Stocks rallied yesterday until Powell’s “Anything is possible” reply to a question about whether a 100 bp rate hike was off the table. Such extraordinary guidance left the dollar ranging as investors didn’t quite know how to position themselves and stocks started to sell off while the dollar kept on ranging. T-Bonds had a strong rally that continues even at the time of writing this report. The weekly chart is bullish signalling lower yields in the near future. This is on its own USD negative but the uncertainties present in the world today could create safe-haven flows into the dollar. USOIL stopped sliding after becoming fairly oversold near the 100-dollar mark. Gold has been swinging about aimless just like the dollar over the recent days. Powell’s comments didn’t help the matter and gold traders are left to take their cues from the technicals. This morning French (54.4 vs. 57.6 expected) and German (52 vs. 54 expected) PMIs came in below expectations pushing the EURUSD lower. Only the UK services PMI came in slightly above expectations. The next main risk events are the release of the US PMI numbers and Fed Chair Powell’s testimony. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
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EURUSD rallied a bit yesterday but wasn’t able to penetrate the 1.0600 level. Today the PMI disappointment pushed the pair significantly lower. It’s now trading near to rising trendline support at 1.0490. The SMA(50) coincides with the level here adding to the significance of this support. If the market rallies from here the next key resistance is at 1.0555 and could attract some intraday profit-taking. Just below the 1.0490, we have yesterday’s low at 1.0468 (another key support level).
Gold broke out of a bear channel yesterday and if the bulls now defend levels above 1831.06 (today’s low) it’s likely that gold bulls will test their strength on the swing high created yesterday (1847.85). A break below today’s low would probably take the market to 1823.38.
GBPNZD – I said yesterday that the big picture in GBPNZD is still bullish above 1.9244 and that we therefore should keep this market on our watchlist. The market has now created a lower high below the 1.9620 level suggesting we’ll see a correction lower today. The key support levels above the 1.9244 low are 1.9326 and 1.9407.
USOIL – Selling in oil eased a bit yesterday and the market rallied in the US session. Since then the price has been hovering around the 61.8% Fib-level. This market is still in a downtrend and the nearest resistance level is fairly close (at 106.19) while the nearest key support level is at 97.15. The downside prevails until we have a trend reversal. Having said this USOIL is fairly oversold and this is why we need to be prepared for the possibility of the downtrend reversing soon. A break above the bear channel high would be the first indication that something’s changing in the market psychology.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Fed hiked by 0.75% in June and indicated that there will steady rate hikes until the end of the year.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has been rising strongly over the last two weeks as investors sell their bond holdings.|
|Employment||The May non-farm payrolls increased by 390K (436K previous) while the participation rate was confirmed at 62.3% (62.2% previous). The unemployment rate remained unchanged at 3.6%.|
|Inflation||The US annual inflation growth for May accelerated to 8.6%. This was the highest reading since 1981. Analyst consensus had expected the yearly rate to be 8.3%. The prices for energy (+34.6%) and food (+10.1%) made record increases. For food, this was the first increase of 10% or more since March 1981.|
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The Next Main Risk Events
- USD – Unemployment Claims
- USD – Flash Manufacturing PMI
- USD – Flash Services PMI
- USD – Fed Chair Powell’s Testimony
- GBP – Retail Sales m/m
- EUR – German IFO Business Climate
- AUD – RBA Gov Lowe’s Speech
- USD – Revised UoM Consumer Sentiment
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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