DJIA has traded down to the pre-pandemic swing high and USOIL has traded down to 109 – 110 range creating a lower reactionary high in the process. This eases some of the inflation pressures and as a result USD Index has been weak. The index failed to stay above the May highs. It seems that, at least for now, the market participants are not pricing in a new Euro-crisis. If the oil price softness continues lower inflation expectations could support the EURUSD. 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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DAX is still trading below an important resistance area created by June 14th low at 13249 and the May 10th low at 13270. These levels are significant resistances. If the market can push above these levels it has space to move higher (no significant resistance levels immediately ahead) but if the levels can’t be penetrated then it’s likely we’ll see a re-test of the support level at 12430 (March low). Dax moved outside of the low of a bear channel and then back. This probably means that some traders took profits on their shorts and some initiated speculative longs. Now the key is, what happens this week: Do we get follow-through buying that takes the index above the 13249 – 13270 range or not.
DJ has traded down to a very significant price level: The swing high (29528) that preceded the Covid-19 news started to spread out from China. This created a huge reaction in the markets and now DJ has retraced back to this level that is bound to be psychologically highly significant. We also have a bear channel low coinciding roughly with the level so technically we might see here some profit-taking and bottom fishing. The nearest key price levels in the weekly chart are 29528 and 30637.
USOIL has retraced back to the 107 – 109 range that resisted rally attempts for some time in April. Now the nearest resistance area is at 109.92 – 110.30 so if the bulls start buying here they quite quickly have to tackle some potential supply inside that range. Let’s see if they are willing and capable of pushing the market through that area. If not, then the next key support level at 102.98 could come into play. What supports a more bearish (technical) view on oil is that we now have a lower high in the weekly chart.
AUDUSD is again trading above the threshold level of 0.6943. This is a show of strength from the bulls so I restate the trade idea I published on Friday. I said that I’m interested in long trades above 0.6943. My T1 for AUDUSD is at 0.7030 and my T2 is at 0.7080. Alternative scenario: The market breaks the 0.6943 support and moves to 0.6890. The long idea is relevant only if the market stays above the threshold level and
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 – FOMC Member Bullard Speaks
- AUD – RBA Gov Lowe Speaks
- AUD – Monetary Policy Meeting Minutes
- CAD – Core Retail Sales m/m
- CAD – Retail Sales m/m
- USD – Existing Home Sales
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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