Tech Gains Propel Nasdaq to Record High, S&P 500 and Dow Slightly Lower | Daily Market Analysis

Key events:

• Eurozone - ECB's Lane Speaks
• Eurozone - ECB President Lagarde Speaks
• Eurozone - ECB's De Guindos Speaks
• USA - Member Williams Speaks
• USA - FOMC Member Harker Speaks

On Friday, the Nasdaq achieved its fifth consecutive record high, driven by gains in Adobe and other technology stocks, while the S&P 500 and Dow ended the day slightly lower.

Although the S&P 500 did not extend its four-day streak of record closing highs, it still recorded a weekly gain of over 1%.

The S&P 500 technology sector increased by 0.5%, reaching a new record high. The communication services sector also rose by 0.6%, leading the sector gains.

Adobe shares surged 14.5% after the company raised its annual revenue forecast, citing increased demand for its AI-powered software.

The Dow Jones Industrial Average dropped 57.94 points, or 0.15%, to 38,589.16. The S&P 500 fell by 2.14 points, or 0.04%, to 5,431.6, while the Nasdaq Composite added 21.32 points, or 0.12%, to close at 17,688.88.

Over the week, the Dow declined by 0.5%, the S&P 500 rose by 1.6%, and the Nasdaq gained 3.2%.

The USD/CAD pair saw some dip-buying on Monday but remained within its recent trading range. Currently, the pair is trading just below the mid-1.3700s, up less than 0.10% for the day, influenced by a mix of factors.

Crude oil prices dropped on Monday, partially erasing last week's strong gains due to concerns over weaker US consumer demand, which negatively impacts the commodity-linked Canadian dollar. Meanwhile, the US Dollar remains strong near its highest level since early May, bolstered by the Federal Reserve's hawkish stance, which includes a forecast of only one rate cut in 2024. This has provided some support for the USD/CAD pair.

Last week's data showing weaker-than-expected US consumer and producer prices indicates that inflation is easing. Additionally, a surprise drop in US import prices has improved the domestic inflation outlook.  This keeps the possibility of the first Fed rate cut in September open. These factors are preventing USD bulls from making aggressive bets, potentially capping the upside for the USD/CAD pair.

The Australian Dollar extended its losing streak for the third consecutive day on Monday, primarily due to the strength of the US Dollar. The Greenback remains buoyant on expectations that US interest rates will stay elevated for an extended period, with Federal Reserve officials projecting only one rate cut this year.

Additionally, mixed economic data from China and ongoing challenges in its economy exerted further pressure on the Aussie, as China is a major importer of Australian goods, accounting for one-third of its exports. Investors are keenly awaiting the Reserve Bank of Australia's interest rate decision on Tuesday and the subsequent press conference by Governor Michele Bullock. A hawkish stance from the RBA could bolster the AUD and limit its downside against the USD in the near term. Meanwhile, in the US, May's Retail Sales data is anticipated to show an improvement to 0.3% from April's 0%.

Gold prices failed to maintain Friday's positive momentum and encountered fresh selling pressure on Monday. The precious metal traded lower through the Asian session, currently hovering below $2,325, down around 0.40% for the day. Signs of easing inflation in the United States have kept the possibility open for at least two rate cuts this year, restraining aggressive USD bullish bets. However, persistent geopolitical tensions in the Middle East and political uncertainties in Europe could provide support for gold as a safe-haven asset, limiting further declines.

The USD/JPY pair continued its rally near 157.50 during the early Asian session on Monday, supported by the Fed's hawkish stance. In contrast, the Japanese Yen weakened following the Bank of Japan's decision to maintain its interest rate at 0% after its June policy meeting on Friday. The BoJ indicated potential reductions in its Japanese government bond purchases after the next monetary policy meeting in July. BoJ Governor Kazuo Ueda suggested that a rate hike in July is not off the table, as the weak JPY increases import costs. This cautious approach from the BoJ continues to undermine the JPY, acting as a tailwind for USD/JPY.

The GBP/USD pair struggled to build on Friday's modest rebound from near mid-1.2600s, oscillating within a narrow range on Monday. Spot prices have settled below the 1.2700 mark, with further declines possible due to the bullish sentiment surrounding the USD.

Persistent inflationary pressures in the UK might compel the Bank of England to maintain current interest rates for a longer period, deterring bearish bets on the British Pound. Moreover, the upcoming release of the UK CPI report and the general election on July 4 warrant caution before positioning for additional depreciation in the GBP/USD pair.