The majority of the USD pairs were fluctuating in yesterday’s trading as Asian traders at first drove the dollar higher on the back of the positive PPI surprise. This effect was however quite short-lived and the markets snapped back switching onto a wait and see mode ahead of the US inflation numbers. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Major currencies are in a wait and see mode. No significant moves (relative to their usual volatility) since the London open yesterday. At the time of writing this USD is the weakest and the GBP the strongest currency. The benchmark US 10 yr. Treasuries yielded 1.33% at the end of the trading day on Friday. Previous close: 1.35%.
We have a clear divide between precious metals and USOIL. These are the most commonly traded commodities markets and while gold is always the favourite traders should really take a look at other markets like platinum and oil as they are real movers. Oil has been benefitting from OPEC projection that global oil demand should exceed pre-pandemic levels in 2022.
The S&P 500 (0.23%), the DJIA (0.76%) and the Nasdaq (-0.07%) traded with mixed results yesterday. Look for increased volatility in these markets around the US CPI release. Energy (2.87%) and financials (1.14%) were the strongest sectors with healthcare (-0.62%) losing the most. The strongest performers on our watchlist were SLB, HAL, EOG, COP and WFC. IDXX, DHR, NKE, PFE and ADBE lost the most.
The above chart shows the % performance of each stock. 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. You should, therefore, 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.
The US inflation data release later on today is the biggest event we have this week. For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
The majority of the USD pairs were fluctuating in yesterday’s trading as Asian traders at first drove the dollar higher on the back of the positive PPI surprise. This effect was however quite short-lived and the markets snapped back switching into a wait and see mode ahead of the US inflation numbers. Nothing much has changed for EURUSD in the technical sense and the same support and resistance levels remain relevant for EURUSD. The key levels and areas for today’s trading are 1.1663, 1.1770, 1.1851 and 1.1892 – 1.1908 (38.2% retracement level and a weekly resistance level) is likely to come into play. The next resistance area after this can be found at 1.1965 – 1.1975 (the 50% retracement level and a daily swing point).
The only major USD pair with significant momentum yesterday was USDCHF. The move followed the comments made by a Swiss National Bank representative that negative rates are needed in order to keep the Swiss currency low. The USDCHF pair rallied 0.44%. USDCHF is building pressure against the 0.9242 and if the Fed stays hawkish we could see further upside in this market. The nearest key support area is the 0.9133 – 0.9165 range where we have a confluence zone (the 38.2% Fibonacci retracement level, rising trendline support and the moving averages). Other key support and resistance levels for USDCHF are 0.9018 and 0.9274.
S&P 500 traded to a support level (4465.85) we identified on Friday and has been hovering around it S&P 500 fluctuated around the 4465.85 support level yesterday as the market participants wait for the CPI release. Today’s release should provide us with some nice volatility and trading opportunities in this market. The next support level below this is a confluence zone at (4412 – 4430) where the 23.6% retracement level and the channel low coincide. The latest high at 4550.50 is the ATH and thus a resistance level. If the US CPI number comes in at elevated levels the market could stay weak with traders betting that the Fed would start tapering quicker than earlier expected. However, the market is still in an uptrend before the rising trendline at 4412 is decisively broken.
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||After two highly positive employment reports (+938K and +943K) the August number (+235K) was a big disappointment but in fact at a level that used to be the norm in the years before the pandemic. This number could delay the Fed taper but isn’t likely to reverse their decision to taper.|
|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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The Next Main Risk Events
- USD – US CPI m/m
- USD – US Core CPI m/m
- CNY – China Retail Sales y/y
- GBP – UK CPI y/y
- CAD – Canada CPI m/m
- USD – Empire State Manufacturing Index
- USD – Industrial Production m/m
- USOIL – Crude Oil Inventories
For more information and details see the TIOmarkets economic calendar here.
Market News & Facts
- RBA’s Lowe: bond purchases likely to end in 2022
- OPEC: global oil demand to exceed pre-pandemic levels in 2022
- Natural Gas at multi-year highs
- US senator Manchin not voting for the $3.5 trillion package
- SNB: Negative rates are still needed to keep the CHF low
- China released some of its strategic oil reserves
- US weekly claims 310K (344K expected)
- ECB leaves the rates untouched but tapers a bit
- BOC left rates and QE unchanged
- US JOLTS job openings 10.934M (10.03M expected)
- Fed’s Williams: appropriate to start taper in 2021
- No chance expected from BOC today
- Japan GDP for Q2 +0.5% (+0.3% prelim.)
- Federal Reserve Beige Book to be released today
- RBA kept rates at 0.10% and cut but extended QE
- Australian consumer confidence 100 (101.8 prior)
- German factory orders +3.4% (-1.0% expected)
- Saudi Arabia cuts oil prices for Asia
- New Zealand ANZ Commodity Price index -1.6% (-1.4% prior)
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