USD/CAD Daily Forecast – Strong Oil Limits U.S. Dollar Upside

USD/CAD Video 03.08.20.

Resistance At The 20 EMA Stays Strong

USD/CAD tried to gain more upside momentum but faced resistance at the 20 EMA at 1.3450 as the U.S. dollar rebounded against a broad basket of currencies while WTI oil returned back above the key $40 level.

The U.S. Dollar Index continued its rebound and managed to settle above 93.5. However, it faced resistance at the 94 level and pulled back. In case the U.S. Dollar Index manages to get above 94, USD/CAD will have a good chance to develop more upside momentum.

While the rebound of the U.S. Dollar Index was bullish for USD/CAD, the oil price upside limited the American currency’s gains against the Canadian dollar.

For WTI oil, the key level is the resistance at $42.50. A move above this level will likely lead to increased upside momentum and provide significant support to commodity-related currencies including the Canadian dollar.

Today, the U.S. has reported Manufacturing PMI data for July. Manufacturing PMI increased from 49.8 in June to 50.9 in July while analysts expected that it would grow to 51.3. Numbers above 50 show expansion.

Canada is set to provide its Manufacturing PMI report tomorrow.

Technical Analysis

usd cad august 3 2020

USD to CAD did not manage to get above the nearest resistance at the 20 EMA at 1.3450 and declined closer to 1.3400. The nearest material support level for USD to CAD is located at 1.3330. This level has already been tested several times and proved its strength.

The resistance at the 20 EMA has the potential to become a significant obstacle on the way up. At this point, USD to CAD may find itself stuck in a trading range between the support at 1.3330 and the resistance at the 20 EMA.

In case USD to CAD manages to get above the 20 EMA, it will head towards the major resistance level at 1.3500. A move above this level will likely lead to increased upside momentum, and USD to CAD will head towards the next resistance level at the 50 EMA at 1.3550.

On the support side, a move below 1.3330 could trigger a sell-off, taking USD to CAD to the next support level at 1.3270.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Price Forecast – US Dollar Grind Higher

The US dollar tried to break higher against the Japanese yen early on Monday, clearing the ¥106 level. However, we do have some issues above with resistance and it will be interesting to see whether or not we can continue going higher. The 50 day EMA sits at roughly ¥107, an area that is obviously psychologically important as well.

USD/JPY Video 04.08.20

Because of this, I am looking to fade this rally on signs of exhaustion I do not really believe that this is a market that is suddenly going to change its overall trend this quickly, and it should probably be noted that the Friday candlestick that was so impressive was also end of month trading, meaning that there may have been some profit-taking. Nonetheless, I still believe there is more than enough bearish pressure above to cause some issues, so at this point in time am simply looking to sell.

It is not until we clear the 200 day EMA, which is sitting at roughly ¥108, that I am comfortable buying. Furthermore, we have the jobs number coming out this Friday that will probably move the markets as well. At this point in time I think the market is simply going to run out of steam, and then it becomes a nice selling opportunity. Until then, I will probably check this chart every few hours on a smaller time frame to see when and if we get the exhaustion that I am looking for. I have no interest in buying anytime soon as rallies continue to get sold into.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Price Forecast – British Pound Testing Major Figure

The British pound fell a bit during the trading session on Monday to kick off the week, reaching down towards the 1.30 level where buyer step in and pick that up a bit. At this point, it is still an open-ended question as to whether or not we can hold the 1.30 level, but obviously we are still in an uptrend regardless of what happens next. With that in mind I like the idea of buying dips but lied, I wish this dip with a little bit deeper because it gives you more room to run.

GBP/USD Video 04.08.20

Nonetheless, the market is looking very likely to find buyers sooner rather than later, and if we can take out the shooting star from the Friday session that would be a very strong sign. I am not a seller, and if we break down below the 1.30 level then I will simply look to pick up the British pound closer to the 1.2650 level, perhaps even the 1.2750 level.

The British pound has been extraordinarily strong, and I think that will continue to be the case as the Federal Reserve continues to weaken the US dollar in general. With this, it is almost as if Brexit is never going to be an issue, but I digress. At this point it is obvious that the FX markets are not paying attention to Brexit, and solely paying attention to the Federal Reserve and its loose monetary policy going forward.

For a look at all of today’s economic events, check out our economic calendar.

The Trifecta of Key Signals for Gold Miners

Nothing lasts forever, and the brightest flame burns itself out the fastest. That could very well apply to the current situation around PMs.

Speaking of indications pointing to the situation being excessive, let’s take a look at the USD Index.

Remember when in early 2018 we wrote that the USD Index was bottoming due to a very powerful combination of support levels? Practically nobody wanted to read that as everyone “knew” that the USD Index is going to fall below 80. We were notified that people were hating on us in some blog comments for disclosing our opinion – that the USD Index was bottoming, and gold was topping. People were very unhappy with us writing that day after day, even though the USD Index refused to soar, and gold was not declining.

Well, it’s the same right now.

The USD Index is at a powerful combination of support levels. One of them is the rising, long-term, black support line that’s based on the 2011 and 2014 bottoms.

The other major, long-term factor is the proximity to the 92 level – that’s when gold topped in 2004, 2005, and where it – approximately – bottomed in 2015, and 2016.

The USDX just moved to these profound support levels, and it’s very oversold on a short-term basis. It all happened in the middle of the year, which is when the USDX formed major bottoms on many occasions. This makes a short-term rally here very likely.

We even saw a confirmation from USD’s short-term chart.

The U.S. currency finally after a decisive short-term breakout. Back in March, the short-term breakout in the USD Index was the thing that triggered the powerful rally in it, as well as a powerful plunge in the precious metals market.

Consequently, based on this analogy, the implications for the near term are bearish for the PMs. Especially, when we consider the fact that Gold Miners Bullish Percent Index showed the highest possible overbought reading recently.

The excessive bullishness was present at the 2016 top as well and it didn’t cause the situation to be any less bearish in reality. All markets periodically get ahead of themselves regardless of how bullish the long-term outlook really is. Then, they correct. If the upswing was significant, the correction is also quite often significant.

Please note that back in 2016, there was an additional quick upswing before the slide and this additional upswing has caused the Gold Miners Bullish Percent Index to move up once again for a few days. It then declined once again. We saw something similar also this time. In this case, this move up took the index once again to the 100 level, while in 2016 this wasn’t the case. But still, the similarity remains present.

Back in 2016, when we saw this phenomenon, it was already after the top, and right before the big decline. Given the situation in the USD Index, it seems that we’re seeing the same thing also this time.

On Friday, gold moved higher once again, but senior mining stocks refused to move to new highs. They didn’t manage to even erase their Thursday’s decline. The volume that accompanied this daily upswing was relatively low. This means that it’s likely that this is a counter-trend bounce, and not the bigger move higher.

Miners were the first to top, and the short-term breakout in the USD Index indicates that other PM markets are likely to follow.

Please note that the miners topped almost right at the vertex of the huge rising wedge pattern. Quoting last week’s analysis:

(…) huge rising wedge pattern is about to form a vertex today or tomorrow. The same rule that applies to triangles has implications also here. The vertex is quite likely to mark a reversal date. Given the overbought status of the RSI (given today’s upswing, it’s almost certain to move above 70 once again) as well as miners recent unwillingness to track gold during its continuous rally, it’s highly likely in my view that this will be a top.

Combine the USDX situation with Gold Miners’ Bullish Percent and vertex-based reversal, and you get a high likelihood of lower prices in miners next.

Thank you for reading today’s free analysis. Please note that it’s just a small fraction of today’s full Gold & Silver Trading Alert. The latter includes multiple details such as the interim target for gold that could be reached in the next few weeks.

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For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

GBP/JPY Price Forecast – British Pound Stalls Against Yen

The British pound has shown itself to be a little overextended against the Japanese yen during early trading on Monday, as the ¥139 level offers resistance yet again. That being said, this is a market that I think will eventually go looking towards the ¥140 level, and if we can clear that level continue to go much higher. I like buying dips, and quite frankly I would like to see a little bit bigger of a pullback in order to get involved. Nonetheless, if we break the ¥140 level to the upside it is likely that we go much further.

GBP/JPY Video 04.08.20

The 200 day EMA underneath has been cleared quite handily over the last couple of days, so I think it is only a matter of time before that would offer a longer-term support level, just as the ¥135 level has been previously. In fact, the 50 day EMA is sitting there at the ¥135 level, so I think that also offers a bit of psychological support as well. Ultimately, this pair desperately needs to take a break, and that might be what we are seeing right now.

Ultimately, I think that you will see a lot of volatility but given enough time I expect this market to go much higher. After all, we have seen a lot of bullish pressure in the British pound in general, so it is hard to imagine why that would change suddenly. In the meantime, I am simply observing what is going on and I recognize that we are in a massive move just waiting to happen.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Price Forecast – Euro Pulls Back Finally

The Euro has initially tried to rally during the trading session on Monday but found the 1.18 level to be a bit too much, and then pulled back towards the 1.17 level. This is an area that will probably cause some support, but quite frankly it still a bit elevated. I think at this point we need to see the Euro consolidate a bit if nothing else.

EUR/USD Video 04.08.20

That being said, I do not like the idea of shorting this pair regardless. Even if we break down below the 1.17 level, it is very likely that we will find plenty of buyers underneath. In fact, I think there is a lot of support all the way down to the 1.15 level, so I am hoping to see a little bit more of a deeper correction and then take advantage of it.

To the upside I believe that we are going to go looking towards the 1.20 level eventually, but quite frankly I do not think that we get there overnight. This is a market that has been overbought for some time, so I think the healthiest thing we can do is either consolidate or pull back. After all, markets cannot go in one direction forever, despite the fact that they often tried to. I believe that the 1.15 level is now the “floor” in the market, and therefore I have no interest in shorting until we get well below that important figure.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD Price Forecast – Australian Dollar Pulls Back

The Australian dollar has pulled back a bit during the trading session on Monday, as we have breached the 0.71 level to the downside heading into the New York session. That being said, there is significant support just below and I think that will continue to be the case. With that in mind I am looking to take advantage of any type of supportive action here as we have decidedly changed the overall attitude of the Aussie dollar over the last several months.

AUD/USD Video 04.08.20

Keep in mind that there are a lot of concerns about the coronavirus out their still, but it seems like the FX markets are more or less worried about the Federal Reserve and its loose monetary policy above all else. That has benefited the Aussie dollar over the last couple of weeks, and should continue to do so, despite the fact that Melbourne Australia is currently under a bit of a lockdown due to the virus outbreak.

Federal Reserve liquidity is a main driver of markets around the world, and FX markets are not going to be any different. Quite frankly you need to buy other things to protect your wealth that based in US dollars, so the Australian dollar is probably as good as any other asset that you can think of. This could also be a bit of a play on the Chinese economy getting a bit better, but at this point I think that is just the sideshow and not the main attraction.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Mid-Session Technical Analysis for August 3, 2020

The Euro is trading lower on Monday as a squeezing-out of crowded short U.S. Dollar positions combined with safe-haven demand is driving investors into the greenback following its weakest monthly performance in ten years.

In other news, manufacturing activity across the Euro Zone expanded for the first time since early 2019 last month as demand rebounded after more easing of the restrictions imposed to quell the spread of the new coronavirus, a survey showed on Monday.

At 12:40 GMT, the EUR/USD is trading 1.1732, down 0.0040 or -0.33%.

Factories appear to be playing their part in the recovery in the Euro Zone. IHS Markit’s final Manufacturing Purchasing Managers’ Index bounced to 51.8 in July from June’s 47.4 – its first time above the 50 mark that separates growth from contraction since January 2019. An initial “flash” release had it at 51.1.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, Friday’s closing price reversal top and subsequent follow-through to the downside has shifted momentum to the downside. This could trigger a 2 to 3 day correction of between 50% and 61.8% of the last rally.

The minor trend is also up. A trade through 1.1371 will change the minor trend to down and confirm the shift in momentum.

The minor range is 1.1371 to 1.1909. Its retracement zone at 1.1640 to 1.1577 is the first downside target zone.

The main range is 1.1185 to 1.1909. Its retracement zone at 1.1547 to 1.1462 is the primary downside target zone.

Combining the two retracement zones creates a price cluster at 1.1577 to 1.1547. This zone also represents value so it should be attractive to buyers if tested.

Daily Swing Chart Technical Forecast

The closing price reversal top is not a change in trend, but often used as a means to alleviate some of the excessive upside pressure.

Our work suggests a 2 to 3 correction is likely with 1.1640 to 1.1577 the first downside target zone. Since the main trend is up, buyers are likely to show up on a test of this level.

The EUR/USD should hit 1.1640 to 1.1577 if the downside momentum continues. If the downside momentum pauses or shifts back up then look for a retracement of the first leg down. This price is approximately 1.1812.

For a look at all of today’s economic events, check out our economic calendar.

Daily Gold News: Monday, August 3 – Gold’s Consolidation – a Topping Pattern?

The gold futures contract reached another new record high on Friday at the price level of $2,005.40. The market has slightly extended its recent advance again. The market gained 0.97%, but the closing price was at around $20 below the daily high. Gold reached the highest in history following U.S. dollar sell-off, among other factors.

Gold is 0.4% lower this morning as it is slightly retracing Friday’s advance. What about the other precious metals? Silver gained 3.66% on Friday and today it is 1.3% lower. Platinum gained 0.69% and today it is 0.3% higher. Palladium gained 0.49% on Friday and today it’s 1.2% higher. So precious metals trade within a short-term downward correction this morning. The gold price remains within a week-long consolidation along $1,950-2,000.

Friday’s Personal Income/ Personal Spending data release along with the sentiment numbers have been mixed. Today we will get the ISM Manufacturing PMI number at 10:00, among others. Expectations are at 53.6 – one point above the previous month’s release. The ISM Manufacturing PMI got back above the neutral level of 50 following steep declines in May and June.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days:

Monday, August 3

  • 9:45 a.m. U.S. – Final Manufacturing PMI
  • 10:00 a.m. U.S. – ISM Manufacturing PMI, Construction Spending m/m, ISM Manufacturing Prices
  • All Day, Canada – Bank Holiday

Tuesday, August 4

  • 00:30 a.m. Australia – Cash Rate, RBA Rate Statement
  • 10:00 a.m. U.S. – Factory Orders m/m, IBD/TIPP Economic Optimism
  • 9:45 p.m. China – Caixin Services PMI

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

GBP/USD Eases Back After a Strong Performance in July

The British pound was the best performer among the seven major currencies in July, gaining 5.5% against the greenback.

The dollar was under pressure throughout the month, weighed by optimism that central banks and governments would continue to support the global economy. The greenback is known as a safe-haven currency and often underperforms when the market’s appetite for risk is higher than usual.

In the UK, the economy took a firm step in a positive direction as lockdown restrictions were eased in July and businesses started to reopen.

The latest PMI report, released earlier today, showed the manufacturing sector growing for a second consecutive month. Data on Friday revealed a strong rebound in the services sector and a sharp push higher in UK house prices.

On the other hand, ongoing talks in reaching a trade deal with Europe have not been going so well. Last month, several media outlets reported that the UK government expects an agreement won’t be reached by the deadline. Further, the UK waived its right in June to extend the transition and negotiating period beyond December.

Later in the North American session, the US will release its latest PMI figures for the manufacturing sector.

Technical Analysis

GBPUSD Monthly Chart

GBP/USD trades about half a percent lower ahead of the North American open on Monday. The pair reached a high of 1.3170 last week, stopping short of testing major resistance at 1.3262 seen on a monthly chart.

Considering the recent upward momentum, buyers are likely to support the pair on near-term dips. But at the same time, the risk to reward does not appear all that favorable for buyers with a longer-term view since resistance at 1.3262 has held the pair lower for more than two years.

Friday’s daily candle suggests some exhaustion that could cap near-term rallies. Today’s daily close will be important. A close near Thursday’s open, around 1.3000 would result in the formation of a reversal candlestick pattern on a daily chart.

Bottom Line

  • GBP/USD has pushed slightly lower after an impressive gain in July.
  • The decline on Friday ended a 10 consecutive day bullish streak.
  • The pair is weighed by a dollar recovery as the greenback is seen advancing against its major counterparts after hitting a two-year low on Friday.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – Dollar Rebound Holds Euro Below 1.1800

EUR/USD briefly traded above 1.1900 on Friday but has since eased back as the dollar is rebounding broadly against its major currency counterparts.

Considering that the exchange rate has risen at a much more rapid pace than the norm, it would not be unusual to see a consolidation at this point, or a slight correction lower.

Economic data from Europe was positive today. The latest manufacturing PMI report showed the industry returning to growth after a steep contraction in the second quarter.

The report confirms that the euro area is well on its way to a recovery as the easing of lockdown restrictions has boosted the economy compared to prior months. However, things are still in the early stages and this momentum will need to continue for the economy to eventually get back to the state it was before the virus shock.

The labor market is the biggest risk when it comes to factors that could derail the recovery. For this reason, the next employment report, scheduled for release next week, will be closely watched.

Later today, the US will release data that will provide an outlook on the US manufacturing sector. Similar to the euro area, analysts expect the manufacturing sector to show growth in July.

Technical Analysis

EURUSD 4-Hour Chart

The currency pair shows signs of slowing but there is risk in taking a counter-trend stance, especially in the case of EUR/USD where the recent upward trend has had a lot of momentum behind it.

It might take a further development in price action to determine if the dollar bounce will turn in anything meaningful.

For the session ahead, the 1.1735 level appears to be significant. The price point stems from a weekly chart where it has acted as both support and resistance in the past.

A sustained move below it could clear the path for a broader correction. Considering the trend, buyers may look to defend the level. It may take a move above 1.1850 for the upward momentum to return.

Bottom Line

  • Economic data from the euro area was positive although the exchange struggled to gain following the report.
  • The level to watch in the session ahead is 1.1735. It can act as a line in the sand for a directional bias for today’s session.
  • The US will release it’s latest manufacturing PMI data in early North American trading.

For a look at all of today’s economic events, check out our economic calendar.

GBP/JPY Weekly Bullish Breakout Signals Target at 155

The GBP/JPY is breaking above the key resistance trend line (dotted purple). This occurred after a double bottom around the 125 support. Can the GJ now test the previous top?

Price Charts and Technical Analysis

GBP/JPY Weekly Chart

The GBP/JPY seems ready for a bullish wave C (pink) due to the break above the 21 ema zone and resistance trend line. But the long-term MAs remain bearish. A new break is needed before a full upswing can be confirmed. A bullish break, flag, and continuation would confirm that upside (green checks). The main target could be 155 at the previous top.

Price action should remain last week’s candle low and overall support zone (blue lines). A bearish breakout below that support zone invalidates the bullish outlook (red x). A bearish breakout could trigger an unexpected bearish swing (dotted orange arrow). In that case, price could build an inverted head and shoulders pattern.

GBP/JPY Weekly Chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

 

Latest Surge in Risk Assets to Be Challenged by Data and US Congress

US futures are steady as investors have lots to digest including important jobs figures, renewed US-China tensions and a key ruling on the new stimulus package from Congress.

In currency markets, the Dollar could not maintain an early morning rally. After marching towards 93.70, the DXY returned to where it started at 93.45. Low interest rates remain the biggest challenge to attracting Dollar inflows, with current 10-year bond yields stuck near 0.5% and real yields sitting around -1% when deducting for inflation. Large twin deficits along with negative real rates is a depressing formula for any currency, even if it is assumed to be a safe haven one. However, given the bearish bet on the USD has risen again to the largest overall since April 2018, we may see some sort of short squeeze going forward leading to some spikes in the US currency.

With the earnings season coming closer to an end, the focus will shift back to data and the decision by Congress on the next Covid-19 stimulus package. Discussions between the Democrats and Republicans are making some progress especially as both are on same page with regards to the direct cash payment of $1,200 to Americans, but unemployment assistance remains a key sticking point and a middle ground doesn’t seem to have been reached yet. Democrats want to keep the federal assistance as the previous package of $600 per week, while the White House is calling for a third of this amount. The longer the disagreement persists, the higher the chances of a market correction.

While most agree that the bottom in economic activity is behind us, the question has now become whether the US recovery is showing signs of cracking and the Non-Farm Payrolls figure due to be released on Friday will probably answer this. After 7.5 million jobs were created over the months of May and June following 22 million job losses in the prior two months, markets expect another 1.65 million jobs to have been added in July. However, expectations vary greatly with some even expecting a contraction given two consecutive weeks of increases in initial jobless claims. The way forward is likely to be bumpy as several US states are re-imposing lockdown measures after spikes in Covid-19 cases. This probably won’t show up in the data until the release of the August figures in September. Investors should also keep their eyes on other US data releases out this week for further evidence on whether the economic recovery is stalling including manufacturing and services activity, motor vehicle sales, factory orders and the weekly initial jobless claims.

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GBP/USD Daily Forecast – U.S. Dollar Tries To Gain More Ground

GBP/USD Video 03.08.20.

U.S. Democrats And Republicans Fail To Reach Coronavirus Aid Package Deal

GBP/USD trades near 1.3100 as the U.S. dollar is mostly flat against a broad basket of currencies amid continued negotiations about the new U.S. coronavirus aid package.

The U.S. Dollar Index has stabilized near 93.5 after rebounding from recent lows at 92.5. Meanwhile, Republicans and Democrats continued their negotiations during the weekend but failed to reach a deal.

According to White House Chief of Staff Mark Meadows, Republicans wanted to extend some federal unemployment benefits while continuing negotiations on the whole package but Democrats wanted a comprehensive deal.

He also added that he was not optimistic that negotiations would successfully conclude in the near term.

Failure to extend special unemployment benefits poses risks for consumer activity which is the main driver of the U.S. economy. On the other hand, excessive money-printing could put additional pressure on the U.S. dollar and its status as the world’s main reserve currency.

Today, traders will have to digest UK Manufacturing PMI and U.S. Manufacturing PMI reports for July.

UK Manufacturing PMI is projected to increase from 50.1 in June to 53.6 in July.

In the U.S., Manufacturing PMI is expected to grow from 49.8 to 51.3. Numbers above 50 show expansion.

Manufacturing was not hit as hard as services during the current crisis so there’s a good chance that today’s data will be optimistic and provide some additional support to riskier assets.

Technical Analysis

gbp usd august 3 2020

GBP/USD tries to stabilize near 1.3100 following the major upside move.

In case GBP/USD manages to settle above 1.3100, it will have a good chance to test the nearest resistance level at 1.3200.

On the support side, the nearest support level is located at 1.3070. GBP/USD has already made an attempt to settle below this level but this attempt was unsuccessful.

If GBP/USD settles below 1.3070, it will head towards the next support level at 1.3020.

Currently, GBP/USD continues to move in a rather tight upside channel, and the upside trend remains intact.

However, RSI is still in the overbought territory, suggesting that risks of correction remain elevated.

For a look at all of today’s economic events, check out our economic calendar.

Can Oil Register a 4th Consecutive Monthly Gain?

Recall that more supply is entering the markets this month, after OPEC+ agreed to ease up on its production cuts from the 9.6 million barrels a day in July to 7.7 million in August. Investors may begin to grow concerned that global demand may not yet be solid enough to soak up the restored supply.

At the time of writing, Brent Oil is dipping further away from the psychologically-important $45/bbl level.

Meanwhile WTI crude is threatening to falter back into sub-$40 territory and test its 5-day simple moving average as a support level.

The PMI readings from around the world due on Monday would offer the latest signals about the state of the global economy. China’s July Caixin PMI posted a better-than-expected reading of 52.8, compared to the median estimate of 51.1. Having now registered a PMI reading above 50 for a third consecutive month, China’s manufacturing conditions are firmly in expansionary territory. However, other major economies must also report a similar trend today in order to offer Oil bulls some measure of solace.

Considering the incoming OPEC+ supply, along with the still-tentative recovery in global demand, markets are already expecting Saudi Aramco to indicate that the world isn’t yet ready to tolerate higher prices. The oil giant is slated to lower its selling prices of Arab Light crude to Asian customers for the first time since May in order to help offset the incoming supply. Such a move would suggest that further gains for Oil would be much harder to come by, potentially bringing an end to Oil’s run of three consecutive months of gains. The official September selling price is set to be unveiled within the first five days of this month.

As things stand, major economies across Asia and the Americas are struggling to break out of the pandemic’s grip, which in turn is choking economic activity and the demand for Oil. The longer that daily lives are disrupted by the pandemic, such as commuters being barred from driving to work or to send students to school, the longer Oil prices risk unravelling recent gains.

At least in the interim, Oil prices can enjoy support from the weaker US Dollar and any bouts of risk-on sentiment, as the world continues to wait for more clarity on the global economic outlook.

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Euro Area Safe Assets to Rise by Almost EUR 2.5trn Over Coming Years, Boosting the Euro’s Standing

The European fiscal response to the Covid-19 crisis – including national and EU-wide counter-cyclical fiscal stimulus – will indeed increase the availability of euro-denominated safe assets in coming years by almost EUR 2.5trn, an increase of about 50%.

“We expect the combined national and European fiscal response to the Covid-19 shock to increase the availability of highly rated euro-denominated securities from around EUR 5trn in 2019 to almost EUR 7.5trn by 2024,” says Alvise Lennkh, deputy head of sovereign and public sector ratings at Scope.

“The scarcity of euro-denominated safe assets particularly relative to the depth of the markets for US Treasuries and Japanese government bonds has been on the academic and political agenda since the global financial and sovereign debt crises,” says Lennkh.

“The coming significant jump in issuance, which will result in higher public debt levels overall, may boost the euro’s credentials as a global reserve currency,” he says.

Two drivers for the increase in euro-denominated safe assets

There are two main drivers for the increase in euro-denominated safe assets:

  • An estimated increase in debt securities by highly rated sovereign governments by around EUR 1.6trn, driven by France (~EUR 700bn) and Germany (~EUR 600bn); and
  • Issuance at the supranational level, particularly from the European Commission, will increase significantly to fund the “Next Generation EU” recovery plan (EUR 750bn) and the SURE unemployment scheme (EUR 100bn) over the coming years.

Much higher levels of government and supranational debt are to be expected, albeit financed at lower cost, mostly driven by the ECB’s crisis response, which will result in greater interdependence between the ECB and euro area member states given the increasing share of sovereign bonds on the ECB’s balance sheet.

In addition, the greater supply of euro-denominated area safe assets, particularly those issued by the EU, could address some of the adverse effects resulting from the shortage of safe asset supply in the euro area, notably banks holding large portions of domestic sovereign bonds on their balance sheets, which could now diversify some of their sovereign bond holdings, possibly reducing the vicious so-called doom loop in sovereign debt crises.

Benefits should, however, not be overstated at this stage

However, the benefits should not be overstated at this stage as EU issuance amounts only to slightly above 5% of EU-27 GDP. Still, having a deeper pool of euro area safe assets may affect sovereign creditworthiness in various ways.

“A sufficiently high supply of highly rated euro-denominated bonds would facilitate integration between the still-fragmented financial systems and ensure liquid markets for refinancing.”

Implications of enhanced reserve currency status for euro area sovereigns include the prospect of more limited exchange-rate risks and reduced government borrowing costs, and thus the ability to increase spending without materially raising debt-sustainability concerns.

For a look at all of today’s economic events, check out our economic calendar.

Read the full Scope Ratings report at this link.

Alvise Lennkh is the Deputy Head of Sovereign and Public Sector ratings at Scope Ratings GmbH.

USD Bears Increase their Bets, on Fragile Economic Macros and Potential Biden Presidency

The US Dollar Index bears increased their stakes the third straight week.

In the short term currency traders are concerned about the latest U.S Federal Reserve statement on the pace of the world’s largest economy and the dirty politics coming to play in the corridors of power at Washington, triggered with heightened geopolitical risks by President Trump’s alleged statement in the form of an election delay.

Such macros give the U.S dollar index little hope to stay above its critical support level of 93.5 where more global investors and currency traders in and accelerating fashion, throw aside the previously established assumption that the US will lead the global economic recovery.

The recent sell-off observed in the U.S dollar Index has reached levels last seen in mid-2018. On the present horizon, currency traders will watch the 93.00 zone cautiously, as any breach could result the greenback tracker to fall around the 91.80 support zone, leaving the negative stance on the dollar intact in the mid-term.

With the US dollar outlook extremely sour, foreign investors seems to move their attention to other safe haven asset options like gold.

Still, currency traders are betting that a continual outburst between the two leading economies, China and the United States, would trigger investors move into the recent forgotten safe haven currency.

Although the market appears to be desensitizing again, one never really feels sure of which US-China political powder keg is about to explode, especially with the US administration considering still naming China a currency manipulator. This macro is expected to reduce the bearish bias of currency traders in the mid-term.

Ultimately, currency traders will take a more strategic tack and soon begin to factor the probability of a return to globalization and a non-tariff approach to trade under a potential Biden Presidency.

Precious Metals Weekend Wrap-up August 1, 2020

Now that we have encouraging data, we should be able to make informed decisions concerning on how to move forward. Unfortunately, politicians are making this much worse than it needs to be. The damage they have done to the economy is immeasurable.

It’s reported that 55% of restaurants on Yelp have shut their doors for good. And some estimate that 33% of the hotels in the U.S. could go out of business. In my opinion, the economy is yet to feel the long-term consequences of this economic shutdown.

Gold reached new all-time highs on the back of a declining dollar. I expected a breakout above $2000, but not until 2021 or 2022. What happens next depends on the dollar. If the dollar stabilizes and turns higher, then gold should correct and begin to consolidate. If the dollar continues to crash, then gold could enter a runaway move higher.

The Fed announced no change in its interest rate policy on Wednesday and said it would do everything necessary to support the economy. Sometimes gold and the dollar reverse trends (top or bottom) just after a Fed decision. The dollar formed a bullish engulfing candle on Friday, supporting the potential for a reversal.

The gold cycle indicator remains pegged at 450, and gold is very overbought.

US DOLLAR

Gold is higher as a direct result of the crashing dollar. The dollar is incredibly oversold and due for a bottom, which would imply a top in gold. I’ve mentioned before how prices often reverse on or just after a crucial Fed meeting. The dollar formed a bullish engulfing candle on Friday, 2-days after Wednesday’s announcement. Closing above the 10-day EMA (currently 94.11) next week would sponsor a bottom.

GOLD WEEKLY

It’s rare for prices to slice through a significant resistance level without consolidating first. And for that reason, I’m suspicious of the recent breakout to new all-time highs. When momentum is strong, like now, prices will sometimes overshoot a major level. If this is a momentum overshoot, then gold should stay below $2050 and finally turn lower. A sustained advance above $2100 would signal a potential runaway move.

GOLD DAILY

Gold reached an intraday high of $2005.40 on Friday. Prices are very overbought, and the cycle indicator is maxed out at 450. The trend is well-overdue for a correction. A daily finish below $1971.40 would secure a swing high and signal a potential top.

SILVER

After breaking out above $20.00, silver exploded to our $26.00 target. Prices are overbought and due for a pullback. Closing below $22.50 would support a top. To extend this advance, prices would have to close above the $26.27 spike high.

PLATINUM

Platinum is the last precious metal to breakout to fresh highs. Prices would have to close above $1050 to signal a breakout. Whereas dropping below the cycle trendline would indicate a correction.

GDX

On Thursday, miners closed below Monday’s gap, issuing a potential exhaustion gap sell signal. Miners would have to close above $44.46 to reverse the short-term bearish signal. To confirm a multi-week correction – GDX would have to close below $36.87.

GDXJ

Juniors also closed below Monday’s gap, triggering a short-term sell signal – prices would have to close above $63.31 to reverse it. Otherwise, breaking below $50.00 would confirm the onset of a multi-week cycle correction.

SPY

Stocks consolidated throughout the week but managed to close above the short-term trendline on Friday. It looks like prices will attack the February 329 gap next week. Like gold, the trend is incredibly overbought and ready for a correction.

Have a safe and pleasant weekend.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

USD/JPY Forex Technical Analysis – Closing Price Reversal Bottom Could Alleviate Downward Pressure

The Dollar/Yen closed higher on Friday after posting a dramatic closing price reversal bottom. The move may have been fueled by end-of-the-month position-squaring or profit-taking. Some traders said better-than-expected U.S. consumer spending news may have caught short-sellers off-guard fueling a massive short-covering rally in all major currencies.

On Friday, the USD/JPY settled at 105.935, up 1.199 or +1.14%.

The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 5.6% last month after a record 8.5% jump in May as more businesses reopened.

Economists polled by Reuters had forecast consumer spending would advance 5.5% in June. When adjusted for inflation, consumer spending increased 5.2% last month after surging 8.4% in May.

Traders also said the increase in consumer spending sets up consumption for a rebound in the third quarter, though the recovery could be limited by a resurgence in COViD-19 cases and the end of expanded unemployment benefits.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 107.530 will change the main trend to up. A trade through 104.189 will negate the closing price reversal bottom and signal a resumption of the uptrend.

The closing price reversal bottom will be confirmed on at trade through 106.055. This chart pattern will not change the trend to up, but it will indicate that the buying is greater than the selling at current price levels. It’s basically an adjustment in the main trend, designed to alleviate some of the downside pressure.

The short-term range is 107.530 to 104.189. Its 50% level at 105.860 could act like a pivot over the near-term as investors try to determine whether the dollar has taken enough of a beating or if it’s ready for round two.

The main range is 112.226 to 104.189. Its retracement zone is resistance and a possible upside target. It is essentially controlling the longer-term direction of the USD/JPY.

Daily USD/JPY

Short-Term Outlook

Although some short-term traders are focusing on the closing price reversal bottom and they very well should be because there is the threat of a sizeable retracement and a major giveback of profit, the longer-term traders are keeping their eyes on U.S. interest rates.

Treasury yields continued to move lower on Friday with short-maturity rates reaching record lows as investors remained worried about the pace of economic recovery.

Yields are what the major players are watching. So unless there is a dramatic turnaround in U.S. Treasury yields, most of the longer-term investors are likely going to fade this possible upcoming short-covering rally, and look for another entry level to increase their short positions.

NZD/USD Forex Technical Analysis – Bearish Tone Could Develop on Sustained Move Under .6666

Volatility hit the New Zealand Dollar on Friday with the currency first grinding to a multi-month high before turning lower for the session and wiping out the week’s gains. The whip-saw price action could have been fueled by end-of-the-month profit-taking or profit-taking ahead of next week’s New Zealand labor market reports.

On Friday, the NZD/USD settled at .6628, down 0.0073 or -1.09%.

The firming of U.S. Treasury yields could have influenced the price action. Recently, the Kiwi has been supported by the widening in real bond yield differentials as U.S. rates tanked in July. On Friday, U.S. Treasury yields moved lower with short-maturity rates reaching record lows before firming later in the session.

Economic news could have also triggered the volatile response. On Friday, the U.S. Commerce Department said consumer spending increased for a second straight month in June, setting up consumption for a rebound in the third quarter.

Countering this news, however, was Congress’ inability to pass a coronavirus stimulus plan in a timely matter.

If so many off-setting news events, we have to conclude that good old-fashioned profit-taking was behind the reversal in prices.

Daily NZD/USD

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed early Friday as prices edged toward the December 31, 2019 main top at .6756.

A trade through .6716 will signal a resumption of the uptrend, while a trade through .6615 will change the main trend to down.

The Kiwi also formed a potentially bearish closing price reversal top. A confirmation of this chart pattern on money could shift momentum to the downside and change the main trend to down. Trader reaction to .6623, .6620 and .6615 will set the tone. This is a major support cluster in my opinion that has to hold to continue the uptrend.

The minor range is .6615 to .6716. Its pivot at .6666 is resistance.

The short-term range is .6503 to .6716. Its retracement zone at .6609 to .6584 is potential support. This is followed by the main support zone at .6548 to .6509.

Short-Term Outlook

The first key level to watch on Monday is the pivot at .6666. A sustained move under this level will indicate the presence of sellers and could generate the downside momentum needed to trigger another round of technical selling.

We’re close enough to .6615 to change the trend on Monday. So this would be the second level to watch. The bullishness starts to deteriorate if .6584 fails as support.

For a look at all of today’s economic events, check out our economic calendar.