Weekly Market Insights for 1st July 2024

This week provides traders with the UK elections, the NFP data release and several other significant events that are expected to heighten market volatility.

On Monday, the spotlight will be on Germany with the Preliminary CPI m/m data expected. Forecasts indicate a rise to 0.2% from the previous 0.1%. This figure could influence EUR/USD movements, particularly if it deviates significantly from expectations. Additionally, the US ISM Manufacturing PMI data will be released, providing crucial insights into the health of the US manufacturing sector.

Tuesday will be pivotal for the Eurozone, with Core CPI Flash Estimate y/y and CPI Flash Estimate y/y data scheduled for release. Forecasts are set at 2.8% and 2.5%, respectively. Higher-than-expected figures might strengthen the Euro. Later in the day, US Federal Reserve Chair Powell speaks, followed by JOLTS Job Openings data, which will be closely watched for signals on future monetary policy.

Wednesday will be a busy day, starting with the US ADP Non-Farm Employment Change data, forecasted at 156K. Unemployment Claims is also expected at 235K. These releases will provide early indicators ahead of Friday’s more comprehensive employment data. The ISM Services PMI is forecasted at 52.5, down from the previous 53.8. The Federal Open Market Committee (FOMC) Meeting Minutes will also offer insights into the Fed's economic outlook and potential policy adjustments.

Thursday's focus will be on Switzerland with the CPI m/m data, forecasted at 0.1%. Any surprises here could impact the CHF. Meanwhile, the UK will hold its Parliamentary Elections all day.With Labour expected to win, the election brings both opportunities and uncertainties for Sterling. Historically, political instability and Labour policies tend to increase debt burden and are prone to weaken a currency. However, Labour’s current policies are anticipated to support a positive economic environment. JP Morgan suggests that Labour's victory would benefit sectors like banking, homebuilding and food retail, due to a focus on supply-side reforms and cautious fiscal policies.

At the same time the Bank of England (BoE) maintains relatively high interest rates, likely supporting the GBP. The BoE recently maintained the Bank Rate at 5.25%, citing balanced risks between inflation control and economic growth. The decision comes after recent data indicates that inflation has returned to the 2% target, driven by moderating inflation expectations and declining energy prices. On the other hand, underlying economic surveys suggest a slower growth pace, impacting the market sentiment for GBP.

It’s also worth noting that some policymakers advocated for a rate cut as underlying economic vulnerabilities, such as a looser labour market and cautious GDP growth forecasts remain a concern. This could pose a downside risk to Sterling. As the US Independence Day coincides with the UK election, the market impact of the election result could be delayed until the US traders return to work after the 4th of July celebrations.

Friday wraps up the week with jobs data from Canada and the US, where strong employment figures could bolster the CAD. Simultaneously, the US will release key labour market data: Average Hourly Earnings, Non-Farm Employment Change and the Unemployment Rate. These figures are critical for assessing the strength of the US economy and potential Fed actions.

Overall, this week is packed with high impact events that could influence the markets significantly. Traders should stay alert and be prepared for higher volatility.

Here are 3 markets to watch this week

EURUSD

After attracting buyers at 1.0707, EURUSD consolidated above this level. This consolidation was resolved to the upside with the market gapping higher significantly at the start of trading this week. The far-right National Rally party took approximately 34% of the vote in the first round of French elections. This was considerably more than the Left-wing coalition and President Macron's Together Alliance. It has been suggested that this is a relief rally after the markets had expected the far right to win the French elections with a much wider margin.

Technically, the market is now trending higher after breaking out of the consolidation formation. However, the market is also overbought at current levels, which could lead to a slowdown or a corrective move. A measured move projection based on the width of the consolidation triangle suggests that the market could rally to the 61.8 Fibonacci retracement level at 1.0820. Alternatively, if the rally fails, look for a move down to 1.0727.

GBPUSD

GBPUSD has been slowly trending lower on the eight-hour chart but is now trying to break out of this bearish trend channel. The moving averages are still pointing lower, but if the market can close above 1.2663 and maintain levels above it, we could see a rally to the 1.2729-1.2740 range. This is where the 23.6% Fibonacci retracement level and a recent swing high from June 19th are somewhat closely aligned. Alternatively, if the breakout rally fails, look for a move down to 1.2615 and then perhaps lower to 1.2581 at the 50% Fibonacci retracement level.

S&P 500

The S&P 500 has lost some upside momentum but is still technically in an uptrend above the 23.6% Fibonacci retracement level at 5442.56. This is a significant support level as it coincides with the 50-period moving average on the 8-hour chart and a horizontal support level, creating a tight technical confluence area. As the market approaches the support level, the stochastic oscillator is near oversold levels. This could tempt short-term buyers to enter the market near the support level. Above 5442.56, look for a retest of the latest high at 5523.88 and then perhaps a trend continuation higher. Alternatively, below this level, we could see the market trading down to the 5375-5393 range. If the S&P 500 trades down to these levels, it will have created a double top, and a measured move target at 5361 could become relevant.

This weeks high impact market events

The following economic events and data releases have the potential to cause considerable price movements, thereby offering you both opportunities and risks. Stay informed and leverage our economic calendar to access real-time data and analysis as these key events unfold.

All times are GMT +3

Monday 1st July

Tuesday 2nd July

Wednesday 3rd July

Thursday 4th July

Friday 5th July

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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