A few months ago, Friday’s were risk off days ahead of the weekends on worsening virus fears.  As time went on it was realised that weekend data was always undercounted so at the moment markets go into the weekends with less fear.  Chinese equities have seen choppy trade, with an earlier rebound now erased.  If an afternoon sell-off comes into the picture, broader market sentiment will sour.  The other Asian stock markets have seen mixed trading.  US stock index futures have edged higher to claw back some of yesterday’s losses.  US data yesterday was again an outlier with retails sales and Philly Fed all printing higher.  Data is still rebasing from the plunges but we must be mindful of a levelling off soon and then can reassess where reality is.

USD strengthened yesterday but there was no clear catalyst, which shows that the weak side of the market is USD higher into the weekend.  There are plenty of geopolitical frictions and virus concerns to keep risk sentiment under pressure.  The US for the first time recording 70,000 new cases in one day, fatalities are also rising sharply.  China’s SHCOMP was down 4.5% yesterday and it’s surprising to us that this didn’t feed into a broader risk off move. The melt down in China’s stock markets has been driven by increased margin which means it is at risk of self-fulfilling sharp pull backs. We will continue to watch if that continues today and if it can push USDCNH back above 7.0000. Those moves could start to feed into a broader risk off move that will send the USD bid into the weekend and lead to some position cutting.

UK employment was strong with unemployment at just 3.9% and jobless claims actually dropping. It is hard to read much into these numbers until the Government run furlough scheme ends in October.

US retail sales came in strong at 7.5% MoM although US Jobless Claims were above expectations at 1.3m.

Trump is insisting that the next stimulus bill must include a payroll tax cut. This means there is going to be intense debate between the Democrats and Republicans about this bill that may drag out approval of next virus relief package.

ECB passed as expected. Lagarde committed to the full PEPP program, barring any surprises.  The EU Recovery Fund decision likely will not be known until next week or negotiations may drag out into the end of the month if no agreements can be made.  The market will be interested to see the tone of the Frugal Four today.  For EURUSD it feels that in the short term the market is long at bad levels and at risk of disappointment if nothing is agreed at this meeting. We still like EURUSD higher medium term as we think we get there eventually, but there are still likely to be some political manoeuvring, so we prefer to be on the bid down at 1.1300 to get long medium term.

With the AUDUSD staying short below 0.7040 still makes sense, selling rallies has been a bit of a battle but we are expecting that into the weekend the risk is lower.  We also like short NZDUSD below 0.6600 through August RBNZ due to risk of further action.  USDCAD based nicely at the 200dayMA yesterday. With oil continuing its pull back it makes sense to be long above that level at 1.3509.

USDJPY – the DXY recovered off the lows late yesterday but USDJPY could not really make much headway and the 107.30/35 resistance held up well.  Not much in the way of data today so will see how the greenback behaves throughout the session.  Again, overnight it has been a quiet and tight session.  The range very much remains 108.00/106.60 on the wide and we very much favour selling rallies for now. We have only really the University of Michigan later as data to watch.

EURUSD – the ECB came and went as expected with no change, Lagarde was very careful in delivering in an unexciting monetary policy update and put much of the onus on today’s meeting to ratify the recovery fund with her saying that she was very confident that the fun would be approved.  I guess this was her sending a message that the union really needs this done sooner rather than later. The Frugal four will need convincing with The Netherlands being the main obstacle to overcome as the others have shown signs of compromise. I think the market does not expect too much of a decision to be reached in this summit but a reduction of disagreements and more compromise would be seen as positive and should continue to support the pair. Yesterday we hit 1.1440 area and this has now become a big and important resistance level and we could have a formation of a shooting star which normally means a top has been put in place however, the EU summit for now is clouding the picture as a good decision should see the pair catapulted towards 1.1500/1.1600. Yesterday we did come off this resistance level for no real apparent reason as the DXY bounced off its lows and we headed towards our support zone of 1.1370/80 which for now is holding, today I can’t see us drifting too much from this level unless some of the weak longs get uneasy about running risk into the weekend and as such if this support is broken we could head towards the next area of 1.1330. For now we still advocate buying dips as we think in the medium term EURUSD should trade towards 1.1800/1.1200.

GBPUSD – we traded back on the 1.2600 handle yesterday but only managed a high of 1.2615/20 before coming off again as the USD pared back its losses.  At the moment we are very much in a 1.2400/1.2600 and will respect and trade this range. As we have already mentioned we feel that towards the end of the year we should see GBP under pressure but for the near term we do favour buying dips towards the bottom of the range as we feel the pair will be supported as the USD goes lower. Intraday 1.2515/20 will be the first area of support followed by 1.2480 whilst on the topside 1.2620/1.2660 are the resistance levels.

FTSE 100 – edged lower in yesterday’s session on the back of ongoing rise in US – China tensions, weaker than expected Chinese domestic consumption, and Covid-19 cases reaching 13.7M worldwide. UK, US, Canada accused the Kremlin of attempting to steal vaccine research, adding to the already ongoing geopolitical tensions. A run towards 6325 resistance level is looking favourable as long as 6270 support level holds.

DOW JONES – hit our first short entry support target at 26600 as it printed a lower high below our resistance level at 26785 in early session today as investors weigh vaccine optimism and slightly better economic data over a record daily rise in US Covid-19 as Brazil and India passed the 2M and 1M confirmed cases mark. Dr. Fauci’s concerns that states are opening too quickly should keep a lid on risk-on mood for the day, as we look for an hourly close below 26600 to favour lower prints with 26400 as next support target.

DAX 30 – the Dax has kept its footing as it bounced off our support level at 12800 after no policy changes came from yesterday’s ECB meeting with Lagarde affirming that the central bank will use full force if needed. All eye’s today on Brussels as the EU leaders meet to discuss the recovery fund, as we look for an hourly close above 13000 to open the door to higher prints with 13135 as the next resistance target.

GOLD – the yellow metal hit our short entry support target at 1800 on the back of better than expected US economic data as June Retail Sales surprised to the upside and Continuing Jobless Claims came a tat lower. Yesterday’s session bearish daily close as we print below the 200 period SMA today on the hourly chart should keep gains under pressure with 1790 as the closest support target.

USOIL – WTI crude oil fails yet again to breach the $41 resistance level as it hit our short entry support target at $40.5 weighed down by record daily virus cases as the US registered 77,000 new cases in the past 24 hours with Texas and Arizona hardest hit. Bearish momentum is picking favouring a breach of our support at $40.5 with the 200 period SMA and $40 as next support targets.

 

Rony Nehme
Chief Market Analyst at SquaredFinancial

Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

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