• USDJPY gives up its 2024 rally on recession fears; ISM services PMI next in focus

• AUDUSD sinks to 8-month low. Will the RBA policy decision come to the rescue?

• USDCAD loses momentum after 22-month high; Canadian employment due on Friday

 

ISM non-manufacturing PMI --> USDJPY

Market expectations shifted from a soft landing to a hard landing after a disappointing ISM manufacturing survey coupled with poor jobs figures last week made investors think that the Fed has kept interest rates at an extremely high level for too long.

The reaction in global markets was brutal, with USDJPY almost erasing its 2024 upleg in just a few weeks to trade near a seven-month low of 141.67. While it’s still too soon to officially declare a recession in the US economy, a persistent slowdown in the data may continue to spook investors.

The ISM non-manufacturing PMI, which is a good proxy for the growth-leading services sector, will be the next test today at 14:00 GMT. Analysts expect a rebound to 51 from 48.8 previously, with the highest projection set at 53 and the lowest at 48.6. Any deviation below those numbers could add fresh fuel to the sell-off, bringing the December 2023 trough of 140.24 and the 139.35 barrier next into view. Even lower, the pair could revisit the July 2023 low of 137.23.

Technically, the market seems to be in oversold territory. Therefore, additional losses may occur at a slower rate. The pair could even set the ground for a bullish pivot if the data surprise to the upside and/or Fed policymakers use some wording intervention to calm global markets. Specifically, the bulls might push for a close above the 50% Fibonacci retracement of the 2023-2024 rally at 144.57  or even higher to 146.58. Yet, with the pair having already lost significant ground, a bullish trend reversal might be a long distance off.

RBA policy meeting --> AUDUSD

In central bank meetings, the Reserve Bank of Australia (RBA) will be next to announce its rate decision on Tuesday at 04:30 GMT, with Governor Bullock addressing the press conference an hour later.

Forecasts suggest no change in interest rates as Australian inflation keeps slowing at a relatively gradual pace. However, it will be interesting to observe if the RBA hawks will cease their discussion on future rate hikes, given the recent trend of central banks cutting rates or indicating the beginning of an easing cycle.

Less hawkish communication could inflict more pain on AUDUSD. Earlier today, the pair dropped sharply to an eight-month low of 0.6346 before recouping a large portion of its losses to trade back above the 0.6400 level. The market appears oversold, but the bulls may face challenges in improving sentiment above the 0.6590-0.6630 zone. Reestablishing an uptrend above 0.6800 might be even more difficult.

Canadian employment --> USDCAD

The Canadian dollar could attract some extra attention on Friday as domestic jobs data are scheduled for release at 12:30 GMT.

Analysts expect employment to grow by 22.5k in July after decreasing by 1.4k in June, though they are concerned that the unemployment rate might climb higher to 6.5%, marking its fourth consecutive monthly increase.  If the latter materializes, the probability for a sharper 50bps rate cut in September could go higher than the current level of 23.5%, squeezing the loonie lower.

USDCAD held resilient against the explosive global sell-off, and it even managed to spike temporarily to a 22-month high of 1.3945 earlier today. Nevertheless, some caution is necessary as the pair keeps facing troubles near the 1.3880 territory for the third consecutive trading day.

If the Canadian jobs figures arrive worse-than-expected, as the US nonfarm payrolls report did, the pair could resume its bullish appetite with scope to test the 2022 top of 1.3976.

Alternatively, a positive surprise in the data could question the case for a September double rate cut in Canada, providing some relief to the loonie. Yet, whether this will be enough to press USDCAD back below the 20- and 50-day SMA at 13785 and 1.3725 respectively, remains to be seen.