The Biden infrastructure deal is becoming reality with the US Senate reaching an agreement on a $1trillion infrastructure deal. The bill includes roughly $550 billion in new spending with $110 billion on bridges, roads and other major projects and $73 billion on power infrastructure and $131 billion on passenger and freight rail and broadband infrastructure. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The Fed bankers said in their statement that they are engaged in discussions about the reduction of the central bank’s $120 billion per month bond-buying program. But, the Fed’s view was that substantial further progress is needed on the employment front before tapering can begin. The Fed also noted that there is higher inflation but it’s due to transitory factors. USD was weakened due to Fed’s general comments that didn’t provide a timetable for tapering.
Reaction to the FOMC statement and press conference in the precious metals market has been positive. Silver has (at the time of writing this) rallied 2.19% and gold 0.98% since then. The US 10-yr Treasury yield dropped down to 1.234% as a reaction to the neutral rhetoric from the Fed. The price of oil (+0.55%) didn’t react significantly to the Fed but is now trading higher. The US Crude oil inventories fell to the lowest level since January 2020. It therefore seems that the Delta variant is not having a major impact on oil consumption.
Since the FOMC the USD Index (-0.36%) has been trading steadily lower while CAD (+0.65%) and NZD (+0.52%) have been the strongest currencies against the dollar. JPY (+0.30%) has been lagging slightly behind the commodity currencies. Cryptos reacted with varying results. LTCUSD (+2.30%) and BTCUSD (0.85%) rallied a bit while ETHUSD (0.19%) had no significant reaction to the FOMC.
NASDAQ Composite index (+0,70%) rallied yesterday while the S&P 500 (-0.02%) and the Dow Jones Industrial Average (-0.36%) finished the day in the red. S&P 500 was dragged lower by the consumer staples (-0.88%), the utilities (-0.76%), the real estate (-0.60%) and the consumer discretionary (-0.32%) sectors. Only four sectors attracted new money in yesterday’s trading. The energy (+0.91%) and the communications services (+0.78%) sectors were leading the rest.
NTES (+13.38%) was the leader among the TIOmarkets equity CFDs yesterday with BB (+8.68%), JD (+8.51%) and AMD (+7.58%) following right behind it. LYFT (+4.59%) gained also significantly. SIRI (-3.43%), SBUX (-2.87%) and YUM (-2.29%) that had rallied the day before provided shorting opportunities yesterday. The other two stocks making it to today’s loser’s list are MCD (-1.86%) and MA (-1.75%). Today’s earnings reporters include WYNN, CTXS, MRK, BMY, MCD, BA, CTSH, ALGN, LRCX, F, ORLY, MO, BAX and VRTX. Increased volatility is likely in these stocks.
The main risk events for today are the US GDP release and the weekly Unemployment Claims report. For more information and details see the TIOmarkets economic calendar here.
After trading near to the bear channel bottom for over a week AUDUSD is now showing early signs of strength. The currency pair has created a higher low and is trading higher after the Fed failed to give any time table for tapering. The most significant resistance area is at 0.7478 – 0.7518 while the most significant support level is obviously last week’s low at 0.7289. The market is still trending lower but the early signs suggest a reversal is likely to take a place. A break above 0.7420 would be a further confirmation for this.
Market update: We highlighted on Monday how USDCAD after trading lower last week (with strong momentum) was likely to turn bearish. We suggested that the psychology among the market participants had changed and was now more bearish. It was our view that this could lead to rallies being sold in this week’s trading. Now, this is pretty much what has happened and the pair hasn’t been able to penetrate the 1.2607 resistance. Now that the 1.2528 support has been broken a move to the 1.2250 – 1.2300 region looks likely.
Market update: Yesterday we focused on EURUSD breaking out from a bullish wedge formation. Now that the Fed is not in hurry to start tapering this technical setup has strong fundamental support. The key support and resistance levels are 1.1752 and 1.1880. The 1.1880 resistance coincides with the 23.6% Fibonacci retracement level at 1.1872 which adds to the importance of this resistance area. The technical picture is bullish above the 1.1752 support while a decisive break of this level would negate the bullish indications from the wedge breakout and make it likely that the next support at 1.1704 would be tested.
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 FED||The Fed has now changed the tune and is moving away from the ultra-accommodative monetary policy. Currently, the expectation is that the first-rate hike would take place in the second quarter of 2022.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic.|
|Yields||After trending higher since the beginning of August 2020, the Treasury yields have been moving lower since March 2021. All in all, the yields and interest rates are extremely low on both nominal and real basis.|
|Employment||Even though the June NFP report came in better than anticipated (+850K) the total is still 6.8 million jobs lower than at its peak in February last year. However, the Fed has said earlier recently that believes that the US is on a path to a very strong labour market as indicators of activity and employment continue to improve.|
|Inflation||The year on year headline CPI change for June was 5.4% (4.9% expected. The Fed has taken a view that the inflation is transitory and will be therefore likely to fade away.|
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Market News & Facts
- RBA to hold taper due to Sydney lockdown
- NZ July Business Confidence -3.8% (-0.6% previous)
- One trillion USD infrastructure deal reached in the US Senate
- Fed sees higher inflation due to transitory factors
- Fed: Substantial further progress needed before tapering
- German GfK consumer confidence -0.3 (0.9 expected)
- Pfizer has a vaccine for Delta variant
- IMF forecasting weaker growth in Emerging Markets
- US earnings keep coming in better than analysts projected
- Australian second-quarter CPI 3.8% y/y (3.8% expected)
- US July CB consumer confidence 129.1 (123.9 expected)
- Richmond Fed July manufacturing index 27 (20 expected)
- US durable goods orders for June 0.8% (2.1% expected)
- The FOMC expected to be neutral and to slow the USD strength
- German IFO Business Climate Index for July 100.8 (102.10 expected)
- Amazon not to accept bitcoin in 2021
The Next Main Risk Events
- USD – Advanced GDP q/q
- USD – Unemployment Claims
- USD – Pending Home Sales
- EUR – German Prelim GDP q/q
- CAD – GDP m/m
- USD – Core PCE Price Index m/m
- USD – Chicago PMI
- Revised UoM Consumer Sentiment
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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