Daily Market Review 3 of July

The market had two positive days to adapt and digest the decisions made on the EU summit but this momentum is likely to level off from now on. The EU decision contains some elements that might change the way that the EU debt crisis was handled until now but the final details are still subject to high political implementation risk. At the same time, the EU economy remains on a very bumpy road and there is no guarantee that Friday’s EU agreement will change that anytime soon. The Uncertainty is expected to rise a head of the ECB meeting Thursday even though we are widely expect that the ECB will finally cut its rate.


The ISM Manufacturing out of the US yesterday was a major disappointment as it dropped to 49.7 in June from 53.5 in May, well below the consensus expectation of 52.0. The weak reading on the price index underscores that there is basically no inflationary pressure in the US economy, which could open the door for additional monetary easing from the Federal Reserve.


It look as if the RBA also doesn’t concern from inflationary pressure and In the RBA rate decision today the board decided to leave the interest rate unchanged at 3.5%. the board pointed towards hurdles for the Australian economy coming from overseas, namely Europe. However, in the tradition of the RBA the statement was fairly vague. Once again, the bank pointed towards slowing growth in Europe and China, but stated that the US should muddle along at a moderate pace. Overall, the bank said there remains some potential for adverse shocks to the Asian region stemming from other parts of the world, by which we assume they mean Europe.


Today, the economical calendar data is very thin. There are hardly any important eco data on the agenda except for the May PPI out the EU and The US factory orders.


The US market will close early today ahead of the 4th in July US Independence Day and will be close for the entire day tomorrow for the same reason.


AUD/USD jumped a little on the back of the housing data, but in the lead up to the rate decision the pair initially found some resistance around its high since the beginning of May 1.0277 before creating a new high around 1.0286.


Overall, the Aussie is relatively unchanged against the dollar for the session. Clearly the pair is struggling to break through a grouping of its 200day and 100day SMA that we highlighted in this morning’s pre-RBA update.