Daily Market Commentary
EUR/USD Continues Swing Higher as Dollar Buckles
The EUR/USD is continuing its upswing, tapping on 1.31 as the EUR/USD benefits from a return to risk and a broad-based sell-off in the Greenback. Fed official Bullard sent dollar bulls scurrying after stating that the Fed would need to consider more quantitative easing should another negative external shock hit the markets. However, Bullard was still optimistic that the U.S. economy is on the path to recovery and inflation. Regardless, Bullard’s blatantly dovish cautiousness is sending the Greenback even lower since additional QE would be a negative for the dollar. The EU was relatively quiet on the data wire today, although Germany’s unemployment change figure did come in a bit stronger than anticipated. Despite the lack of data today, the markets could end on an active note with U.S. prelim GDP on deck. Investors are expecting growth of 2.5%, which is a slight decline from 2.7% last quarter. Should U.S. GDP disappoint it will be interesting to see whether this benefits the EUR/USD since the currency pair has been rallying on weak U.S. data as of late. All around, the EUR/USD continues to create topside separation from key downtrend lines running through 1.35, meaning the currency pair could still have quite a bit of steam left in its rally.
Technically speaking, the EUR/USD faces technical barriers in the form of intraday and 5/10 highs along with the highly psychological 1.30 level. As for the downside, the EUR/USD has supports in the form of intraday lows.
Present Price: 1.3082
Resistances: 1.3091, 1.3108, 1.3143, 1.3179, 1.3208, 1.3242
Supports: 1.3058, 1.3043, 1.3020, 1.2996, 1.2960, 1.2937
Psychological: 1.30
GBP/USD Fluctuates Following Sluggish UK Data
The Cable is fluctuating today yet remains above its psychological. 1.55 level after nationwide HPI and net lending to individual figures both disappointed. However, investors should still keep in mind that last week’s prelim GDP leapt past estimates and the UK economy is growing stronger despite today’s data. Meanwhile, the dollar is taking a hit today after Fed official Bullard implied that the central bank is ready to inject more QE if there is another negative external shock in the global economy. The Fed’s persistent dovishness is encouraging for the Cable, particularly since UK CPI is still over 3% and Sentence is pushing for a 25bp rate hike. Although the UK will be quiet on the data wire tomorrow, the Cable could still be active since the U.S. will release prelim GDP along with a host of other data. That being said, a relatively calm trading week could come to an active close. Meanwhile, the Cable is still locked into its uptrend as are the EUR/USD and Aussie.
Technically speaking, the Cable has multiple uptrend lines serving as technical cushions along with intraday and 7/27 lows. Additionally, the highly psychological 1.55 level now becomes a psychological cushion. As for the topside, the Cable faces technical barriers in the form of intraday highs.
Present Price: 1.5621
Resistances: 1.5627, 1.5656, 1.5679, 1.5701, 1.5721, 1.5745
Supports: 1.5598, 1.5573, 1.5543, 1.5520, 1.5503, 1.5470
Psychological: 1.55
USD/JPY Dips Towards Monthly Lows on Bullard Comments
The USD/JPY has taken a sizable step lower today, retreating towards previous July lows after Fed official Bullard stated that the central bank should be prepared to inject more QE into the system should the U.S. economy suffer another setback from a negative external shock. The dovish language from Bullard shows that the Fed has little intent in tightening any time soon, sending the dollar lower across the board. Meanwhile, the risk trade is performing well, as exhibited by breakouts in the EUR/USD and Cable. The strong performance of the risk trade is likely allowing the USD/JPY to hold above previous July lows and while avoiding a retest of 2009 lows since the currency pair normally has a positive correlation with risk. Meanwhile, investors will turn their attention towards the data wire during tomorrow’s Asia trading session with a key data set coming from Japan. Investors will digest household spending, prelim industrial production, and the Tokyo core CPI. Keep a close eye on CPI since the BoJ is notoriously wary of deflation and if CPI comes in below -1.2% then investors could speculate that the central bank will intervene vocally in support of higher prices. The U.S. will release key data of its own, including prelim GDP, Chicago PMI, and revised consumer sentiment. Hence, the USD/JPY could be in for an active Friday.
Technically speaking, the USD/JPY has technical supports in the form of intraday and 7/22 lows. Additionally, the psychological 85 level could serve as a solid cushion should it be tested. As for the topside, the USD/JPY faces technical barriers in the form of intraday and 7/20 highs.
Present Price: 86.81
Resistances: 86.82, 87.02, 87.20, 87.35, 87.49, 87.65
Supports: 86.71, 86.58, 86.46, 86.32, 86.22, 86
Psychological: 85, 90, July lows
Gold Bounces Towards $1170/oz
Gold has bounced back towards $1170/oz as investors divest from the dollar in reaction to dovish comments from the Fed. The Fed’s Bullard stated that the central bank should continue further QE if there’s another negative shock in the global economy. Such dovish comments from a Fed official heightens investor uncertainty a bit and makes gold a better buy than the dollar. However, investors should keep in mind that our key medium-term uptrend lines gave way on Wednesday. Our medium-term uptrend lines run through March and February lows, meaning if gold can’t climb back above $1185/oz soon the precious metal could enter a more prolonged downturn below $1100/oz. That being said, it will be interesting to see how gold reacts to tomorrow’s economic data since we could be in for an active trading session. The U.S. is releasing prelim GDP, revised consumer sentiment, and the Chicago PMI. If tomorrow’s data prove beneficial for the risk trade then we could witness another step lower in gold.
Technically speaking, gold has technical supports in the form of 7/28 and 4/27 lows. Additionally, the psychological $1150/oz level could serve as a near-term technical cushion should it be tested. As for the topside, gold is accumulating new downtrend lines and faces technical barriers in the form of intraday highs.
Present Price: $1168.53/ oz
Resistances: $1169.30/oz, $1171.19/oz, $1173.63/oz, $1175.79/oz, $1177.95/oz, $1180.66/oz
Supports: $1166.20/oz, $1164.57/oz, $1161.77/oz, $1159.69/oz, $1158.07/oz, $1155.53/oz
Psychological: $1150/oz, July highs and May lows
AUD/USD Back at .90
The Aussie’s highly psychological .90 level is proving to be a tough adversary to overcome for the bulls, particularly after Wednesday’s CPI reading came in lower than anticipated. Australia’s consumer prices only rose by 0.6% and investors were expecting 1%. The weak CPI reading compliments Monday’s disappointing PPI figure and it is likely the present slack in prices will lead the RBA to keep its benchmark rate unchanged. In its last meeting minutes, the RBA stated that prices and EU stress test results would be the two factors determining whether the central bank hikes rates by another 25bp. Even though the risk trade has reacted positive to last Friday’s stress test results, the disappointing pricing data should keep the RBA in check. As a result, the Aussie’s rally has hit a roadblock and the currency pair is no longer outperforming. That being said, it will be interesting to see whether intraday highs represent a double-top or if the Aussie will continue its resurgence beyond .90. Tomorrow could prove to be a good test for the Aussie with a hefty U.S. data set on the way. The U.S. will highlight Friday’s trading session by releasing prelim GDP and investors are expecting growth to cool a bit from last quarter to 2.5%.
Technically speaking, the Aussie faces technical barriers in the form of intraday and 7/27 highs. As for the downside, the Aussie has multiple near-term uptrend lines working in its favor along with intraday lows. Additionally, the psychological .90 level may now serve as a psychological cushion.
Price: .9001
Resistances: .9025, .9044, .9073, .9097, .9121, .9137
Supports: .8999, .8975, .8940, .8919, .8893, .8867, .8850
Psychological: .90, July highs and lows
S&P Futures Wrestle with 1100
The S&P futures are back in the red today after Fed official Bullard stated that the Fed may consider another round of quantitative easing should the U.S. suffer another setback from a negative external shock. The cautious comments from Bullard have resulted in a pullback in the Greenback and U.S. equities are in retreat as well. However, the S&P futures are still trading above our key medium-term downtrend line, meaning the S&P is in bullish territory so long as losses are somewhat contained. Meanwhile, it’s not surprising that 1100 is proving to be a challenging barrier considering its psychological prevalence. The S&P futures should get a good test tomorrow with the release of prelim GDP. It’s hard to imagine a positive GDP figure considering the recent wave of negative data, including yesterday’s sluggish durable goods figures. Although weekly unemployment claims printed in line with estimates at 457k, claims remain at a historically high level and above the psychological 400k level. Regardless, the S&P futures may opt to rally tomorrow even if prelim GDP doesn’t impress considering equities have performed relative well lately in light of weak U.S. fundamentals. As long as U.S. data stays weak the Fed will stay dovish, which tends to be positive for corporations. Q2 earnings have been stronger than expected overall despite headwinds from the EU. Meanwhile, the EUR/USD and Cable continue to strengthen following a positive response to last week’s EU stress test results, in effect reducing investor uncertainty across the board. Regardless of the positive trends taking shape, it will be interesting to see how equities react to tomorrow’s data set, which also includes the employment cost index, revised UoM consumer sentiment, and the Chicago PMI.
Price: 1096
Psychological: 1100
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