During the pandemic, PMI numbers have often been the key indicator of the health of developed economies that usually see most of the GDP growth coming from the service sector. At the same time, manufacturing is likewise a significant component of the gross domestic product. Therefore, both the PMI readings (services and manufacturing) have been followed keenly by the traders and have often moved the markets significantly. Today’s a big day when it comes to PMI releases, we have these key reports coming out from major economies in Europe but also from the US. Get ready to trade the dollar pairs by identifying the current momentum and key price levels. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The S&P 500 (+0.81%), the Dow Jones Industrial Average (+0.65%) and the NASDAQ Composite (+1.19%) rallied all strongly on Friday after we highlighted on Friday’s report (Read more here!) the kind of price action that suggested the taper tantrum could be over. The move higher has continued in the equity futures today as the Asian traders have been bidding the futures higher.
All 11 S&P 500 sectors finished the day up. The best performing sectors were technology (+1.29%), utilities (+1.25%) and consumer discretionary (+0.98%). Energy (+0.22%) and consumer staples (+0.17%) attracted the least money but the fact that all the sectors were being bought the conclusion is that the mood is strongly bullish on US stocks. The biggest winners among stocks in our CFD selection were NVDA, ILMN, TGT, LOW and MSFT. DE, LRCX, LYFT, GLW and AAL were the biggest losers in Friday’s trading. There are no stocks on the earnings watchlist
Gold (+0.05%) and silver (-0.51%) continue to consolidate while Platinum (+2.37%) rallied alongside while crude oil (-2.14%) were weak on Friday. Crude oil is rallying today with futures up 1.92% at the time of writing this. The benchmark US 10-year Treasury yielded 1.2650% at the close of trading (previous 1.2720%).
Kaplan’s Since the London session open on Friday the strongest currency has again been CAD (+0.95%) with the other two commodity currencies AUD (+0.55%) NZD (+0.34%) also benefitting from the bull mood. JPY (-0.27%) and USD (-0.24%) and CHF (-0.03%) have been the weakest further signalling that there’s no demand for safe havens today. The performance values are from the time of writing this report and are naturally subject to constant change.
Today’s main risk events are the PMI numbers from Eurozone, the UK and the US. For more information and details see the TIOmarkets economic calendar here.
EURUSD has been trending lower and is now trading near to the lower end of the bear channel. At the time of writing this, the pair is trying to get back above the 1.1704 level that has been a key support in the past. There are three confluence zones that could come into play if EUR continues to benefit from the bullish mood in the markets. The areas are 1.1777 – 1.1804, 1.1829 – 1.1856 and 1.1888 – 1.1915. Other key S&R levels are 1.1600 and 1.19760.
Market update: We said on Friday (here) that Crude oil is trading relatively close to levels where the buying started in May and that we should look for a slowdown in the downside momentum over the coming days. Today USOIL has rallied 2.43%. This bounce from the bull channel low could take the market to the 65.00 resistance level. Other key price levels and areas are 57.13 and the confluence zones at 68.08 – 69.40 and 70.50 – 71.42. This rally has helped the CAD today.
USDCAD failed to stay above the 1.2807 resistance level after it formed a bearish shooting star candle. Now the pair is weak as the USD is weak and the price of oil is moving higher. The key price levels in the pair are 1.2250, 1.2418, 1.2589, 1.2589 and 1.2948. The pair is trending lower in intraday and has some way to go before the nearest key support level at 1.2589.
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 more hawkish Fed bankers have been voicing their views on the need for the tapering and the rate hikes to take place earlier rather than later. The July FOMC Meeting Minutes indicated that taper might start as soon as in 2021.|
|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||After trending higher since the beginning of August 2020, the Treasury yields have been moving lower or sideways. 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
- Paypal accepts bitcoin from this week
- RBNZ Chief Economist: No pressure to act on monetary policy
- Fed’s Kaplan softens his views on taper
- Germany PPI for July +1.9% (0.8% expected)
- New Zealand lockdown extended to 24th of August
- Yellen proposes extending Jobless claims in some states
- US Jobless Claims 348K (362K expected)
- FOMC Minutes indicated tapering could start this year
- Canada CPI for July 3.7% versus 3.1% last month
- The RBNZ Official Cash Rate 0.25% (0.50% expected)
- The UK CPI 2.0% (2.3% expected)
- New Zealand enters a three-day full lockdown
- US retail sales for July -1.1% (-0.2% expected)
- US August Empire Fed manufacturing index 18.3 (28.9 expected)
- BOE to raise rates by 0.5% in 2023
- OPEC+ sees no need to increase output
Quick Links to Recent Analysis
The Next Main Risk Events
- French Flash Manufacturing PMI
- French Flash Services PMI
- German Flash Manufacturing PMI
- German Flash Services PMI
- Eurozone Flash Manufacturing PMI
- Eurozone Flash Services PMI
- UK Flash Manufacturing PMI
- UK Flash Services PMI
- US Flash Manufacturing PMI
- US Flash Services PMI
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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