and despite weak data, there is no expectation that the bank will cut rates once again. Recently, the PBOC surprised negatively by cutting rates less than expected.

Oil is losing nearly 1.5% today, mainly due to data from China, as the country is responsible for a very large share of expected demand growth this year. At the beginning of the year, imports were disappointing due to high inventories. Now that inventories are running out and China should import more oil. However, without a stronger stimulation of the economy, China's demand growth may fall short of expectations. At the same time, looking from the side of oil itself - a very cheap dollar may support the continuation of the rebound, although a "tactical correction" cannot be ruled out.

Brent oil is testing the area of $78.5 per barrel. If this level is broken, a test of the area around $77 per barrel cannot be ruled out. The size of the range of the previous downward wave also falls slightly lower. Seasonality indicates that further decline may be seen until the end of July. Nevertheless, for the moment, the uptrend remains unbroken.

Dollar Slides ahead of Retail Sales Data

The EURUSD continues to rise, mainly due to the weakness of the US dollar following the release of inflation data last week. EURUSD has reached the highest levels since before the Ukraine war and is testing very important resistance levels. Today, the market's attention will be focused on the publication of retail sales and industrial production from the US. Expectations point to a pretty solid report:

Moreover, the retail sales report will be the last important indication before next week's FOMC meeting (we will no longer hear comments from Fed bankers due to the closed period). At the moment, the money market is pricing that the FED will raise rates by 25 basis points on Wednesday 26 July with a 95% probability.

EURUSD is testing the vicinity of an important resistance at the 61.8  Fibo retracement of the entire large downward wave started in 2021. A break of this level will mean a negation of the entire upward impulse of the dollar from almost the last 2 years. If retail sales surprise even more strongly than the consensus indicates, a correction to the range 1.1180-1.1200, where the upper limit of the upward trend channel is located, will be possible.

Silver: Bulls on the Prowl

Silver prices have been on the rise in recent days, trading above support at $24.53 for the third consecutive day. This has created a new higher low, which is a bullish technical signal. The price also tested support on July 17th and formed a long wick shadow candle, which indicates that bulls are pressing to push the price higher.

The next resistance level to watch is around $26.12. If silver can break above this level, it could signal the start of a new uptrend. However, if the price breaks below support at $24.53, it could indicate that the bullish trend is on hold. In this case, traders should monitor the price action closely before making any new decisions.

Fundamentally, the outlook for silver is also bullish. The global economy is growing, which is increasing demand for industrial metals like silver. Additionally, the recent sell-off in the stock market has led investors to seek out safe-haven assets like silver.

EURUSD - Chart of the Day

The current week is crucial for the EURUSD pair, considering today's preliminary readings of PMI indices in the US and the eurozone for July. Generally speaking, the estimated PMI data in the eurozone is expected to be weaker than in the US for both industry and services. In addition, investors' attention will also be focused this week on decisions by the ECB and the Fed, which will take place on Wednesday and Thursday, respectively. Currently, the market assumes the following decisions:

Fed - the market does not foresee a surprise and with a 99.8% probability, it will raise rates by 25 basis points.
ECB - at this moment, the market assumes that in the eurozone rates will be raised twice more by 25bp, however, the probability for the second hike of 25 bp is just over 50%.

However, in both cases, the Powell and Lagarde's comments after the decision will be more significant. In the US, the latest labor market data are still strong, hence despite falling inflation, the tone of the conference may be perceived as neutral/hawkish. While in the EU, weakening data, including PMI, may weigh in favor of a more dovish message.

From a technical point of view, on the daily chart, EURUSD broke out of the consolidation area between 1.053 and 1.106 two weeks ago, and the rate went around 1.126. The breakout, however, was not long-lasting, and last week the price returned to the area of the upper limit at 1.112. The appreciation of the dollar occurred after stronger macro data, including from the labor market in the US. The dollar behaved stronger against most currencies. Key to maintaining the uptrend on EURUSD is defending the support area at 1.106. Otherwise, if the price returns to the consolidation area, EURUSD may retest the level of 1.10 or further 1.08.

German IFO Index points to weaker sentiment in economy!

Germany - Ifo sentiment index for July:

> Actual: 87,3. Forecast: 88. Previously: 88,5
> Current Conditions: Actual: 91,3. Forecast: 93. Previously: 93,7
> Future estimates: Actual: 83,5. Forecast: 83,4. Previously: 83,6

In addition, at the same time the ECB published a study on loans in the euro area. The ECB points out that banks are reporting a record drop in the demand for loans from companies. At the same time, banks are further tightening their restrictive lending policies.

After the Ifo report and the ECB credit report, EURUSD reduces recent gains and is close to yesterday's close.

Chart of the Day - EURUSD

FOMC announced a 25 basis point rate hike yesterday, following a pause in hiking at June meeting. Such a decision was widely expected and traders were eager to see whether Fed Char Powell offers some more hints on future moves during the press conference. However, no such hints were offered and Powell was cautious not to provide any forward guidance.

Investors will hear from the European Central Bank today at 1:15 pm BST and the decision is expected to be similar to yesterday's FOMC decision - a 25 bp rate hike and no hints on the future. Just like Powell, ECB President Lagarde is expected to stress that future decisions will be data-dependant. However, there is a feeling in the markets that today's 25 bp rate hike will be the final one in the current ECB hiking cycle. Nevertheless, a clear signal that this is the end of hiking would be very dovish and could trigger volatile moves on the markets, and this is a scenario that central banks try to avoid. Interestingly, even as markets seem to be convinced that ECB will end hiking earlier than Fed, EUR outperformed USD recently and the main currency pair disconnected from bond markets in June.

EURUSD should be on watch in the early afternoon as there is a number of events scheduled that could move the pair. The most important one is ECB rate decision at 1:15 pm BST, followed by Lagarde's presser at 1:45 pm BST. In between those two investors will be offered flash Q2 GDP reading from the United States that may also trigger moves on EURUSD.

Taking a look at EURUSD at the H1 interval, we can see that it is recovering from a recent correction. The pair broke above the 38.2% retracement of a recent correction this morning and continue to move higher. A near-term resistance zone to watch can be found in the 1.1150 area, marked with 50% retracement and the 200-hour moving average (purple line).

Chart of the Day - US500

The S&P 500 (US500) recently reached a critical resistance level at 4631, raising questions about the market's next moves. Last week, the Federal Reserve implemented a widely anticipated 25 bps interest rate hike, and market participants closely monitored Fed Chair Powell's press conference for hints about future policy decisions. However, Powell offered no clear signals, emphasizing the Fed's reliance on data for future choices. Economic data following the FOMC meeting pointed to a soft landing scenario, with US Jobless Claims surpassing expectations, but the US PCE and Employment Cost Index falling short of forecasts.

In the upcoming week, several economic data releases will play a crucial role in shaping market sentiment. These include the ISM Manufacturing PMI, US Job Openings, US ADP data, US Jobless Claims, ISM Services PMI, and the highly anticipated US NFP report. The market's focus on the soft-landing narrative suggests that positive data may push the market higher, while disappointing data could trigger downward movements. Despite some short-term caution, the S&P 500's overall trend remains bullish. However in the short-term a pullback or consolidation phase is expected before any potential further highs. Ultimately, the ongoing rally may lead the index to new all-time highs, with a healthy consolidation period in the weeks and months ahead.

Examining the daily timeframe, the S&P 500 encountered resistance at 4631, leading to a pullback as sellers took the opportunity to secure profits. Potential support levels for a pullback could be at 4550 and 4500. The index's price is currently trading near the upper boundary of an ascending channel (indicated by the blue line) that has been respected since February 2023. The next crucial resistance level to watch for is around 4700-4730 points.

GBPAUD - Chart of the Day

The Reserve Bank of Australia (RBA) surprised markets with a dovish policy decision today. RBA left rates unchanged, with the main cash rate staying at 4.10%. Median consensus among economists surveyed by Bloomberg was for a 25 basis point rate hike. Meanwhile, money markets saw a less than 40% chance of a 25 bp rate move today. Ultimately, it turned out that the market was right and economists seem to have overestimated the impact of solid jobs data on RBA stance and underestimated impact of lower-than-expected Q2 CPI data. While statement released along with the decision did not rule out further hikes, there is a feeling that RBA may stay on pause now. Why? There is a number of reasons:

Albeit still solid, labor market is loosening up
Inflation trends develops better than expected
Previous rate hikes are impacting economy, crimping demand

Having said that, RBA may want to stay on hold for now as its previous policy actions seem to be taking effect. Money markets also support this view - no change in the level of rates is priced in for September or October meetings.

Traders will get to hear from one more central bank this week - Bank of England on Thursday, 12:00 pm BST. Economists also expected BoE to deliver 25 basis point rate hike, just as they did in case of RBA. However, in this case there is no disconnect between economists and money markets - money markets fully price in a 25 bp BoE rate move this week. Moreover, a total of three 25 basis point rate hikes is priced in for the next three meetings. The biggest risk for GBP seems to be a potential dovish turn from BoE, similar to Fed and RBA. However, it looks rather unlikely that given current economic picture in the United Kingdom, Bank of England will decide to stay on hold and issue a dovish guidance.

Taking a look at GBPAUD at H1 interval, we can see that a recent drop on the pair was halted at the 200-hour moving average (purple line) in the 1.9085 area. Pair rallied today, driven by AUD weakness, and has almost fully erased the aforementioned drop. A near-term resistance zone to watch can be found ranging below 1.9350 mark.

Chart of the Day - USDJPY

The Bank of Japan (BoJ) clarified that its recent yield curve adjustment, announced on July 28th, was intended to sustain the current loose monetary policy rather than indicate policy normalization. The BoJ allowed the 10-year Japanese Government Bond yield to trade above 0.5% in a flexible manner, deviating from a strict cap approach. Despite global anticipation of policy normalization due to rising wages and inflation, the BoJ remains cautious, questioning whether inflation's rise is demand-driven and durable enough to exceed 2%, indicating that a shift in policy direction is not imminent.

USDJPY currency pair rises as the US dollar is recovering from losses experienced toward the end of the previous week. The positive momentum in the 10-year US treasury yield is playing a role in bolstering the dollar's performance, despite a retracement on Friday that didn't fully negate the broader upward trend. Investors are eagerly awaiting the upcoming release of the US Consumer Price Index (CPI), which is anticipated to be higher than the last month figures and expected to reach 3.3% Y/Y and core inflation to be the same as previous month at 4.8% Y/Y.

USDJPY currency pair is currently trading at 143.1, indicating a 0.43% increase for the day. The price recently found support at the level of 137.8 and has been steadily advancing since then. The next key target level is the previous local high at 145, which is anticipated to act as a significant resistance level. However, if the price fails to breach this level, a potential downward move to the levels of 143 or 140.4 could be anticipated.

Bitcoin - Chart of the Day

Despite positive news in the cryptocurrency market, such as PayPal launching its own stablecoin and the approval of Bitcoin ETFs in Europe, cryptocurrencies remain under selling pressure. Delays in Bitcoin ETF applications by US funds, including BlackRock, have significantly contributed to the declines. Additional catalysts include issues with the decentralized exchange Curve and weaker macroeconomic sentiment in recent days.

In light of these events, yesterday Bitcoin once again broke below the $29,000 level and is currently trading around $28,600. The nearest support level is $28,300, which was tested overnight. After that, the Bitcoin price reacted strongly, rebounding by $400. If this year's upward trend is broken (blue line), we could expect the Bitcoin price to drop to $27,500 or even $26,200. On the other hand, with a positive catalyst, the Bitcoin price could swiftly return above $29,000, and even reach $29,700. Nevertheless, given the absence of positive news, further downward pressure can be expected in the coming weeks.

AUDUSD - Chart of the day

The Australian dollar is one of the worst performing G10 currencies today. AUD is underperforming following the rate decision of the People's Bank of China. PBoC announced a 10 basis point cut to 1-year lending rate, to 3.45%, and decided to keep the 5-year rate unchanged at 4.20%. This was a disappointment as economists hoped that PBoC would decide on 15 basis point cuts to both 1- and 5-year rates. These expectations were propped up further over the weekend by reports saying that officials from People's Bank of China and Chinese financial market regulator met with Chinese bank executives and asked them to boost credit action in order to support economic recovery.

Decision made Chinese equities clear underperformers during today's Asia-Pacific trading session. However, it has also had a negative impact on Antipodean currencies with AUD and NZD being clear laggards among G10 currencies during the Asian session. This should not come as a surprise, especially in case of AUD, as China is a key trading partner for Antipodean countries.

Taking a look at AUDUSD chart at F1 interval, we can see that the pair has recently broken below the lower limit of the trading range, marked with 61.8% retracement of the upward impulse launched in October 2022. AUDUSD continued to move lower until the decline was halted at the 0.6400 support zone. While sellers fail to break below this hurdle, buyers also struggle to regain control and the pair continues to trade in the 0.6400 area. However, should we finally see a break below this zone, a downward move may deepen towards the textbook range of the breakout from the aforementioned trading range, which is around 0.6250.

Economic Calendar: Second-tier US Data, Speaches from Fed members

European indices set for higher opening.
Second-tier data from the United States
Possible decision on Grayscale Bitcoin ETF

Index futures point to a higher opening of the European cash session today. This comes after solid performance of tech shares fuelled gains on S&P 500 and Nasdaq during the Wall Street session yesterday and later on regional indices during the Asia-Pacific session as well. These gains come in spite of a renewed sell-off on US Treasuries market, which led 10-year yields to 16-year highs above 4.30%.

Economic calendar for the day ahead is light. Traders will be offered second-tier data from Poland and the United States. Some USD volatility may be present around 3:00 pm BST when existing home sales data for July and Richmond Fed index for August will be released. USD volatility may also be present during speeches from Fed members Barkin, Goolsebee & Bowman. Oil traders will focus on API report on inventories, which is expected to show a big draw but smaller than last week.

Also, SEC decision on Grayscale's application to convert its Bitcoin Trust into Bitcoin Exchange-Trade Fund (ETF) is expected today, somewhere around 4:00 pm BST. However, it should be said that the timing is tentative and that the SEC has already delayed the decision twice so it may not even be announced today. Nevertheless, positive ruling could give cryptocurrencies a boost so it is worth watching.

9:00 am BST - Poland, retail sales for July. Expected: 2.5% YoY. Previous: 2.1% YoY
3:00 pm BST - US, existing home sales for July. Expected: 4.15 million. Previous: 4.16 million
3:00 pm BST - US, Richmond Fed index for August. Expected: -8. Previous: -9
9:40 pm BST - API report on US oil inventories. Expected: -2.9 mb. Previous: -6.19 mb

Central bankers' speeches

12:30 pm BST - Fed Barkin
7:30 pm BST - Fed Goolsebee
8:30 am BST - Fed Goolsebee & Bowman