The Fed bankers have said they follow the employment numbers and the number of Covid cases as they consider when to start tapering. This is why the ADP disappointment yesterday sent the dollar higher even though there had been some signs of bearishness setting in in EURUSD and GBPUSD the day before. The ADP reported that private payrolls increased by 374K in August (July: 326K) but missed the analyst expectations (640K) by a wide margin. The next employment data releases the traders are focusing on are the weekly initial jobless claims today and the official NFP (Non-Farm Payrolls) report on Friday. In this report, we will focus on GBPUSD, GBPAUD, AUDCAD and ROKU as they have the potential for sizeable moves. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Measuring from the London open yesterday, the strongest currency is the AUD (+0.69%), while the USD (-0.22%) is the weakest after the ADP disappointment made the traders suspect the Fed might not start tapering as soon as expected. The Fed is has said they will also consider the number of coronavirus infections. The new virus variant (Mu) could be a factor in their future policy as the WHO says that Mu could be resistant to coronavirus vaccinations. The benchmark US 10-year Treasury yielded 1.31% at the end of yesterday’s trading (previous 1.30%).
Compared to wild swings in USOIL, silver and platinum gold traded very modestly yesterday. While Silver has gained almost 1.4% since the London open yesterday, gold has not practically moved at all. WTI Crude has been under pressure after OPEC agreed on gradual increases in output in yesterday’s meeting.
Yesterday was another sideways day in the US stock markets. S&P 500 (+0.03%) closed almost unchanged while Nasdaq (+0.33%) and DJIA (-0.14%) moved only modestly. The real estate (+1.72%) sector was the strongest while the energy (-1.47%) sector was pressured by the OPEC decision and the decline in the price of oil. The strongest stocks on our watchlist were JD, ROKU, NFLX, BB and BAX while the biggest downside moves were seen in WFC, DVN, GLW, WDC and USB. See the above chart for the % performance of each stock.
The stocks are presented here with the S&P 500 tracking ETF (SPY, red line) to illustrate the performance of each stock relative to the benchmark index. This allows our readers to see the potential for intraday trading opportunities in these stocks. Often the sudden increase in volatility continues on the second day which means that you should keep monitoring these stocks to see if they will satisfy your criteria for a trade. All % performance charts in this report are courtesy of Tradingview.com.
Today’s main risk event is the release of the US Unemployment Claims. We also have some Fedtalk ahead (Bostic and Daly). For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
After rallying over 40% since we first identified ROKU as a buy candidate the stock has dropped back to the levels seen at the time of our analysis. These swings show the potential in this stock. ROKU has been moving sideways since breaking out of a bear trend channel. The stock has also created a higher low (at 350.24) and was the strongest performer among the TIOmarkets equity CFD selection yesterday. The stock rallied 4.46%. All this suggests the bulls are trying to turn the stock higher. A continued series of higher reactionary lows would show that the green team has a healthy and strong commitment to this stock while a decisive break below the 350.24 swing low would deteriorate the bullish technicals. This would be likely to lead to continued consolidation or if the mood turned sour the next support at 340.89 could be violated. The nearest resistance level is at 383, after which the 50% retracement level at 414.76 (coinciding with a gap) would be the next significant price level. There is no way of knowing if the stock will again rally as much as the last time. However, knowing the volatile nature of the stock it’s likely that well-timed trades have strong potential.
The trend in AUDCAD was bearish for five months until the pair broke out of the bearish trend channel last week. Since then the market has rallied relatively strongly. The downward trend has been reversed and it’s now more likely that the pair will honour support levels and break resistances. AUDCAD is approaching a 23.6% retracement level and a downward pointing trendline (at 0.9320 – 0.9340). The other key price levels in AUDCAD are 0.9114, 0.9231, 0.9311 and 0.9418. A break below the latest low (0.9114) would negate the bullish indications..
Bitcoin is losing momentum near to the important 50K level. It has broken out of a bearish wedge and GBPAUD uptrend is over and the line of least resistance is to the downside after the 1.8769 level was broken in yesterday’s trading. This is now a key resistance level while the next key support level is at 1.8498 and coincides with the 38.2% retracement level. The next key is after this is at 1.8255 – 1.8287 where we have the ever so important 50% retracement level. A sustained rally above the 1.8769 resistance would negate the bearish indications.
Eli Lilly & Co stock (LLY) has become weak after a massive rally. The stock has not only failed to stay in a Market update: GBPUSD remains indecisive and wasn’t able to challenge the 1.3800 level again yesterday. This resulted in a lower daily high and another spikey daily candle (bearish). At the same time, the move to the levels below Tuesday’s low was rejected yesterday (bullish) thus painting a picture of a market that isn’t sure where it wants to head next. Stochastics continue indicating a loss of momentum near the overbought zone. A rally above 1.3807 and an ability to sustain the levels above it would negate the bearish indications. The key price zones and levels in GBPUSD are 1.3571, 1.3602, 1.3679, 1.3807, 1.3830 – 1.3850, 1.3910 and 1.3980 – 1.3990.
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||Fed Chair Powell said on Friday (August 27th) in Jackson Hole Symposium that tapering could begin in 2021 but also voiced concerns about the spread of delta variant.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, US lawmakers have agreed to a $1.2 trillion infrastructure spending plan. The Fed officials consider ending the asset purchases in the middle of 2022.|
|Yields||Apart from the recent pickup (that started in August 2021), 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||The last two employment reports have been very positive (+938K and +943K) indicating that the hawks in the Fed will have fundamental backing for their views on early tapering and rate hikes.|
|Inflation||The month on month Core CPI (excluding food and energy) for July came in at 0.3% (0.4% expected) which indicated a big drop in the rate of inflation from the month before (0.9%). The Fed has earlier taken a view that inflation is transitory and will be therefore likely to fade away. Even though one data point doesn’t make a trend it seems that the Fed has been correct in their inflation projections. The lumber futures for instance are once again trading at October 2020 levels and down over 70% from their May highs.|
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Market News & Facts
- WHO: Variant Mu could be resistant to coronavirus vaccines
- Australia July trade balance 12.1 bn AUD surplus (10.2bn expected)
- OPEC in agreement on increasing output gradually
- US ISM Manufacturing Index 59.9 (58.6 expected)
- USD under pressure after ADP disappointment (374K, 640K expected)
- BBC: New coronavirus variant could be more resistant to vaccines
- US CB Consumer Confidence 113.8 (122.9 expected)
- US Revised UoM Consumer Sentiment 70.3, (70.9 expected)
- US Core PCE Price Index m/m 0.3% (0.3% expected, 0.5% prior)
- Over 95% of the Gulf crude oil production offline due to Hurricane Ida
- COVID-19 boosters for to all vaccinated people in Israel
- Australian retail sales -2.7% (-2.6% expected)
- US durable goods orders for July -0.1% (-0.3% expected)
- EU might again impose travel restrictions on Americans
Quick Links to Recent Analysis
The Next Main Risk Events
- EUR – Spanish Unemployment Change
- USD – Unemployment Claims
- USD – FOMC Member Bostic Speech
- USD – FOMC Member Daly’s Speech
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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