On Wednesday, the stock market witnessed a downward shift as investors braced themselves for upcoming inflation data and evaluated a series of diverse earnings reports. The Dow Jones Industrial Average concluded the trading session with a loss of 0.54%, shedding 191.13 points to reach a closing figure of 35,123.36. Similarly, the S&P 500 registered a decline of 0.7%, settling at 4,467.71, while the Nasdaq Composite faced a 1.17% dip, concluding at 13,722.02.
As the market eagerly awaits the imminent release of the U.S. inflation report, all eyes are on the consumer price index data for July, scheduled for unveiling on Thursday. This data holds a critical role as it provides vital insights into potential adjustments in the Federal Reserve’s interest rate strategy. Economists, surveyed by Dow Jones, have projected a 3.3% increase in the inflation gauge for July, prompting market participants to meticulously assess its implications. Meanwhile, in parallel, the corporate landscape is being shaped by a wave of earnings reports, with Disney and Wynn Resorts poised to disclose their quarterly results. Against this backdrop, a sense of cautious prudence pervades the investor sentiment, as they navigate the intricate interplay between economic indicators and the outcomes of corporate performances.
Data by Bloomberg
On Wednesday, across all sectors, the market experienced a decrease of 0.70%. However, there were some sectors that saw gains: Energy increased by 1.22%, Real Estate by 0.20%, Utilities by 0.17%, and Consumer Staples by 0.13%. On the other hand, several sectors faced declines: Health Care decreased by 0.05%, Industrials by 0.09%, Materials by 0.47%, Financials by 0.78%, Consumer Discretionary by 1.20%, Communication Services by 1.24%, and Information Technology by 1.51%.
Major Pair Movement
The dollar index remained below Tuesday’s risk-off highs as U.S. bank stocks continued to decline following Moody’s downgrade, while Italian bank stocks rebounded due to a capped windfall tax. While European markets regained some ground, U.S. stocks, led by banks, experienced a decline, and yield spreads between bunds and Treasuries increased. The rebound in the yuan from recent lows was attributed to the prospect of China’s first deflation reading in 2 years prompting stronger government stimulus, though the extent of this remains uncertain.
Market focus now turns to the upcoming U.S. Consumer Price Index (CPI) report on Thursday, which will either confirm or challenge prevailing expectations of the Federal Reserve’s future rate actions. The dollar has nearly recouped its losses triggered by weaker June data, and July’s CPI is expected to provide clearer insights into inflation trends and the Fed’s stance. In currency movements, EUR/USD rose, and USD/CNH fell, while sterling declined, USD/JPY rose, and AUD/USD fell due to global derisking. Key points of interest include the status of EUR/USD above its support level, the surge in Dutch gas prices potentially boosting the dollar, sterling breaching its 55-day moving average amid concerns about UK inflation, and USD/JPY’s attempt to surpass previous peaks, with CPI data potentially playing a role. Additionally, the near real-time indicator of labor demand provided by initial jobless claims will be observed on Thursday.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Gains Momentum Ahead of Key US Inflation Data
The EUR/USD rose as the Euro demonstrated strength and market focus turned to impending US inflation data. While the currency pair currently lacks a distinct trend, the upcoming US figures could spark notable movement.
Boosted by Italy’s decision to partially reverse a banking sector windfall tax, the Euro outperformed other G10 currencies on Wednesday. Market attention now shifts to the European Central Bank’s economic bulletin and Italy’s final July inflation reading. Anticipation surrounds the release of the US July Consumer Price Index, projected at 3.3%, and the weekly Jobless Claims report. These releases could significantly impact the EUR/USD pair’s trajectory, taking into account both the data itself and its context within recent consolidation.
Based on technical analysis, the EUR/USD remained steady on Wednesday as the market awaited upcoming US inflation data for the week, specifically CPI and PPI, while also attempting to move toward the middle band of the Bollinger Bands. Right now, the price is slightly below the middle band, creating a small gap between the upper and lower bands of the Bollinger Bands. The Relative Strength Index (RSI) is currently at 47, showing that the EUR/USD is in a phase of consolidation.
Resistance: 1.1038, 1.1121
Support: 1.0915, 1.0839
XAU/USD (4 Hours)
XAU/USD Prices Drop as US Dollar Gains Amid Economic Uncertainty
Gold prices fell to a one-month low of around $1,917 per troy ounce during the American session. The US Dollar initially weakened but later stabilized, particularly against safe-haven currencies. Market uncertainty prevails due to economic concerns and central bank policies, with expectations for potential rate hikes lingering despite recent pauses. The US focus remains on a tightening labor market and the upcoming release of the July Consumer Price Index, which could impact the Federal Reserve’s future rate decisions.
Based to technical analysis, the XAU/USD experienced a minor decrease on Wednesday, managing to touch the lower band of the Bollinger Bands. Currently, the price is slightly above the lower band of the Bollinger Bands. The Relative Strength Index (RSI) stands at 33, suggesting that the XAU/USD pair is somewhat in a bearish mode.
Resistance: $1,923, $1,936
Support: $1,914, $1,902
Economic Data
| Currency | Data | Time (GMT + 8) | Forecast |
|---|---|---|---|
| USD | Consumer Price Index m/m | 20:30 | 0.2% |
| USD | Consumer Price Index y/y | 20:30 | 3.3% |
| USD | Core Consumer Price Index m/m | 20:30 | 0.2% |
| USD | Unemployment Claims | 20:30 | 231K |
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