Yields moving higher and oil rallying started to weigh on stocks that had rallied significantly over the last few days. Oil continued to rally as I expected. Traders are focusing on the news that UAE dosn’t really have much in terms of spare oil production capacity. This together with political unrest in Ecuador and Libya could limit supply boosted the oil price. Strength in the oil market sent USDCAD lower and the pair is now trading below the key level I focused on yesterday. This combination could provide shorting opportunities. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
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DJ – Dax rallying soon after the open yesterday helped the DJ to move sharply higher. This provided us with long trade opportunities but then profit-taking started softening the bids. While it still looks likely that we might see DJ rallying to the bear channel high (32350 – 32590 range) yesterday’s loss of momentum suggests today could be a down day in DJ but that’s obviously subject to intraday supports failing and DJ not being able to exceed yesterday’s high. A correction lower could bring the market down to the key supports I wrote about yesterday (30798 and 31027). As always, it makes sense to look for buy signals at or near major support levels. The same applies to resistance levels but vice versa.
EURUSD traded to the 1.0605 key resistance level and then slightly above it. That’s where profit taking started pushing the pair below the 1.0584 level. In the process, the market has created a bullish triangle formation where the resistance is gradually degraded as buyers keep on pushing the price higher. If this continues we could see a move to the 1.0630 – 1.0650 range but if the rising trendline fails then the 1.0514 would be likely to come into play. The nearest key S&R levels for EURUSD are 1.0482, 1.0514, 1.0605 and 1.0614.
USOIL continued to rally yesterday after a trend reversal took it out of the bearish channel. I expected the market to move to the 109.92 – 110.80 range if the bulls can push the market above 107. Now this target range has been almost reached with oil trading at 110 at the time of writing this. Upside momentum prevails above the 106.20 – 107 range. The nearest key support and resistance levels are 107.58 and 110.80.
USDCAD – Strength in USOIL pushes the CAD higher against the dollar and the USDCAD pair is breaking below the key support (1.2860) I wrote about yesterday. There really aren’t that many technical support levels below this key level before the June 8th low at 1.2517 but based on the recent price action (above the 1.2860 level) we can create a measured move target range at 1.2709 – 1.2733. The nearest key resistance levels in USDCAD are 1.2860 and 1.2905.
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 Federal Reserve||Fed hiked by 0.75% in June and indicated that there will steady rate hikes until the end of the year.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has been rising strongly over the last two weeks as investors sell their bond holdings.|
|Employment||The May non-farm payrolls increased by 390K (436K previous) while the participation rate was confirmed at 62.3% (62.2% previous). The unemployment rate remained unchanged at 3.6%.|
|Inflation||The US annual inflation growth for May accelerated to 8.6%. This was the highest reading since 1981. Analyst consensus had expected the yearly rate to be 8.3%. The prices for energy (+34.6%) and food (+10.1%) made record increases. For food, this was the first increase of 10% or more since March 1981.|
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The Next Main Risk Events
- EUR – ECB President Lagarde Speaks
- USD – CB Consumer Confidence
- USD – Richmond Manufacturing Index
- NZD – RBNZ Statement of Intent
- EUR – German Prelim CPI m/m
- USD – FOMC Member Mester Speaks
- USD – Final GDP q/q
- EUR – ECB President Lagarde Speaks
- GBP – BOE Gov Bailey Speaks
- USD – Fed Chair Powell Speaks
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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