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Analysis

Yields higher as Fed likely to hike again in September

Comments from Fed bankers Evans and Daly moved the markets yesterday. Evans suggested even a 75 bp hike in September would be okay and Daly stressed that the work on inflation is not done. This turned T-Bonds bearish and caused the yields to rally strongly. The dollar bids firmed and the USD Index rallied after hitting the SMA(50) in the daily chart. As a result, the risky assets traded lower. Gold hit my target level and started to sell off while DJIA closed down by 1.13%. Downside volatility increased in commodity currencies too with the AUDUSD pair shedding 1.56% and NZDUSD closing down by 1.24%. Crude oil rallied a bit as expected (see yesterday’s report) but then the bulls lost faith and the price was pushed back down again. USDJPY, rate sensitive as ever, started to rally with the yields moving higher. Today’s main risk event is the US ISM Services PMI release. 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:

  • GBPUSD
  • XAUUSD
  • USOIL 
GBPUSD 8h chart 08 03

GBPUSD is trending higher and has just bounced higher from a bull channel low. The dollar strength yesterday is a risk factor for longs but so far the market is looking strong in the 8h chart.  The nearest key price levels are 1.2062, 1.2134, 1.2240 and 1.2293.

open VIP Black

Cable lost 0.75% yesterday but is trading higher after bouncing higher from a rising trend line support (bull channel low). The key to the uptrend staying in force is whether there will be follow-through buying now. A failure to do so would be likely to push the market below 1.2134. If the bulls defend the 1.2134 level the market stays short-term bullish and could trade to the 1.2260 – 1.2294 range.

XAUUSD 1h chart 08 03

XAUUSD was hit by a wave of selling yesterday after it moved to my medium-term target. I think I’ll stay on the sidelines for a while now that the market reached my target. I want to see how the market trades now before taking a view again. For those of you who trade gold daily here are the nearest key price levels: 1752.77, 1754.97, 1770.56 and 1787.96. 

USOIL 8h chart 08 03

USOIL rallied to a key resistance and failed to penetrate it. Now the risk of market trading lower has increased but the OPEC+ meeting today could move the markets so let’s keep an eye on both the news flow and price action. The nearest key price levels are at 88.24, 92.41, 95.67, 100.67 and 102.75. 

Macroeconomic data releases and news

The JOLTS job openings came in below expectations yesterday. The June number of job openings dropped to 10.7 million (down 605K). This was the lowest reading in nine months and below analyst expectations (11 million). This was also the third consecutive decrease in job openings after the gauge hit a record level in March. 

NZDUSD is trying to reverse the recent downtrend but a disappointing employment report and USD strength could soften the bids. The unemployment rate ticked higher to 3.3% in Q2 (3.1% expected). The previous number (3.2%) was a record low. After the release NZDUSD dropped lower at first but then was quickly bid higher again. . 

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 summarizes 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

  • EUR Spanish Services PMI
  • USD ISM Services PMI
  • GBP Construction PMI
  • GBP BOE Monetary Policy Report
  • GBP MPC Official Bank Rate Votes
  • GBP Monetary Policy Summary
  • GBP Official Bank Rate
  • GBP BOE Gov Bailey Speaks
  • USD Unemployment Claims
  • USD FOMC Member Mester Speaks

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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