Imagine this scenario: The stock market is experiencing wild fluctuations, cryptocurrencies are in a rollercoaster ride of ups and downs, and investors are feeling a sense of unease. 

However, in the midst of this turbulence, bondholders remain unfazed, enjoying the steady and predictable returns from their bond investments. 

Just like a lighthouse guiding ships to safety during a dark and stormy night, bonds can act as a reliable guiding light for investors seeking a secure harbour for their hard-earned money. 

Bonds represent one of the most favoured financial assets, but if you haven’t explored their nature and functionality, you might be deterred by their reputation for complexity and limited returns. 

In reality, bonds are extensively traded assets that can fortify your portfolio’s risk-return profile and provide diversification without subjecting you to excessive volatility. Although they may offer lower returns, they come with reduced risk, making them a secure option for investors. Additionally, their inverse correlation to interest rates presents lucrative opportunities for trading bond CFDs. 

This article aims to provide a comprehensive breakdown of bonds, their various types available for trading, and how you can effectively integrate them into your investment portfolio to diversify beyond traditional stocks. 

Understanding Bonds 

Bonds can be best described as a type of debt instrument. While individuals typically approach banks or credit unions for loans, companies and governments raise capital by seeking investors, who then become bondholders within the organisation. 

These bondholders receive interest on the asset, known as a coupon rate, until the bond reaches its maturity date, at which point the initial loan amount (referred to as the principal) is repaid. 

Bonds are generally considered less risky than other highly volatile assets, but they still carry certain risks related to interest rates, credit quality, defaults, and prepayments. Various types of bonds exist, issued by different organisations, companies, or institutions, and all are rated based on their investment grade. 

Exploring Bond Types: From Government to Corporate and Beyond 

Bonds come in two categories: secured and unsecured. 

A secured bond provides protection to the bondholder by using assets as collateral, reducing the risk of issuer default. Mortgage-backed securities are an example of secured bonds. 

On the other hand, unsecured bonds, also known as debentures, lack collateral and are considered riskier assets since both the interest payments and principal amount are guaranteed solely by the issuing company or organisation. 

There are four main kinds of bonds: 

Government bonds 

Some government-issued bonds are unsecured, but they are still considered among the lowest-risk investments, particularly when coming from stable governments with a solid track record of no bond defaults. In the US, they are known as Treasuries, while in the UK, they are called gilts. 

Government bonds can be issued with fixed interest rates or variable coupon payments tied to inflation. In the UK, inflation-linked bonds are referred to as index-linked gilts, while in the US, they are known as Treasury Inflation-Protected Securities or TIPS. 

Corporate bonds 

As the name suggests, corporate bonds are issued by corporations to raise funding. The risk level associated with these bonds depends on the size and established nature of the company. 

Corporate bonds are generally riskier than government bonds, but bondholders receive more protection from loss compared to ordinary shareholders. In the event of company bankruptcy, liquidated assets are used to pay bondholders ahead of shareholders, a concept known as a liquidation preference. Corporate bonds may be secured and are rated by agencies such as Standard & Poor’s, Moody’s, and Fitch Ratings, which assess their overall investment grade. 

Municipal bonds 

Similar to government bonds, municipal bonds (munis) are issued by municipalities, councils, cities, and other local governments. They often come with lower interest rates and are considered less risky than some other bond types. 

Municipal bonds may also appeal to investors because they are not subject to taxation in the US. 

Agency bonds 

Agency bonds are securities issued by government-backed enterprises or federal government departments other than the US Treasury. Mainly prevalent in the US, they can be backed by the US government, as is the case with government department-issued bonds, or not, as with those issued by government-sponsored enterprises (GSEs). 

The Fannie Mae National Mortgage Association and the Freddie Mac Federal Home Loan Mortgage bonds are examples of GSE bonds. 

How Do Bonds Work? 

Bonds are straightforward debt instruments that facilitate the process of lending money, known as the principal or face value, from a bondholder to a public or private institution, known as the issuer.  

The issuer then repays this amount on an annual, semi-annual, or monthly basis, as specified in the bond’s terms. Upon reaching maturity, which is the bond’s expiration date, the principal is returned to the bondholder. 

Being negotiable securities, bonds can be bought and sold in a secondary market, much like stocks. However, it’s essential to note that stocks and bonds function differently. While some bonds are listed on the stock exchange, the majority of bond trading occurs through Over-the-Counter (OTC) products like Contracts for Differences (CFDs), traded through brokers. 

Interest rates play a significant role in determining bond prices. Generally, when interest rates rise, the demand for bonds decreases as investors seek better rates elsewhere. Conversely, when interest rates decrease, the demand for bonds rises, resulting in an increase in their prices. 

Bond Characteristics 

Bonds possess distinct features that differentiate them from other assets and debt instruments. These include maturation and duration, credit rating, face value and issue price, and coupon rates and dates. 

• _{Maturation and Duration: While often perceived as interchangeable, maturation and duration have distinct meanings. Maturation refers to the active term of a bond, representing the time until it expires and its final payment is made. Duration, on the other hand, encompasses both a timeframe and a measurement of a bond’s price sensitivity to interest rate changes. The Macaulay duration measures the actual time required to repay a bond’s principal, expressed in years. Calculating a bond’s modified duration using the Macaulay duration allows us to understand its vulnerability to fluctuations in interest rates.} 

• _{Credit Rating: Credit ratings serve as a grading system that assesses the creditworthiness of bonds. Ratings agencies like Standard & Poor’s and Fitch Ratings assign these grades. Credit ratings play a crucial role in attracting investors by showcasing a bond’s attractiveness to issuers. For potential bondholders, credit ratings are valuable tools for gauging a bond’s risk level. Bonds with the highest creditworthiness receive the AAA rating, while those considered below investment grade are rated from BB+ (often referred to as junk bonds).} 

• _{Face Value: Also known as the principal, the face value is the amount the issuer agrees to pay the bondholder, excluding any coupon (interest) rate payments. Typically, the face value is paid as a lump sum upon the bond’s expiration and remains fixed from its initial setting. However, there are exceptions, such as TIPS (Treasury Inflation-Protected Securities), which are adjusted based on inflation figures. Theoretically, the issue price should match the bond’s face value since both represent the full loan value. Nevertheless, the issue price can differ in the secondary market, where it may fluctuate significantly.} 

• _{Coupon Rates and Dates: The coupon rate, also known as the interest rate, refers to the interest paid to bondholders, usually on an annual or semi-annual basis. It is also referred to as the nominal yield, calculated by dividing the bond’s annual repayments by its full face value. Coupon dates determine the intervals at which coupon payments occur, which can be monthly, semi-annually, annually, or quarterly, as specified in the bond’s terms.} 

Factors Influencing Bond Prices 

The prices of bonds are influenced by several key factors, including demand and supply dynamics, inflation rates, the credit rating of the bonds, and their proximity to maturity. 

As we have discussed, there exists an inverse relationship between bonds and interest rates. When bond prices rise, interest rates decline, and vice versa. Consequently, the demand for bonds is contingent on prevailing interest rates, attracting investors with low interest rates or enticing them with better opportunities during higher interest rate periods. If interest rates become overly high, issuers might reduce the supply of bonds to align with demand. 

Credit ratings serve as a robust indicator of a bond’s overall risk, with cheaper bonds generally carrying higher risks of default. Traders must decide how to manage this risk, and credit rating agencies offer valuable guidance in identifying bonds that represent sound investments. 

As a bond matures, its price naturally gravitates back to its face value, reaching its initial loan amount. Additionally, the number of coupon payments yet to be made influences the bond’s price. 

How to Start Trading Bonds? 

To start trading bonds, follow these steps: 

1. Choose the type of bonds you want to trade, such as government bonds or corporate bonds, and consider bond CFDs for greater flexibility. 

2. Decide on your bond trading strategy, considering either hedging or interest rate speculation. 

3. Open a bond trading account, such as the ones offered by VT Markets, either in live or demo mode to practice your strategy. 

4. Initiate and monitor your first bond trading position using a reliable trading platform like MetaTrader 4 or MT5. 

In conclusion, understanding bonds and their trading process offers a stable investment option with predictable returns. Diversifying portfolios with various bond types strengthens risk-return profiles. With knowledge of bond characteristics, credit ratings, and influencing factors, we can navigate the financial world confidently. So, let’s set sail on this rewarding journey with bonds as our guiding light! 

Summary: 

• _{^{Bonds provide a stable and predictable investment option, offering a secure harbour amidst market fluctuations.}} 
• ^{_{Bonds are debt instruments where bondholders lend money to institutions, receiving interest until the bond’s maturity, when the principal is repaid.}} 

• ^{_{Various bond types include government bonds, corporate bonds, municipal bonds, and agency bonds.}} 
• _{^{Diversifying portfolios with different bond types strengthens risk-return profiles and reduces volatility exposure.}} 
• _{^{Understanding bond characteristics, credit ratings, and influencing factors helps make informed investment decisions.}} 

This week’s economic calendar features key events that will have a considerable impact on the markets. Major events include the US jobs reports, the Reserve Bank of Australia (RBA) rate statement, and the Bank of England (BOE) rate statement. Traders are advised to carefully prepare for potential market volatility triggered by these announcements and adapt their strategies accordingly. 

Here are some notable highlights coming up over the next week:

Reserve Bank of Australia Rate Statement (1 August 2023)

After raising its interest rate by 25 bps in June, the Reserve Bank of Australia announced during its July meeting that it has maintained its interest rate at 4.1%. This represents a total increase of 400 bps since May 2022. 

The central bank will announce the next interest rate adjustment on 1 August, with analysts expecting an increase of 25 bps to 4.35%.

ISM Manufacturing PMI (1 August 2023)

The ISM manufacturing PMI in the US fell to 46 in June 2023 from 46.9 in May 2023. 

The figures for July are scheduled for release on 1 August, with analysts expecting the index to increase to 48.

Switzerland’s Consumer Price Index (3 August 2023)

Switzerland’s CPI increased by 0.1% in June 2023 from the previous month. 

Analysts anticipate a 0.1% decrease in the figures for July, which will be released on 3 August.

Bank of England Rate Statement (3 August 2023)

The Bank of England raised its policy interest rate by 50 bps to 5% during its June meeting, marking a 13th consecutive hike. 

Analysts expect the next rate hike to be another 25-bps increase to 5.25%.

US ISM Services PMI (3 August 2023)

The ISM services PMI rose to 53.9 in June 2023. This mark, which is well above the 50 seen in May, points to the strongest growth in the services sector in four months. 

The ISM’s data for July 2023 is scheduled for release on 3 August, with analysts anticipating a decrease in PMI to 52.

Canada Employment Change (4 August 2023)

The Canadian economy saw 59,900 jobs created in June. This increase was driven by the rise in full-time jobs and marks the highest number of jobs created in five months. However, the unemployment rate also rose to 5.4% in June from 5.2% in May, the highest since February 2022. 

The figures for July are set to be released on 4 August, with analysts predicting the creation of 20,000 additional jobs. However, the unemployment rate is also expected to remain at 5.4%.

US Jobs Report (4 August 2023)

The US economy added 209,000 jobs in June 2023, lower than the 306,000 seen in May. The unemployment rate in the country decreased slightly to 3.6%, which is also lower than May’s seven-month high of 3.7%. 

The data for July 2023 will be released on 4 August, with analysts predicting the creation of 190,000 additional jobs. However, the unemployment rate is also expected to remain at 3.6%.

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

The Dow Jones Industrial Average’s extraordinary winning streak of 13 consecutive gains came to a halt as investors opted to take profits, leading to a 0.67% decline, with the index closing at 35,282.72 points. The historic run, dating back to 1897, would have tied the record if it had gained for a 14th day. The bullish momentum had been driven by promising economic signs, such as evading a recession, decreasing inflation, and strong corporate earnings. However, the recent surge in the 10-year Treasury yield above 4% and uncertainty surrounding the Federal Reserve’s rate hike decisions caused market sentiment to waver. With upcoming data releases in sight, traders are closely observing the economic indicators, speculating on the Fed’s potential response, as the central bank’s actions may have a significant impact on market trends.

One contributing factor to the Dow’s previous gains was the robust performance of companies like Meta Platforms, whose shares surged 4.4% due to impressive quarterly results and promising guidance, fueled by a rebound in advertising revenue. Additionally, the latest gross domestic product (GDP) reading for the second quarter indicated a 2.4% rise, surpassing economists’ expectations. Notably, the report suggested that price pressures were easing, with the personal consumption expenditures price index rising 2.6%, lower than anticipated. Despite the Fed’s recent rate hike, investors remained relatively optimistic, believing that Federal Reserve Chair Jerome Powell’s commitment to data-driven decision-making could potentially prevent further aggressive monetary tightening. However, the Dow’s remarkable winning streak came to an end, prompting caution among investors and heightened attention to forthcoming economic data releases.

Data by Bloomberg

On Thursday, all sectors in the market experienced a general decline, with the overall market showing a decrease of 0.64%. The Communication Services sector was an exception, bucking the trend with a gain of 0.85%. However, the Information Technology sector saw a slight dip of 0.34%. The Energy sector also experienced a modest decline of 0.54%, while the Materials sector faced a drop of 0.67%. Health Care and Consumer Staples sectors both declined by 0.77% and 0.81%, respectively. The Industrials and Consumer Discretionary sectors had larger losses, both falling by 0.82% and 0.87%, respectively. The Financials sector showed the most significant decrease, experiencing a notable drop of 1.29%. The Utilities sector followed closely with a decline of 1.73%, and the Real Estate sector suffered the largest loss, plummeting by 2.12%.

Major Pair Movement

On Thursday, the forex market witnessed a volatile session, with the dollar initially retreating after the Federal Reserve’s data-dependent stance but later rebounding. The yen surged higher following a report that the Bank of Japan (BoJ) would discuss tweaking its yield curve control at an upcoming meeting. This led to a significant impact on currency pairs like EUR/USD, which fell 0.9% to its lowest level since July 11. Additionally, USD/JPY faced fluctuations, initially rebounding but later dropping as the BoJ’s potential policy changes raised concerns about a stronger yen. The outcome of the BoJ meeting on Friday is closely watched, as any indications of a shift towards less accommodative policies may further strengthen the yen.

Furthermore, other factors influenced currency movements, such as surging Treasury yields, which contributed to the broader rise of the dollar and caused declines in currencies like Sterling, AUD/USD, and yuan. Traders are now awaiting several economic indicators scheduled for release on Friday, including Tokyo CPI, euro zone regional CPIs, U.S. core PCE, ECI, and Michigan sentiment, which could drive further market volatility and impact forex trends.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Plunges Amid Strong Dollar Surge After ECB Meeting and Upbeat US Data

The EUR/USD experienced a sharp decline on Thursday following the European Central Bank (ECB) meeting, driven primarily by the strength of the US dollar, which soared across the board due to encouraging US economic data. The data showed that the US economy surpassed expectations in the second quarter, with Initial Jobless Claims dropping to their lowest level in five months and Durable Goods Orders surging over 4% in June. This evidence of a healthy US economy overshadowed the ECB’s expected 25 basis points policy rate hike, as no further rate hike announcements were made, leaving all options open for the next meeting. The potential pause in monetary policy divergence between the US and the Eurozone could impact the EUR/USD exchange rate. Inflation data will play a crucial role in limiting the Dollar’s rally, with the focus shifting to the US Core Personal Consumption Expenditure Index, the Federal Reserve’s preferred measure, and the preliminary July Consumer Price Index releases from France, Spain, and Germany.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD falls on Thursday and creates a push to the lower band of the Bollinger Bands. This movement has also resulted in a wider gap between the bands. The Relative Strength Index (RSI) currently stands at 32, indicating that the EUR/USD is starting to enter the bearish moment.

Resistance: 1.1038, 1.1121

Support: 1.0915, 1.0839

XAU/USD (4 Hours)

XAU/USD Slide Amid Stronger US Dollar and Higher Yields, Reflecting Optimistic US Economic Data

Gold prices experienced a significant drop of more than $30 during the American session, largely due to a stronger US dollar and higher US Treasury yields. The yellow metal faced technical pressures as well, hitting a low of $1,942 before a modest rebound. US economic data showing unexpected acceleration in the second quarter, with real GDP expanding at 2.4%, coupled with positive Jobless Claims and Durable Goods Orders figures, supported the notion that the economy could withstand monetary policy tightening. Consequently, the US dollar rallied, and yields surged, prompting a sharp reversal in gold prices. The European Central Bank’s rate hike and potential pause in September, along with reports of the Bank of Japan considering tweaks to its Yield Curve Control policy, also influenced market sentiment. The outlook now suggests the possibility of further short-term losses in metals given the context of higher yields and a stronger US dollar, as the US economy shows resilience and lower inflation indicators compared to European countries.

Chart XAUUSD by TradingView

According to technical analysis, the XAU/USD falls on Thursday and has created a push towards the lower band of the Bollinger Bands. Currently, the price is slightly higher, but it remains near the lower band, indicating that there is still potential for Gold to move even lower. The Relative Strength Index (RSI) currently stands at 41, which indicates that the XAU/USD pair is starting to enter a bearish stance.

Resistance: $1,954, $1,975

Support: $1,938, $1,920

Economic Data

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

In a remarkable show of strength, the Dow Jones Industrial Average experienced its best winning streak since 1987, advancing for 13 consecutive days. The 30-stock index added 82.05 points, or 0.23%, reaching 35,520.12, and is now on the cusp of matching the longest streak ever recorded dating back to June 1897. The market’s optimism was fueled by a Federal Reserve rate hike, pushing rates to their highest level in over 22 years. However, Fed Chief Jerome Powell’s comments about the possibility of a pause in future rate increases left traders uncertain, impacting Treasury yields. While some companies, like Google-parent Alphabet and Boeing, reported strong earnings leading to stock gains, others, like Microsoft, experienced declines due to slower cloud revenue growth.

Overall, the market’s mixed sentiment reflects the delicate balance between economic indicators and the Federal Reserve’s data-dependent approach in determining future monetary policies. Traders eagerly await the Fed’s decision on rates in September, hoping for signs that the economy can avoid a recession if the central bank chooses to remain on hold. The ongoing corporate earnings season is also influencing market movements, with companies like Alphabet and Boeing showing strength, while Microsoft’s performance was met with some disappointment. As the market continues to digest these factors, investors are keeping a close eye on the Dow Jones as it seeks to extend its historic winning streak.

Data by Bloomberg

On Wednesday, the overall market experienced a slight decline of 0.02%. Among the sectors, Communication Services stood out with a significant increase of 2.65%, while Industrials and Financials also showed positive gains of 0.66% and 0.65% respectively. Real Estate and Consumer Staples sectors also saw modest growth, rising by 0.34% and 0.21% respectively. However, Utilities, Consumer Discretionary, and Health Care sectors faced marginal declines, with drops of 0.05%, 0.06%, and 0.08% respectively. Energy and Materials sectors experienced somewhat larger losses, declining by 0.09% and 0.28%. Information Technology, on the other hand, took the steepest hit with a significant drop of 1.30%.

Major Pair Movement

On Wednesday, the dollar index weakened as investors focused on Federal Reserve Chair Jerome Powell’s dovish comments, overshadowing slightly improved economic growth language in the FOMC statement. While Treasury yields and the dollar initially rose after the statement mentioned the economy growing at a “moderate” pace, Powell’s news conference suggested that the end of rate hikes might be approaching. Market attention now turns to the upcoming policy announcements from the European Central Bank (ECB) and the Bank of Japan (BoJ) on Thursday and Friday, as well as crucial U.S. data. Thursday’s GDP and claims data, along with Friday’s personal income, spending, core PCE, employment cost index, and Michigan sentiment figures will be closely monitored ahead of the August Jackson Hole symposium and the September Fed meeting. Investors are also closely watching the ECB’s potential rate hike and the outlook for the EUR/USD pair, which rose after Powell’s comments, despite concerns about deteriorating euro zone economic data and the ECB’s dovish stance.

Meanwhile, USD/JPY fell as the market awaits the BoJ’s decision on whether it will tighten its policy on Friday. Governor Kazuo Ueda’s indications that policy will not be tightened are being scrutinized, but speculation about a possible rise in the JGB yield cap persists based on economic projections from the meeting. In the UK, the sterling rose after coming off earlier highs, with the possibility of a 50bp Bank of England (BoE) rate hike in August remaining slightly less favored compared to a 25bp increase. However, nearly 1% of further increases are still priced in due to the UK’s high inflation rate and the risks associated with managing it. On the other hand, the Australian dollar and the yuan faced declines after Q2 Australian inflation came in below forecasts, and doubts arose about the impact of Chinese stimulus plan promotions.

Overall, the global currency markets remain highly sensitive to central bank decisions, economic data, and policymakers’ statements, with investors assessing each currency’s strength based on a complex interplay of economic conditions and monetary policies.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Rises Amid Dovish Fed Comments, ECB Policy Announcements Awaited

The EUR/USD pair saw gains as Federal Reserve Chair Jerome Powell’s dovish remarks outweighed slight improvements in the FOMC statement on economic growth. Traders are now focused on upcoming policy announcements from the ECB along with key US economic data. Although Treasury yields and the dollar initially strengthened, Powell’s comments suggested a growing possibility of the end of rate hikes. Market participants await crucial GDP, claims, personal income, and other data before the Jackson Hole symposium and the September Fed meeting. The euro faces challenges from weakening eurozone economic data and a dovish ECB member. Uncertainty persists about whether EUR/USD has already peaked post-pandemic, with relative economic risk possibly favoring the US. Staying updated on central bank policies and economic indicators is vital for shaping the EUR/USD exchange rate.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD pair is experiencing a higher movement on Wednesday, leading the price to reach the upper band of the Bollinger Bands. This movement has also resulted in a closer gap between the bands. The Relative Strength Index (RSI) currently stands at 53, indicating that EUR/USD is back in neutral stance.

Resistance: 1.1121, 1.1208

Support: 1.1022, 1.0950

XAU/USD (4 Hours)

XAU/USD Prices Surge as Fed Raises Interest Rates, US Dollar Weakens

Gold prices have surged to weekly highs above $1,974 following the Federal Reserve’s decision to raise interest rates by 25 basis points. The increase in rates has led to a weakening of the US Dollar and an increase in market volatility. Market participants are now closely watching for any signals from the Fed that this could be the last rate hike, which could trigger a rally in bonds and drive Treasury yields lower, further benefiting the price of gold. However, the risk of a sharp reversal remains as the Fed is expected to maintain a hawkish tone until inflation shows clear signs of moving towards the target. The outcome of the Fed meeting will determine the direction of gold, and volatility is expected to persist with the European Central Bank’s decision and US economic data releases later in the week.

Chart XAUUSD by TradingView

According to technical analysis, the XAU/USD pair initially experienced a higher movement and created a push to the upper band of the Bollinger Bands. Currently, the price is still pushing the upper band of the Bollinger Bands which shows there’s still a strong higher movement for Gold. Furthermore, the Relative Strength Index (RSI) currently stands at 65, indicating that the XAU/USD pair is starting to create a bullish trend.

Resistance: $1,985, $1,992

Support: $1,969, $1,955

Economic Data

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected].

The Dow Jones Industrial Average achieved its longest winning streak in over six years as it closed higher on Tuesday. The index rose by 0.08%, or 26.83 points, reaching 35,438.07. This marked the 12th consecutive positive session for the 30-stock index, the longest rally since February 2017. Meanwhile, the S&P 500 climbed 0.28%, and the Nasdaq Composite advanced 0.61%. Traders closely examined the latest earnings reports, with General Motors seeing a 3.5% decline despite raising its full-year earnings guidance, while General Electric surged nearly 6.3% due to stronger-than-expected second-quarter revenue.

Investors eagerly awaited the Federal Reserve’s policy decision, expecting a quarter percentage point rate increase. However, uncertainties lingered about future actions as the market sought clarity on the Fed’s stance towards inflation and its economic outlook. Amidst this backdrop, Wall Street analyzed results from major tech companies, including Alphabet and Microsoft, which were set to report after the market’s close. As earnings season progressed, around 79% of S&P 500 companies surpassed analyst expectations for the second quarter, offering optimism for the overall market performance.

Data by Bloomberg

On Tuesday, most sectors experienced modest gains, with all sectors combined showing a positive change of +0.28%. The Materials sector had the highest increase at +1.76%, followed by Information Technology at +1.19%, and Energy at +0.57%. Communication Services also saw a slight uptick of +0.42%, while Utilities and Commercial & Professional Services had more marginal gains of +0.22% and +0.42% respectively.

On the other hand, several sectors faced declines. Financials had the most significant drop, with a decrease of -0.73%, closely followed by Real Estate at -0.74%. Transportation experienced a notable decline of -0.63%, while Consumer Discretionary and Industrials both saw moderate decreases of -0.23% and -0.13% respectively. Health Care and Consumer Staples also ended the day in the red, but with marginal changes of -0.06% and -0.05% respectively.

Major Pair Movement

The dollar index slipped 0.07% as risk-on sentiment increased, reducing demand for the U.S. currency. Weak economic data weighed on the euro ahead of the Federal Reserve and European Central Bank (ECB) meetings. Sterling rose 0.4% with important supports preventing further decline. The prospect of ECB rate hikes diminished due to lackluster euro zone data in July, leading to a slide in EUR/USD.

EUR/USD fell 0.24%, marking its fifth consecutive daily loss to its lowest level since July 12, triggered by below-forecast U.S. CPI data. Dovish comments from ECB officials added to concerns about a potential rate hike beyond the expected 25bp increase this week. USD/JPY also declined 0.2% amid a broader risk-on sentiment and ahead of the Fed meeting. However, strong services data and rising Treasury yields provided some support.

Market expectations for a 25bp Fed rate hike were steady, but there were doubts about additional rate increases in the future. Speculation about increasing the pace of quantitative tightening instead of raising rates multiple times emerged. The BoJ meeting was anticipated to maintain unchanged policies, but some trimming of yen shorts was possible if there were any surprises.

Traders remained cautious due to significant upcoming U.S. data releases, including GDP, jobless claims, personal income, spending, core PCE, employment costs, and Michigan sentiment. Additionally, market participants kept an eye on earnings reports from major U.S. tech companies and beyond.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Continues Decline Amid Weaker Euro and Central Bank Decisions

The EUR/USD pair experienced its fifth consecutive day of losses as the Euro weakened ahead of central bank decisions. The European Central Bank (ECB) survey revealed a significant drop in loan demand from companies, indicating a deteriorating economic outlook. The German July IFO survey also disappointed expectations. While a 25-basis point rate hike from the ECB is anticipated, the future interest rate trajectory remains uncertain. The focus now shifts to the upcoming FOMC meeting, where the Federal Reserve’s rate decision and messaging will be critical for the EUR/USD direction, with potential for increased volatility in the market.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD pair is experiencing a downward movement on Tuesday, leading to a push towards the lower band of the Bollinger Bands. This movement has also resulted in a wider gap between the bands. The Relative Strength Index (RSI) currently stands at 29, indicating that there is potential for further downward movement in the EUR/USD pair.

Resistance: 1.1121, 1.1208

Support: 1.1022, 1.0950

XAU/USD (4 Hours)

XAU/USD Prices Up as US Dollar Surges Amidst Fragile Economic Balance

Gold prices have risen despite XAU/USD reaching a one-week low, as the US Dollar strengthened due to a bleak economic outlook. The upcoming monetary policy announcements by the US Federal Reserve and the European Central Bank are awaited with caution, with expectations of a rate hike. Traders are also keeping an eye on macroeconomic figures, including Q2 Gross Domestic Product and inflation updates for the US and Germany, to determine the direction of the FX board in the coming weeks.

Chart XAUUSD by TradingView

According to technical analysis, the XAU/USD pair initially experienced a slight decline on Monday. However, it subsequently rebounded and reached the middle band of the Bollinger Bands. At present, the price is slightly above the middle band. Furthermore, the Relative Strength Index (RSI) currently stands at 51, indicating that the XAU/USD pair is still in a neutral position.

Resistance: $1,971, $1,992

Support: $1,954, $1,941

Economic Data

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

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The Dow Jones Industrial Average continued its impressive winning streak, marking the longest rally since February 2017, with an 11th consecutive day of gains. The 30-stock Dow rose 0.52%, reaching 35,411.24 points, supported by a 0.40% rise in the S&P 500 and a 0.19% gain in the Nasdaq Composite. Energy stocks led the upward trend, particularly with a 1.7% surge in the S&P 500’s energy sector following positive oil and gasoline futures. Notably, Chevron’s nearly 2% increase came after the company reported better-than-expected preliminary second-quarter earnings. However, market participants remain cautious as the upcoming week includes significant earnings reports from approximately 150 S&P 500 companies and the Federal Reserve’s policy decision. Traders are eager to gauge Chair Jerome Powell’s remarks to understand the central bank’s approach to the economy’s soft landing and the potential quarter-percentage-point rate increase anticipated at the meeting’s conclusion on Wednesday.

Investors are closely monitoring the potential impact of the earnings reports and the Fed’s policy decision on the recent bullish run. The upcoming week is marked by substantial earnings releases from major companies, including Alphabet, Microsoft, and Meta, as well as industrial firms and big oil. Furthermore, traders are eagerly awaiting the release of the personal consumption expenditures index, the Fed’s preferred inflation gauge, at the end of the week. As these critical events unfold, Wall Street remains on the lookout for any signs of market volatility and potential shifts in economic sentiment.

Data by Bloomberg

On Monday, the overall market showed positive performance, with all sectors gaining 0.40%. The energy sector led the way with a notable increase of 1.66%, followed closely by financials and real estate, which rose by 1.01% and 1.00%, respectively. Consumer discretionary stocks also performed well, posting a gain of 0.52%. Communication services and consumer staples sectors saw modest growth with increases of 0.46% and 0.38%, respectively. Materials and information technology sectors showed moderate gains of 0.31% and 0.26%. However, the health care sector experienced a slight decline of 0.23%, while utilities had a marginal decrease of 0.28% on Monday.

Major Pair Movement

The dollar index strengthened by 0.26% as both the euro and sterling faced losses due to disappointing flash euro zone and UK PMI data. This rise in the dollar index was partially offset by a 0.25% drop in USD/JPY, which followed steady Japan PMI figures. Market participants were closely monitoring the upcoming meetings of major central banks, including the Federal Reserve, the European Central Bank (ECB), and the Bank of Japan (BoJ), all scheduled later in the week.

The dollar’s resilience was supported by a rebound in Treasury yields, which had initially fallen in response to lower European yields and mixed U.S. PMI data. However, the retreat in yields was short-lived, bolstered by increased corporate supply and expectations surrounding this week’s 2, 5, and 7-year Treasury auctions. The future direction of Treasury yields and the dollar hinges largely on the statements issued by the Federal Reserve after the expected 25 basis point rate hike on Wednesday. Market sentiment remains uncertain, given broader indications of a cooling U.S. economy and lower inflation, which may potentially favor rate cuts in the coming year.

During this period of central bank activity, investors were also closely monitoring the impact of Russian attacks on Ukraine ports, which contributed to a surge in wheat prices, and the ongoing recovery in fuel prices. Additionally, traders kept a keen eye on other crucial economic indicators such as German Ifo data and U.S. consumer confidence. The ECB is expected to implement a 25 basis point rate hike on Wednesday, with further increases largely priced in by year-end. Consequently, the euro experienced a decline of 0.49%, while sterling also faced a 0.23% drop, as the Bank of England (BoE) is likely to pursue a 25 basis point rate hike in August, followed by additional hikes to tackle higher inflation in the UK. USD/JPY experienced fluctuations in line with Treasury yields, fueled by lingering hopes that the BoJ would raise its JGB yield cap on Friday. Moreover, Japanese government efforts to limit yen depreciation, which contribute to cost-push inflation rather than demand-pull inflation, also influenced the currency pair’s movements.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Extends Decline as Eurozone PMIs Miss Expectations Ahead of Central Bank Meetings

The EUR/USD currency pair continued its downward trajectory, marking its fifth consecutive day of losses and reaching its lowest daily close since July 12. The euro’s correction lower follows its earlier peak at around 1.1300, which was the highest level in over a year. Economic data from the Eurozone, particularly the disappointing Manufacturing PMI at 42.7 and Services PMI at 51.1 in June, along with a Composite Index of 48.9, the lowest since November, raised concerns about the region’s economic strength and potential recession risks. Despite this backdrop of economic weakness, the European Central Bank (ECB) is still anticipated to implement a 25 basis point interest rate hike on Thursday, with the market closely watching the bank’s messaging for further cues.

As market participants positioned themselves for the Federal Reserve’s decision, US Treasury yields experienced a slight increase. The Fed is expected to raise its key rate by 25 basis points on Wednesday, making the central bank’s statements crucial for the direction of the US Dollar and financial markets overall. The US PMI data showed mixed results, with the Services PMI falling to 52.4 in July, below the expected 54, while the Manufacturing PMI rebounded to 49, exceeding the market consensus of 46.4. Amidst these developments, the DXY (Dollar Index) continued to rise, exerting downward pressure on the EUR/USD pair. Though some stabilization may occur prior to the Fed meeting, increased volatility is expected in the coming sessions. Key events to monitor include the German IFO survey and US housing data on Tuesday.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD pair is moving lower on Monday creating a push to the lower band of the Bollinger Band and creating a wider gap between the bands. The Relative Strength Index (RSI) is currently at 31, suggesting that the EUR/USD pair has the potential of moving lower.

Resistance: 1.1121, 1.1208

Support: 1.1022, 1.0950

XAU/USD (4 Hours)

XAU/USD Under Mild Pressure as US Dollar Gains Favor Amid Encouraging Data

Gold started the week facing mild pressure and remained at the lower end of the previous week’s range, with XAU/USD trading below $1,960 per troy ounce. The US Dollar saw some market favor after mixed yet encouraging data from the United States. S&P Global’s preliminary estimates of the July Purchasing Managers’ Index (PMI) showed a higher-than-expected increase in the Manufacturing PMI, reaching 49, its highest level in three months. However, the Services PMI, though still in expansionary territory, slowed to 52.4 from the previous 54.4. Despite this, US companies indicated continued business activity growth in July, with the service sector leading the expansion. Wall Street remained resilient, disregarding negative cues from international markets, as investors focused on upcoming earnings reports and significant events, including decisions on monetary policy from the US Federal Reserve and the European Central Bank. Furthermore, crucial economic indicators such as the preliminary Q2 Gross Domestic Product (GDP) estimate and the June Personal Consumption Expenditures (PCE) Price Index were also anticipated.

Chart XAUUSD by TradingView

According to technical analysis, the XAU/USD pair moved lower on Monday but then managed to move back higher and try to reach the middle band of the Bollinger Bands. Currently, the price is slightly below the middle band. Additionally, the Relative Strength Index (RSI) is at 48, suggesting that the XAU/USD pair has returned to a neutral stance.

Resistance: $1,971, $1,992

Support: $1,954, $1,941

Economic Data