Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of August 26, 2021. 20:00 GMT
In case you missed it….
Commodity currencies: The Kiwi, Aussie and Loonie were top FX risers for the last week, benefitting from rising oil prices and a declining US dollar.
J-Hole: FX markets spent most of the week in wait-and-see mode ahead of Jerome (Jay) Powell’s speech at Jackson Hole on Friday.
Oil 10% rally: Oil futures rallied nearly 10% in 3-days amid supply disruptions in Mexico and data showing the highest US consumption of oil products since March 2020.
WSB buys China: Having come under heavy pressure from new regulations out of Beijing, Chinese US-listed stocks were bought up by retail traders in forums like #WallStreetBets.
Hang Seng bear: The jump in Chinese shares last week came just after Hong-Kong’s benchmark fell 20% form its peak into a technical bear market.
Soybeans H&S: The agricultural commodity is at an 8-month low and if you look at the chart, its breaking the neckline of a Head and Shoulders pattern.
Iron man: Iron ore futures are now down 40% from their peak in mid-July after slumping 15% in a single day last week over fears about reduced demand from China.
Unvaxxed wages docked: Delta Airlines announced it would penalise staff who had not been vaccinated against Covid-19 to the tune of $200 per month.
$3.5 Trillion: House democrats narrowly passed a $3.5 trillion budget resolution, aiming to carry out Joe Biden’s slogan borrowed from Davos, ‘build back better’.
Force of nature: Salesforce stock popped after the company reported another blowout quarter, helped by the rapid adoption of cloud computing amid the Delta variant scare.
Trendlines work! This trendline has been in effect for over a decade and has predicted the bottom of almost every major dip in The Nasdaq Golden Dragon China index. It’s a 98-member index of China’s best known technology companies. This chart was drawn shortly before the index rallied 8% in one day last week.
With Jackson Hole in the rear-view mirror, forex traders will be setting their sites on NFP this Friday to gauge the likelihood of the Fed holding their nerve on tapering plans. Expectations are for a drop to 763,000 from 943,000. It’s still a big number and with the unemployment rate expected to dip to 5.2% – the data could pressure the Fed to act sooner.
The heavy sell-off in European bond-yields has dimmed the excitement in markets about rising inflation expectations. The global stock of negative yielding debt is now above $16 trillion according to the FT. The question of what higher inflation could mean for interest rates and the implications for exchange rates and stock market valuations has been put to one side for now. That could change if this data comes in hot.
The S&P 500 reached 4,500 for the first time last week – it’s a big psychological level that could cause some investors to book profits and tempt day traders into some speculative short positions – but probably won’t. Betting on index declines has been fruitless of late. The index has now gone 10 months without a 5% pullback – not a usual state of affairs!
If you’re in the UK – you probably don’t need much reminding but it’s the UK August Bank holiday on Monday 30th. It means no shares will trade on the London Stock Exchange and with the City of London still clinging onto its title as the global FX trading hub, forex volumes could be muted.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD. The declining trendline through recent lows held as support, prompting a move to the 1.178 supply area and the 20 DMA. The downtrend favours another test of 1.17.
GBP/USD had a nice bounce of the critical 1.36 demand area up to the supply area we highlighted last week at 1.375. The big jump off the lows suggests 1.36 giving way could be delayed.
USD/JPY is now consolidating inside an even tighter range, defined by last week’s bearish engulfing candle, suggesting a high volatility breakout could be coming.
AUD/USD bounced strongly off 1.71 into the previously highlighted supply. The daily bullish engulfing candlestick is either a sign of the bottom or a bull trap.
USD/CAD did a full 180-degree turn after a shooting star reversal just short of the 1.30 round number, falling right back to 1.26 support. A long term rising trendline supports the uptrend.
XAU/USD did peter out at 1800 and has fallen into a narrow range, which could break in either direction given the overall sideways trend.
BRENT did indeed see huge buying at the 65.0 level that we suggested could happen. The gains took it back over 70.0 and into the highlighted supply area. The next supply area is near 73.0.
US500 struck the 4500 round number before falling back under the previous high in what could be a false breakout. The higher recent volatility increases the chance of a pullback.
Thank you very much for reading – and have a great week trading!
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