Hello and welcome to the Key To Markets preview of the Week Ahead.Â
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5-day performance as of July 8, 2021. 22:00 GMT
Source: finviz.com
In case you missed it….
Not so hawkish. The dollar caught a bid right after Fed minutes were released but the general view in markets was that Fed officials seemed in no rush to begin tapering asset purchases.
Didi shares crash. DIDI slumped 25% days after its IPO on news Chinese officials had instructed the company’s app to be removed from app stores until it had conducted a cybersecurity review.
Oil price 7-year high. The price of oil spiked to hits highest in 7-years after OPEC+ failed to make a deal on output but then slumped on profit-taking at technical resistance.
Gold retakes 1800. Precious metals popped at the start of the week thanks to weak US economic data, but things got choppy after Fed minutes with a sustained gold recovery still in doubt.
Aussie down under. AUD/USD slumped to fresh 2021 lows after dovish rhetoric from RBA Governor Lowe and concerns about the slow vaccine rollout.
Yen smashes 110. USD/JPY dropped through the big 110 level amid wider risk-aversion, while Japan itself declared another national emergency weeks before the Olympics are set to kick-off
Russia dumps dollars. The country’s finance ministry has said it has completed the FX conversion needed to scrap the US dollar from the national wealth fund worth $190 billion.
Robinhood IPO. The IPO prospectus revealed it made $30 million from clients trading Dogecoin, and now has $80 billion in assets and 18 million accounts thanks to crypto and meme stock mania.
US services slump. The US ISM Services PMI tumbled from 64.0 to 60.1 A steep rise in average prices might be starting to weigh on activity and markets wobbled over fears the recovery is slowing.
Goldman’s football forecast. The investment bank’s probability model predicted England would win the Euros football Championship with a 31.9% chance of winning, while putting Italy at 22.4%.
Source: Bloomberg
Treasury yields have been falling after peaking in March and have now touched a rising trendline that has been in place since August last year. The reason being that the markets have understood the message from the Fed that it will rush to raise rates in response to short-term spikes in inflation.
The change in bond markets has seen ‘reflation trades’ like Small cap stocks and cyclical stocks fade, while growth trades like US tech stocks have re-emerged. Should the trendline hold, we can expect some of those trends to reverse again.
The relationship of the bond market to FX markets is normally one of ‘relative yields’. So because yields in Germany have come down faster than in the United States, US bonds have been offering a relatively better yield than in Europe so the dollar has been gaining against the euro.
Source: Fx Street
America’s biggest banks including Bank of America, Citigroup and JP Morgan report third quarter results this week in the unofficial kick-off to Q3 earnings season. The banks reported blowout earnings in Q2 because they released some of the reserves they had set aside at the start of the pandemic. Good times should be set to continue with the US economy firing on all cylinders. Some of the banks will announce plans for shareholder returns after the Federal Reserve gave them permission to issue dividends and continue share buybacks having blocked them during the recession.
We think traders might be best served trading the RBNZ meeting with cross currency pairs away from the NZD/USD. That’s because the Kiwi dollar is breaking down in what could be a long-term topping pattern, almost entirely due to strength in the US dollar. The RBNZ if anything will turn more hawkish at this week’s meeting, which should all else being equal be a positive for the NZD. House prices continue to rise despite government-enforced lending curbs and signs of cost push inflation are rising. Westpac Bank now see the RBNZ lifting rates in November, which if that is the case, they will need to start signalling it from either now or the meeting in August.
Major central bank meeting number two of the week comes from Canada, where again another hawkish turn might be expected. The BoC were one of the first to raise the alarm bells about inflation and taper its asset purchases. That looks to have been the right call as the price oil, the country’s biggest export just hit a 7-year high, supporting the economy and adding to price pressures. Much like the case of the Aussie, the trend of USD/CAD is counter to the mood in Canada thanks to the hawkish shift at the Fed. 1.20 is the big long term support level for USD/CAD that for now is holding.Â
Continuing the theme of counter-intuitive currency moves, the yen spiked towards the end of last week amid haven concerns. USD/JPY has dropped back underneath the big 110 level as investors returned to the safety of Japanese government debt. But the yen-strength belies the dovishness of the BOJ, which given the latest covid outbreak in Tokyo and problems with the Olympics is probably going to signal it will continue its stimulus. There is even talk now that the BOJ will back new cheap loans to support climate change.
While Fed policy has been the dominant mover of global markets, signs of a regulatory crackdown on commodities speculation and Chinese tech companies, especially those listed in the US, alongside tightening credit conditions in China are very significant. The way markets could react to the data has some nuance. While good data would be positive for the global economy and reflation trades, it might also embolden Beijing to continue reigning in credit and expanding its control over the country’s tech sector – which could be a negative for risk appetite.
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 maintains a downward bias but the price is stuck in a 1.18 to 1.188 range and has the potential to break higher for a larger bounce that could offer better selling opportunities near 1.20.
GBP/USD is attempting a double bottom at 1.375 but the downtrend is still in place, suggesting higher probability trades are going short near supply areas at 1.386 then 1.395.
USD/JPY saw a dramatic trend reversal last week as it broke below its month-old rising channel. Opportunities to sell into the trade look sparse until a rebound back to 110.4
AUD/USD has dropped below 0.74 for a new 2021 low, having failed to break above 0.76 on its most recent bounce. A bounce towards 0.75 could offer a fresh selling opportunity.
USD/CAD has broken above resistance at 1.248 and continues its uptrend, with a possible upside target being 1.265, the resistance formed in March-April.
XAU/USD has broken back over the psychological 1800 level but the overall trend remains lower, with opportunities to sell near the top of the recent range at 1820 or 1850.
Brent crude found support at 72 following a big slide from 7-years highs and over the 77 level. While above a pivot level at 73.80, it appears the correction could be over.
The US500 finally saw some volatility with a move down to under 4300. The trend remains higher so another drop towards the 50% retracement at 4250 could present a buying opportunity.Â
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.Â
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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