# United States
The United States has successfully negotiated a trade agreement with Japan, Indonesia, and the Philippines. Meanwhile, Treasury Secretary Bessent has suggested that the existing US-China tariff truce, which is set to conclude on August 12, is likely to be extended in the coming days. The US dollar has witnessed a consistent decline for the third consecutive session, with the Dollar Index recording a cumulative loss of approximately 1.4%. This decline has retraced 61.8% of the gains seen since the low on July 1. A narrow trading range persists today, hovering just above the recent trough but below 97.60. Support is anticipated around the 97.00 mark, suggesting the upward correction seen in the first half of the month may have run its course. The 10-year US Treasury yield has shown signs of stabilizing, standing at 4.37% after declining for five consecutive days. The economic calendar today is relatively light, with existing home sales for June expected to remain steady at an annual pace of 4.08 million. This is in line with the average of 4.11 million observed in the first five months of 2024.
# Eurozone
The euro has extended its recovery for the third session in a row, surpassing the critical 61.8% retracement level at $1.1725, reaching as high as $1.1760. Today, it is trading between $1.1725 and $1.1755, suggesting a bullish consolidation phase. While economic reports are absent today, tomorrow will see the release of the preliminary PMI figures, anticipated to show slight improvement. Additionally, the ECB meeting is expected to result in no significant policy changes. The composite PMI has remained above 50 throughout this year after dipping below it in the previous November and December. Next week, the first estimate of Q2 GDP is expected, with predictions indicating a possible 0.1% contraction, following Q1’s 0.6% growth.
# United Kingdom
With a sparse economic calendar for today, the pound is likely to be influenced by broader movements in the US dollar. Yesterday, sterling advanced beyond $1.3525, marking the 38.2% retracement of its decline from the July 1 high near $1.3790. It touched nearly $1.3550 today. The next target is the 50% retracement level slightly above $1.3575, aligning with the 20-day moving average at approximately $1.3565. UK Gilts initially underperformed yesterday following news of a larger-than-expected deficit. However, by the session’s end, the 10-year yields had fallen by nearly 3.5 basis points. Today, yields are on the rise once more, with the 10-year UK Gilt yield experiencing a five-basis-point increase, the largest in Europe.
# China
The US dollar has breached recent support levels, falling to a near three-week low of approximately CNH7.1570, just shy of the annual low set on July 1. The US Treasury Secretary opined that the US-China tariff truce, set to expire on August 12, may be extended following next week’s scheduled US-China meeting in Sweden. The People’s Bank of China’s decision to set the dollar’s reference rate at a new yearly low, CNY7.1414, supports this view. Some attribute the stock market rally, notably a 1.8% jump in Hong Kong-traded mainland shares, to these developments, marking their highest close in four years.
# Japan
President Trump announced a trade agreement with Japan, effectively lowering the reciprocal tariff from 25% to 15%, and a reduction of auto tariffs to 12.5% from 25%. Japan has committed to a $550 billion investment in the US and will purchase more American vehicles, rice, other agricultural products, and participate in a joint venture exporting LNG from Alaska. Additionally, there are swirling rumors regarding Prime Minister Ishiba’s potential resignation, though his office has denied such claims. A noteworthy point is many prime ministers who lost the majority in the upper house previously stepped down within two months, albeit with a limited sample size. Japan’s bond market also saw that the sale of the 40-year JGB faced weak demand, resulting in an 8 basis points rise in the 40-year bond yield to 3.46%. This new trade deal with the US indicates increased spending potential. The dollar’s performance against the yen saw fluctuations, initially rising during the Asian session before settling at JPY146.60, despite earlier declines reaching JPY146.20.
# Canada
The US dollar experienced a substantial decline against the Canadian dollar, falling by about 0.5%, marking the largest drop this month, reaching a two-week low of CAD1.3580. The next support level is the July 3 low of approximately CAD1.3555, with the annual low occurring mid-June at CAD1.3540. Although Canada reports May retail sales tomorrow, an advanced estimate from StatsCan suggests a potential 1.1% decline, attributed to a pullback following April’s purchases driven by anticipated tariffs. Excluding the automobiles sector, retail sales might have contracted for three consecutive months, reflecting a broader softening in domestic demand.
# Australia
The Australian dollar has strengthened for the third consecutive session, closing above the $0.6540 mark, reflecting the 61.8% retracement from the July 11 annual high of $0.6595. The Australian dollar reached approximately $0.6585 today, with options around $0.6580 set to expire. Looking ahead, the futures market anticipates a quarter-point interest rate cut next month, with further cuts totaling around 66 basis points expected by year-end. Tomorrow’s flash PMI data is awaited, with June’s composite reading at 51.6, reflecting the year’s highest and surpassing levels recorded since last August.
# Mexico
Against the Mexican peso, the dollar continued its downward trend for the third consecutive session, approaching the year’s low recorded earlier this month at around MXN18.5525, reaching a midday low of MXN18.5865 in New York. However, as the dollar pared its losses, it recovered to approximately MXN18.66 in late trading. Reports indicating Mexico’s retail sales surged by 1.8% in May, far exceeding Bloomberg’s median forecast of a 0.4% increase, might have contributed to the peso’s early gains. However, Mexico’s IGAE activity report, a proxy for monthly GDP, was weaker than anticipated, posting a negligible growth of 0.01%. The Mexican central bank is set to meet on August 7, with expectations for interest rates to remain unchanged. Tomorrow, Mexico will report its H1 July CPI, with forecasts indicating a possible third consecutive decline in the year-over-year headline rate, potentially falling below 4% for the first time since April.
