The S&P edged back to negative on the year on Friday.  Last week was the first negative week for the Dow and S&P in four weeks.  The Nasdaq had its first back to back down days in 50 trading days and ended a record streak. The risk trade is not at the forefront overnight as the market takes out the USD with the greenback slumping to a 22-month low today.

Last Friday also saw a noticeable breakdown in the correlation between the dollar and equities with DXY closing at new lows for the year and at its lowest level since Sep 2018.  The market may already be long EURUSD, but the consensus remains bullish euro and next topside chart levels are 1.1725 then 1.18-1.1820. And despite the recent equities’ correction, risk sentiment still seems relatively strong in the face of new US infection peaks (plus rising new cases in LatAm/Europe/Asia) along with growing US-China tensions.  Thus far, CNY has proven relatively resilient as well.

Chinese authorities reported to have taken control of the former U.S. consulate in the southwestern Chinese city of Chengdu on Monday after it was ordered closed amid rising tensions between the US and China seen as the driver of gold to new all-time highs currently trading at 1935.

US Equities likely to remain under pressure this week with near-term concerns over US tech as CEOs (of AMZN, AAPL, GOOGL, FB) will attend the House antitrust hearing on Wednesday, followed by earnings this week – FB on Wed, AMZN/GOOGL/AAPL on Thursday.

Beyond that, we will be getting FOMC and US/Eurozone Q2 GDP.  FOMC expected to be relatively uneventful with no significant changes, although Powell may use this meeting to discuss the Fed’s toolkit.  Both US and Eurozone Q2 GDP are likely to show very negative numbers given lockdowns.

US Congress will address the expiry of enhanced unemployment benefit, a major support for US consumers – reports over the weekend suggesting approval of $1tn relief plan is likely.  Gold makes a new all-time high at 1944.45 erasing the 1920 all time high level. There were statements at the weekend out of the White house that agreement was edging closer for the next round of economic stimulus. The PboC sets USDCNY at 7.0029 (from 6.9938).

USDJPY – we closed below our 106.30/35 level on Friday and today we have hit a 4 month low of 105.44 as broad based USD weakness continues. For today we will watch how equities behave as these will decide whether we have risk on/off session as this will decide what happens to the pair. The levels are defined as 106.30/35 on the topside and 105.25 with a break of either side opening up 106.80 and 104.50 respectively.

EURUSD – we were expecting a pullback in the pair, but they have been very shallow 1.1540 and then 1.1580 on Friday as the pair continues its surge higher on the back of the weaker USD and also because of the summer markets where moves normally just seem to continue. The DXY continues to drop but we feel it has gone too far and the move maybe a little overdone down here. 94.19 is a very big level on the weekly charts and a close below here would open way for 91.70 so we are expecting some kind of pullback. 1.1710 is the Fibonacci level which was one of our targets after we broke 1.1450 and even though we have tested a high of 1.1727 overnight we would expect resistance here intra-day a sustained break and we would be en-route to our second target of 1.1800.On the downside 1.1660 followed by 1.1630 and 1.1580 will be the main support zones and suspect will find dip buyers at first look. Later today we have IFO.

GBPUSD – the pair has traded very well in the last few sessions especially with the current headwinds it has but we feel this has been more as a result of the weaker USD as opposed to GBP strength. We did tip our toe in instigating new shorts on the 1.2700 handle and for now will keep this position. If we do not get back below 1.2815 then we could be heading towards 1.2900 as long as the USD remains weak. The daily close today will be important as we feel this will give us a clue to the next direction.

FTSE 100 – ended Friday’s session on a fifth daily consecutive close in the red as it made its way towards our support level at 6100 as Brexit negotiations hit yet another dead wall and self-imposed deadlines on reaching a deal got deferred once again. Lower highs below our resistance at 6160 favours a short entry with 6100 and 6050 as the next support targets.

DOW 30 – hit our short entry support target at 26400, dragged down by technology heavyweights and rising US-Sino political tensions as Beijing shutdown the US consulate in Chengdu three days after the shutdown and forced entry into its Houston consulate. Mnuchin reporting the readiness of a $1T stimulus package on Sunday provided some support to the index as it retested our 26600-resistance level, while failing to breach higher as we look for lower prints with 26400 and 26200 as the closest support targets.

DAX 30 – hit our short entry support target at 12800 as economic data took a backseat to increasing US-China tensions amidst consulate closures and spying allegations. Progress in the EU recovery fund will and hopes of a quick recovery in Europe is keeping the index supported as investors focus on Germany’s IFO Business Climate Index to be released today. With the index printing below the 200 period SMA and the 13000-resistance level, further downside is favourable with on a breach of the 12800 support level.

GOLD – hits an all-time record high in early session today, continuing to push higher on the back of a plunging greenback, escalating US-China tensions, and a $1 Trillion Republican stimulus bill.  All eyes on the upcoming two-day Federal Reserve policy meeting with Republicans set to release their package proposal today. As published in our Q3 outlook, the next resistance levels are at 1950 and 1960 as we look for our support at 1920 to hold in order to keep bullish momentum strong.

USOIL – WTI Crude oil printed below the 200 period SMA briefly on Friday before ending the session higher as the dollar sold off supporting higher prints on the black gold as it trades between our support and resistance levels at 41 and 41.50 respectively. Worsening relations between Washington and Beijing along with global Covid-19 cases topping 16M are weighing down on energy prices with a breach of the 200 period SMA, coinciding with our support at 41, to favour further downside with 40.50 and 40 as the 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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