Dow Records Best Day in Over a Year, Reaches New High Amid Positive Earnings and Retail Data | Daily Market Analysis

Key events:

• UK - CPI (YoY) (Jun)
• Eurozone - CPI (YoY) (Jun)
• USA - Crude Oil Inventories

The Dow had its best day in over a year on Tuesday, closing at fresh record highs, buoyed by better-than-expected retail sales data and a series of mostly positive quarterly earnings reports.

The Dow Jones Industrial Average surged 742 points, or 1.9%, marking its best day since June 2023 and reaching a new all-time closing high of 40,954.48. The S&P 500 rose 0.6% to a record 5,666.98, while the NASDAQ Composite increased by 0.2%.

Gold prices struggled to capitalize on their Asian session rise to a fresh record peak around the $2,482-$2,483 area, currently trading with modest intraday gains. A slight uptick in the US Dollar led traders to take some profits amid a slightly overbought Relative Strength Index (RSI) on the daily chart.

Moreover, the ongoing risk-on sentiment, as evidenced by the persistent rise in global equity markets, has led to a slight intraday retreat. Despite this, a significant drop in gold prices appears unlikely due to the increasing belief that the Federal Reserve will initiate its rate-cutting cycle in September. This outlook keeps US Treasury bond yields near multi-month lows, which should restrain the USD and continue to bolster the non-yielding yellow metal. Consequently, it would be prudent to await decisive selling before concluding that XAU/USD has established a near-term peak and considering bearish positions.

The Japanese Yen continued its decline for the third consecutive session on Wednesday, with the USD/JPY pair gaining support from a modest recovery in the US Dollar, spurred by improved Treasury yields. Traders remain vigilant amid suspicions of intervention by Japanese authorities, following data released on Tuesday showing the Bank of Japan's participation in the foreign exchange market on consecutive trading days last Thursday and Friday.

Current account balance data from the BoJ, released on Tuesday, anticipates a liquidity drain of approximately ¥2.74 trillion ($17.3 billion) from the financial system on Wednesday due to various government sector transactions. This follows an earlier forecast of a ¥600 billion drain, according to Nikkei Asia.

The GBP/USD pair continued its sideways consolidation for the third consecutive day on Wednesday, trading around the 1.2970 region during the Asian session. Spot prices remain near the one-year peak reached on Monday, with a supportive fundamental backdrop suggesting the potential for extending a two-week-old uptrend. The UK Consumer Price Index is expected to show a 0.1% increase for June, down from 0.3% the previous month, while the annual rate is anticipated to hold steady at 2.0%. Reduced odds of a Bank of England rate cut in August, particularly after stronger-than-expected economic growth in May, continue to support the British Pound and the GBP/USD pair.

The Australian Dollar recovered its daily losses on Wednesday, though the AUD/USD pair faced challenges due to a modest rebound in the USD. This rebound was likely influenced by a hawkish speech from Federal Reserve Board of Governors member Dr. Adriana Kugler on Tuesday. Dr. Kugler acknowledged easing inflationary pressures but stressed the need for additional data to justify a rate cut, indicating that if upcoming data does not confirm progress toward the 2% inflation target, it may be appropriate to maintain current rates for a while longer.

The AUD/USD pair could encounter further difficulties as investor expectations for a Reserve Bank of Australia rate hike diminish. Nonetheless, the RBA is still expected to delay joining the global rate-cutting cycle. Investors are now focused on Australian employment numbers, due on Thursday, for further insights into the monetary policy outlook.