My downside target of 30520 was hit yesterday. Then the stocks started rallying in earnest even though the treasury yields are at similar levels to 2011. I said yesterday that if DJ can push above the 30875 level it will probably test the 31270 resistance. This is where the market is currently heading to and stays bullish above 30875. A decisive move below 30875 probably takes the market to 30600. The nearest key support and resistance levels are 30486, 30875, 31028 and 31270. Today’s biggest event is the Canadian CPI and tomorrow we’ll get the FOMC rate decision. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Gold – This far Friday’s high at 1680 has resisted the rallies so the downside risk remains until the market can (decisively) push beyond this key resistance. Yesterday’s higher low (at 1659) was a sign that there are some that believe in higher gold prices but what really matters is a) what the Fed does and signals tomorrow and b) the market reaction to it. If the Fed sticks to its hawkish stance we should expect higher yields and lower gold prices.
Gold has created a triangle formation that points to 1702 on the upside and 1642 on the downside. If we great a breakout to the downside my T1 at 1652 and T2 at 1642 remain valid. Above 1680 my targets are 1687 (T1) and 1730 (T2). The Fed rate decision is due on Wednesday and currently, markets have priced in a 75 bp hike with an 82% probability for this week and a 63.8% probability for another 75bp in November.
DAX – The market moved sideways during the London session (UK bank holiday) but then in the New York session the market took off to the upside. Dax has now broken out of a bearish trend channel so it makes sense to look for long trades above yesterday’s low. The nearest key support and resistance levels are 12602, 12863, 12920 and 12950.
NAS – I was expecting to see a return move (higher) in the indices yesterday and to see Nasdaq moving back to the 12000 mark. This is what happened and now Nasdaq is reacting lower after the bulls failed to push through the level (12000). If the bulls push the market through the level we should look for a move to 12186 or so. Alternatively, if yesterday’s low is taken out Nasdaq probably moves to 11600.
USDCHF – Upside momentum failed yesterday and the market isn’t trading inside the bull channel anymore. Instead it’s trading in a tight range between 0.9626 and 0.9662. A breakout from this range would be likely to take the market to 0.9695 on the upside and 0.9600 on the downside.
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 2.516% to 3.498%.|
|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
- 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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