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Is the Fed only talking the talk and buying time? By talking about taper and about inflation being transitory the Fed seems to be justifying the delay in any meaningful action. Over the last two days, the markets seem to have been thinking along these lines. However, at the moment USD Index is trading near to key supports so, once again, it’s the price action that will show the true intent of the market participants so in this report we’ll take a look at the dollar index and EURUSD. We’ll also give you the key levels for Goldman Sachs (GS) stock as the company is scheduled to release an earnings report today. 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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NZD and the other commodity currencies are the strongest in today’s trading while JPY is the weakest. The Japanese currency has been against the dollar as the yields in the US treasuries are trending higher. The benchmark US 10-year Treasuries yielded 1.52% at the end of the trading yesterday. Previous close: 1.56%. All % performance charts in this report are courtesy of Tradingview.com. Unless stated otherwise, the percentage change is measured from the London open on the previous trading day.

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Gold is trading sideways while Platinum is the strongest in the group. Note that the USOIL is gaining even though the US crude oil stockpiles were confirmed yesterday to have higher levels than expected. This should be bearish for USOIL but traders are ignoring it. So the indication is that USOIL has more upside. All % performance charts in this report are courtesy of Tradingview.com. Unless stated otherwise, the percentage change is measured from the London open on the previous trading day.

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Today’s main risk event is the release of the US Retale Sales and the Core Retale Sales data.  For more details see the TIOmarkets economic calendar here.

DXA Daily 15 10

DXA fall was stopped by one of our key support levels at 93.73. After selling the dollar on Wednesday the buyers stepped in at the 23.6% retracement level and helped the index to rally enough to create early indications of trend continuation. USD Index stays bullish above the 93.66 support but the risk for the dollar bulls is that the Fed delays tapering their bond-buying program. Markets could take a delay as an indication that the Fed isn’t really committed to any action (rate hikes included) and sell the dollar. At the moment though the technicals indicate that traders are still seeing upside in the USD index. This is bearish especially for EURUSD which has a strong negative correlation to the USD index. If the DXA drops below the 93.66 level the next key support level is (near to the 50% retracement level) at 92.95.

EURUSDDaily 15 10

EURUD rallied out of the descending trend channel as the US CPI was confirmed to be in line with the analyst consensus predictions and the FOMC Minutes didn’t provide anything concrete in terms of tapering. No decision and no timetable. EURUSD has also violated the 1.1585 resistance but after yesterday’s bearish rejection candle (and DXA being at support) an immediate continuation of the rally looks improbable.  Yesterday’s high coincides with the SMA(20) which makes the level significant. The next resistance after this is at 1.1640, a level that coincides with the 23.6% Fibonacci retracement level. All in all, the trend is down but as always we need to see selling at key resistance levels in order for the trend to stay in force. As long as the 23.6% retracement level isn’t violated the EURUSD stays bearish. Should the market break above it the next key resistance area is at 1.1684 – 1.1696.

GS.NDaily 15 10

Goldman Sachs will report earnings today and the stock is therefore on our watchlist today. Earnings reports often bring added volatility and therefore make the stock interesting. In June there was a substantial earnings surprise of 46.39% and the stock sold off 7.26% before finding support and rallying. Therefore, as we don’t know the actual earnings number beforehand and we don’t know the market reaction to it either it doesn’t make sense to create a trading plan based on what they might be. Instead, we should look at the key technical levels and wait for the release as well as the market reaction to it. Then we are better prepared to take the trades. 

Technically GS is in a long term uptrend but is now in a short term range. The stock is trading in the mid-range relative to the nearest support and resistance levels. The daily range low is at 372.40 while the upper end of the range is at 403.94. Other key levels for the stock are 378.50 and 397.68. While these are the nearest levels and therefore the most likely levels to come into play in today’s trading we could see the range edges tested also.

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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 FEDFed 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 the delta variant. Now the Fed signals (September 22nd) that taper could start soon but hints that negative developments in the employment front could cause a further delay.
StimulusThe 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.
YieldsApart 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.
EmploymentPayrolls increased by 194K in September while the analysts expected to see almost half a million new jobs. While the actual number was much lower than the consensus expectation it is still a fairly decent number and doesn’t indicate that the Fed would delay tapering on the back of it.
InflationThe month on month Core CPI (excluding food and energy) for August was confirmed at 0.1% (0.3% expected) while the headline inflation (y/y) came in line with expectations (5.3%, 5.3% expected, 5.4% prior). The core CPI increased 4.0% on a year-on-year basis after advancing 4.3% in July. Fed’s view that inflation is transitory seems correct.

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 The Next Main Risk Events

  • USD – Retail Sales  and Core Retail Sales
  • USD – Empire State Manufacturing Index
  • USD – Prelim UoM Consumer Sentiment
  • USD – FOMC Member Williams’s Speech
  • EUR – ECB President Lagarde’s Speech

For more information and details see the TIOmarkets economic calendar here.

 Market News & Facts 

  • Fed’s Harker: upside risk in his inflation estimates
  • US Crude Oil Inventories 6.1M (1.1M expected)
  • US PPI m/m 0.5% (0.6% expected)
  • US Core PPI 0.2% (0.5% expected)
  • Australian employment change -138.0K (-108.5K expected)
  • Australian unemployment rate 4.6% (4.8% expected)
  • Bullard: supportive of tapering to start in November
  • Bostic: taper could start in November
  • US Senate passed the bill to increase the debt limit. 
  • Australian Business Confidence improves 
  • ECB Stournaras warns not to hurry with rake hike expectations
  • Saunders (BOE) early rate rise expectations appropriate
  • US NFP 194K (500K expected)

Quick Links to Recent Analysis

GBPUSD, EURUSD, Silver

Gold, GBPUSD

DXA, EURUSD, USDJPY, Gold, SPX, DJIA

SPX, USOIL, GBPUSD

EURUSD, GOLD

The above analysis links are provided to help new readers to verify the effectiveness of our analysis. While all our analysis publications are time-sensitive they also help traders to understand how to learn forex trading and how to analyse the markets effectively. By reading past articles traders can see how to identify support and resistance levels or how to big market moves.

Quick links to our ‘How to’ articles

How to trade the stock market effectively and with lower risk?

How to trade with RSI?

How to trade with moving averages?

How to trade breakouts?

Our How to articles help especially new traders to grasp the basics and teaches them how to use technical tools in trading forex.

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Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets.com

Open a VIP Black account now at www.TIOmarkets.com. We want you to be able to exploit trading opportunities in financial markets with 0 commission and tight spreads. Take advantage of the best trading account in the industry: Tiomarkets VIP Black. For more details on this truly exceptional offering see here. For more analysis and commentary, visit our YouTube channel where you can find market commentary videos to support your learning and growth as a trader. 

DISCLAIMER TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyzes and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with any legal requirements for financial analyzes and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval. FX and CFDs are leveraged products. They are not suitable for every investor, as they carry a high risk of losing your capital. Please ensure you fully understand the risks involved. All the prices in this report are CFD prices based on price charts provided by TIOmarkets unless otherwise stated. 

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