Equities saw some gains as the FOMC and Powell pledged full support and more if required at yesterday’s meeting.  They said that they would keep swap lines and repo facility for foreign banks open through March 31st 2021 and that the path of the economy will depend significantly on the course of the virus.  The questioning of the FAANG CEO’s amounted to very little yesterday whilst later today Apple, Facebook and Amazon report their earnings. Overnight Asian stock markets were modestly upbeat, but this has since petered out with a dovish Fed offset by downbeat coronavirus developments and a stalemate in US stimulus talks.  The PboC sets USDCNY at 6.9902 (from 6.9969). Later today we have US GDP which is expected to be a very poor number -34.5% vs -5.0% previously.

Powell’s comments also led to the USD making new lows with EURUSD trading up to 1.1807 high and USDJPY down to 104.77.  We have since consolidated as there was little reason to add to the USD weakness with the DXY index still hovering around the 2019 low at 1176.95.

Going forward we would be more inclined to expect some short USD profit taking into the weekend especially with Corporate month end flows to navigate and if the US Stimulus bill cannot be passed before the weekend.  Mark Meadows has commented “we’re nowhere close to a deal” so there is growing pressure for a stopgap bill to extend the supplemental unemployment insurance which runs out this week.

Risk sentiment remains supported and Japan MOF tried to talk up USDJPY yesterday, with an official on the tapes yesterday saying that they will watch the FX market with a sense of urgency.  Local support for USDJPY may have limited any move lower on the break of 105.00.  Short term it now feels the market is short USDJPY at bad levels so being a little long with a stop through 104.75 expecting a pop back up to 106.10 across next week.

So far AUD has been immune to the resurgence of the virus in Australia.  The currency seems to be getting support from China industrial metal demand, a weak USD and strong foreign demand for AUD bonds. Offshore investors were almost 67% of Australia’s 30yr bond issuance on Tuesday.  We have the RBA on Tuesday next week.  As long as the RBA keeps policy on hold AUD will remain a relatively attractive high yielding, highly rated opportunity for foreign investors which makes it tough to fight AUD strength even at these levels.

New Zealand ANZ Business Confidence and Activity Outlook both weak and surprising to the downside. -31.8 and -8.9 respectively, long EURNZD continues to be a favoured position into the August RBNZ meeting.

USDJPY – the pair for now seems to have found some support around 104.80/85 and subsequently we have bounced and are currently trading against resistance at 105.20/25 a break above this level would open way for 105.80 and even possibly 106.00 as the other USD’s appear to be bouncing also. I am hearing some leveraged guys are getting out of their USD shorts and if this begins to gain momentum, we could see a significant USD bounce. We are approaching month end and unfortunately for now will be governed by whatever the flows are which at this point I am not too sure about. As mentioned later today we have US GDP.

EURUSD – the common currency did test the 2018 high of 1.1800 but it seemed as it was really reaching for the stars and has since come off.  Like we have said we are hearing leveraged clients are getting out of USD shorts, and we are also hearing that corporates have more than fully hedged their short EUR exposure. 1.1740 remains support today and also an important pivot point which if broken could open the way for 1.1680 initially and then 1.1650.  We are of the belief that positions are now approaching high levels and think the pair has now limited room to run. 1.1800 remains a formidable level and if we do break this level then we could see 1.1900/50 but believe that for now it will be too big a level to break and are looking for a correction move towards 1.1600.  Today we have German GDP which is expected to be a poor read -9.0% vs -2.2% previous.

GBPUSD – never stand in front of a raging bull and this is exactly how cable has acted.  Yesterday we broke the big 1.3000 as barriers were taken out hitting a high of 1.3014 but have since pared back these gains and are now trading around 1.2950 as we write.  It’s important to note that this rally has come on the back of USD weakness as opposed to GBP strength we still very much Brexit issues but for now these have been overlooked. 1.2950 now is support and needs to break if we are to continue lower towards 1.2900 and then the breakout level of 1.2800. On the topside 1.3000 is resistance followed by the important 1.3019 which is 78.4% Fibonacci level.

FTSE 100 – hit our resistance target at 6160 while failing to print higher as a Fed pledge to use all tools available to support the US economy was not enough to prop European equities as GlaxoSmithKline, Barclays and Taylor Wimpey slid on weak earnings. Heavy earnings day ahead with the index trading sideways between our support and resistance at 6100/ 6160 respectively, favoring a short entry with a tight stop above our resistance level.

DOW JONES – ended yesterday’s session in the green after the Fed reiterated its pledge to take aggressive action to support the economy while urging congress to boost fiscal stimulus. A very volatile trading day ahead with $2 Trillion worth of companies reporting earnings today as we print lower in early session favouring a retest of 26400 support level.

DAX 30 – failed to print higher on further stimulus promises from the Fed, ending yesterday’s session mostly flat and topping around 12860 in early trade today as we look to an hourly close below our support level at 12800 to favour further downside with 12600, coinciding with 200 period SMA on the hourly chart, as the closest support target. Massive earnings day with all eye’s on German labour and Q2 GDP data.

GOLD – the yellow metal hit our long entry resistance target at 1980 in yesterday’s session as 5-Year Treasury yields hit a record low after Federal Reserve Chairman Powell reiterated his dovish commitment, leaving rates near zero and vowing once again to do everything to support the economy. Looking ahead, all eye’s on second quarter US GDP and Initial Jobless Claims data which could trigger another round of risk-off buying with 1980 and 2000 as the next resistance targets.

USOIL WTI – crude held onto modest gains in yesterday’s session as we continue to print above $41 pbl buoyed by EIA data registering the biggest drop in inventories this year as the Fed promised to use all available tools to support the economy whilst warning about the ‘extraordinarily uncertain’ path ahead. Major oil companies report earnings today, with Aramco expected to cut prices as fresh supply continues to meet a slumping demand with $41 support level as line in the sand to direct today’s trading session.

 

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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