The USD keeps falling today. What are the factors affecting the three main pairs?

Market Update: Dollar Decline, Economic Insights

The US dollar continues to slide, extending a downturn that started in New York trading yesterday. Currency pairs like EUR/USD, USD/JPY, and GBP/USD are reflecting this downward trend as US traders prepare for the session ahead. In today’s update, we’ll examine the key movements and setups. It’s crucial to define risk and bias levels for each pair, identifying what needs to happen to keep the negative momentum going, and what factors might let down traders hoping for further declines.

Overnight, Boji Nakagawa highlighted that the Bank of Japan is likely to keep raising interest rates in response to economic activity and pricing outlooks. However, he cautioned that there is still a lot of uncertainty, especially concerning trade policy and its potential impacts on wages and market sentiment. He mentioned that while Japan’s economy has shown moderate recovery, some areas are still struggling. The BOJ will proceed carefully, making decisions based on incoming data, such as the upcoming September Tankan Survey that will provide insight into how companies are adapting to changing trade conditions. He also observed that while medium to long-term inflation expectations have ticked up, businesses might absorb higher costs by cutting prices rather than raising wages, which could inhibit wage growth. Overall, he emphasized the importance of monitoring wage and pricing behaviors as trade policy uncertainty could significantly influence both domestic and global sentiments in the near future.

In Europe, ECB’s Rehn remarked that growth in the eurozone is proving more robust than expected, even as inflation shows signs of slowing. He stressed the significance of the ECB’s inflation target, which remains central to its decision-making processes. There are concerns, as pressures from external political figures might affect the Federal Reserve’s actions. Rehn emphasized that the ECB is prepared to closely monitor the situation and intervene if necessary, particularly in light of any rapid shifts in the US dollar’s global position.

On the data front, today at 8:30 AM (ET), the second estimate for GDP in the second quarter will be released. Market expectations are for a year-on-year pace of 3.1%, while a core PCE Price Index around 2.5% to 2.6% is anticipated. The GDP deflator is predicted to hold steady at 2.0%. However, this data is somewhat backward-looking, which might moderate market reactions. Meanwhile, weekly unemployment claims are expected to show a decrease to 230K from last week’s 235K, while continuous claims are not likely to vary much, resting at around 1.97 million. Later, at 10:00 AM, pending home sales for July are forecasted to dip slightly by 0.1%.

In stock markets, pre-market trading shows a mixed bag in the US following Nvidia’s recent earnings report. The chipmaker slightly surpassed expectations, with an EPS of $1.08 against an anticipated $1.01 and revenue of $467.4 billion versus the expected $460.5 billion. Despite this, stock prices have dropped by about 1.2% overall. Other tech stocks like Cloud Strike are down 2.81% in pre-market trading, while Snowflake’s shares surged by nearly 13.88% after reporting strong revenue growth.

Yesterday, the S&P 500 closed at a new record high, marking the 19th all-time high this year, although it’s slightly lower today. The NASDAQ is also seeing a decline, while the Dow Jones Industrial Average is making modest gains.