Whippy price action yesterday shows once again how important it is not to chase price action in uncertain markets.  A host of better Manufacturing and Services PMI’s out of the Eurozone and the UK yesterday showed economic activity is bouncing, but US PMI’s were slightly below expectations although US new home sales surprised to the topside.

Steve Mnuchin said the US administration is discussing another stimulus package that could be passed in July.  That boosted risk sentiment but will now be subject to a lot of debating.   This package will be heavily debated.  Meanwhile, coronavirus cases continue to surge in Texas, Florida, Arizona and California.  Headlines suggested that Covid ICU beds would reach capacity in the Houston-area in 11 days.  Dr. Fauci noted in his testimony to Congress that the next few weeks would be critical to tamping down a “disturbing” surge in the virus.

Germany’s finance minister said the stand-off between the German court and the ECB over the central banks bond buying is about to be resolved “without drama”. The ECB publishes the account of its last meeting on Thursday which details the proportionality assessment of the bond buying.

Boris Johnson and Ursula von der Leyen are both showing a commitment to reaching a Brexit deal. The UK is hammering out a plan to unblock talks this week and Ursula von der Leyen said that the EU was “ready to be creative to find common ground where there seems to be none”.

The RBNZ kept the cash rate unchanged at 0.25% and agreed to continue with its large-scale asset purchase (LSAP) program. While the LSAP quantum was also unchanged at NZ$60bn, the committee “is committed to reviewing this quantum at regular intervals”.  The tone was slightly more upbeat given New Zealand have managed to contain the spread of the virus locally and were amongst the first economies to ‘re-open’.  The RBNZ do though see risks to the downside for the economy as borders remained closed and the global recession continues to impact the country.

The move lower in USDJPY is interesting.  It feels as though the market was sucked into longs after USDJPY broke above 107.00 which exacerbated the move lower when USD selling started.  The news of Softbank’s $21bn T-Mobile share sale, and potential anticipated FX flow on the back of it may have added momentum to the move which extended down to 106.07.  Without a risk off catalyst it’s hard to see why the USDJPY lower will continue without a catalyst such as a lockdown being reinstated in parts of the US.

This morning the cautious tone prevails so far for stocks with the exception of a rally in South Korean equities (lifted by a reduction in tensions between Seoul and Pyongyang.  US stock futures are slightly in the green so far whilst European stocks are in the red so we still have a pretty mixed picture and today could see a consolidation in equities.

The S&P appears to be consolidating now in a 3070/3150 range and we really need to break the topside level soon in order to continue the bullish momentum to 3230, which is where we were just before the last FED meeting.  If this level is the way would be open new highs….

USDJPY – it appears that the chatter of JPY buying out of the Softbank selling of 21 bio Usd worth of T-Mobile shares had some truth to it as EURJPY traded heavily down towards 119.60 level and with EURUSD trading bid all day USDJPY took all the strain of the cross hitting a low of 106.05 which for now has held very well as the cross is now back above the 120.25 level. The DXY is now below our 97.09 level and we still like selling rallies towards 106.85 and 107.20. On the downside 106.00/05 is important support and a breakthrough here would open way for the Fibonacci level of 105.25.

EURUSD – was undeterred by the selling seen in EURJPY and we saw an impressive rally hitting a high of 1.1348 before retreating and closing around 1.1310. We have managed to stay above the 1.1300 which is good and now a close above 1.1330 will cement the bullish view. Yesterday’s European PMI’s were very good albeit still in contraction and later today we get the German IFO which will show us how the economic recovery is going. The forecast is 85 vs 79.5 previous and a strong print should further support the single currency, and weaker print and we could test lower towards the 1.1280 support zone with a break of this level suggesting we may have topped out again. We also await resumption of the EU aid package deal on July 17th which at the moment is quite a way away.

GBPUSD – we saw a very strong move higher in cable and our risk reward trade of going long against the 1.2300 support worked out very well. We broke through the 1.2480 level and also the important 1.2515/20 area but have since come off and are hovering around this level. We need to see what happens in risk or the USD for our next clues however, should we see risk continue higher then we feel cable can really fly and it’s massively lagging behind the risk move and we envisage seeing a 2/3 % rise in GBP. Yesterday Boris Johnson relaxed some of the lockdown rules reducing social distancing to 1 metre as we approach the opening of restaurants, bars and cafes on July 4th. With this in mind we still advocate selling GBP but not yet ideally towards 1.2750/1.2800 as Brexit fears still loom and also the long-lasting effects covid19 will have on the UK economy. A break of 1.2515/20 would open way for 1.2570. On the downside a break of 1.2480 could see 1.2420/30 where we would advocate buying the dips.

FTSE100 – printed higher on the back of better than expected UK Composite, Manufacturing and Services PMI figures, getting a further boost by PM Johnson’s unveiling of big lockdown relaxations as it trades around our resistance at 6307 which needs to be cleared (used as support) for further bullish momentum to continue, however following caution in Asia overnight as markets eye fresh Covid-19 outbreaks across the globe, it is likely that stocks in London are off to a rough start.

DAX30 – our long entry target on the Dax to 12572 resistance target was hit after better than expected Eurozone and German PMI data boosted risk on sentiment, while increasing Covid-19 cases and fears of a second wave continued to suppress further gains in early session today. All eye’s today on German Business Expectations and the IFO Business Climate Index as we look for our resistance at 12380 to turn into support to confirm continuing bullish momentum.

DOWJONES – comments from Treasury Secretary Mnuchin about further stimulus packages and improving domestic signals both in Europe and the U.S boosted risk on sentiment on the Dow as it hit our resistance target at 26,395 with all moving averages maintaining a bullish cross, favouring further upside with an hourly close above 26,395 to open the door to further gains. However, US top diseases experts led by Anthony Fauci raised the alarm over rising coronavirus cases in Florida, Teas, and Arizona, who are experiencing “a disturbing surge of infections” adding that the next two weeks will be “critical to our ability to address those surging’s.” Moreover, from a tech perspective it is important to note that the index has now been trading just below the 200-day moving average for the past 7 days and so far has been struggling to cross this key important indicator.

GOLD – the yellow metal continued to print higher in early session today, hitting our resistance at 1772, after ending yesterday’s session at 1767.57 despite better than expected PMI and housing data, as Coronavirus cases continued to surge in the U.S with California and Texas reporting highest daily cases. An hourly close above 1772 will open the door to higher prints with 1789 as the next resistance target.

US OIL – concerns over rising Coronavirus cases worldwide and a higher than expected build-up in inventories, as reported by the American Petroleum Institute, weighed down on oil prices with WTI looking to retest our three months uptrend (grey line). A surprise in the EIA crude inventories data to be released today, might be the catalyst needed to open the door to lower prints with 39.27 and the 200 period SMA as closest 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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