The Art of Price Action Trading – Webinar Dec 10

Support, Resistance, Reversals and Pin bars are all key to this approach, and Andria will demonstrate everything you need to know in this interactive webinar, including:

  • Identifying Support & Resistance areas
  • Key candle patterns
  • Entries and exits

DATE: 10 December 2019, 11:00 AM

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About Andria Pichidi, HotForex’s Analyst
Having completed her five-year-long studies in the UK, Andria Pichidi has been awarded a BSc in Mathematics and Physics from the University of Bath and a MSc degree in Mathematics, while she holds a postgraduate diploma (PGdip) in Actuarial Science from the University of Leicester.

Following her various academic endeavors, Andria set eyes on the fascinating Forex industry where she has obtained valuable experiences after being active in the field for the past few years. In 2016, she joined HotForex as a Market Analyst with a mission to actively support the company’s clients in becoming better traders, by delivering daily market reviews.

Momentum Reversal Strategy – Part II – Webinar Nov 27

Join Andria as she explains the momentum reversal strategy and how it can be applied to trending and ranging charts in multiple timeframes. In this follow up session, she will explain in greater detail:

  • What a trading strategy is and why you need one
  • The details of the momentum reversal strategy
  • How to identify appropriate TP and SL levels

REGISTER FOR FREE: 27 November 2019, 11:00 AM

About Andria Pichidi, HotForex’s Analyst

Having completed her five-year-long studies in the UK, Andria Pichidi has been awarded a BSc in Mathematics and Physics from the University of Bath and a MSc degree in Mathematics, while she holds a postgraduate diploma (PGdip) in Actuarial Science from the University of Leicester.

Following her various academic endeavors, Andria set eyes on the fascinating Forex industry where she has obtained valuable experiences after being active in the field for the past few years. In 2016, she joined HotForex as a Market Analyst with a mission to actively support the company’s clients in becoming better traders, by delivering daily market reviews.

The Double Zeros – Webinar Nov 20

The fading the double zero strategy attempts to put investors on the same side as market makers for a quick contra‐trend move. Andria will explain how this strategy works. In this webinar, you will learn:

  • What are the Double Zeros?
  • Timing
  • Trading Price Action

REGISTER FOR FREE: 20 November 2019, 11:00 AM

About Andria Pichidi, HF Markets’ Analyst: 

Having completed her five-year-long studies in the UK, Andria Pichidi has been awarded a BSc in Mathematics and Physics from the University of Bath and a MSc degree in Mathematics, while she holds a postgraduate diploma (PGdip) in Actuarial Science from the University of Leicester.

Following her various academic endeavors, Andria set eyes on the fascinating Forex industry where she has obtained valuable experiences after being active in the field for the past few years. In 2016, she joined HotForex as a Market Analyst with a mission to actively support the company’s clients in becoming better traders, by delivering daily market reviews.

Growth Risks Mount but Recession Wolf Kept Out for Q3

Earlier today, the UK August production data disappointed, contracting 0.6% m/m and by 1.8% y/y in the broad industrial output measure. The narrow manufacturing production contracted by 0.7% m/m and by 1.7% y/y, some way off median forecasts.

Stay tuned to the HotForex Analysis page for exclusive expert analysis of all the major market movements!

Meanwhile, last week we also saw a worrisome situation, as the September PMI surveys found employment contracting at its fastest pace since December 2009, the days of the Great Recession, with job losses in the service sector declining having hitherto been holding up while jobs in the construction and manufacturing sectors declined.

On the flipside, the monthly GDP data, today, showed that the UK expanded by 0.3% over July and August, strongly portending that growth over Q3 will be positive. So, while the Eurozone reading and the overall data out of the UK effectively signals stagnation, the monthly UK GDP keeps the wolf of recession at the door following the 0.2% contraction in Q2.

Despite this, the data should further facilitate a dovish-turn-in-progress at the BoE, especially now that it is clear that Brexit concerns are hitting the whole economy, even if a no-deal scenario can be avoided for now. The Institute for Fiscal Studies (IFS) meanwhile warned that even a “relatively benign” no-deal Brexit could push borrowing up to GBP 100 bln with total debt likely to jump to 90% of national income. IFS director Paul Johnson warned that the “government is now adrift without any effective fiscal anchor”.

GBP

Stay tuned to the HotForex Analysis page for exclusive expert analysis of all the major market movements!

Sterling dropped initially, in the wake of the data release, though follow through has been limited due to GDP, which is suggesting that the economy is on course for a positive print for Q3, and will avoid technical recession. Overall, the currency continues to trade with about a 14-15% discount in trade-weighted terms compared to levels pre-vote in June 2016.

The UK government continues to position for “people-vs-parliament” election

On the Brexit front, UK Prime Minister Johnson will meet his Irish counterpart later, which the media has tagged as a last-ditch attempt to reach a compromise on the Irish border issue, though more likely it is a stage for both to put on a show that they are doing all they can given the intractable reality of their respective positions. A delay in Brexit is all but inevitable.

At the current juncture and with parliament deeply divided, a general election in November or early December also seems inevitable. However, if PM Johnson’s ongoing threat to leave without a deal on October 31 is not a bluff to bring a clear majority for those backing a no-deal Brexit vs parliament, and instead he insists on that going into a general election then this would be politically risky for him. This would actually be a chaotic backdrop for everyone.

The UK would have suddenly severed itself from over 750 separate agreements worldwide (according to FT research), requiring re-negotiation at not only the UK-EU level but also deal-by-deal authorisation of every third country involved, all at a time when UK imports are getting more expensive and UK exports more dear as the country shifts to backstop WTO trading terms.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Limits to What Monetary Policy Can Do

The comments of ECB’s Rehn came in line with his colleague, ECB Vice President Luis de Guindos, as both agree that ECB should fight low inflation before Europe turns into “Japan”.

“We have learned from the experience in Japan that it is possible to get caught in a vicious cycle of declining inflation expectations, falling inflation and a binding lower bound on nominal interest rates from which it is difficult to escape”, as ECB Vice President Luis de Guindos stated.

Even without the pressure from policymakers, it is quite obvious that ECB must do something more than simply easing policy, as data keep adding pressure to the central bank’s concern that inflation expectations could become de-coupled. However, data over the last week but so far this week as well, backed Draghi’s decision to set easing measures despite the opposition from the core Eurozone countries.

The latest data releases from EU were the Services PMIs for September, with the overall reading, along with PPI inflation and Retail sales. Other than Retails Sales, all the rest of the economic data of the day pointed to a growing recession risk for the European economy, bringing vindication for doves ECB team and Draghi.

Stay tuned to the HotForex Analysis page for exclusive expert analysis of all the major market movements!

Eurozone Services PMI revised down in final reading for September, while composite came out at just 50.1, signalling clearly stagnation and warning once again that the growing frailty in manufacturing sector has already started to affect other economic sectors. The retails sales rose up to 0.3% m/m in August, while along with a solid labor market, supported Eurozone’s consumption for Q3. Considering though all the other aspects of the economy, and the latest imposition of tariffs from US on EU, it is almost impossible to avoid the transmission of German manufacturing weakness across  labor market as well but in general across other sectors and countries within EU.

Germany has already entered technical recession as it contracted in Q2 and almost certainly did so again in Q3. Hence, on the background of Brexit uncertainty and further trade escalation, deep recession scenario for Germany and Eurozone gets closer.

The growing risk of stagnant economic conditions to turn into recessionary could defend the restart of asset purchases and the push from ECB to governments for implementing fiscal support to strengthen the economy.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

 

Palladium: Completely Reverse The Rumors for a Bubble Burst

Markets feared for a possible bubble bust, with Commerzbank stating: “In our opinion, a correction of the palladium price was long overdue. It is not yet possible to say whether yesterday’s plunge was the bursting of a bubble; for this to be the case, the price would need to fall even more sharply or further.”

The correction was indeed posted, while since May the asset was ranging between 1235-1600 area. At the beginning of September however, we have seen a remarkable rise, above the 5-month range. Technically speaking, we can claim that the bubble didn’t burst, but conversely the correction and the long-term consolidation was a correction of the 4-year rally. The precious metal has retraced more than 31% of year losses. Meanwhile, it holds above the 20-week SMA and 50-week SMA, which has been providing a strong Support area for the asset the past four quarters.

Theoretically speaking, however, palladium is strongly positively correlated with the car industry as it finds 80% of its demand from gasoline auto cars. The source of palladium’s performance the last decade, though, was and still is the global supply deficit, fired by the car industry demand. Considering only the 2017 supply, the deficit reached 875K ounces, while in 2018 it was at 121K ounces. Meanwhile, this year the palladium market is expected to present a deficit of up to 809K ounces.

Despite the consolidation in Palladium’s prices, it is unlikely that the demand for palladium will change significantly the next few years. This could be explained by the tighter emission standards, as despite the overall economic slowdown, the auto sales slowdown in China (due to tax cuts) and US, the higher recycling volume, and the high price of palladium, car-makers must meet emission standards. Hence, they are quite “forced” to use palladium, as it is the metal used in catalyst converters to reduce emissions from gasoline engines.

In Europe on the other hand, the swing from diesel engines has hit European producers and as a consequence platinum price as well, which was the most preferable metal for reducing emissions in diesel engines. This balanced the risks stated above, for palladium’s price, as diesel engines are “undesirable”.

The expensive palladium and unwelcome platinum could eventually push manufacturers to turn to potential PGM-free engines (PGM stands for Platinum Group Metals). However, this would take time. A potential approach for manufacturers could be to substitute palladium for platinum on engines other than diesel ones. However, this is a scenario that has not been accomplished yet and seems unlikely to happen for now.

So far, the legislation and the taxation for diesel engines, but also the general tighter emission standards, have boosted the substitution of diesel engines into alternative engines, such as electric, hybrid and petrol which all require the use of more palladium. Gasoline vehicles are expected to maintain a majority market share to 2025 and to increase in absolute numbers including gasoline hybrids. These factors could keep palladium demand rising, unscathed from the economic slowdown and the higher recycling volume.

Meanwhile, in China, the world’s largest consumer, Morgan Stanley reported that new legislation will be applied from 2020 which will require 30% more PGMs on each vehicle. This is another factor that is likely to keep demand high, despite the already overextended palladium price at 1662.

As Norilsk Nickel Group, one of the largest palladium mining companies stated: “The demand for palladium is growing.” “Per unit PGM consumption in hybrid cars is higher than in traditional vehicles with the same ICE volume; accordingly, we expect palladium consumption to increase by 3 mln oz by 2025. “

Additionally, according to research from BASF, the world’s leading supplier of catalysts, demand for palladium in China is expected to grow from 2.332 million ounces to 3.429 million ounces by 2022.

As the supply deficit is more in favour of palladium than platinum or any other PGM metal, the palladium price is expected to extend its recent rally. Currently, palladium is accelerating higher, above 1,650. Having rejected the Resistance area at the upper line of 5-month range at 1609.85 on March 21any pullback could be considered once again as a correction.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Probability of Rate Cut from RBA Spikes to 80%.

Despite the efforts of the Australian government to boost the consumer sentiment by applying tax offsets and by pausing the interest rate cuts for 3 months, it seems that their plan for using tax offsets in order to quarantine relief at the lower end of the income rates was not as successful as they were hoping for. RBA governor Philip Lowe, however, continues to support that the federal government’s tax cuts are expected to boost household income and consumption growth sooner or later.

Hence, the RBA, by acknowledging that Australian consumer sentiment fell to a two-year low, and as the overall weakness in construction and housing investment insist, is obliged to held off cutting rate for September and to proceed to a rate cut of up to 25 bps in October (according to market consensus).

As JP Morgan stated, the bank’s forecast of improvement in domestic demand could be threatened by the not sufficient benefit from income tax rebates and the stalled wages growth. Despite the unexpectedly Australian employment growth released in July and August and overall in 2019, unemployment rate stalled at 5.2% from May to July while it jumped to 5.3% for August.

This spreads great uncertainty regarding the potential growth of labor market, especially due to the fact that the wages growth for Australians is the worst in comparison with the rest of the industrialized world. In the past 12 months Australian ordinary full time wages have increased by 2.6 %, around 1.5 percentage points below its average of the past decade.

Australian inflation meanwhile, Q2 CPI came in stronger than expected at 0.6% q/q, up from 0.0% q/q in Q1. However, the trimmed mean inflation rate came in at 1.6% y/y, down on the RBA’s February forecast for this metric to reach 1.8% by June, and well below its overall 2%-3% inflation target.

The minutes of the Reserve Bank of Australia’s (RBA) September 3 meeting released on Tuesday clearly showed it would consider further rate cuts if necessary to support growth and achieve its 2% to 3% inflation target. The RBA stated this month that a rate cut “would be appropriate” should inflation remain weak.

Hence, after the labor market report, RBA Rate Indicator today, is discounting about an 80% probability for a 25 bp cut in the cash rate at the next RBA policy meeting. The percentage probability of an RBA interest rate doubled from yesterday, due to the disappointment on the August employment market report yesterday. The fact that unemployment has continued its steady grind higher, hitting 5.3 % in August, comes in contrast with RBA’s hopes for 4.5% outcome that could drive wages growth up.

Callam Pickering, economist for global job site said:  “A higher unemployment rate suggests that stronger wage growth is unlikely for the foreseeable future […]”. Hence, as wages remain under pressure, as the number of people looking for work edges up, as low consumer spending is having a direct impact on business spending, and as debt levels remain high, RBA’s outlook and Aussie’s outlook as well, are expected to remain in a downwards trajectory.

The only bright spot is the slight pullback that we have seen in the housing market, with both mortgage approvals and auction clearance rates climbing. As stated in a Reuters report: “House prices could rise further as data on residential building approvals and information from the RBA’s liaison program suggested near-term weakness in new high-density dwelling investment.”

Other than the combo of disappointing Australian data, the threat of recession on major economies worldwide, along with the slowdown in the Chinese economy due to US-Sino trade war, having a direct impact to the biggest exporter of China, i.e. Australia, and along with RBA’s potential easing, are likely to keep Aussie under a selling pressure.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Could Next Week’s Agenda Turn Things Upside Down?

September’s economic data in the US, despite the softer than anticipated job gain on Friday, largely aligned with the risk sentiment improvement which has been reinforced today with few goodwill gestures from both US and China. After Bolton’s departure, which spread hopes for easing of trade tensions, the announcement of a 2-week delay by President Trump on the next US tariffs increase on China, along with the news that China is considering US farm imports, and has released an exemption list of its own tariffs on US imports, have been tonic for markets.

As trade jitters recede, global stock markets maintain buoyancy, oil prices faced a $3 dive, while safe-haven assets such as Swissy and Yen decline, whilst trade-sensitive currencies such as Australian Dollar and New Zealand Dollar posted sharp rally. The mixed market is a result of slight reversal away from the so far enduring risk-on phase, into a more neutral stance.

Now, with ECB out of the way, the big question is whether this improved sentiment will be sustained next week as it will be a “Massive” week with four central banks reporting, i.e. FED, BoJ, SNB and BoE.

Hence, next week’s agenda could clarify whether the optimism will continue or whether the market will revert back to the risk-on mode as this might be just a small distress rally for the already overstressed markets.

Markets lately are acting ahead of news. They had priced in today’s ECB’s deposit rate cut by 10 bp beforehand, while they are also pricing in accommodation from the FOMC next week. However, expectations for more aggressive actions have been pared and that’s taken some of the bullish momentum out of sovereign bonds.

After the ECB signaled the restart of QE today, with asset purchases at EUR 20 bln per month from November, for “as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates”, the next in focus is FED.

By taking into account Powell’s words last Friday, the FOMC is not expected to proceed into an aggressive easing policy next week despite the continuous pressure from President Trump.

Fed’s Powell more precisely repeated that the Fed is very committed to the symmetric 2% inflation goal in order to keep inflation from moving lower and becoming embedded in expectations. A number of factors have contributed to a low neutral rate, including demand for safe assets with an aging population. And given low inflation, interest rates will remain low. That leaves very little room to cut rates further, which mandates implementing other tools. In setting policy, there’s a diverse perspective given the broad scope of the FOMC.  Powell said political factors play “absolutely” no role in decision making.

Nevertheless Fed is not forecasting or expecting a US recession, nor a global downturn, said Powell. The labor market is still tightening at the margin, according to many measures. The consumer is in good shape.

Hence, the fact that the chair doesn’t seem too concerned about a recession in the States, or for the world, suggests the FOMC is not going to be aggressive with its easing policy, hence the market is expecting a rate cut up to 25bp.

In the risk-front, we cannot say that things have changed significantly as next week’s events and any news on the trade-front could change the mood music rapidly. On the US-China trade front, we have many times heard upbeat rhetoric in the many previous rounds of the so far fruitless trade discussions.

Therefore, the improvement of risk appetite looks extremely delicate as it could be easily reverted next week by a single tweet.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Supportive NFP Despite Recent Disappointment?

Yesterday’s contraction signal from the disappointing US Manufacturing PMI rekindled concerns about the fallout from ongoing geopolitical trade tensions, while this adds further pressure on the upcoming Jobs report on Friday.

The reading was an indication that trade and tariff turmoil continues to cast a dark shadow over the global economy. The US ISM manufacturing index dropped to 49.1 in August, weaker than expected, but not a surprise, after slipping 0.5 ticks to 51.2 in July.

This is the first time in the contractionary territory since August 2016, and it is the lowest since January 2016. Every component but supplier delivers is now below the 50 expansion, contraction line. Meanwhile, the Markit manufacturing PMI slipped as well, printing the lowest outcome since September 2009, as it holds above the contraction line.

Significant is the fact that the employment sub-component fell to 47.4 from 51.7. This could be a negative signal for the upcoming jobs report from US on Friday, as a possible contraction in the manufacturing sector may result to cut the number of Jobs in the particular sector.

However, let’s flip back to the Non-Farm payrolls report which is expected to post rise up to 165k in August after the in-line outcome seen last month with a 164k increase. This forecast is well below the 223K seen in 2018.

The jobless rate ticking down to 3.6%, alongside gains of 0.3% for both hours-worked and hourly earnings. Initial claims remained firm in August, while most consumer confidence eased to still firm levels. Most producer sentiment measures rebounded slightly, but vehicle assemblies could moderate from an elevated June-July pace.

Hourly Earnings: The wide anticipation presents a 0.3% increase in June average hourly earnings, after a 0.2% increase in each of the preceding three months.

FX Markets

The Dollar has been traded softer into the London session, edging out a 3-session high against the Euro above 1.1020 and making moderate advancements against the Yen. The focus now turns to the ADP number tomorrow, in which a miss could add pressure on USD Dollar.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Technical Recession: What it is and How the Trumpian Era Driving The Economy to a Potential Recession.

The manufacturing sector in particular is the one that has turned into a drag on overall growth as it has felt the fallout from geopolitical trade tensions and is likely to come under further pressures for the rest of the year. Germany will increasingly be in the firing line especially if growth doesn’t improve soon.

Another painful call for caution was given today with the manufacturing PMIs for the Eurozone highlighting the sector’s contraction in Germany, the UK, and Italy as well. The German outcome was revised lower at 43.5, while the UK’s August Manufacturing PMI was seen at the lowest level of the past 7 years. Remarkably, the releases show that countries like France, who focused on domestic demand rather than foreign, have been less affected in a period of a high downside growth risk globally.

Meanwhile, German car producers are still suffering from the fallout from the diesel scandal but will also be in the firing line for another round of US tariffs on imports from the EU, which seem increasingly likely considering that there is little to no progress in trade talks.

The sector is also feeling the pressure from a no-deal Brexit scenario. Indeed, given the fact that Boris Johnson has been given moral backing by US President Trump, he could well back this up with tariff threats in September, which would strengthen the UK’s hand in the last weeks for possible talks ahead of the October 31 Brexit date. In that scenario and with signs that Germany’s weakness is spilling over to the rest of the Eurozone, pressure on Berlin to ditch the focus on budget consolidation is rising.

But let’s see what technical recession actually means and why it is important.

Recession, simply put, is the decline in economic activity, usually visible by a significant drop in five of the most important economic indicators, i.e. real gross domestic product (GDP), income, employment, manufacturing, and retail sales. Technical recession though refers to the sequential decline in GDP for the past two quarters. This presents economic contraction since the GDP measures the value of all goods and services produced in a country during a specific period of time, in other words, the total expenditure in the economy.

The potential of a technical recession is visible in the Eurozone and Asia:

PMI manufacturing data out of both Europe and Asia have painted a worrisome picture, overall, today, showing the direct and indirect impact of the Trumpian era of trade warring. This comes with additional US tariffs being implemented on Chinese goods, as well as retaliatory levies from China. China’s official August manufacturing index dipped to 49.5 below the 50 expansion/contraction line, despite the improved CAIXIN PMI to 50.4 from 49.9.

In the rest of Asia, export-oriented South Korea, Japan, and Taiwan also showed their respective manufacturing sectors to be in contraction, shining a light on the indirect effect of geopolitical tensions.

Meanwhile, in the Eurozone, German GDP contracted -0.1%, which added to expectations for ECB stimulus. Overall, it was largely as expected number for Q2 GDP, with the main weakness in exports and an unexpected contraction in investments. The scaling back of investment and the weaker than expected consumption profile tie in with the ongoing deterioration in business confidence and signal a more lasting slowdown, with the risk of a technical recession. The composite PMI fell back to 50.9 in the final July reading, the lowest since 2013 and effectively signaling stagnation in overall economic output. ZEW and Ifo surveys also continue to decline.

Moreover, the drop in German Q2 GDP was a reminder that the fallout from geopolitical trade tensions and Brexit uncertainty is threatening to derail the global economy.

What could happen this week?

Another confirmation of downside risk to the growth outlook could be seen this week, as Eurozone Q2 GDP growth will be announced on Friday. It is anticipated that the report will emphasize the two most export-oriented economies, i.e. Germany and Italy.

Looking ahead, the weakness is likely to persist in the third quarter, as confidence data remains depressed, and the weakness in manufacturing is starting to impact the labor market. Meanwhile, a potential announcement of additional tariffs on imports from the EU by the US will increase the pressure on the European economy, as the US remains the largest destination of EU exports. In 2018 EU exports to the US reached EUR 407 bln, with imports from the US coming to just EUR 268 bln.

Theoretically, however, if the economy shows positive growth for the remaining two quarters of this year, Germany will avert a recession for the calendar year 2019.

How could a recession affect us?

In general a recession, technical or not, has an immediate impact on the labor market, consumer behavior and the interest rates of a country as well.

  • In the labor market, unemployment rates run extremely high due to the decline in investment into the country. As the unemployment rate rises, consumer purchases fall off even more.
  • As the recession affects interest rates, spiking good and services prices, consumers often cut spending on non-essential items and prefer to spend money on necessities only, due to their insufficient income.
  • Production slows down, thus giving rise to prices.
  • Businesses start consolidating their expenses, and that suggests job cuts.
  • Manufacturing, construction, wholesale and retail trade, as well as accommodation are at a higher risk of being affected.

Hence as we have stated the direct and indirect impacts of the recession, the question is how long it will take until the weakness in German manufacturing spreads, especially as the improvement in the labor market is already starting to wane. The same question stands for the Asia region as well.

Stay tuned to the HotForex Analysis page for exclusive expert analysis and education!

For now, optimism that the situation will change is based on Central banks. In China, the State Council’s financial stability and development committee announced that it will keep a prudent monetary policy, with “reasonably ample” liquidity and “reasonable growth” in aggregate financing. In Europe, the ECB is holding on track with another comprehensive easing package and a further cut in rates.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Recessionary Warnings On, and Fed’s Jackson Ahead

Global bond markets have been flashing recessionary warnings, and central banks have listened. The Fed cut rates for the first time in over a decade in July, and the ECB is poised to bring out its bazooka again in September; the PBoC has been actively intervening, while several other central banks have surprised with easings of their own in recent months

The focus this week will be keenly on the FOMC minutes to the July 30-31 meeting and the Jackson Hole Symposium. Both have yielded policy hints in the past and the markets will look for any such nuances to current outlooks, including the extent of worries over downside risks from trade uncertainties.

The big underlying questions that will remain unanswered for now, however, are not only whether the US can avert a recession, but whether it can help lift the world out of a contraction.

The markets’ fears over recession were heightened after the Treasury yield curve inverted since the idea behind the use of a yield curve is to measure investors’ perception of risk and future developments in the bond market, as well as the overall economy.

What is a yield Curve?

Theoretically, the yield curve’s tilt presents investors with perspective as to how the economy will deploy, in simple terms, bond investors’ feelings about risk. The yield curve is considered to be the most closely watched predictor of a potential recession. As such, in a healthy economy, the yield on shorter-term bonds, which expresses the return investors are getting for committing their funds, is expected to be lower than the yield on longer-term bonds.

As we stated last October,

“The idea is that short-term bonds carry lower yields because lending to someone, regardless of whether that person is the government or the average Joe, is less risky for the investor; the longer you commit funds, the more you should be rewarded for that commitment, or rewarded for the risk you take that the borrower may not pay you back. This behavior is referred to as the normal yield curve, and reflects economic expansion as investors show how confident they are about the economy by their level of demand for government bonds.”

At the point in which the short-term bonds offer higher yields than longer-term bonds, we have an “inverted” yield curve. This is widely regarded as a bad sign for the economy and a recessionary signal from the bond market. The lower the yields due to the low interest rates, the slower the economic growth.

What about last week’s yield curve inversion?

Last week, the indicator yelped even louder as on Thursday the 30-year Treasury bond made a new historic closing low at 1.974%. The 2s-10s spread was seen in negative territory only briefly for the first time since 2007. Even though it never did close below zero, markets’ fears over recession were heightened after seeing this inversion.

In general, the reason behind the inversion of the yield curve, is that in times of great uncertainty like last week but in general the whole of 2019, investors become nervous, and turn to less risky assets such as Treasurys, which are among the world’s safest investments. The higher the demand for bonds will be, the lower the yields.  As seen last week, the weak data from China, the contraction in the German economy during Q2, ongoing Brexit uncertainty, and the optimism generated by an apparent thawing in US-China relations ran head on into fresh concerns that a recession is on the way.

What to expect from now onwards?

As geopolitics remain major headwinds, Brexit is approaching the October 31 deadline fast, the protests in Hong Kong, political instability in Italy, disarray in Argentina and monetary easing from an array of countries, are seen dampening the global blow, investors’ anxiety is expected to extend further in the long term.

Hence the main theme of the upcoming months is likely to remain on the recession and trade concerns. Even though the inverted yield curve might be a signal of the start of a recession, if a recession comes, firstly it will take a while, and secondly it is expected to be a global recession, with the US economy less impacted than the rest of the world, as the US retail sales and labor market is holding up well. On the other hand, the rest of the global economies, and especially China, might suffer a severe fallout, not only due to the trade war and geopolitical tension but also due to its productivity slowdown due to its shift from export-oriented manufacturing to domestic real estate and infrastructure, the reduced working-age population etc.

Nevertheless, this week, optimism persists as investors are already pricing out some of the recession fears that hit confidence earlier in the month amid growing conviction of decisive stimulus measures, with the FOMC and ECB on very supportive footing.

Ahead of the Jackson Hole Symposium, hopes are high that the central bankers might take further steps to support economic growth if needed. The upcoming US-China trade talks and the Treasury’s announcement that it is looking into issuing 50- or 100-year bonds are also a source of cautious optimism, in the near term. A global risk-on rally lifted equities and yields, as optimism from late last week spilled over into the new week. This picture is expected to hold during the week.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Central Banks Overview

Nearly all major Global Central Banks have adopted a more formal easing bias in their word cues, with the RBA being the first one to cut rates this year, followed by the RBNZ in May and the Fed in July by the widely expected 25 bps.

Stay tuned to the HotForex Analysis page for exclusive expert analysis of the Central Banks and other major market movements!

This week, however, dovish policy surprises from India’s central bank, New Zealand’s central bank and the Bank of Thailand saw those institutions join the march toward more accommodative policy globally. India and New Zealand cut rates by more than expected.

The RBNZ surprised markets with a hefty 50 bp cut that left the official cash rate at a record low of 1.00% and sparked fresh speculation of deep cuts worldwide. This was the first cut of such magnitude since 9/11. The RBNZ’s action comes after the RBA signaled that more rate cuts could be in the pipeline.

Thailand eased policy, contrasting with expectations for no change. The trio of dovish central bank policies surprised due to their outsized rate cuts.

The trio also added pressure on the remaining central banks which have so far maintained a steady policy outlook despite the global growth slowdown signals – weighed down by geopolitical tensions.

However, let’s have a closer look at some of the central banks’ Policy Outlooks ahead of their next meetings in September.

FOMC cut rates 25 bps as fully expected to a 2% to 2.25% range, in July. The Fed stated it lowered rates “In light of the implications of global developments for the economic outlook as well as muted inflation pressures.” However, the policy statement and Chair Powell’s press conference didn’t deliver the dovish policy path that had been priced in. The presser was highlighted by Powell’s comments that this is a “mid-cycle” action and “not the beginning of a lengthy cutting cycle.”

However, after this week’s aggressive central bank rate cuts seen from the trio, i.e. RBNZ, RBI and BoT, odds have improved for a 50 bp Fed cut in September, as the world kicks off a race to the bottom. Meanwhile, the ongoing trade concerns, with President Trump’s ratcheting up of his trade war with China, also increases the odds for Fed easing given the potential for a detrimental impact on the US economy and more precisely on growth, and low inflation.

ECB: The ECB kept policy rates on hold at the July meeting, while it managed to keep markets happy with a pretty dovish signal. Draghi laid the grounds for a pretty comprehensive set of easing measures in September that focuses not only on lower policy rates, but also additional asset purchases and a review of the central bank’s inflation target and forward guidance.

Meanwhile, the shape of the yield curve still signals heightened recession fears. Hence as the German curve is now negative in its entirety, markets are pricing in not just a comprehensive easing package in September, but further cuts later on as trade risks and Brexit jitters intensify. Additionally, the ECB’s bulletin today also affirmed that further easing measures are underway, but as usual stuck pretty much to Draghi’s script from the last press conference and had limited impact.

BoJ: The BoJ held policy steady, while highlighting downside risks from exports on the growth outlook. The Bank kept in place its yield-curve control program and asset purchases, matching widespread expectations.
In January, the BoJ reduced its inflation projections, with CPI for fiscal year (FY) 2018 now seen at 0.8% (was 0.9%), FY 2019 at 0.9% (was 1.4%) and FY 2020 at 1.4% (was 1.5%). Japan’s fiscal year begins in April.

The BoJ is anticipated to maintain its current extraordinary level of stimulus as they wait and see how global growth progresses this year, while it has warned that chronic ultra-accommodative policy “could destabilize the financial system,” although these risks were not judged to be significant at the present juncture.

Among the core central banks, the BoJ is firmly poised to be “low for longest“.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

 

Events to Look Out For Next Week

Following the FOMC meeting last week, two interest rate decisions (RBA and RBNZ) are scheduled next week. An on-hold stance is expected from RBA and more easing by RBNZ. From an economic perspective, GDP releases are the highlights, while with the focus on geopolitical trade tensions, data releases are likely to be overlooked.

Monday – 05 August 2019

  • Services PMI (GBP, 08:30) – The UK Services PMI is expected to stay unchanged at 50.2, a three-month low and dropping from May’s 51.0 reading. The indicator effectively signals stagnation, with the sector only expanding fractionally, and at risk of tipping into recession; a consequence of both Brexit-related uncertainty and geopolitical trade tensions.
  • Non-Manufacturing PMI (USD, GMT 14:00) – The US Non-Manufacturing PMI is expected to rise to 55.5 in July from 55.1 in June and a 19-month low of 56.1 in March, versus a 13-year high of 60.8 in September. The available July sentiment surveys have partly reversed the June downdraft in sentiment, though we’ve seen divergent swings for some measures.

Tuesday – 06 August 2019

  • Interest rate Decision and Statement (AUD, GMT 04:30) – Reserve Bank of Australia is expected to keep rates unchanged to 1.00% (in June and July were the first back-to-back rate trimming since 2012). The latest data has strengthened the view that the RBA, after implementing back-to-back rate cuts in June and July, will be on hold for the foreseeable, albeit retaining a dovish policy stance.
  • JOLTS Job Openings (USD, GMT 14:00) – JOLTS define Job Openings as all positions that have not be filled on the last business day of the month. June’s JOLTS job openings is expected to fall slightly at 7.268M, following the 7.32M in May.

Wednesday – 07 August 2019

  • Interest Rate Decision and Press Conference (NZD, 02:00-03:00) – The Reserve Bank of New Zealand is expected to proceed with a second rate cut this year. The consensus presents a 25bp rate cut.
  • Ivey PMI (CAD, GMT 14:00) – A survey of purchasing managers, the Index provides an overview of the state of business conditions in the country. Canada’s July Ivey PMI expected to improved 2.6 points to 55.00 after the decline seen in June. The data is supportive of the steady policy story, as the economy returning to potential growth contrasts with an outlook “clouded by persistent trade tensions.”

Thursday – 08 August 2019

  • Gross Domestic Product (JPY, GMT 23:50) – Growth in Japan is expected to have decreased by 0.5% in the second quarter from the 0.6% in the first quarter, reflecting weaker exports due to cooling global demand and trade tensions.

Friday – 09 August 2019

  • Gross Domestic Product (GBP, GMT 08:30) – The GDP for the second quarter could be seen declining due to the renewed rise in no-deal Brexit risks which negatively impacted data releases, and the slump in the June manufacturing PMI which highlights the extent of the deterioration in sentiment.  The preliminary release of UK Q2 GDP growth expected at 1.4% y/y figure from the 1.8%seen in the last quarter.
  • Employment Change (CAD, GMT 12:30)Employment change is seen spiking to 10.0k in the number of employed people in July, compared to the decline 2.2k in June. The unemployment rate expected to remain at 5.5%. A possible lack in total jobs during July is unlikely to challenge the BoC’s steady-as-it-goes policy position.

Andria Pichidi, Market Analyst at HotForex

(Read Our HotForex Review)


Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Could Amazon Earnings Post New Record Highs?

Amazon’s revenue stream is impressive: over 100 million US homes have a Prime membership for retail deals and delivery perks, while the increase of Amazon’s pharmaceutical offerings pushed logistics higher. Meanwhile, cloud, third-party seller services and e-commerce businesses are growing, as TV streaming business has expanded in order to take over Netflix, Apple etc.

The Amazon Web Services (AWS), the retail results and margins will be in the spotlight when Amazon reports, especially after AWS boosted in the first quarter the revenue of the company up to 41% for 2018, i.e. extra income up to more than $2 Billion from last year. The introduction of Amazon Web Services (AWS) three years ago held Amazon’s share price to record highs for years as it helped Amazon to expand its business further. The AWS provides on-demand cloud computing platforms to individuals, companies and governments, on a metered pay-as-you-go basis.

The third-party sales should also assist in holding profits high as nowadays more than 50% of Amazon’s total unit sales come from third-party sellers.

Despite the fact that Amazon posted a $59.7 billion sales growth (17% rise y/y) in the first quarter of the year (that’s almost one billion per month), its share price declined by nearly 14% in May due to the general weakness in the tech sector. The escalating trade war between the US and China drove tech indices lower in May. After that tumble though AMZN recovered all the losses and is currently up by over 30% in 2019, slightly below record highs seen last year.

Despite impressive performance so far in 2019, today it will be also interesting to see whether Amazon’s huge spending ($800 million) to upgrade Amazon Prime’s free delivery benefit from two days to one day, will actually affect the second-quarter 2019 profits.

Q2 Outlook

The consensus recommendation for the company is “Strong buy”, which matches the majority consensus recommendation for the Software peer group (47/48) based on Refinitiv. Amazon is expected to post $5.29 earnings per share and revenue of $62.57 billion according to Zacks Consensus Estimates, which reflect an increase of around 18.3% on revenue on a year-over-year basis.

Such a result would top last quarter’s expansion, however, they will highlight a slowdown on Amazon’s growth in comparison with 2017 and 2018 growth.

FIGURE : [THOMSON REUTERS(2019)] REPRINTED FROM AMAZON.COM INC. FINANCIAL, RETRIEVED FROM HTTPS://WWW.REUTERS.COM/FINANCE/STOCKS/OVERVIEW/AMZN.OQ

Technical Analysis

If the giant’s earnings post another positive growth report, then the rise by 23% seen since $1,671 low in June could extend further and push Amazon’s stock price northwards to the retest of 2018 high and to new record highs. You may trade Amazon Share CFDs with HotForex.

Taking a technical look at Amazon’s stock, the increase of the daily and weekly RSI and the spike of MACD lines above the signal line, they are pointing to a bullish medium-term picture. In the medium-term, the asset holds above all MAs (20-, 50- and 200-week), while in the near term it seems to be well supported by 20-day SMA the past 6 weeks.

The price movement suggests a further bullish bias towards. Therefore, the extension higher for Amazon price, after strong earnings outcome, could find Resistance at 2050.00 and 2158.73 (127. Fibonacci extension). Immediate Support could be seen at the $1,915.00 – $1,950.00 area, which is between last week’s low and the confluence of the 50-day EMA and the 61.8% fib. extension set since March rebound.

On the flipside, a break below this area, could be crucial as it will open the doors towards June’s low, in $1,600.00 area.

Andria Pichidi, Market Analyst at HotForex

 (Read Our HotForex Review)

Delving into US Dollar world

The Dollar is traded softer since Asia session. Without delving into the overall market picture, Dollar has been mixed the past 2 months for a variety of reasons, with a large devaluation seen against safe havens and commodity currencies.

US Risks

Even though the Dollar remains the King of the world’s currencies, it faces a lot of risks:

  1. Political risk: The risk that US authorities will try to weaken the Dollar, with the potential for direct intervention by the Trump administration in FX markets and persistent pressure on the Fed to lower interest rates. This could be reflected from the rise of “emerging-market style” politics in the US, i.e. pro-cyclical, politically-targeted fiscal policies, generating higher-than-expected inflation, shaking confidence in the sovereign’s growing debt pool, weakening its currency, and injecting volatility into equity markets.
  2. NOT an official Intervention: There is a risk that the President could damage the US Dollar just by tweeting. As Katie Martin states: “Trade wars are now conducted by presidential tweet, so why not currency wars?”. President Trump could use “intervention” as a means to leverage up its negotiating position in trade talks with China and other major economies.
  3. Populism Risk, Government Instability and Social Instability Risk: According to Forbes, these Risk had a positive effect on USDIndex, and hence US Dollar. However, since 2016 election this changed dramatically into a negative correlation and it is expected to continue weigh on US Dollar, as market participants are pricing in these risks into US Dollar.
  4. Monetary policy: The USD is largely priced in for a 25 basis point Fed rate cut at the FOMC announcement on July 31, while based on South Korea’s central bank unexpected rate cut overnight, speculations for the Fed to be more aggressive at the stimulus spigot up to 50bp rate cut, rekindled.
  5. Slowing global growth: it is a “prominent risk” to the US, even though economic data reports have been good and have affirmed a positive outlook. The uncertainty over the global outlook could be a cause for businesses to pull back and the markets “could turn quickly” if worries over government borrowing hit a “critical point” as Fed George stated.

On the other hand, Geopolitical Risk is in general beneficial for the US Dollar.

Currency Market

USD Index:

The USD Index bottomed below 67.00. Softer US housing starts data weighed some on the Greenback, as did a pullback in Treasury yields. The narrow trade-weighted USD Index is down by over 0.5% from the highs seen on Tuesday. The USD Index is largely priced in for a 25 basis point Fed rate cut at the end of the month, and recent ranges will likely hold up until the FOMC announcement on July 31. As the asset is traded below 20-week SMA for 3 consecutive weeks, the medium term outlook remains neutral to bearish. Next Support levels are set at: 96.60, 96.35 and 96.00.

EURUSD:

EURUSD has been lifted by a turn lower in the Dollar, which has retraced about half the gains it saw during the first two days of the week. This put EURUSD to a 2-day high at  50-day SMA, at 1.1243. A rekindling in expectations for the Fed to entertain an outsized 50 bp rate hike at the upcoming FOMC meeting, sparked by a WSJ report suggesting that trade negotiations between the US and China are at a “standstill,” has weighed on the US currency. As for the Euro side of the equation, there remain reasons to be not-too-bullish, including the economic-slowing impact of Brexit-related uncertainty, which has been affecting activity on both sides of the channel. Upcoming ECB meetings, starting with the one next week, have shifted to “live” status, with the central bank considering a gear-shift to an explicit easing bias. At the moment, there is a neutral view of EURUSD as it consolidates between 1.1200-1.1300 area the past 2 weeks, and in the longterm it has stuck between 1.1150-1.1350 range, for the past 2 months. The pair has trended lower from early 2018 through to March this year, but has since stabilized as the Fed shifted to a dovish bias. Support comes in at 1.1180-90.

 Andria Pichidi, Market Analyst at HotForex

 (Read Our HotForex Review)

2nd day of Testimony! FOMC VS S&P 500 and US Dollar

There is no question that global growth slowed in the first half of 2019 amid heightened trade uncertainties, Brexit, and geopolitics. And while economic activity will remain sluggish as those elements remain in place, the strong US jobs report and the truce with China should calm worries over a deeper pullback Adding to the less dire outlook are the accommodative policy stances from the key central banks, with the focus mainly on the FOMC so far in July and more precisely on Chair Powell’s testimony.

Expectations for an aggressive 50 bp easing were initially dashed by the Jobs report on Friday, however, Fed Chair Powell’s semi-annual Monetary Policy Report yesterday did not strike down rate cut expectations, in his prepared statement and during his testimony in Congress.

In his statement, he highlighted that despite the healthy labor market, the uncertainties since the last FOMC meeting continue to pressure the US economy as inflation weakens below the Committee’s 2 percent objective, and it is likely to insist on this decline. In his testimony meanwhile, he reiterated the most important factors weighing on the outlook are the crosscurrents of trade tensions and slowing growth, which are interrelated, and are manifesting in weakness in manufacturing and investment. He put those at the top of the worry list, but also mentioned low inflation. Fortunately, he added, the consumer sector is doing well.

Additionally, he did not try to disabuse the markets of their expectations, suggesting more accommodation is a fait accompli. He did not really suggest a bigger 50 bp rate reduction was in the offing, though he did say the Fed has the tools needed and could use them “aggressively” if necessary.

Therefore, the projections have strengthened for a 25 bp easing at the July 30-31 FOMC. According to the CME Fedwatch tool, investors are now fully pricing a 25 basis point cut in July, while the probability of the Fed making another 25 basis points rate cut by September is at 61.8%.

The big question now is: Should we expect a single cut or a series of cuts from the Fed?

Today we have the 2nd part of Powell’s Congressional testimony, which is expected to be in the spotlight once again along with the US inflation data which is expected to confirm the “muted” inflation that Powel stated yesterday.

Powell VS Markets

Equity Markets

Yesterday, the far more dovish Powell supported bond and stock markets, but added further pressure on short yields and the US Dollar. As Wall Street rallied yesterday, the S&P500 posted a record high as it was seen reaching the 3,000 level. The index didn’t manage to hold these levels as stocks generally came off highs, however so far today it seems that bulls are on the alert, sustaining the asset above the 2,990 level.

Momentum indicators are configured positively, however the 3000 barrier is a strong Resistance area which has not been overcome yet. RSI is at 67, with 70 being a very strong point as it hasn’t been broken since January 2018. MACD lines are in line with red signal line suggesting limited bullish bias for now. However, if the price manages to spike and sustain a move above 3,000, with momentum indicators turning higher as well, then the next level to be watched is the 3,100, which is the 161.8% Fib. extension level of May’s decline.

On the flipside, a pullback could be seen as a correction of the 5-week rally, as long as the asset remains above the 50-day SMA and the round 2,900 level. Immediate Support, meanwhile, could be seen between the latest low, which coincides with April’s peak and the 100% Fibonacci, at 2,959, and the 20-day SMA at 2,952.

Summing up, the S&P500 outlook remains positive in the near term and medium term as well, however profit takings on the peak levels could result to a potential swing lower.

Currency Markets:

So far today, the USD has posted fresh lows during the Europe session as markets continue to readjust Fed easing expectations in the wake of Chairman Powell’s testimony yesterday.

It has been a very interesting period of trading Loonie crosses. As a consequence of the downwardly shifting US currency since post-Powell testimony adjustment in Fed expectations, USDCAD has been seen moving lower for a 2nd consecutive day. Today the asset printed a 1-week low at 1.3042, thus retesting last week’s low. The asset has been following a bear market since May, however, it is sustaining a move within a 2-year up channel.

The daily technical indicators are weak, as RSI and MACD have been configuring below neutral. However, both look to hold a support above the oversold barrier, as RSI has retested the 30 level 4 times since June, but without posting a successful breakout, while MACD lines flipped above signal line in the negative area, something that implies that recovery is still possible.

However the key level in USDCAD is last week’s low at 1.3036, which is also its 8-month low. Hence a decisive close at or below this level could open the doors towards September-October 2018 lows, at the 1.2800-1.2915 area. Additionally, near-term Resistance holds at 1.3080 and at 1.3145 (2-week high). In the medium term Resistance is set at the 50-week SMA (and 38.2% Fib. since May 31), at 1.3236.

Earnings Season Once Again – Will it Be a Scary One?

It’s that time of the year again! As we have passed into the second half of the year, Earnings season is expected to be a big story in July, with many analysts bracing that it might be one of the worst Earnings season in the past 3 years. Companies began reporting their earnings this week for the fiscal Quarter ending June 2019. The focus, however, turns towards the second and third week of July with a slew of banks reporting along with a few of the tech giants reporting as well.

This corporate earnings announcement season coincides with a period of a global uncertainty accompanied by a resumption of trade concerns (protracted US-China trade negotiations), increased tension with Iran, and worsening growth prospect with a couple of central banks taking a dovish policy turn by suggesting further accommodation could be forthcoming this year.

Amid this unrelenting uncertainty over the global outlook and the dovish turn by banks, global equities have been seen racing to year highs in June, with US equities spiking to fresh record highs. Based on the above, this earnings season could be a key event for equity market this year.

What is it?

Theoretically, earnings season is simply the period in which plenty of the most publicly traded companies publish their quarterly financial report. Such reports could help market participants to gauge the financial health of the company. Significant is the fact that earnings are a key driver of the overall stock market in the long term, as most of these companies are components of some of the world’s most important stock market index, with S&P 500 being the leader of global equity market.

How could it affect markets?

If the majority of companies presented strengthening of their sales and earnings, suggesting growing economy, it could positively affect the direction of their shares but could also bullishly propel the stock market indices in which they belong to. On the flipside, earnings with a worse than expected outcome could add pressure on the performance of the company’s stock and stock markets in general.

As earnings could undoubtedly move stocks essentially due to their higher than average valuations, the overall earnings result for this season could move the stock market in general and could determine its potential direction in a year of political uncertainty.

What you should take note of in this Earnings season?

There are not much hopes this time though, as a 1% y/y decline in aggregate earnings per share is expected, while approximately 80% of the S&P500 companies revised their profit projections lower, just 2 weeks before the season begins, while they cautioned that their results could be worse that what analysts have predicted. As Bloomberg reported, this is the second fastest pace cut in profits seen since 2015. A deterioration of corporate earnings would be another proof of the negative consequences of the US-China trade war in the economy growth.

Hence, at a time in which Dow and S&P 500 are posting their finest June since 1938 and 1955 respectively, the pullback on profits estimations and the high level of pessimism for sure does not support the continuation of a positive outlook for 2 of the world’s most significant stock market indices.

According to FactSet figures, the industries which have announced the possibility of missing targets are Technology and Health care sector. I should highlight here that 5 of the technology sector giants are components of S&P 500 and are reporting within July. These are: Microsoft (Jul. 18), Facebook (Jul. 24), Amazon(Jul. 25), Alphabet (Jul. 25), and Apple Inc (Jul. 30), which are holding nearly 50% of S&P500 market capitalization. These companies have been at the center of the trade war, with Google being the latest example, by blocking Huawei’s access to its Android software for future phones.

S&P 500 Analysis

Looking into the currency market, hopes of further central bank easing continue to underpin the latest rally in bonds and helped stock markets to move past lingering trade tensions. We’ve seen that S&P 500 has returned to form, by posting fresh record highs above 3,000 level (aided by strong share buybacks).

The upside trend looks to hold strongly after the full retracement of May’s losses. Weekly and monthly picture are pushing into the 3,000 area, as upper Bollinger Bands pattern extends to the upside as well. The move comes also with a bullish MACD crossover, whilst RSI slopes positively above 60, with further steam to the upside.

However, despite the strong positive outlook seen so far, do not forget that any move on record highs suggest that there is no Resistance barrier for the asset northwards. Hence, a breach and break of upper Bollinger bands along with an overbought indication on momentum indicators could suggest a correction to the downside of this sharp rally seen since the past month.

Due to the robust positive outlook, any decline could be considered as a temporary correction of the strong upbeat sentiment seen this year. Only a decline below June’s low or below the 2019 midpoint could suggest a possible turn of the overall outlook into a bearish one.

The momentum indicators should remain in focus, in July, for identifying a slowdown of the bullish momentum in the near term or medium term.

Andria Pichidi, Market Analyst at HotForex (Read Our Review)