Nasdaq and DAX traded lower on Friday as the FedEx warning triggered a fear reaction in investors. The stock (FDX -21.40%) dropped the most ever in one day. The concern is that the FedEx warning of sharp drop in package deliveries implies the US economy is heading to a recession. Nasdaq hit my T1 level at 11720 and penetrated the level only by 11 points before recovering a bit. Both Dow and Nasdaq are trading below resistance areas but also have lost some of the short-term downside momentum. DAX also traded down to my downside target of 12720 on Friday. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
NAS – While both Dow and Nasdaq are trading below resistance areas and are in a downtrend they have lost some of the downside momentum. This could create a return move in the indices and move Nasdaq back to the 12000 mark. There we have some technical confluence though. The 61.8 Fibo level at 12004 coincides with a recently broken support at 12003 and the bear channel high at 11985. So the 11985 – 12004 range could pose a challenge to the bulls. If the level holds we could see another test of Friday’s lows but if the bulls push the market higher and create a decisive breakout from the bear channel we should look for a move to 12186 or so.
DJ – My downside target (30520) was narrowly missed as buying started 0.08% above the level. DJ created a double bottom at 30545 and then rallied back to the 30875 threshold level. If DJ can push above this level it will probably test the 31270 resistance. Below 30875 we should see a move to the 30520 target price.
USNGAS – Natgas has created a head and shoulders formation in the daily timeframe so it’s worth adding this market to our watchlist. Decisive moves lower below 7.784 would indicate a breakout from the formation is real and the market could move significantly lower. A projection based on the width of the formation indicates natgas could move to levels near the June low (5.316). Alternatively, above the 7.784 the market is likely to trade to 8.252 – 8.40 range.
USDCHF is rallying higher after breaking a key resistance level at 0.9642. The market remains bullish above the level. My T1 for USDCHF is 0.9715 and the T2 at 0.9760. Alternatively, the market breaks below the 0.9642 level and trades down to 0.9600.
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 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.|
|Yields||The 10-week range in the US 10-year treasury yield has been from 2.52% to 3.49%.|
|Employment||The US economy added 258 thousand new jobs. June number was revised from 390K to +384K and the average hourly earnings increased 0.5% (month over month) vs 0.3% predicted by the analysts. Such strong growth in employment and earnings reminds us how strong the US economy still is.|
|Inflation||The US inflation rate dropped more than expected. The July reading (YoY) came in at 8.5% after a 40-year high of 9.1% prior. Analyst forecasts had put the number at 8.7%. The cost of energy rose 32.9% (vs. 41.6% in June). Lower cost of petrol (44% vs 59.9%), fuel oil (75.6% vs 98.5%) and natural gas (30.5% vs 38.4%) contributed to the decline. The cost of electricity however increased by 15.2%. Food inflation however increased by 10.9% vs 10.4% prior.|
The Next Main Risk Events
- AUD Monetary Policy Meeting Minutes
- CAD CPI m/m
- CAD Common CPI y/y
- CAD Median CPI y/y
- CAD Trimmed CPI y/y
- EUR ECB President Lagarde Speaks
- USD Existing Home Sales
- USD FOMC Economic Projections
- USD FOMC Statement
- USD Federal Funds Rate
- USD FOMC Press Conference
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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