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Andreas Zanin
Analysis, Education | July 16, 2021

The Week Ahead 📈 19th – 23th July 2021

Hello and welcome to the Key To Markets preview of the Week Ahead.

If you have any questions about this information, please contact your KTM Account Manager who will be happy to assist.

Contents

  • Currency Pair Performance
  • 10 Big Stories Last Week
  • Chart of the Week
  • Economic Calendar Highlights
  • 5 Things to Watch this Week
  • Technical Analysis: EUR/USD | GBP/USD | USD/JPY | AUD/USD | Gold | Oil | S&P 500 | DAX
  • Trading Signals

Currency Pair Performance

5-day performance as of July 16, 2021. 05:00 GMT

                                                   Source: finviz.com


10 Big Stories Last Week

In case you missed it….

RBNZ stops QE. In a shock move at its policy meeting last week, New Zealand’s central bank said it will stop all its bond buying by this Friday (23rd).

BOC tapers. The Bank of Canada tapered its bond purchases from C$3 billion to C$2 billion but the hawkish move left traders cold, with the CAD among the top FX decliners last week.

Dollar strength. The greenback gained against most major currencies last week, even those with hawkish central banks. Fed Chair Jerome Powell assured Congress the Fed will fight inflation.

Apple stock ATH. News that Apple had told suppliers to prepare for a 20% rise in iPhone sales to as many as 90M this year took the stock to a fresh all-time high last week.

Oil 1-month low. News that Saudi Arabia and the UAE had reached a compromise on oil production that would help secure an OPEC+ agreement sent the price of oil to a 4-week low.

US Bank earnings. Banks got earnings season off to a good start last week with lenders releasing reserves put aside at the start of the pandemic to boost their bottom lines.

$9.5 trillion. Blackrock, the world’s biggest asset manager reported in its Q2 results that assets under management (AUM) reached a staggering new record of $9.49 trillion.

Treasury yields retreat. The yield on 10-YR Treasuries dropped to 1.3% with bond investors seemingly buying the Federal Reserve narrative that inflation is ‘transitory’.

China’s warning. Chinese Q2 GDP came in at 7.9% y/y in Q2, slightly missing estimates with the country accompanying the numbers with a warning of ‘economic uncertainty’.

Booster shots. Israel will be the first country to offer residents a third shot of Pfizer’s covid-19 vaccine after the spread of the Delta Variant saw cases rise.


Chart of the Week

                                    Source: Daily Shot / Lohman Econometrics

Earnings season has started, and inflation is rising – so what is the affect of one on the other?

Earnings yield is a valuation metric. It is the earnings per share (EPS) for the most recent 12-month period divided by the current price per share. Real Earnings yield is the Earnings yield accounting for inflation.

As can be seen from the chart above – for the first time in 40 years, the real earnings yield has dropped significantly under 0%. The interpretation is that based on share prices, corporate earnings, and inflation – investors will on average lose money investing in the S&P 500 over the next 12 months.


Economic Calendar Highlights

                                                      Source: FX Street


5 Things to Watch This Week

1)     ECB Meeting

This week’s meeting comes amidst a bout of euro-weakness with EUR/USD just about clinging onto 1.18. Interest rates will (of course) stay the same and likely the PEPP bond-buying program will too but unusually ECB President Christine Lagarde has foretold investors that some “interesting variations and changes” are coming at the July meeting. Presumably, the changes will have been made possible by the ECB completing its months-long policy review this month. ICYMI the ECB decided to change its inflation target to 2% from ‘below but close to 2%’. That will make it easier to tolerate periods of inflation over 2%.

2)     PBOC rate decision

The People’s Bank of China have for the most part been trying to reign in credit over the past year after extraordinary steps were taken at the onset of the pandemic. That shifted last week when it cut the Reserve Ratio for banks (RRR) by 50 basis points, releasing $154 billion-worth of liquidity into the system. Chinese stocks jumped on the news while the Chinese yuan fell but reversed some of the moves by late last week. The RRR cut increases the chance that the PBOC will lower its loan prime rate (LPR) this week from 3.85%, although the consensus is still that it will remain unchanged.

3)     Netflix earnings

The first of the big tech and FAANG earnings comes from Netflix (NFLX) this Tuesday. Netflix shares are up around 10% year-to-date but the share price has been trading in a sideways range with support around the $500 level. In Q1 the streaming giant warned that subscriber growth would slow for the rest of the year, which makes sense given the huge uptake during national lockdowns. That has served to lower expectations, which in theory makes them easier to beat. The results will also be an interesting barometer for all ‘stay at home’ and ‘digital’ stocks which have not fared so well this year but have come back in the last month or so.

4)     July PMIs

The latest purchasing manager surveys (PMIs) could be big movers for currencies this week from two perspectives. The first is that investors will be parsing through comments in the surveys about cost-pressures to judge inflation. The second is that the readings have been very impressive over recent months, hitting records in some cases, but now there is a concern that the best could be behind us. Weaker PMIs tend to predict slower economic growth ahead.

5)     Bitcoin Breakdown?

Things have been a lot less bullish in the crypto-world of late but there have been multiple +/- 5% daily price swings to keep traders busy. The longer the price hangs out in the $30K – $40K range, the greater the risk that price ultimately breaks lower instead of forming a bottom. Last week the price was challenging the lows around $30k in an increasing sign of disinterest in the asset class. The big test could be when there is some favourable news like a big company making BTC available as means of payment. If the price can’t break $40,000 after good news, then it might mean the next big handle reached is $20,000.


Technical Analysis

Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, the S&P 500 and Germany’s DAX index.

EUR/USD (H4 Candlestick Chart)

EUR/USD is trending lower within a down-sloping channel but continues to find support near 1.18. A break higher from the channel confirmed by a move over 1.188 would signal a trend reversal.

GBP/USD (H4 Candlestick Chart)

GBP/USD has fallen into sideways range-trading conditions with nearby resistance at 1.39 and support at 1.38. A break below 1.374 is needed to resume the downtrend.

USD/JPY (H4 Candlestick Chart)

USD/JPY: The selling opportunity we mentioned around 110.4 worked last week but could present a second chance on any bounce. A further dip to 109.2 could be a buying opportunity.

AUD/USD (H4 Candlestick Chart)

AUD/USD has held above 0.74 in what could be a double bottom pattern, but for now the trend is lower with resistance just under 0.75.

 

USD/CAD (H4 Candlestick Chart)

USD/CAD faces long term resistance at 1.2650 that could reverse the current uptrend but any short dips before that offer buying opportunities in line with the uptrend.

 

Gold (H4 Candlestick Chart)

XAU/USD now has resistance turned support at 1815. The new uptrend offers an early chance to buy while above 1800. Below 1800 would suggest the recent up-move was just a correction.

Brent Oil (H4 Candlestick Chart)

Brent crude has potentially formed a head and shoulders top. A break below the neckline at 72.50 would imply a much deeper correction towards former resistance at 69/70.

US 500 (H4 Candlestick Chart)

US500 has resumed its uptrend with many short-term buying opportunities on small dips, while a bigger dip under the 20 DMA could find support from a rising trendline and demand area near 4250.


Trade Alerts

You can set price alerts in the MT4 platform at the potential support and resistance areas shown in the charts above to let you know when there could be a potential trading opportunity.

See the table below for possible alerts to use this week.

From the MT4 platform you can enable push notifications to receive these alerts on your mobile phone.

Thank you very much for reading – and have a great week trading!

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