Poor stock market sentiment, awaiting the US inflation report

Yesterday the EURUSD corrected the upward move from Friday, which was triggered by the publication of the NFP. The low was set at around 1,0930. Today from morning major currency pair gains slightly.

Yesterday, stock market sentiment was weak and Wall Street indices were falling, although in the end the decline did not exceed 1 percent. The discounts are partly due to yesterday's impact China's weak export datathat have sparked concerns about the global economy.

The macro calendar is poor again today. The market awaits tomorrow's US inflation report.

Data from China worsens moods

Yesterday's data from China indicated that exports are in a clear downward trend. Exports shrunk by 14,5%. y/y imports by 12,4%. y/y Associated with the pandemic The "boom" of the Chinese export sector is coming to an end at an impressively fast pace. On the one hand, this comes at an unfortunate time as it coincides with weak domestic demand, amplifying and amplifying the negative economic effects. On the other hand, this does not bode well for the Chinese currency. The weaker yuan helps to increase the price competitiveness of Chinese exporters in the global market and may to some extent mitigate the slowdown in exports. However, a marked depreciation of the yuan may further strengthen the tendency of domestic private capital to leave China.

At yesterday's session Hang Seng dropped from above 19 points. and appointed lows around 19 points. The discounts amounted to 1,81 percent. Today we can see a slight rebound, but there is no clear demand. The Shanghai Composite lost just 0,25 percent. Today, the declines are continued and the index is "under the line" of almost 0,6 percent.

The price pressure is weakening

Returning to the main currency pair - this one managed to 100 percent. reduce Friday's gains. The euro did not receive any support from the macro data. The price pressure in the euro area is weakening, which means another one ECB rate hike seems not so sure anymore as recently. Monthly consumer expectations survey EBC showed that inflation expectations in this group continued to decline. It also showed that they still expect price growth to remain above the institution's target over the next three years.

Central bank probably will remain concerned about inflation in the euro area, while hoping that the positive developments will continue. In contrast to the situation in the US, the economy in the euro area is weakening, which may put pressure on the single currency. If inflation continues to move in the right direction, speculation about rate cuts in the euro zone could be fueled again.

Data will weaken the dollar?

The dollar is benefiting from the weak sentiment to some extent. Friday the NFP data was not that poorto weaken the USD more. The market's reaction was understandable, but you can see how this move was short-lived. The apparent cooling in the labor market is apparently still too weak to quell fears about inflation. Coupled with the still fairly solid economic data, which is likely to raise doubts about a US recession, the arguments for an imminent US rate cut are not very convincing.

Tomorrow's publication CPI for the US in July, however, this picture may change to some extent. The market consensus assumes the same result as in June in the case of the core reading (4,8% y/y). In turn, the headline index, which takes into account the prices of energy and food, is to grow even from 3 percent. up to 3,3 percent on a year-on-year basis. The month-to-month change is also expected to remain unchanged at 0,2%. Lower numbers should weaken the dollar and cause the exchange rate of the major currency pair will be above 1,10 again and move away from the uptrend line where it is currently located.

Source: Łukasz Zembik, OANDA TMS Brokers