The Week Ahead 📈 16th – 20th August 2021

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

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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

Currency Pair Performance

5-day performance as of August 12, 2021. 20:30 GMT

Source: finviz.com

10 Big Stories Last Week

In case you missed it….

Gold flash crash! Precious metals had a rough start to the week, crashing in minutes and then fully recovering within hours. Gold lost 4% at its worst on the day, while silver was down 7%.

Yee-haw infrastructure: The US Senate passed a $1 trillion infrastructure bill after months of deliberation. The Next step is Senate Democrats will try to pass a $3.5 trillion budget.

CPI high but steady: US CPI remained at 5.4% y/y in July, steady from its 13-year high in June. The dollar dropped after the data because the monthly price growth slowed.

NFP Boom: US job growth accelerated by the most in almost a year in July according to non-farm payrolls data. The news sent Treasury yields back over 1.3%. 

Europe likes Gold: European investors poured about $1 billion into ETFs that invest directly in gold in July, more than offsetting outflows from US gold funds according to the FT.

Bitcoin > 200 DMA: The price of BTC/USD made the bullish technical analysis development of crossing over the 200-day moving average. 

Wall Street bonuses: Most Wall Street workers can expect double their 2020 bonuses in 2021 and investment bankers are looking at the highest pay-out in a decade thanks to the surge in M&A.

Biggest crypto theft: ‘White Hat’ Hackers stole $613 million in digital coins from token-swapping platform Poly Network, then returned most of it two days later.

OPEC plus Joe? President Joe Biden made the unusual and quite Trump-esque move of imploring the OPEC+ cartel of oil producing nations to speed up production rises to bring fuel prices lower.

Virgin Atlantic IPO: With trans-Atlantic air travel still on hold, Richard Branson is making the bold but probably necessary move of raising capital by selling shares of his beloved airline.

Chart of the Week

Source: The Market Ear

Option volume over shares volume is the highest level on record (>140%). Single stock call notional volume is the highest level on record (~$320B) per day. 72% of options traded have an expiry of two-weeks or less, which is the shortest expiry on record. 

Options are a great trading tool, but they are more risky than traditional shares because of the inherent leverage and short expiries. These high options volumes versus traditional shares volume shows ‘excessively bullish sentiment’ and contrarians will take it as another sign the stock market is close to a top. 

Economic Calendar Highlights

Source: FX Street

5 Things to Watch This Week

• What next for gold?

The price of gold was slammed to a 4-month low last week. The trigger for the flash crash on Monday was likely traders in Asia buying dollars and selling metals in a late reaction to the strong NFP data on Friday. A strong US jobs market makes it more likely Fed Chair Powell defines the tapering timeline at Jackson Hole this month. Is that as bad as it gets or is there worse to come? The rebound off the lows is encouraging but the extent of the drop is worrisome. For now, gold remains in a long-term sideways range.

• Bitcoin is back!

Bitcoin is now up over 50% from its lows this year, recouping 45k last week after the drop below 30k in May and several times since. In a nice example of reflexivity in market prices, Bitcoin has also retraced 50% of its decline from record highs. At the same time, it crossed just over the 200-day moving average. Technical analysts will note the convergence of resistance at these levels, but nobody should question the power of momentum once it gets going in cryptocurrencies.

• Tencent earnings

Individual earnings don’t normally matter for broader market sentiment but in the case of Tencent it could. The company has borne the brunt of recent changes in the regulation of tech companies in China, with its WeChat app at one point temporarily taken out of App Stores. The so-called ‘Chinese crackdown’ only began in Q3 but the numbers from Q2 will give investors a clue how muscular tech company balance sheets are to defend anymore regulatory uncertainty. 

• RBNZ meeting

The Reserve Bank of New Zealand is on tap this week as far as monetary policy goes. The NZD/USD forex pair has been sluggish in recent weeks despite hawkishness from the RBNZ, which looks like it will be among the first of the major central banks to hike rates this week. Perhaps the pair to watch is AUD/NZD as investors speculate the RBA may be forced to reverse course on tapering plans because of lockdowns in Australia. 

• Eurozone GDP

EUR/USD tested its April lows at 1.17 last week in a sign of bearishness in the market towards the euro. The specific trigger was dollar strength, but the euro has been falling against other currencies like the British pound (EUR/GBP) because of the ECB’s relatively dovish stance versus other central banks which are starting to wind down stimulus. Eurozone GDP data is one barometer for how long this is possible.

Technical Analysis

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

EUR/USD (H4 Candlestick Chart)

EUR/USD had not bottomed as we suspected and rolled over sharply after failing to break over 1.19. The downtrend is back on but a move back over 1.175 could spark a move back up to 1.183.

GBP/USD (H4 Candlestick Chart)

GBP/USD dropped to the 1.38 level (which last week we called a ‘better buying opportunity’) and rallied 80+ pips before giving it all back. We assume the weakness extends to 1.375.

USD/JPY (H4 Candlestick Chart)

USD/JPY added to its bullish engulfing pattern the week prior with gains up to 110.8 before dropping back with a bearish engulfing pattern on the 4hr chart around resistance.

AUD/USD (H4 Candlestick Chart)

AUD/USD remains within a roughly 90-pip range from 0.732 to 0.741 in what looks more likely to be a pause in a longer-term downtrend.

USD/CAD (H4 Candlestick Chart)

USD/CAD still finds strong resistance at the supply zone around 1.26. Price below the 20 DMA and a broken rising trendline suggests more weakness in price.

Gold (H4 Candlestick Chart)

XAU/USD dropped dramatically out of its tight sideways range (low to high volatility). Should the price hold above the 61.8% Fibonacci then 1790 is resistance, while support is the spike low at 1685.

Brent Oil (H4 Candlestick Chart)

BRENT dropped right back to the July lows and rebounded in what continues to be sideways trading. The break of a falling trendline suggests the price could hold 70 and see more upside. 

US 500 (H4 Candlestick Chart)

US500 broke above the top of its sideways range at 4425, re-tested it and went to form new record highs. The distance of price over the 20 DMA is one way to try to time pullbacks. 

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

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