Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of July 29, 2021. 21:00 GMT
In case you missed it….
USD topped? Dollar weakness after the Fed meeting saw major currencies including the euro and the British pound break out to 2-week highs.
Rate hike “ways away”: There was a kneejerk pop in the dollar after the FOMC statement last Wednesday but that reversed after Fed Chair Powell said a rate hike is “some ways away”.
Bitcoin breaks $40k: Bitcoin brakes range between 30k and 40k supported by rumours relating to Amazon. The online retail giant denies the rumours relating to crypto currency payments bringing the trading price back down to 31k.
Chinese Edu stocks: US-listed Chinese education stocks including TAL Education Group and Gaotu Techedu lost most of their market value after Beijing barred for-profit tutoring in school subjects.
Tencent, the worst stock: China’s crackdown on profitable technology companies, including the forced removal of ‘WeChat’ from app stores has seen Tencent lose $170 billion in market cap.
Real yields record low: 10-year Treasury yields hit a fresh record low as concerns about the US economic outlook coincided with rising inflation expectations.
Apple’s record Q2: Apple reported record sales in the second quarter (of course) boosted by strong iPhone sales. A new iPhone model is scheduled for release next month.
Big Tech boom. Hypothetical tech exec says: “Heads we win, tails you lose because our Q2 results show we are good when the economy locks down and when it reopens again.”
Robinhood IPO: The famous American online broker with zero commissions behind the meme stock mania went public on Thursday with a market valuation of $32 billion.
Olympics carry on: Public interest alongside TV viewership of the Olympics picked up last week with Tokyo carrying on despite sizzling hot weather, tropical storms and covid cases.
For those unfamiliar, lumber is cut and prepared forest timber for transport and sale, which can be bought and sold in commodity futures markets.
We aren’t making any fantastic forecasts based on this lumber futures price chart – it’s just an amazing example of ‘what goes up, must come down’ – an everlasting principle in nature and financial markets that it pays to never forget.
We can learn from this lumber chart for our day trading in forex markets too. The expression is “the trend is your friend, until it ends.” Set a profit target and on the occasions the TP gets hit, exit the trade as planned– don’t get greedy for more because you’ll more often than not end up with less!
As a reminder, the expectation is that 926K American jobs were created in July, up from the 850K in June. That would show the economic recovery is not slowing but accelerating. Of course, for forex markets, we look at it from the perspective of whether this will trigger the Fed to tighten monetary policy. Fed Chair Jerome Powell played it cool at the FOMC press conference last week but if this NFP number comes in hot, the pressure will be on him to announce a specific timeline for tapering at this month’s annual Jackson Hole conference in Wyoming.
After a difficult couple of months of rising covid-cases caused by the Delta variant, delayed “freedom days” and spats with the EU, the UK looks like it might be coming out on the other side of the storm. Covid cases show signs of having peaked as we enter summer holidays, and the EU has dropped plans to sue the UK over trade arrangements in Northern Ireland. All these things should help accelerate the timing of the first UK rate hike. For now, the timeline for the BOE looks like ending its £875 billion bond buying program next year and raising rates about a year after that.
The extension to lockdowns across Australia, announced last week, probably killed off any remaining chance that the Reserve Bank of Australia (RBA) would announce tapering at this week’s meeting. The economy had actually been progressing well, but the stay-home orders coupled with a rising number of anti-lockdown protests pose risks to the economy that the central bank will not be able to ignore. The AUD/USD got a bounce thanks to dollar-weakness last week, but AUD cross pairs face downward pressure if the RBA stays dovish.
There is a bit of a perverse logic (typical of financial markets) taking hold at the moment that economic growth and corporate earnings growth is so good right now that it can’t get any better. The argument goes that the economy and big companies have ‘pulled forward’ growth from next year into this year, so therefore future growth might be slower than previously thought. That makes forward-looking indicators like PMIs extra important to watch, for what they signal is about to happen next.
The big story from last week was the crash in multiple Chinese technology stocks, which led to fresh 2021 lows for Chinese stock indices. Seeing a situation (caused by their own intervention) that was getting out of hand, Chinese authorities stepped in at the end of last week to soothe the concerns. So does that mean the rout is over? There’s good reason to think it might be. If Beijing is concerned about the market sell-off, they are unlikely to unveil new tougher regulations in the near future. That would remove the question in markets of ‘who’s going to get hit next?’ that was causing risk in all Chinese equities to get re-priced.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD has broken higher from the bearish falling wedge pattern highlighted last week. Resistance is 1.188/19. A pullback to 1.184 could provide a buying opportunity if the trend has turned higher.
GBP/USD has rallied strongly, breaking resistance at 1.39. A pullback from near the 1.40 round number could offer buying opportunities down towards 1.38.
USD/JPY bounced off the supply and demand zones highlighted last week and is now inside a trading range between 110.5 and 109.3. Our bias is for a bearish breakdown from the range.
AUD/USD has been the weakest of the major currencies, which all gained vs the USD last week. A move over the 20 DMA and 0.74 could add conviction for bulls, while 0.75 is on offer for bears.
USD/CAD has dropped back to 1.244 support. A bounce over 1.25 could offer the chance to sell into another drop while 1.235/7 is possible longer-term support for bulls.
XAU/USD did not see the break lower through the 1800 support we expected and rallied strongly back to 1830 resistance. The overall trend remains sideways, now with a bullish bias.
Brent crude is back at 75.0 having only pulled back slightly near 73.0. The supply area neat 76.0 is a possible selling opportunity, while we’d wait for a drop to 71.50 to look for buy opportunities.
US500 sits near record highs and continues the price action of very shallow pullbacks or less frequent sudden deep drops that end very quickly.
Thank you very much for reading – and have a great week trading!
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