Daily Report: Markets Rocked by Argentina Default, Focus on Non-Farm Payrolls

The financial markets were rocked by Argentina’s default overnight, with weakened sentiments on concerns that the Fed might begin tightening earlier than expected. The SP 500 index ended the day -2%, or 39.4 pts lower and took out key near term support of 1944.69. DJIA fell -1.88%, or -317.06 pts, to close at 16563.3, also broke key near term support of 16805.38 firmly. Argentina defaults its debts for the second time in 13 years as the government failed to make a USD 539M payment due on its discount bonds due in 2033. The payment was originally due on June 30 subject to a 30-day grace period. The expiry date was Wednesday. SP downgraded the South American country’s foreign currency credit rating to “selective default” because”the grace period expired with bondholders not receiving their payment”. The rating agency also stated that “if and when Argentina cures the payment default on the Discount Bonds” it would revise the ratings “depending on our assessment at that time of Argentina’s residual litigation risk, its access to international debt markets, and its overall credit profile”.

In the currency markets, dollar remains the strongest currency this week as focus turns to employment data from US today. Non-farm payroll is expected to show 230k growth in July, down from prior month’s 288k. Unemployment rate is expected to be unchanged at 6.1%. The ADP employment report released earlier this week was a mild disappointment as private job growth grew only 218k, down from prior 281k. On the other hand, the 4-week moving average of initial claims dropped to 297k, down from 314k. Continue claims also dropped from 2.587m to 2.539m. ISM indices are not released so far yet and we don’t have the insight from the respective employment gauges. The leading employment data provided little inspirations and we could see surprises on either side, which would rock the markets further. Nonetheless, a key data to consider was that Conference Board consumer confidence jumped to 90.9 in July versus expectation of 85.5. That’s also the highest level since October 2007. We might indeed see a pleasant surprise in the unemployment rate. So overall, dollar is in mild favor to extend recent rally. Also to be featured from US are personal income and spending, ISM manufacturing and construction spending.

Released earlier today, Australia PPI missed expected and dropped -0.1% qoq in Q2, and slowed to 2.3% yoy. China official manufacturing PMI rose to 51.7 in July, better than expectation of 51.4. HSBC manufacturing PMI was revised lower to 51.7. to be released in European session including Italy PMI manufacturing, Eurozone PMI manufacturing revision and UK PMI manufacturing.

Daily Pivots: (S1) 1.3373; (P) 1.3387 (R1) 1.3402; More….

A temporary low is in place at 1.3366 and intraday bias in EUR/USD is turned neutral for the moment. Some consolidations would be seen but upside of recovery should be limited by 1.3486 resistance and bring fall resumption. Below 1.3366 will extend the whole fall from 1.3993 towards 100% projection of 1.3993 to 1.3502 from 1.3700 at 1.3209 next

In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. One interpretation is that fall from 1.6039 to 1.2329 was the first leg. Price actions from 1.2329 were the second leg, in form of a triangle. In such view, the fifth leg of the triangle pattern could have completed at 1.3993 already. In other words, the decline from 1.3993 is resuming the fall from 1.16039. Medium term outlook will now stay cautiously bearish as long as 1.3700 resistance holds. Break of 1.2755 key support level will raise the chance of an eventual break of 1.1875 low.

EUR/USD 4 Hours Chart

EUR/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
1:00
CNY
Manufacturing PMI Jul
51.7
51.4
51

1:30
AUD
PPI Q/Q Q2
-0.10%
0.70%
0.90%

1:30
AUD
PPI Y/Y Q2
2.30%

2.50%

1:45
CNY
HSBC Manufacturing PMI Jul F
51.7
52
52

7:45
EUR
Italy Manufacturing PMI Jul

52.8
52.6

8:00
EUR
Eurozone Manufacturing PMI Jul F

51.9
51.9

8:30
EUR
UK PMI Manufacturing Jul

57.2
57.5

12:30
USD
Change in Non-farm Payrolls Jul

230K
288K

12:30
USD
Unemployment Rate Jul

6.10%
6.10%

12:30
USD
Personal Income Jun

0.40%
0.40%

12:30
USD
Personal Spending Jun

0.50%
0.20%

12:30
USD
PCE Deflator M/M Jun

0.20%

12:30
USD
PCE Deflator Y/Y Jun

1.80%

12:30
USD
PCE Core M/M Jun

0.20%

12:30
USD
PCE Core Y/Y Jun

1.50%

13:55
USD
U. of Michigan Confidence Jul F

81.5
81.3

14:00
USD
ISM Manufacturing Jul

56.1
55.3

14:00
USD
ISM Prices Paid Jul

58.6
58

14:00
USD
Construction Spending M/M Jun

0.40%
0.10%

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