27 July: US$, stocks down again as geo-political, pandemic concerns grow. Big week ahead, led by FOMC & EU/US Q2 GDP. IFO & US D/G today.

27 July: US$, stocks down again as geo-political, pandemic concerns grow. Big week ahead, led by FOMC & EU/US Q2 GDP. IFO & US D/G today.

The US$ continued its retreat on Friday, with the DXY losing another 0.45% (94.35) to trade down to levels last seen in September 2018.  Stocks also declined with a broad sell-off due to some weak US earnings, surging coronavirus cases in the US and the increasing geopolitical uncertainties. The Nasdaq again led the way down, with Intel Corp losing 16.2% after the chipmaker reported a delay in production of a smaller and faster chip. Note that Alphabet Inc (Google), Apple, Facebook and Amazon are scheduled to post their Q2 results on 30 July (Thursday, the day that the initial take on the US Q2 GDP is due for release), so it could be a wild ride for that session. The big tech companies that will report this week have all done pretty well during the pandemic and may yet help to produce another rise in the Nasdaq, which would drag the other indices higher, so worth keeping an eye on their results.

The weakness of the US$ was again the main point in the FX markets on Friday, with the Euro and Sterling both receiving additional support from better than expected PMIs.  At the same time, both the US Manufacturing and Services PMIs missed their expectations.  In the other majors, safe haven demand ensured that the Jpy and the Chf saw good gains against the dollar, while the Aud$ and the NZ$ both consolidated their gains below last Thursday’s highs.

Gold ended the week at $1,900oz and is now within touching distance of its all-time high at 1921, set in 2011, as worries about the global economic growth and the increasing US/China tensions underpin safe-haven demand. Silver had a huge week and made its biggest weekly gain in almost 40 years, although it ended well below the week’s 23.25 high.

Oil did not get too involved and remains rangebound within the recent $40/42pb range.

In terms of the PMI figures, the Eurozone Manufacturing PMI rose to 51.1 in July, up from 47.4, a 19-month high, while the Services PMI rose to 55.1, up from 48.3, a 25-month high. The Composite PMI rose to 54.8, up from 48.5, a 25-month high. Individually, the Germany Manufacturing PMI rose to 50.0 in July, up from 45.2 and better than expectation of 48.3 while the Services PMI rose to 56.7, up from 47.3, hitting a 30-month high. In France, the Manufacturing France PMI rose dropped to 52.0 in June, down from 52.3, missing expectation of 53.2 but the Services PMI rose to 57.8, up from 50.7, well above expectation of 52.3. As for the UK, the Manufacturing PMI rose to 53.6 in July, up from 50.1, well above expectation of 51.0, a 16-month high, while the Services PMI rose to 56.6, up from 47.1, above expectation of 51.0. From the US, the Manufacturing PMI came in at 51.3 (exp 51.1) while the Services figure was 49.6 (exp 51.0)

The main points of focus on the calendar this week are going to be Wednesday’s FOMC Meeting (Interest Rate Decision/Press Conference/Statement/Projections) and the Preliminary US Q2 GDP figure (Thursday (exp -6.2%qq)) and the EU (Friday (exp -4.7%)). Note also, that the current employment support package in the US will run out at the end of the month and needs to be rolld over. Depending on how the negotiations play out, this will have a major impact on the direction of the markets in coming weeks I suspect. The Republicans plan to introduce their proposal for the next coronavirus relief bill on Monday after disagreements between the White House and Senate Republicans pushed talks on the bill through the weekend. Treasury Secretary Steven Mnuchin said on TV on Sunday that he expects the Administration and the Republicans could move very quickly with the Democrats to reach an agreement on the updated package. We shall see.

Other major features will include the US Durable Goods Orders, due later today (exp +4.8%), the Australian Q2 CPI, (Wednesday; CPI, exp 0.2%qq, 2.0%yy; Trimmed Mean, exp 1.6%yy), the German Q2 GDP (exp -9.0%qq, -10.9%yy) and CPI, (Thursday; CPI, exp 0.3%mm, 0.6%yy; HICP, exp 0.6%yy). The week winds up with the China Mfg/Non Mfg PMIs (exp 51.2/48.6), the German Retail Sales (exp +11%mm, +1.4%yy) and the EU CPI (exp 0.4%yy, Core 0.9%yy). Have a good week.

Economic data highlights will include:

Mon: RBA’s Kent Speech, Japan Leading Economic Index, Coincident Index, All Industry Activity Index, German IFO; Business Climate/Current Assessment/Expectations , BuBa Monthly Report, US Durable Goods Orders, Dallas Fed Mfg Business Climate

Tue: NZ Total Jobs Filled, UK CBI Distributive Trade Survey – Realised, US Case Shiller House Price Index, Richmond Fed Mfg Index, API Weekly Crude Oil Stock Inventory,

Wed: Australian CPI, EU Non – Monetary Policy Meeting, US FOMC Meeting – Interest Rate Decision/Press Conference/Statement/Projections, Goods Trade Balance, Pending Home Sales, Wholesale Inventories

Thur: NZ Building Permits, Activity Outlook, Australian Building Permits, Import/Export Index, Japan Retail Trade, German Q2 GDP, Unemployment, CPI/HICP,  EU Economic Sentiment Indicator, Industrial Confidence, Services Sentiment, Business Climate, US Preliminary Personal Consumption/Expenditure, Q2 GDP, weekly jobless claims

Fri: NZ Consumer Confidence, Japan Unemployment, Construction Orders, Housing Starts, Consumer Confidence, Industrial Production, China Mfg/Non-Mfg PMIs, Australian Private Sector Credit, PPI, German Retail Sales, Import/Export Index, EU Preliminary Q2 GDP, CPI, US Personal Consumption/Expenditure Index, Chicago Purchasing Managers Index, Michigan Consumer Sentiment Index, Baker Hughes Oil Rig Count

Market moves, in brief:

FX: DXY 94.35 (-0.45%)

Bonds: US10Y; 0.591% (+1.76%), German 10Y; -0.445% (+7.37%), UK 10Y; 0.878% (+0.56%), Australian 10Y; 0.878% (+0.56%), NZ 10Y; 0.835% (-2.52 %), China 10Y; 2.881% (-1.51%)

Stock Indices: DJI; -0.68%, S+P; -0.62%, NASDAQ; -0.94%, EUStoxx50; -1.8%, FTSE100; -1.41%, Shanghai Composite; -3.86%, ASX200SPI: -0.60%

Metals: Gold $1901 oz (+0.75%), Silver $22.76 oz (+0.74%), Copper $xx2.8945xx lb (-1.50%), Iron Ore $107.78 per tonne (NYMEX) (-0.51%),

Oil: WTI $41.24 pb (+0.48%)

EURUSD: 1.1654
Res  1.1690  1.1730  1.1770
Sup  1.1605  1.1560  1.1520
USDJPY: 106.12
Res  106.30  106.45  106.60
Sup  105.95  105.80  105.65
GBPUSD: 1.2794
Res  1.2805  1.2825  1.2845
Sup  1.2775  1.2755  1.2735
USDCHF: 0.9205
Res  0.9230  0.9255  0.9280
Sup  0.9185  0.9160  0.9135
AUDUSD: 0.7105
Res  0.7115  0.7135  0.7155
Sup  0.7090  0.7070  0.7050
NZDUSD: 0.6641
Res  0.6650  0.6665  0.6680
Sup  0.6625  0.6610  0.6595
S&P.fs: 3203.93
Res  3275.00  3250.00  3225.00
Sup  3190.00  3165.00  3140.00
DJ30.fs: 26329.00
Res  26410.00  26475.00  26540.00
Sup  26255.00  26190.00  26125.00
SPI200.fs: 5970
Res  5990  6010  6030
Sup  5955  5935  5915
XAUUSD: 1900.63
Res  1910.00  1920.00  1930.00
Sup  1890.00  1880.00  1870.00
XAGUSD: 22.74
Res  23.00  23.25  23.50
Sup  22.50  22.25  22.00
WTI.fs: 41.30
Res  41.60  41.95  42.30
Sup  41.00  40.65  40.30

Trend Table

The US$ is lower once again and the DXY charts that the fall is not done with yet. As we said last week, without a sharp turnaround in the deteriorating pandemic data in the US, any economic recovery is going to be difficult, while the increasing tensions between the US/China are also adding to trader’s caution, which will not help the dollar in the longer term.

EurUsd has extended its rally to 1.1657 heading into the weekend and, as we said on Friday, there is not much resistance ahead until 1.1735 (38.2% of 1.3993/1.0620) and then at around 1.1800, where the major descending trend resistance from the 1.6037 July 2008 high currently lies.  Buying dips still seems the plan although I would be raising stops and now keeping them pretty tight below 1.1600. The other EU majors look similar to the Euro, and buying dips seems to be the plan.  US$Jpy may be picking up speed to the downside as well after closing the week at a new 5 month low. The pair remains very choppy but safe haven demand seems likely to see continued demand for the Jpy.

The Aud$ and the Nzd$, both remain firmly in their respective uptrend although the short term charts do look a bit toppish belwo last Thursday’s respective trend highs. A rangebound session may lie ahead, so possibly use the follwing as parameters to trade the range (Aud; 0.7075/0.7125?/Nzd;0.6610/0.6670?). From and Australian point of view in particular, the economy is in a bad way and these elevated levels for the currency would seem unsustainable, but it is currently underpinned by the weakness of the US$ and by the elevated iron ore price. In the medium term, maybe we continue with the current bid tone until some for the Q2 data is released as we head into Q3, when the reality of the current economic situation becomes a little clearer.

As we said previously, the metals look as though they have room to run higher still, although Gold is going to run into major resistance at 1900/20. If/when it breaks 1920, then I think we will see a fast run higher as $2000 per oz comes into view, and with the weakness in the US$ that may occur sooner rather than later. Silver consolidated on Friday after last week’s surge, and I suspect there is further upside ahead. 23.25 will see good selling interest but above that, look for a move towards 25.10 (August 2013high) and then to 26.10 (38.2% of 49.78/11.63)

Stocks are lower at the start of the week and the short term momentum indicators hint at further weakness ahead. The longer term charts are turning neutral so I would not be getting to bearish at this stage and overall I think that we are in for some volatile and choppy conditions, but probably without too much direction. Having said that, the S+P has closed right on the 3200/05 uptrend support from the March low, and a solid break lower would likely see renewed selling to push it towards 3120.

Note that the Nasdaq is starting to look particularly heavy although it is no lower than the levels seen in the sharp selloff on 14 July, which may yet prop it up. The daily momentum indicators are beginning to look increasingly heavy though so I would rather be short than long at current levels.

1 Hour Up – Bearish Divergence Oversold – Turning higher? Up – Bearish Divergence Down – Bullish Divergence Down Turning Lower
4 Hour Neutral – Turning Higher? Down Neutral – Turning Higher? Down Neutral – Turning Higher? Neutral – Turning Higher?
1 Day Turning Higher Neutral – Turning Lower? Turning Higher? Turning Lower Neutral – Turning Higher? Neutral – Turning Higher?
1 Week Turning Higher? Neutral Neutral – Turning Higher? Turning Lower Turning Higher Turning Higher
1 Hour Bullish Divergence Oversold – Turning higher? Neutral – Turning Higher? Bearish Divergence Turning Neutral Neutral – Turning Higher?
4 Hour Turning Lower? Neutral Turning Lower? Up – Overbought Turning Lower Neutral – Turning Lower?
1 Day Turning Lower Turning Neutral Turning Neutral Up Up Turning Neutral
1 Week Turning Lower Turning Higher Up Up – Overbought Turning Higher Up
1 Hour Turning Higher Turning Neutral Possible Topping Formation Oversold – Turning higher? Possible Topping Formation Neutral – Turning Higher?
4 Hour Turning Lower Turning Neutral Neutral – Turning Higher? Turning Lower Turning Higher Turning Lower
1 Day Turning Higher Turning Neutral Turning Neutral Turning Neutral Neutral – Turning Higher? Turning Neutral
1 Week Neutral – Turning Higher? Neutral – Turning Higher? Turning Lower Turning Higher? Turning Lower? Turning Neutral

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