Daily Market Review 5 of July

The US Independence Day yesterday and the upcoming financial enouncement have left the markets with modest movements after the European session yesterday with no dramatic moves. The sentiment in the stock market is moderately negative ahead of today’s ECB meeting and the important labor market report in the US tomorrow.

In the data front, May German Factory Orders are expected to improve a hair from both MoM and YoY contractions seen in the last prints. The US ADP employment report along with weekly reports from the labor market and the ISM Non-Manufacturing index are also due later on.

The main event today is the ECB-meeting, where we expect ECB to cut its rate by 25bp to 0.75 We do not expect ECB to announce non-standard easing measures in connection with today’s meeting even though another long LTRO is still possible in the coming months.

In line with the consensus view we expect Bank of England (BoE) to keep the base rate unchanged at 0.5% but to expand the target for its asset purchases by GBP50bn to GBP375bn in connection with today’s BoE meeting. However, in BoE there has been some frustration about the effectiveness of its asset purchases, so new non-standard easing measures cannot be ruled out.

The ECB monetary policy enouncement is not the only thing that is due to go out. The Non-Farm Payrolls (NFP) numbers are due to come out tomorrow before the opening trade in the US markets. This report is one of the important reports on the monthly economic calendar. The current analyst estimates stand of 90K jobs added in June to the US labor markets. The unemployment is expected to stay as is on 8.2%.

EUR/USD The pair managed to settle at a session high yesterday after the release of better than expected US related economic data, together with the fact that the ECB may ease its monetary policy to boost growth in the bloc supported the currency. Today, the bloc currency is trading in the lowest levels of the week so far, circling the 1.2520/25 region, waiting for the ECB monetary policy meeting due in the European afternoon. In terms of technical levels, supports are seen at 1.2556/52 and then at 1.2433. On the other hand, resistance levels are seen at 1.2693 and then at 1.2706.