The NASDAQ Composite index (-0.71%) was leading the losses in the US stock markets yesterday as AMZN (-7.56%) shares dived after it said sales growth would slow in the next few quarters. The S&P 500 index (-0.54%) and the Dow Jones Industrial Average (-0.42%) likewise traded lower with the heavyweights AMZN (-7.56%), CAT (-2.72%), BA (-2.22%) and DIS (-1.31%) leading the indices lower. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Seven out of the eleven S&P 500 index sectors finished the day in the red. The consumer discretionary (-2.06%), the energy (-1.59) and the utilities (-0.84%) sectors were among those that lost the most while the materials (+0.41%) and the real estate (+0.32%) sectors. It’s interesting that even though all the indices lost some ground on Friday, the Nasdaq futures market gained 0.35% and created a bullish hammer candle. This was followed by follow through in today’s trading in Asia and Europe. The US 10-yr Treasury yield finished the week at 1.24%, down slightly from Thursday (1.246%).
In the FX markets, we have an intraday rally against the USD going on at the time of writing this but the major dollar counterparts are all lower when measured against levels at the time of the London session open on Friday. AUD (-0.39%) and NZD (-0.29%) have been the weakest while CHF (+0.08%), EUR (-0.04%) and JPY (-0.11%) have been able to hold their ground the best.
Both gold (-1.01%) and silver (-0.91%) futures traded about 1% lower on Friday while the WTI Crude finished the day 0.45% higher. Cryptos continue to struggle near resistance levels. BTCUSD (-3.98%) and LTCUSD (-2.87%) traded lower yesterday and ETHUSD (+1.21%) managed a small gain but created a bearish shooting star candle indicating the momentum is slowing down and that the bulls are taking some money off the table.
The main risk events for today are the German Final Manufacturing PMI and ISM Manufacturing PMI from the US. Heads up for the RBA rate statement for the Asian session traders for tomorrow. For more information and details see the TIOmarkets economic calendar here.
Amazon Inc. predicted that the sales growth will slow down over the next few months. This caused the investors to pull the bids from the stock and it gapped down over 7.66%. The stock opened near to a level where a rising trendline and a horizontal support line coincide (at 3311.17). There was no further selling pressure on AMZN on Friday. We’ll see in today’s trading if the buyers are willing to take the stock higher. Should this happen the could be good intraday trading opportunities in the stock. The other key support and resistance levels are 3132, 3394 and 3503. Intraday buy opportunities (if they materialise) could turn into a nice swing trade if there is follow-through buying in the stock. Should the sellers re-emerge the stock could move to the 3130 – 3217 range.
The last time we analysed GBPJPY was at the end of June (here). We noted at the time that GBPJPY had broken out of a bearish wedge and has then formed a lower high at 155.10 and said that are signs of weakness and would make it likely for the pair to move lower. Our target range at 149.00 – 150.00 was based on the width of the bearish wedge. This target was reached and penetrated slightly (by 0.34%) before GBPJPY rallied over 3.3%. Now there are again signs of weakness. The pair has created a shooting star in the daily timeframe the stochastic oscillator has provided a sell signal. This time, however, the market is just losing momentum after this three-plus per cent rally instead of topping out like the last time. Therefore it makes sense to prepare for a smaller move provided the early signs of weakness prove to be valid. Below the 153.44 resistance, this market is bearish and could provide shorting opportunities to the 150.60 – 151.60 range. A decisive break above 153.44 would be likely to open a way to 154.07 – 154.55.
EURNZD has recently traded sideways below the 1.7098 resistance level. The lows, however, haven’t been equal. Instead, each reactionary low is higher than the previous low. This upward tendency suggests the 1.7098 resistance is likely to, sooner or later, give in. This would increase the likelihood of the 1.7123 resistance get also broken. Should this happen, the market would be likely to test the December 2020 high at 1.7347. A break below 1.6937 would bring the 1.6837 reactionary low into play. All bullish signs would be negated if the pair broke the 1.6693 support (and the bull channel low). Then it’d likely that the pair would trade to the 1.6324 – 1.6484 region.
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 but the latest indication from the Fed is that they are not in a hurry to start tapering.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, the US lawmakers have agreed to a $1 trillion infrastructure spending plan.|
|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
- Australian July AIG Manufacturing PMI: 60.8 (63.2 previous)
- China Manufacturing PMI disappoints slightly at 50.3 (50.8 expected)
- OPEC output rising 610k barrels per day (to 26.72 million bpd)
- Fed’s Bullard sees 7% growth in 2021
- Canadian May GDP in line with estimations: -0.3%
- US PCE for June 3.5% y/y (3.7% expected)
- Australia second quarter PPI 0.7% (0.4% previous)
- US initial jobless claims 400K (382K expected)
- US Q2 GDP 6.5% (8.5% expected)
- ECB to increase rates only when convinced inflation stays above 2%
- 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
The Next Main Risk Events
- EUR – German Final Manufacturing PMI
- USD – ISM Manufacturing PMI
- AUD _ RBA Rate Statement & Cash Rate
- EUR – Spanish Unemployment Change
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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