USD strengthened yesterday as T-Bonds traded lower. US equity indices rallied strongly after the New York open but then gave back all of the gains. An old market adage says that beginners control the open while smart money controls the close. Whatever is the truth the fact of the matter is that yesterday’s price action in stock indices was yet another reminder that we are dealing with a traders’ market. This is not a market for buy-to-hold investors. Now risk aversion is back with oil and stocks trading lower. Today’s main risk events are the Canadian CPI and Fed Chair Powell’s speech. 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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EURUSD looks weak today after the pair failed to challenge the 1.0600 resistance and created a lower high below the level. The nearest intraday resistance is the 1.0513 level, and the nearest key support levels are at 1.0380 and 1.0455. After yesterday’s weakness in T-Bonds and resulting USD strength, it’s more likely that traders look for selling opportunities in this market.
Gold – Lower swing high in XAUUSD and the following weakness indicates the price of gold is heading to the 1805 – 1815 range. The nearest major resistance is the 1830.70 – 1833.80 range. If the zone can’t be penetrated it’s more likely the market trades down to 1815. Should the market rally beyond the resistance area decisively, look for a move to 1838. Note that gold is now trading close to a bear channel low which could slow down the team red here and create a move higher.
GBPNZD – I said yesterday that there could be opportunities on the long side in GBPNZD. And indeed the market rallied not only to my T1 at 1.9406 and T2 at 1.9435 but well beyond them. Now the market is retracing lower after failing to stay above the 1.9511 resistance. This intraday idea worked great but it’s now history and we need to start looking for new trade ideas elsewhere or in other timeframes. The big picture in this chart is still bullish above 1.9244 which suggests that we should keep this market on our watchlist.The nearest key resistance levels are at 1.9511 and 1.9602.
EURCAD – My trade idea yesterday was to sell this market if it stays weak below 1.3636. There was a rally to 0.3680 but it failed and the market is once again trading below the 1.3636 level. Yesterday’s lower high suggests the sellers are looking for opportunities to engage in this market. As long as EURCAD stays below the descending trendline it makes sense to look for shorting opportunities. My T1 is at 1.3570 and T2 at 1.3520. Alternative scenario: The market violates the descending trendline decisively and trades to 1.3710.
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
- CAD – CPI m/m
- CAD – Common CPI y/y
- CAD – Median CPI y/y
- CAD – Trimmed CPI y/y
- USD – Fed Chair Powell Testifies
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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