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The GDP growth in the US contracted by 0.9% (annualized) in Q2. This followed a 1.6% drop in the first quarter pushing the US economy into a technical recession. The analyst consensus was predicting a 0.5% growth. Such a disappointment drove the stock prices higher with the rate-sensitive Nasdaq 100 benefitting most from the gloomy outlook. Sounds weird? Yes, it is weird. We now live in a central-bank manipulated world where bad news is good news and the good news is often bad news. Traders believe the Fed will have to either go less hawkish with the rate hikes and perhaps even start cutting the rates in 2023 if the economy starts to shrink. This is a reason to buy stocks – at least in the short term. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

In today’s report, I provide you with trade ideas, analysis and key technical levels on:

EURUSD 8h chart 07 29

EURUSD continues to trade in a slightly downward pointing trend channel after it moved to my target range of 1.0230 – 1.0250. The nearest key S&R levels are 1.0096, 1.0234, 1.0257 and 1.0277. 

The market printed yesterday’s high right in my target range (at 1.0234) before selling off and dropping over 100 pips. That’s a sizeable move for EURUSD. Hope you made some pips! 

GBPUSD 2h chart 07 29 1

GBPUSD corrected a bit yesterday after I warned that the currency pair was trading near an important resistance level. The market, however, is still bullish in the medium-term unless the 1.2020 key support level is violated. The nearest key S&R levels are 1.2020, 1.2085 and 1.2103.

Buying started yesterday well above an important support level (1.2087). That’s not a surprise when the market has just recently been one of the strongest currencies against the dollar. The market is now trending higher after breaking out of the bull channel I highlighted in my July 20th report. Therefore, we have a bullish market that (unless the fundamentals change) is more likely to move higher. Alternative scenario: If the market cannot break into new highs and moves below 1.2020 we need to re-evaluate the technical picture. 

USDJPY 8h chart 07 29

USDJPY keeps trending lower and remains bearish below 135.56. The nearest key S&R levels are 131.49, 134.25, 134.70 and 135.56.

I’ve been bearish on USDJPY lately as it seemed that the markets had priced in the level of aggressiveness the Fed was willing to commit to. This rate-sensitive pair turned bearish a few days and has been trending lower this week. The key support level at 134.70 was penetrated without hesitation. In the event that the bulls decided to try and rally the market, we have a bunch of resistance levels above the current market price. Fed being less hawkish is playing into JPY’s strength but if the perceptions change there could be another rally. Then the manner price reacts to the key resistance levels will provide us with further understanding of what traders are focusing on. 

XAUUSD 2h chart 07 29

XAUUSD – Has rallied strongly after it broke out of the triangle formation. The market is not far from my medium-term target range and remains bullish above 1733. The nearest key S&R levels are 1739.19 and 1752.61. 

I said (here) that if the bulls defended the 1712.80 the 1739.19 resistance is probably taken out.  This would be likely to result in gold reaching the 1786 – 1810 range if the bulls can first (decisively) push the market above the 1739 – 1745 range. Since clearing the 1739 – 1745 range gold has been moving pretty strongly and is now relatively close to my medium-term target range of 1786 – 1810.  Staying with the medium-term (good for swing trades) view, the XAUUSD stays bullish above the 1733 level. A decisive break below the level would question the bull’s willingness to commit to this market. However, judging from the current strength in this market this alternative scenario looks quite unlikely. 

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 ReserveFed hiked the target range again by 75bps (to 2.25%-2.5%). This was the fourth consecutive rate hike. The rate hike was in line with analyst forecasts. The Fed noted that ongoing increases in the target range will be appropriate but the next decisions will be data-dependent.
YieldsIt seems that the US 10-year treasury yield has found a temporary floor at 2.726%. The five-week range high is at 3.498%. 
EmploymentThe number of jobs in the US economy increased by 372K in June beating the market forecasts of 268K. The number was only slightly below the revised (down) 384K in May. The increase was in line with the average monthly gain of 383K over the prior 3 months indicating that the labour market stays strong. 
InflationThe annualised inflation rate for June accelerated to 9.1%. This was the highest reading the Q4 1981 (up 0.5% from May). The cost of energy rose 41.6%. Fuel prices increased 59.9%. These were the biggest increases in these items since Q2 1980. Food costs surged 10.4%, the most since Q1 1981.
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The Next Main Risk Events

  • EUR CPI Flash Estimate
  • EUR Core CPI Flash Estimate
  • USD Core PCE Price Index m/m
  • USD Revised UoM Consumer Sentiment
  • USD ISM Manufacturing PMI (Monday)

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta

Chief Market Analyst

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