We pointed out in yesterday’s report how weakness in AAPL would be likely to lead to weakness in the main US stock indices due to the heavy weighting of the stock in them. Some risk was indeed trimmed off from the stocks as fund managers prepared for Fed Chair Powell’s speech in Jackson Hole today. The S&P 500 (-0.59%), the Dow Jones Industrial Average (-0.54%) and the NASDAQ Composite (-0.64%) all moved into red and judging from the S&P 500 sector level activity we might see further downside today. Ten out of 11 sectors declined yesterday with the energy sector (-1.52%) leading the losses. Only the real estate sector (+0.06%) didn’t drop but closed almost unchanged. Powell’s speech is scheduled to start 30 minutes after the New York cash session starts. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Yesterday’s winners among our equity CFD selection were CRM (+2.66%), EBAY (+2.00%), JD (+1.18%), DE (+0.91%) and LMT (+0.80%). The stocks that lost the most ground included WDC (-4.47%), ILMN (-3.41%), TPR (-3.04%), ALGN (-2.84%) and EXPE (-2.55%). No stocks on our earnings watchlist today.
The TIOmarkets commodity complex had a mixed day yesterday with weakness in silver and platinum while gold showed relative strength during the day. Gold has been the best performer with the USOIL coming right in its heels but with the usual higher volatility. Crude oil prices moved higher as a storm is nearing the Gulf of Mexico and expected to become a powerful hurricane that will disrupt oil production. Many traders prefer to trade gold but the above chart shows how much more trading opportunities are available for those trading crude oil. At the end of the day, intraday traders live or die by volatility. More price swings (higher volatility) means more opportunities to bank profits. Percentage changes are calculated from the London session open yesterday.
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JPY (+0.13%) and USD (+0.09%) have been the strongest currencies since the London session open yesterday while the CAD (-0.53%) and GBP (-0.31%) have lost the most ground. USDCAD rallied 0.78% from the key support level we have focused often lately (e.g. here). The benchmark US 10-year Treasury yield continued to climb higher and finished the day at 1.34% (previous 1.3470%). Today’s key risk events 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.
Market update: Gold traded almost to the 23.6% retracement level before buying started yesterday and formed a new key support level at 1780.06. Now there’s a small upward pointing channel and after yesterday’s bullish candle the market trying to break out of the downward-pointing trend channel. Gold is up 0.63% at the time of writing this. The other important S&R levels are 1680.43, 1809.49 and 1832.61. To learn the strategies you can combine with our analysis join our free monthly webinars at TIOmarkets.com/webinars.
USDCAD rallied higher from the important support level we identified a couple of days ago (here and here). Two day’s ago we alerted our traders to the fact that the price had started to bounce higher from the support. Yesterday the rally started in earnest and was quite sizable providing TIOmarkets traders with great intraday trading opportunities. Make sure you have the TIOmarkets VIP Black account to take advantage of our constantly successful analysis! The key S&R levels for USDCAD are 1.2422, 1.2589 and 1.2948.
Market update: EURUSD turned lower after touching our confluence zone (identified here). Now the stochastics are about to give a sell signal but we treat these signals as alerts that point to changes in momentum not outright sell signals on their own. At the end of the day, it’s the price that moves the oscillators not the other way round. The tail never wags the dog! As we have Powell’s speech today in Jackson Hole we need to be extra careful and follow the price action to understand what the market thinks about his speech. This is where the key price levels come in handy. The important price zones and levels in EURUSD are 1.1777 – 1.1804, 1.1888 – 1.1915 and 1.1600 and 1.19760.
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
- 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
- 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
Quick Links to Recent Analysis
The Next Main Risk Events
- USD – Core PCE Price Index m/m
- USD – Fed Chair Powell Speaks
- USD – Revised UoM Consumer Sentiment
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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