Gold rallied as USD became under pressure after Fed Chair Powell refused to give a timeline for tapering. Instead, Powell said that “At the FOMC’s recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year. The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant”. This focus on the spread of delta variant instead of employment and other economic factors sent the USD and the Treasury yields lower. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Powell added, that they will keep on monitoring the economy: “We will be carefully assessing incoming data and the evolving risks”. He also pointed out that the tapering timetable should not be taken as a signal on when the Fed will start to raise interest rates: “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.
USD counterparts started to rally about half an hour before Powell’s speech, i.e. at the time the equities trading started in New York. Since then USD (-0.55%) has been the weakest currency while CHF (+0.86%) and the commodity currencies NZD (+0.81%) and AUD (+0.74%) have been the leaders of the rally against the dollar. The benchmark US 10-year Treasury yield retraced back from the highs to 1.31% (previous 1.34%).
Powell’s speech sent the US equity indices higher with S&P 500 (+0.88%) rallying almost one per cent while the Dow Jones Industrial Average (+0.69%) trailed behind a bit. The NASDAQ Composite (+1.23%) was the leader among the main stock market indices. Investor sentiment was highly bullish with only two out of 11 S&P 500 sectors closing down on Friday. The energy (+2.67%), the communication services (+1.58%) and the financial (+1.33%) sectors were leading the rally while healthcare (-0.11%) and utilities (-0.03%) were out of vogue on Friday.
BMRN, FCX, BB, DVN and LRCX were the strongest performers among the TIOmarkets equity CFD selection. In the above performance chart, the stocks are presented 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.
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The biggest bearish movers were: PFE, ORLY, ILMN, JD and IDXX. No stocks on our earnings watchlist today. In the above performance chart, the stocks are presented 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. are the Core PCE Price Index release and the speech by Fed Chair Powell in the Jackson Hole Symposium. For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
Oil didn’t react much to Powell’s speech but the precious metals rallied nicely. Platinum and silver were the strongest movers among the TIOmarkets precious metals CFDs while gold trailed behind. Having said that, the overall performance among the precious metals and oil was reasonably strong. USOIL makes an interesting market to follow now that over 95% of the Gulf crude oil production is offline due to Hurricane Ida. The changes in the above chart are measured relative to the price levels at the time of the NY session open on Friday. Today’s main risk event is the US Pending Home Sales release. For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
Market update: Gold rallied strongly on Friday after the bullish hammer candle was formed on the previous day. The rally was intensified after the Fed Chair signalled that he is concerned about the spread of the delta variant and refused to give a definite timetable for tapering. Gold is now trading near the top of the bullish channel and has been reacting lower in today’s trading. XAUUSD remains bullish above the 1781.30 support level but is now trading closer to the 1835.70 resistance which could mean the pair retraces lower before the bulls can test their strength against the level. To learn the strategies you can combine with our analysis join our free monthly webinars at TIOmarkets.com/webinars.
Market update: EURUSD rallied briefly above the 1.1804 resistance level today but failed to maintain the gains (which explains the weakness in gold too) and was pushed back below. There are several technical factors above the current market price that resist potential further price advances: recent swing high, SMA(50) and the bear channel high. The key price levels in EURUSD are 1.1664, 1.1804 and 1.1908.
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
- 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
- Nakamura (BOJ): Economy in a severe state but improving
- Semiconductor chip shortage continues
- US services PMI 55.2 (59.5 expected)
- Pfizer covid vaccine received full acceptance from FDA
- Paypal accepts bitcoin from this week
- RBNZ Chief Economist: No pressure to act on monetary policy
Quick Links to Recent Analysis
The Next Main Risk Events
- USD – US Pending Home Sales release m/m
- CNY – Manufacturing PMI
- CAD – GDP m/m
- USD – Chicago PMI
- USD – CB Consumer Confidence
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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