Short-term pull back?

Short-Term Pull Back? – US equities experienced significant declines during yesterday’s trading session. The Nasdaq 100 was the biggest loser, declining by 3.15% by the closing bell, while the S&P500 lost 2.12%, and the Dow Jones closed the day lower by 626 points. This move was prompted by disappointing Manufacturing PMI data, fueling concerns over growth. Additionally, there was a notable selloff in crude oil, which also declined by more than 3% during yesterday’s trading.

The disappointing data released yesterday has led to an increase in the probability of a 50-bp rate cut by the Federal Reserve in September to 40%, up from 30% before the data.

However, there are still many economic releases to come before the Federal Reserve’s decision, which could once again shift expectations based on any surprising data.

Today’s Data

During the US session today, another round of economic figures will be released. Markets are expected to be notably impacted depending on any surprises in today’s data.

The Durable Goods data won’t be under much focus today, as this is the final reading. Unless there is a notable revision to the data, this would be a different story. As for Job Openings, estimates point to a softer reading last month. Regardless, the jobs data might not be as accurate, especially after the revision they did until March, which took out 800,000 jobs.

DXY remains below 102.0

The US Dollar Index was unable to surpass the resistance area at 101.80 during yesterday’s trading session. It climbed as high as 101.92 before ending the day below 101.80. This could indicate that the upward retracement may be approaching its end.

The upward momentum in retracement has slowed down, and if the resistance levels of 101.80 or 102.0 are not surpassed, it could lead to a continuation of the downward trend. This week’s economic releases could be the trigger for such a move. The bearish outlook will persist as long as the index remains below 102.40 for now.

Eyes on Bank of Canada later today

The Bank of Canada is likely to cut interest rates for a third consecutive meeting, as officials try to engineer a soft landing for the economy and inflation worries fade.

Markets and economists widely expect policymakers led by Tiff Macklem to lower the benchmark overnight rate to 4.25% on Wednesday. The key question is whether officials will talk about the longer-range outlook, now that the US Federal Reserve is ready to move and forecasters are expecting a series of rate cuts stretching well into next year. 

USDCAD retracement continues

USDCAD is undergoing an upward retracement following a sharp decline in August. The pair is currently trading around 1.3550, with the key resistance remaining near 1.3590-1.36 where sellers are expected to emerge.

The Bank of Canada’s decision might cause another upward movement, but this is likely to be short-lived, especially if the bank talks about cautiously lowering interest rates in the future. The bearish outlook stays the same as long as the pair continues to trade below 1.3650 for now.

Crude recovering

The Libyan central banker at the heart of a power struggle between the OPEC nation’s rival governments said a deal appears imminent to resolve the dispute and spur the resumption of vital oil output.

The price of crude oil dropped significantly after the announcement. Brent Crude fell to its lowest level since December 2023. The agreement raised concerns about a potential oversupply in the market, particularly after reports suggested that OPEC+ might move forward with their plan to increase production as early as October. However, today OPEC+ is reportedly considering delaying the planned oil output increase for October, according to delegates.

The OPEC+ discussion is highly likely due to the potential agreement in Libya, which may cause crude oil to recover from yesterday’s decline in the next few days. However, traders should exercise extreme caution as there has been no official announcement by OPEC+ yet.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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