The Conference Board Consumer Confidence from the US was a disappointment at 113.8 (122.9 expected) but this didn’t stop the USD from strengthening as The benchmark US 10-year Treasury yield ticked higher. The Chicago PMI was also confirmed lower than anticipated at 66.8 (68 expected). The dollar strength resulted in bearish EURUSD and GBPUSD candles in the daily chart. Read this report to see where the key price levels in these markets are. We will also take a look at bitcoin as it is losing momentum at a key resistance level and the Eli Lily & Co stock which is breaking supports. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
This morning the strongest currency is the USD (+0.27%) while the JPY (-0.37%) is the weakest. USD strengthened as the US Treasury yields ticked higher yesterday. The benchmark US 10-year Treasury yield finished the day at 1.30% (previous 1.29%).
All the commodities are trading near the same levels as during the London session open yesterday. Platinum, oil and silver once again provided much more trading opportunities than gold.
The US stock markets traded sideways yesterday. S&P 500 (-0.13%) was dragged lower by the energy (-0.68%) and technology (-0.53%) sectors while the real estate (+0.59%) sector was the strongest. The strongest performers in TIOmarkets CFD selection included NTES, WBA, LVS, VIACA and JD. The weakest stocks included WFC, TPR, MA, NKE and IDXX. See the above chart for the % performance of each stock. 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.
Today’s main risk event is the ISM Manufacturing PMI from the US. For details on other important macroeconomic releases, see the TIOmarkets economic calendar here.
Market update: We said yesterday (here) that a failure to stay above 1.3785 would signal weakness and could bring 1.3679 into play. GBPUSD rally failed near the 50-day SMA and the pair closed below this key price level (1.3785) creating a bearish shooting star candle. Today the cable has been weak. Stochastics (5.3.3) have given a sell signal and the next important support level (1.3679) looks like a probable first downside target. A rally above yesterday’s high (1.3807) and an ability to sustain those levels would negate the bearish indications. The other key price zones and levels in GBPUSD are 1.3571, 1.3602, 1.3679, 1.3807, 1.3830 – 1.3850, 1.3910 and 1.3980 – 1.3990.
Market update: It has been our view that EURUSD is facing several technical obstacles right above the current price levels and yesterday the risk posed by those factors was realised. The market rallied and failed to maintain the levels near and above the bear trend channel high. Our take on EURUSD yesterday was that If the pair can hold above 1.1804 or create a higher low above 1.1663 the (down)trend is likely to reverse but. a failure to do so would indicate the market would be bearish and likely to head to the 1.1600 support level. Yesterday’s price action created a shooting star candle (also known as exhaustion candle) and indicates together with the Stochastics sell signal that the market is now likely to continue in the downtrend. The negative indications would be negated if the market rallied above yesterday’s high and sustained the rally there. The key price levels in EURUSD are 1.1600, 1.1663, 1.1849, 1.1908 and 1.2262.
Bitcoin is losing momentum near to the important 50K level. It has broken out of a bearish wedge and moved sideways. The lower end of this range (46400) is a key now. If bitcoin moves below it decisively the next support level is in the proximity of the 38.2% retracement level (42123) while the projection based on the wedge width suggest a move to 40500 could be in the cards. The next key level after this is near to the 61.8% Fibonacci retracement. A sustained rally above the latest highs at 50474 would mean the bullishness seen in late July and early August would be likely to continue.
Eli Lilly & Co stock (LLY) has become weak after a massive rally. The stock has not only failed to stay in a bull channel but has also broken a key support level at 261.45. A projection based on the width of the bull channel suggests the 248.85 level as the first target. The 50-day SMA is not far from the level (at 246.30). The 23.6% retracement level (at 238.20) is the next key price point. A rally above the recent high at 275.19 would negate these bearish indications. Eli Lilly & Co. engages in the discovery, development, manufacture and sale of pharmaceutical products. The firm’s products consist of Diabetes, Oncology, Immunology, Neuroscience, and Other therapies.
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
- BBC: New coronavirus variant could be more resistant to vaccines
- US CB Consumer Confidence 113.8 (122.9 expected)
- 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
- EUR – German Final Manufacturing PMI
- USOIL – OPEC Meetings
- USD – ADP Non-Farm Employment Change
- USOIL – Crude Oil Inventories
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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