The excitement in a usual calm month!
August was always known as a calm month or dead month since many investors and traders used to leave the market and rest. This month things changed as it is not a usual year, so does August. In this short and quick monthly outlook, I review what happened in July and what we expect in August.
USD: Despite closing lower, the US dollar expressed multi-month highs in July as the PCE price index shows that living in the US is much more expensive in the past 13 years. At the same time, CPI numbers increased by 5.4% in June (Numbers published in July) and confirmed the fastest pace since 2008. This data puts more pressure on FED to start Hawkish policies a bit earlier than expectations. At the end of July, with increasing the Risk in the market and Delta variant of coronavirus, while market participants again priced on more supportive policies, USD fall. August but started with substantial PMI numbers and then strong numbers from the labor market, puts the Hawkish fans in the stronger position with higher Bond Yields again back above 1.30%, ended with increasing USD rate. August usually is one of the most critical months for US currency, and generally for the currency market, as the Fed will host its global counterparts in Jackson Hole, which in the past has been used to telegraph coming policy changes. The meeting in Jackson Hole will be from 26-28 August. Besides that, CPI (11th), PPI (12th), Retail Sales (17th), GDP (26th), PCE (27), and finally Consumer Confidence at 31th are the most important event for US dollar in August.
Euro: July was not as good as expected for Euro, as re-increasing pandemic concerns underperformed common currency value. Besides the market's sentiment, weaker European data, compared with the UK and US, reduced the demand for Euro, especially with ongoing talks about tightening of monetary conditions across the globe. In July, the Euro fell to its five-month against the Swiss franc (1.08 ₣) and three-month low against US dollar (1.1750 $) and Japanese Yen (129 ¥). This weakness continued at the beginning of August, especially against the US dollar and British Pound, as BoE had a Hawkish tone in its latest meeting. However, even though the data was weaker than expected, especially for PMI numbers, they are still positive, confirming that the economy is recovering and limiting the euro losses. Positive data puts the US dollar in a stronger position. In August, the most critical data that we have to watch to trade Euro closely are German ZEW Economic Sentiment (10th), German Manufacturing PMI (23th), German GDP (24th), German Ifo Business Climate Index (25th), Economic sentiment indicator and Flash Inflation (30th) and finally 6th ECB annual research conference at 30-31 August.
Pound: In the first half of July, the British pound suffered against most of its crosses. Despite the UK government lifting most Coronavirus restrictions on the 19th, recovery hopes were hit by the spread of the Delta variant Coronavirus and fuelled a capital flight to safety. Risk-off mode put the Sterling in a weaker position as it is always a risk-correlated currency to send the Cable to its fresh five-month lows. And in the second half, with great PMI, Retail Sales, and with the help of spending related to the Euro's football tournament, Sterling regained all its losses and closed higher. This strong position with BoE decisions was steady in the first week of August as well, even if on the last day of the week, it was under pressure a bit against USD, following a substantial recovery of DXY. Sterling traders should follow the GDP & Manufacturing Production (12th), Labor market data (17th), CPI (18th), Retail Sales (20th), and Flash PMI's at August 23.
Yen: As one of the most important Safe-Havens, the market's risk-off mood held the Japanese Yen in a stronger position with more demand. For the first time since Fall 2020, the Yen kept back-to-back months of gains against the Euro (+1%) and UK pound (+1%). On July 23, it was outperforming the greenback as well. For the rest of August, As positive Stock Market reactions reversed the Yen's demand, Yen performance will hold its correlation with stock Markets, as opposite relation. The main events of August for Yen traders will be Industrial Production (12th), National Core CPI (20th), Flash PMI (23th), Labor Market data (30th), Retail Sales (31st), and finally, Fed annual symposium in Jackson Hole(26-28 August).
CAD: In July, Loonie lost almost all its gain in 2021. In past months, Loonie gained over Oil rally and BoC monetary policies, while in July, weaker than expected economic data, especially in Labor Market, underperformed the Canadian dollar. With weaker Cad and Stronger USD, USDCAD touched the highest level since February. In July, commodity currencies generally were under pressure, as rising coronavirus strains cast a shadow over the outlook for global economic growth. Currently, Inflation is about 3.6%, the fastest rise in 10 years, and bond purchasing amount decreased to C$2 billion weekly. As still market sentiment is not positive enough to move the energy markets in August, commodity currencies, including CAD, are estimated to be under pressure. The next monetary policy meeting and interest rate decision will be on September 8. Before the BoC meeting in September, we have Housing starts (17th), Inflation (18th), Retail Sales (20th), Producer Inflation (27th), Current account (30), and finally GDP number on August 31.
Gold: After a 7% fall in June as the worse month since November 2016, in July, Gold gained 3%, which in the first days of August could not save it. In August, everything will be about the Market reaction to the Virus spreading concerns. With excellent earnings and economic data, market participants and investors are now pricing more on Hawkish policies from FED, which will not be that much in favor of Stock markets. Cash flow is expected to increase towards the Gold market. $1,740 is the critical support for Gold, and holding this level will put Gold's bulls in a stronger position.
WTI: Despite the increase and the decrease and again rebound, west texas intermediate ended the July where it started, around $73. In August, the first days as the US dollar got stronger, Cronaviruse fears hit the market sentiment, and OPEC+ agreed to start the production increase towards its pre-pandemic level by adding 400Kbpd. In August, we usually have the price increase in the Oil market; however, this year, it will be a bit different. We have to carefully follow the market sentiment and update about the Virus spreading and how it will affect the market during the month. Overall estimates tell us that economies' strong experience from the early waves and vaccination levels will probably avoid any lockdowns and production system, which can help the market rebound later this month. Oil traders must watch OPEC and IEA monthly reports closely, while weekly API and EIA reports determine the short-term directions.
Wall street: To print a 12% gain in the first half of the year, for the 5th month in a row, SP500 closed higher, capping off its longest winning streak since 2018. The latest FOMC policy meeting held in July still was dovish, as "The path of the economy continues to depend on the course of the virus," was noted in the FED statement. However, as almost 90% of companies, which listed in the SP500, have beat their earnings estimates, it seems that investors weigh more on that rather than concerns about the latest Covid-19 Delta variant outbreak. In the first week of August, with amazing PMI and labor market numbers, while earlier in July also saw a tremendous increase in consumer spending, SP500 and DowJones printed new records on Friday. Since we are getting closer to the Jackson Hole meeting for the rest of August, investors and market participants will return about tapering topics, and bulls would be limited.