Yesterday’s rally in Walmart Inc. shares added to a recent great bull run in which the shares have gained over 11% in just 8 days. Yesterday we saw a strong gap open in WMT as investors piled into the stock in pre-market. By the close of trading, WMT had closed 5.11% higher than the day before making it the best performer on our watchlist. The strength in WMT came in on the back of an earnings report that beat estimates by $0.15 per share. Analysts had estimated the earnings at $1.62. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Technically WMT ran into a strong resistance just below 141 (CFD: 140.84). This provided a great intraday opportunity as the failure to move above the resistance encouraged the bears to push the stock below rising trendline support. The trendline break resulted in a $1 dollar move and provided relatively low-risk opportunities on the short side. Buyers eventually came in at a 50% retracement level (at 138.95). I have measured the retracement levels from the April high to the May low. As retail stocks are now In Play so to speak WMT could provide good intraday trading opportunities also today. The key price levels (CFD) to focus on are 138.24, 139.04, 140.02 and 140.85.
USDJPY – After some consolidation USDJPY rallied to the target range (134 – 134.20) I gave on Friday (see here). The market is trending higher in the 2h chart with the nearest key support level at 133.90. The nearest resistance is fairly close (134.54) which could be a problem (something to keep in mind when thinking about the R/R of possible trade ideas. The T-bond market has been moving without a clear direction which means yields aren’t moving much either. As the USDJPY is a rate-sensitive pair this could add some uncertainty to the way the USD trades over the coming days. In practical terms, this means that we might see some ranging price action in USDJPY.
DJ – Yesterday was yet another strong day in US stocks. DJ started to attract buyers right after the NY session opened at the 33820 level and rallied strongly higher. The market is still trending higher with the nearest key support level at 34054. The market is trading near a historically relevant level (34118) that has acted as both support and resistance level on several occasions this year. This on it’s own doesn’t mean that the market will now respect the level again but let’s keep it in mind and see how the index reacts to the level over the coming days.
US equity indices have performed superbly, with investors viewing the strength as a sign of negative sentiment erosion. The recent weak economic data in China and US manufacturing makes some doubt if the rally can be sustainable but so far the stock market indicates that inflation fears are fading and investors see the next 6 to 12 months in a positive light.
Investors love the strong earning reports from the big retailers as they believe it’s a sign that the consumer isn’t that badly impacted by inflation anymore. This combined with oil prices trending lower and the lower cost of petrol at the pump means the worst inflation worriers are now fading. Now the markets will focus on inventory levels, margins and how the pricing power of companies develops relative to the consumers’ ability to spend on discretionary items instead of food and energy.
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 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 for June (YoY) dropped more than expected. The July reading 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
- GBP CPI y/y
- USD Core Retail Sales m/m
- USD Retail Sales m/m
- USD FOMC Meeting Minutes
- AUD Employment Change
- AUD Unemployment Rate
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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