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Analysis

Lower yields pressured the dollar

The T-Bond market kept on rallying yesterday pushing the benchmark 10 yr. Yield lower once again. This pressured the dollar and helped XAUUSD to rally towards my target. The target was missed by only 0.33% which considering the recent sizeable bull run is quite okay. Oil keeps on ranging ahead of the OPEC+ meeting and the stock markets (DJ and Nasdaq) lost some momentum yesterday even though the US ISM Manufacturing PMI came in above expectations (52.8 vs. 52.3 expected). The next key risk event is the JOLTS Job Openings from the US.  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:

  • USOIL 
  • XAUUSD
  • USDJPY
XAUUSD 4h chart 08 02

XAUUSD is still in an uptrend but getting close to my target range of 1786 – 1810 (see here). Momentum is slowing down which increases the risk of a correction, but the market hasn’t broken any key supports yet. Here are the nearest key S&R levels for you: 1752.03, 1758.25, 1767.91 and 1784.50. 

Gold has now rallied about 67 dollars and almost 4% from the level (1712.80) which I said was a key. It was my view that if the level holds then we are likely to see a rally above 1739, and then if the 1745 level was cleared the market could rally to 1786. Today’s high is less than 6 dollars (0.34%) away from this target! We obviously don’t know what will happen next (trend continuation or reversal) but I find that it’s best to stay with the momentum. Never short an up-trending market and you’ll increase the probabilities of being a constantly successful trader! Btw, no one makes money with every trade. Constantly successful traders are those that after 1000 trades have made more than they have lost and paid in trading fees.  

USOIL 8h chart 08 02

USOIL dropped about 4.6% yesterday and is now trading at the 92.41 support level I talked about yesterday. The nearest key price levels are at 88.24, 92.41, 95.67, 100.67 and 102.75. 

The market failed to rally above the 100.67 resistance and has fallen back to the range low (92.41). At the range low, we should prepare to see buying coming in either right at the support or sometimes after there’s a failed penetration of the level. Should this scenario play out in oil today, then we just have to follow along and look for long opportunities and use targets that are nearby. The other possible scenario is that USOIL penetrates the low decisively and trades down to the 88.24 – 88.50 area. 

USDJPY 2h chart 08 02

USDJPY – The downtrend in USJPY continues. The pair has now traded down to the bear channel low. The market is trading near a key level (131.35, a former resistance level from April). The nearest key S&R levels are 131.49, 133.55 and 134.60.

USDJPY has been moving lower for over two weeks now and the market has reached an important technical confluence area. The level that used to resist price advances in April and early May was penetrated but the market is still in proximity to the level. T-Bonds rallying and yields moving lower have been pressuring the rate-sensitive USDJPY and the pair has fallen over 4.5% since the time I warned that the market was lacking upside momentum. It’s these times when bears can more easily take hold of the market and push it lower. 

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.
YieldsThe US 10-year treasury yield has been drifting lower since mid-June. The high in June was 3.498%. Last week’s close was 2.654%. 
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.

 The Next Main Risk Events

  • USD JOLTS Job Openings
  • NZD Employment Change q/q
  • NZD Unemployment Rate
  • USD FOMC Member Bullard Speaks
  • CHF CPI m/m
  • EUR Spanish Services PMI
  • USD ISM Services PMI

For more information and details see the TIOmarkets economic calendar here

Trade Safe!

Janne Muta

Chief Market Analyst

TIOmarkets.com

DISCLAIMER TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyzes and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval. FX and CFDs are leveraged products. They are not suitable for every investor, as they carry a high risk of losing your capital. Please ensure you fully understand the risks involved. All the prices in this report are CFD prices based on price charts provided by TIOmarkets unless otherwise stated.

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