The USD lower theme continues, driven by multiple reasons: weaker US GDP; higher initial jobless claims; no agreement on unemployment benefit; the cares act expiring today, all of which puts greater focus on the Chicago PMI and Michigan Consumer Confidence figures out later today.

Equities were sold off hard yesterday as markets appeared to be taking note of the deterioration in the US economy.  GDP came in at -32.9% (-34.5% exp) whilst jobless claims showed over 14 million Americans are still out of work whilst the senate seems to struggle to agree on the next stimulus package. However, later on in the afternoon we saw a rally close to a 300 point rally and then this continued after the close hitting a high of over 26500 as the big tech companies (Apple,Facebook and Amazon) reported stellar earnings.

Concerns over the US will also continue to be driven by the US Presidents increased focus on his re-election rather than any economic or health issues.  This was flagged by his tweet yesterday starting to float the idea that the election should not happen on the 3rd November.

The interest at the moment is EURUSD which has the same feeling about it as the equity FOMO trade in late March.  The EURUSD had another illiquid push higher in the Asia overnight, after breaking 1.1850, currently trading just below 1.1890.  Eurozone GDP is the most important release of the day in our view and may add further fuel to the Europe/ US divergence trade.

China’s official manufacturing Purchasing Managers’ Index for July came in above expectations for July at 51.1, according to the country’s National Bureau of Statistics. That was above expectations of a reading of 50.7 by analysts in a Reuters poll.

With the USD selling environment we still feel more inclined to be short AUDUSD and NZDUSD at these levels with virus cases surging in Australia and the RBNZ approaching on 12th August. Being short AUD and NZD makes a lot of sense against the EUR.

USDJPY – traded heavy as the DXY kept falling. We did break the 104.80 support level and overnight went down towards 104.20 area.  The DXY closed below the important 93.17 level and we are currently at 92.67 as we write.  We do have an exhaustion flag on the charts for the pair but really need to get back above 104.40/45 to confirm this otherwise we will continue lower. Should we break this interim resistance we could see 104.80 but see no reason to see it higher than 105.25 so for now we advocate selling this rally should it be seen. Today is month end and the seasonal signal points to USD selling so any rally should be short lived. It will be interesting to see how the USD reacts after this flow is done. On the downside a break of 104.20 and there is really nothing until 103.05.

EURUSD – has continued its monster rally hitting a high of 1.1907 overnight. We closed above 1.1820 yesterday and of course the old 2018 June high of 1.1800 which was a very positive close and we are now looking at 1.1850 on the weekly close to continue higher we think. The last few days have been marred by strong USD selling for month end rebalancing and today is the last day where we expect pretty much the same. On the topside next resistance comes in at 1.1930 and after that we get 1.2000 which was out target for year end.  Admittedly, this has come a lot sooner and if USD weakness were to continue there is no reason, we couldn’t be closer to 1.2500 by year end. As we have mentioned there have been some very big USD sell flows and it will be interesting to see how the common currency trades after these are out of the way, maybe we consolidate 1.1700/1.1800 during the summer before continuing higher. On the downside support sits at 1.1800 followed by 1.1740 where we stopped yesterday.

GBPUSD – the raging bull continues hitting a high of 1.3142 so far and this pair really is leading the rally so far against the USD. Like we have already said Asian highs and lows we don’t often like as liquidity is thin and more often than not moves are very stretched however, the USD still remains very weak and unless this turns cable can continue higher. For today we have month end flows to contend with which are meant to be USD selling still so intraday resistance is at 1.3200/10 area the highs from Feb/March 2019 whilst support is at 1.3120 with a break potentially opening 1.3020 daily Fibonacci level. We think it’s important to note there are still headwinds for GBP as we continuously mention and yesterday, we had the UK government locally lockdown some Northern parts of the country as cases begin to rise again.

FTSE 100 – heavy losses for UK blue chips and heavyweight oil giant Shell along with rising fears of a second wave lockdown sent the index 1.8% lower, hitting our short support targets as it printed below the 6000 level for the first time since mid-May. Oversold conditions and better than expected housing data released out of the UK in early trade today have the index printing higher with 6050 as the closest resistance target.

DOW JONES – printed all the way down towards 26000 level, hitting both our short entry support targets after a record downturn in US GDP data sparked risk off sentiment, before pairing losses on after hours earnings from Apple, Amazon, Facebook and Alphabet which all beat estimates. An hourly close below 26200 key support level, coinciding with 200 period SMA (daily and 4H chart) will open the door to further downside with 26000 and 25800 as next support targets.

DAX 30 – hit our short support targets as it dropped by more than 3% in yesterday’s session on the back of weaker than expected German Q2 GDP data accompanied by a spike in virus figures. Oversold conditions favours a pullback higher, while failure to print a 4H candle close above 12458 will reaffirm strong bearish momentum with all eyes today on Eurozone GDP data with expectations of an 11.2% MoM contraction.

GOLD – just hit our 1980 long resistance target as we look for an hourly close above it to fuel further bullish momentum with 2000 level as next target. Elevated Initial Jobless Claims, a horrific US Q2 GDP contraction, and a Trump proposition to delay elections all triggered a risk off move with Eurozone GDP data, to be released today and expected to show a 40% contraction, only to add to safe haven demand

US OIL – WTI Crude slides around 2.5% in yesterday’s session, hitting our short support targets as OPEC and its allies are set to step up output by around 1.5 Mbpd beginning August amidst a record downturn in US Q2 GDP, contracting by 32.9% with expectations of Eurozone Q2 GDP to be released today to contract by 40%. Just released better than expected Chinese Manufacturing PMI is supporting higher prices on crude as we look for an hourly close below 40 to favour lower prints.

 

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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