USD not ready for a correction, Global PMIs next

The Global PMIs will provide the first insight into economic activity during August. Apart from the Australian and Japanese PMIs in the Asian session, New Zealand will report Q2 Retail Sales. Later in the day, Canada will release Retail Sales data, and there will be housing data from the US.

Here is what you need to know on Wednesday, August 23:

Stocks in Asia recovered, with the Shanghai index rising 0.88% after Monday’s slide. However, a cautious tone still prevails following the People’s Bank of China’s smaller-than-expected interest rate cut. On Wall Street, the Dow Jones lost 0.51%, the S&P 500 fell by 0.28%, and the Nasdaq gained 0.06%. The cautious sentiment continues to dominate.

Concerns regarding China, coupled with additional downgrades for US banks by S&P, and expectations of prolonged high interest rates, are exerting downward pressure on market sentiment. The upcoming Jackson Hole annual symposium, commencing on Thursday, holds significant importance, with Fed Chair Powell’s speech on Friday. Prior to the symposium, US yields edged higher, reaching new multi-year highs, with the 10-year yield surpassing 4.30%.

Data released on Tuesday showed that US Existing Home Sales tumbled 2.2% in July to an annual rate of 4.07 million, falling below the market consensus of 4.15 million. The Richmond Fed Manufacturing Index improved in August from -9 to -7, in line with market consensus.

Analysts at Wells Fargo on Existing Home Sales

The impact of the recent resurgence in mortgage rates is becoming increasingly apparent. Existing home sales declined 2.2% during July, the second straight monthly decline. Since existing home sales reflect contract closings, July’s data largely reflect activity in June when mortgage rates averaged 6.8%, but rates have marched higher since.

In the US, more housing data is due on Wednesday with New Home Sales. Additionally, the S&P Global PMI is scheduled to be released, with the Composite Index expected to remain at 52. The primary focus remains on central bankers ahead of the Jackson Hole Symposium.

EUR/USD initially rose to 1.0930 but then turned downwards, falling to test the support area at 1.0830. The pair remains under pressure and is approaching the 200-day Simple Moving Average (1.0799). 

Eurozone PMI data is due on Wednesday. The Composite PMI is forecasted to decline from 48.6 to 48.5. Weaker-than-expected numbers could weigh on the Euro. Additionally, Eurostat will release the preliminary August reading of Consumer Confidence later in the day.

UK government borrowing came in below forecasts in July at £4.3 billion, £3.4 billion more than in July 2022. From April to July, the budget deficit was £56.6 billion, £11.3 billion less than what the Office for Budget Responsibility had forecasted in March. This provides some grounds for the government to consider tax cuts. GBP/USD traded above the 20-day Simple Moving Average (SMA), but it then pulled back below 1.2750. The pair is consolidating with a bullish bias in the short-term. The UK S&P Global/CIPS Composite PMI is expected to decline from 50.8 to 50.3, with contractions in both Services (51.5 to 50.8) and Manufacturing (45.3 to 45).

USD/JPY remains steady near 146.00 and above the key short-term area of 145.00, supported by higher US Treasury yields.

USD/CAD continues to trade near monthly highs above 1.3550 with a bullish bias. On Wednesday, Canada will report June Retail Sales, which are expected to remain unchanged compared to May.

AUD/USD finished far from the daily highs on Tuesday, trading around 0.6420. The pair rose for the third consecutive day, but the momentum faded. The Australian S&P Global Manufacturing PMI is expected to remain unchanged at 49.6, and the Services PMI at 47.9.

NZD/USD rebounded after finding support at 0.5900. It peaked at 0.5970 but then pulled back to 0.5940. New Zealand will report Q2 Retail Sales, which are expected to show a 2.6% decline.

Gold rose marginally but was unable to retake the $1,900 mark. Despite the rebound, risk sentiment continues to lean towards the downside. Silver rose for the fourth consecutive day, reaching levels above the 20-day SMA, and settled around $23.40.

Cryptocurrencies edged lower, with Bitcoin falling more than 1% to $25,800, and Ethereum losing almost 3% to $1,625.