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.
It’s was a busy start to the day on the economic calendar this morning. The Japanese Yen and the Aussie Dollar were in action, with economic data from China also in focus.
Away from the economic calendar, COVID-19 and the U.S stimulus package continued to be an area of focus.
Looking at the latest coronavirus numbers
According to figures at the time of writing, the number of new coronavirus cases rose by 249,532 to 18,231,469 on Sunday. On Saturday, the number of new cases had risen by 250,087. The daily increase was lower than Saturday’s rise while up from 213,347 new cases from the previous Sunday.
Germany, Italy, and Spain reported 623 new cases on Sunday, which was down from 707 new cases on Saturday. On the previous Saturday, 663 new cases had been reported.
From the U.S, the total number of cases rose by 50,702 to 4,813,647 on Sunday. On Saturday, the total number of cases had increased by 60,171. On Sunday, 26th July, a total of 56,130 new cases had been reported.
For the Japanese Yen
Finalized GDP numbers for the 1st quarter remained unchanged from 2nd estimates. In the 1st quarter, the Japanese economy contracted by 0.6%, following a 1.9% contraction in the 4th quarter.
On an annualized basis, the economy contracted by 2.2%, which was also in line with 2nd estimates. In the 4th quarter, the economy had contracted by 7.3%.
The Japanese Yen moved from ¥105.858 to ¥105.844 upon release of the figures. At the time of writing, the Japanese Yen was down by 0.07% to ¥105.90 against the U.S Dollar.
For the Aussie Dollar
The AIG Manufacturing Index rose from 51.5 to 53.5 in July.
On Wednesday, June’s trade figures are due out ahead of July employment numbers on Friday.
Expect the employment figures to have the greatest impact, however.
Barring dire numbers, the Ivey PMI for July should have a muted impact on the Loonie on Friday.
Away from the stats, COVID-19 and geopolitics will continue to influence crude oil prices and risk sentiment.
The Loonie ended the week up by 0.02% to C$1.3412 against the U.S Dollar.
Out of Asia
For the Aussie Dollar:
It’s a relatively busy week ahead for the Aussie Dollar.
At the start of the week, the Manufacturing Index figures are due out ahead of a busy Tuesday.
We would expect manufacturing PMIs from China, the EU, and the U.S to have a greater impact, however, on Monday.
The focus will then shift June trade and retail sales figures due out on Tuesday. Expect the retail sales figures to have the greatest impact. The RBA continues to rely on consumer spending to support the economy. Weak numbers will be a test for the Aussie Dollar.
For the week, however, the main event is the RBA monetary policy decision on Tuesday.
Following the spike in new COVID-19 cases, will the RBA remain optimistic about the economic recovery?\
Any dovish chatter and the Aussie Dollar could eye sub-$0.70 levels. At the end of the week, the RBA’s statement on monetary policy will also draw interest.
The Aussie Dollar ended the week up by 0.53% to $0.7143.
For the Kiwi Dollar:
It’s another quiet week ahead on the economic calendar.
2nd quarter employment figures are due out on Wednesday. The markets will likely be forgiving to an extent, with COVID-19 expected to have an impact on employment.
With economic data on the lighter side, private sector PMIs from China, the EU, and the U.S will influence.
Expect geopolitics and COVID-19 news to also have an impact in the week. Any signs of a slowdown in new cases globally and expect support to kick in.
The Kiwi Dollar ended the week down by 0.18% to $0.6629.
For the Japanese Yen:
It is a busy week ahead on the economic calendar.
Finalized 2nd quarter GDP and July’s manufacturing PMI numbers are due out on Monday.
The focus will then shift to July’s service PMI on Wednesday and June household spending figures on Friday.
While the stats will influence sentiment towards BoJ monetary policy, the Yen will remain at the mercy of COVID-19 and geopolitics.
The Japanese Yen ended the week up by 0.29% to ¥105.83 against the U.S Dollar.
July’s private sector PMIs are due out on Monday and Wednesday. Expect the figures to influence risk appetite in the week.
On Friday, July trade figures will also garner plenty of attention. While exports remain the main area of focus, any sizeable fall in imports would test risk appetite on the day.
Away from the economic calendar, any chatter from Beijing will also need monitoring.
The Chinese Yuan ended the week up 0.62% to CNY6.9752 against the U.S Dollar.
Brexit will remain in focus. Talks are set to continue through August and September ahead of an EU Summit in October.
60 days may sound like a lot but when considering the lack of progress over 4-years…
A light economic calendar and Brexit chatter have provided the Pound with support. We may even see the markets brush off the chances of a hard Brexit.
Getting on with it seems to be the key desire now rather than dragging it out any longer. Either way, we’re not expecting Johnson and the team to give too much away…
Last week, the Republicans showed signs of fragmentation. As Presidential Election stress builds, we could see more fractures as Trump attempts to distract voters.
The immediate issue at hand, however, is the COVID-19 stimulus package. Any failure to deliver will weigh on the Dollar. Labor market conditions have not improved and the 2nd wave has shown little sign of slowing. A lack of benefits for the unemployed will raise more issues than a fall in household spending. We have already seen social unrest…
It was yet another bad week, with the number of new COVID-19 cases continuing to rise at a marked pace.
From the market’s perspective, the 3 key considerations have been:
Progress is made with COVID-19 treatment drugs and vaccines.
No spikes in new cases as a result of the easing of lockdown measures.
Governments continue to progress towards fully opening economies and borders.
Last week, we saw a number of countries including Hong Kong and the UK reintroduce containment measures. Hopes of progress towards a vaccine had limited the damage last week. In the week ahead, however, the numbers will need to ease off to avoid spooking the markets.
At the time of writing, the total number of coronavirus cases stood at 17,981,937. Monday to Saturday, the total number of new cases increased by 1,782,490. Over the same period in the previous week, the total number had risen by 1,531,149.
Monday through Saturday, the U.S reported 447,236 new cases to take the total to 4,762,945. This was up marginally from the previous week’s 417,070
For Germany, Italy, and Spain, there were 22,814 new cases Monday through Saturday. This took the total to 793,804. In the previous week, there had been 17,083 cases over the same period. Spain accounted for 16,101 of the total new cases in the week.
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 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.
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.
The US dollar has initially fallen during the week against the Japanese yen, reaching down well below the ¥105 level. Having said that, the market has turned around to form a nice-looking hammer -type candlestick. This suggests that we could continue to see a bit of a pushback, so it is possible that we can take advantage of the overall range and look at the 107.50 level as an area to start selling. I would not necessarily be a buyer here, even though the candlestick does suggest that there are plenty of people willing to do so. I think at this point we are still kind of stuck here, which makes sense considering that the pair features a couple of safety currencies.
USD/JPY Video 03.08.20
All things being equal, I do think that eventually we get a nice selling opportunity, but things can always change as you know. The 50 week EMA is starting to curl towards the ¥107.50 level so I think at that point there will be enough technical pressure to keep this market struggling. All things being equal I think that it is only a matter of time before we do get a breakdown, mainly because of the Federal Reserve and its desire to flood the market with greenbacks. It is also worth noting that almost all of the pushback came on Friday, so we could have seen a significant amount of profit-taking skew the candle to say the least. With this being the case, little bit of patient should offer a nice selling opportunity. However, if we were to break down below the bottom of the candlestick for this past week, that would be a very negative sign.
The US dollar has recovered quite nicely against the Japanese yen during trading on Friday, to break back above the ¥105 level at the open in New York. That is a pretty significant turnaround, but at this point it still looks as if there is selling pressure facing the greenback against almost everything, and it is possible that this may have been a little bit of profit-taking. There were some lackluster Japanese economic numbers during the Asian session, but quite frankly the FX markets are paying attention to the Federal Reserve, nothing else.
USD/JPY Video 03.08.20
As long as the Federal Reserve is willing to flood the markets with US dollars, it is likely that the greenback will continue to lose value against most currencies, including the Japanese yen despite the fact that it is considered to be a safety currency. With all that being said, it is worth paying attention to this general area because the ¥105 level has a certain amount of psychological importance built into it and of course there is the longer-term triangle shape that we have been paying attention to for some time.
With that in mind, I anticipate that we may get a short-term bounce, only to turn around and rolled right back over near the ¥106 level, maybe even ¥106.50 above. I do not have any interest in buying this pair, I think we are going to have a nice selling opportunity sometime next week as the market is certainly bearish of US dollars. We may have just gotten a little bit ahead of ourselves but that seems to be the case with the US dollar against other currencies such as the British pound and the Euro.
It’s was another busy start to the day on the economic calendar this morning. The Japanese Yen and the Aussie Dollar were in action, with economic data from China also of influence.
Away from the economic calendar, COVID-19 and the U.S stimulus package remained in focus ahead current unemployment benefits expiring today.
The markets were also able to react to particularly dire GDP numbers from Germany and the U.S and Trump’s tweet.
Looking at the latest coronavirus numbers
According to figures at the time of writing, the number of new coronavirus cases rose by 58,655 to 4,626,692 on Thursday. On Wednesday, the number of new cases had risen by 287,638. The daily increase was lower than Wednesday’s rise and down from 270,301 new cases from the previous Thursday.
Germany, Italy, and Spain reported 3,961 new cases on Thursday, which was up from 3,179 new cases on Wednesday. On the previous Thursday, 3,593 new cases had been reported.
From the U.S, the total number of cases rose by 58,655 to 4,626,692 on Thursday. On Wednesday, the total number of cases had increased by 69,828. On Thursday, 23rd July, a total of 69,116 new cases had been reported.
For the Japanese Yen
Industrial production rose by 2.70% in June, following an 8.9% slump in May. Economists had forecast a 1.2% rise.
Industries that mainly contributed to the increase were:
Motor vehicles, production machinery, and plastic products.
Industries that mainly contributed to the decrease were:
Inorganic and organic chemicals, pulp, paper, and paper products, and other manufacturing.
Industrial production forecasts for July were also positive. Following a 9.2% jump in production forecasted back in June, production is now forecasted to surge by 11.3% in July. In August, production is forecast to rise by 3.4%.
The Japanese Yen moved from ¥104.698 to ¥104.597 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.37% to ¥104.34 against the U.S Dollar.
Out of China
In July, the NBS Manufacturing PMI rose from 50.90 to 51.1, while the Non-Manufacturing PMI slipped from 54.4 to 54.2.
Economists had forecast PMIs of 50.7 and 54.1 respectively.
The Aussie Dollar moved from $0.72039 to $0.72052 upon release of the figures.
For the Aussie Dollar
Producer Price Index and private sector credit figures were in focus early in the day.
Total credit fell by 0.2% in June, following a 0.1% decline in May.
Housing credit increased by 0.2%, following a 0.2% rise in May.
Personal credit fell by 0.6%, following a 1.3% slide in May, with business credit falling by 0.8%. In May, business credit had fallen by 0.6%.
The Aussie Dollar moved from $0.72032 to $0.72169 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.29% to $0.72145.
At the time of writing, the Kiwi Dollar was down by 0.01% to $0.6698.
The Day Ahead:
For the EUR
It’s another busy day ahead on the economic calendar. Key stats include 2nd quarter GDP numbers from France, Spain, and the Eurozone that are scheduled for release. June’s consumer spending and retail sales figures for France and Germany will also draw attention.
Prelim June inflation figures for France, Italy, and the Eurozone, also due out but will likely have a muted impact.
Away from the economic calendar, the Dollar could crumble further should lawmakers fail to pass the stimulus package. An alternative would be an agreement to extend the current enhanced federal unemployment insurance policy.
At the time of writing, the EUR was up by 0.30% to $1.1882.
For the Pound
It’s yet another particularly quiet day ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction.
A lack of stats will continue to leave the Pound in the hands of Brexit and the Dollar. The recent lack of economic data from the UK has allowed Dollar weakness to support a move back through to $1.31 levels.
At the time of writing, the Pound was up by 0.26% to $1.3130.
Across the Pond
It’s a busy day ahead for the U.S Dollar. June’s personal spending and inflation figures are key stats due out later today. Finalized consumer sentiment figures for July are also due out. Barring any material downward revision, however, it will likely be brushed aside.
Away from the calendar, the focus on the day will be on Capitol Hill. A failure by lawmakers to pass the stimulus package or to extend the current unemployment benefit would weigh.
We can also expect plenty of Trump tweets as COVID-19 numbers continue to rise across the U.S.
The US dollar has rallied a bit from the ¥105 level, as the area continues to be very stubborn. Quite frankly, if we break down from here it is likely that we will go much lower and therefore I think it is most certainly worth paying attention to right now as this is a market that continues to grind it. It is worth noting that the 50 day EMA has turned lower and it is likely that will attract a lot of technical traders, assuming that we get a bounce from here. I would be looking to fade rallies more than anything else but if we can get a daily close below the lows of the Wednesday candlestick, that would also be a very negative sign and could send more money to the downside.
USD/JPY Video 31.07.20
The US dollar is suffering at the hands of the Federal Reserve, which continues to stuff the financial markets with liquidity. In other words, they are throwing dollars at anything that moves. If that is going to be the case, eventually all currencies will rise against the greenback, including the Japanese yen. If we break down below the ¥105 level significantly, then we are going to go looking towards the ¥102 level, perhaps even followed by the ¥100 level, an area that typically will get some type of reaction out of the Bank of Japan, be it verbal or actual intervention. We have a while to worry about that though, so I think you continue to favor the downside here, but it looks as if we may be trying to bounce just a bit.
It’s was a busier start to the day on the economic calendar. The Kiwi Dollar and the Japanese Yen were in action in the early part of the day.
Away from the economic calendar, COVID-19 and the U.S stimulus package remained in focus following the FED’s overnight monetary policy decision.
Looking at the latest coronavirus numbers
According to figures at the time of writing, the number of new coronavirus cases rose by 287,638 to 17,171,292 on Wednesday. On Tuesday, the number of new cases had risen by 241,391. The daily increase was higher than Tuesday’s rise while down from 288,688 new cases from the previous Wednesday.
Germany, Italy, and Spain reported 3,179 new cases on Wednesday, which was up from 2,602 new cases on Tuesday. On the previous Wednesday, 2,217 new cases had been reported.
From the U.S, the total number of cases rose by 69,828 to 4,498,209 on Wednesday. On Tuesday, the total number of cases had increased by 64,799. On Wednesday, 22nd July, a total of 72,306 new cases had been reported.
For the Kiwi Dollar
Building consents and July business confidence figures provided the Kiwi Dollar with direction early on.
According to NZ Stats, building consents rose by 0.50% in June, following a 41.7% jump in May. While up marginally for the month, consents were up by close to 20% from June 2019.
The Kiwi Dollar moved from $0.66681 to $0.66657 upon release of the data.
In July, the ANZ Business Confidence Index rose from -34.4 to -31.8.
The US dollar has gone back and forth during the trading session on Wednesday as we await the FOMC statement, now at this point in time the ¥105 level seems to be holding. However, if we break down significantly below the ¥105 level, this could get rather ugly. At that point I would anticipate a move down to the ¥102 level, possibly even the ¥100 level. At that point, the Bank of Japan is very likely to get involved and probably start to jawbone the markets if not intervene. However, we have a long way to go before we get there, so I am looking to sell rallies as they occur.
USD/JPY Video 30.07.20
To the upside, the ¥107 level is likely to continue to offer significant resistance, assuming we can even get there. The last three or four sessions have really started to wear upon the US dollar, not only here but against many other currencies. Gold is breaking out, and just about anything else priced in US dollars. This is essentially a significant “anti-US dollar” move. This is because the Federal Reserve is flooding the markets with liquidity, and that will continue to be the case.
After the FOMC meeting and press conference you can be assured that the market will also be assured that the Federal Reserve is going nowhere and if anything will be more aggressive, perhaps even putting more liquidity into the market. The Federal Reserve is essentially stuck with the monster that it has created, so interest rates in the United States are going to be low for the foreseeable future.
Other negative factors including worsening US-China tensions, uncertainty surrounding November’s presidential elections and shaky economic data have compounded to the Dollar’s pain and misery. With the Dollar Index (DXY) on track for its biggest one month decline since April 2011, it is fair to say that bears remain in the driving seat.
King Dollar could be instore for more punishment this evening if the Federal Reserve reinforces its dovish message and expresses concerns over the US economy. While the central bank is widely expected to keep interest rates unchanged at near zero, much of the attention will be directed towards the policy statement and speech by Fed Chairman Jerome Powell. Given how data from unemployment claims still remains a cause for concern, Powell may reiterate that the Fed will do whatever it can to support the recovery – meaning interest rates may be left at near-zero for even longer.
Looking at the technical picture, the DXY fulfills the prerequisites of a bearish trend on the daily timeframe. Prices are trading within a bearish channel, the MACD has crossed to the downside while the candlesticks are trading well below the 20 Simple Moving Average. If 94.00 proves to be reliable resistance, the DXY may slip back towards 93.50 and 93.00, respectively. A breakdown below 93.00 could open the doors back to levels not seen since August 2018 below 92.20.
USDJPY eyes 104.65 level
Yesterday we discussed the possibility of the USDJPY testing 104.65 after breaking below the 105.00 support level. Prices are under pressure on Wednesday morning and could trend lower if the Dollar weakens ahead of the Federal Reserve policy meeting. Sustained weakness below the 105.00 dynamic resistance could trigger a selloff towards 104.65 and 104.10.
USDCAD breakdown setup in play
The USDCAD is gearing for a breakdown below the 1.3350 on the daily timeframe. Prices are trading comfortably below the 20 and 50 Simple Moving Average while there have been consistently lower lows and lower highs. A solid breakdown below this support could trigger a decline straight towards 1.3200 which is 150 pips away.
AUDUSD rides higher on Dollar weakness
Expect the Australian Dollar to appreciating against a broadly weaker Dollar in the short term. The daily charts suggest that bulls still have some stamina with a breakout above 0.7150 opening a path towards 0.7300. If 0.7150 proves to be a stubborn resistance, prices may decline back towards the 0.6960 regions.
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It’s was a relatively quiet start to the day on the economic calendar. The Aussie Dollar was in action in the early part of the day.
Away from the economic calendar, COVID-19 and the U.S stimulus package remained in focus ahead of the FED.
Looking at the latest coronavirus numbers
According to figures at the time of writing, the number of new coronavirus cases rose by 241,391 to 16,883,654 on Tuesday. On Monday, the number of new cases had risen by 229,469. The daily increase was higher than Monday’s rise and up from 240,565 new cases from the previous Tuesday.
Germany, Italy, and Spain reported 2,602 new cases on Tuesday, which was down from 7,167 new cases on Monday. On the previous Tuesday, 1,889 new cases had been reported.
From the U.S, the total number of cases rose by 64,799 to 4,498,209 on Tuesday. On Monday, the total number of cases had increased by 61,571. On Monday, 21st July, a total of 67,140 new cases had been reported.
For the Aussie Dollar
2nd quarter inflation figures were in focus in the early part of the day.
The annual rate of inflation came in at -0.3%, which was marginally better than a forecasted -0.4%. In the 1st quarter, the annual rate of inflation had stood at 2.20%. In the 1st quarter, the annual rate of inflation had accelerated from 1.8% to 2.20%. Quarter-on-quarter, consumer prices fell by 1.90%, following a 0.3% rise in the 1st quarter. Economists had forecast a 2.00% slide.
The June quarter slide was attributed to free child care (-95%), sliding automotive fuel prices (-19.3%), and a fall in pre-school and primary education prices (-16.2%). Excluding these, consumer prices would have risen by 0.1%.
Cleansing and maintenance price rose by 6.2%, with non-durable household products up by 4.5%.
There were also increases in prices for furniture (+3.8%), major household appliances (+3.0%), and audio, visual, and computing equipment (+1.8%).
In the June quarter, the quarter-on-quarter decline was the largest in the 72-year history of the CPI.
It was only the 3rd time since 1949 that the annual rate of inflation had turned negative.
The Aussie Dollar moved from $0.71645 to $0.71575 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.04% to $0.71575.
At the time of writing, the Japanese Yen was down by 0.03% to ¥105.14 against the U.S Dollar, with the Kiwi Dollar down by 0.11% to $0.6654.
The Day Ahead:
For the EUR
It’s another particularly quiet day ahead on the economic calendar. There are no material stats from the Eurozone to provide the EUR with direction.
The lack of stats will leave the EUR in the hands of COVID-19 updates and geopolitics. Late in the day, the FED is also in action later in the day.
From the U.S, the continued spike in new COVID-19 cases has weighed heavily on the Dollar. Any 2nd wave hitting EU member states beyond Spain would be a test the EUR.
At the time of writing, the EUR was up by 0.03% to $1.1720.
For the Pound
It’s yet another particularly quiet day ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction.
A lack of stats will continue to leave the Pound in the hands of Brexit and market risk sentiment.
At the time of writing, the Pound was down by 0.11% to $1.2918.
Across the Pond
It’s another relatively busy day ahead for the U.S Dollar. June pending home sales and goods trade figures are due out later today.
The stats will likely have a muted impact on the Dollar and risk sentiment, however. For the Dollar and the broader market, the FOMC monetary policy decision and press conference is the main event.
Away from the calendar, the U.S stimulus package, tensions between the U.S and China, and COVID-19 will remain in focus.
The US dollar has initially tried to rally during the trading session on Tuesday but gave back any sense of bullishness against the Japanese yen to fall towards the ¥105 level by the time New York got on board. If we do break below the ¥105 level, it is very possible we may drop down to the ¥102 level over the next several days. The ¥105 level is not only a major psychological number, but it is also a structural barrier that should be paid close attention to.
USD/JPY Video 29.07.20
Below the ¥102 level, the Bank of Japan will start to get worried about the exchange rate and could come into the marketplace to cause issues. However, we are not there yet and let us be honest here: The Federal Reserve is trying to work against the value of the US dollar, and they typically get what they want when it comes to that over the longer term.
With that being the case, I think we do see a general move away from the greenback in the Forex markets, and that might even include buying the Japanese yen which is traditionally thought of as a safety currency. Because both of these are considered to be safety currencies, this might be a slower move than some of the other highflyers like the Australian dollar, but it does look as if it has shifted decidedly against the greenback in general. With that being said, I think short-term rallies are to be sold into unless something substantially changes.
In the emerging market space, the liquid and accessible currencies, like the Turkish lira, Mexican peso, and Russian rouble, are down the most. The lira has fallen 1% after intrasession volatility that pushed it to a record low against the euro yesterday. That seems to be the source of the pressure on the lira against the dollar.
The South African rand is among the weakest among emerging market currencies today even though the IMF approved a $4.3 bln loan, the most granted so far to assist in combatting the virus. Despite the correction in the foreign exchange market, equities are mostly firm. In the Asia Pacific region, only a few markets could not sustain gains.
Japan, Taiwan, and Australia were among them. South Korea led the region with a nearly 1.8% gain. Europe’s Dow Jones Stoxx 600 is up almost 0.5% after falling for the past two sessions (~2%). US shares are little changed. US bond yields backed up yesterday, with the 10-year yields popping back above 60 bp. This exerted upward pressures in Asia and Europe. Gold reached $1981 before the profit-taking pushed it to about $1907 from where it is recovering. September WTI is little changed around $41.50 a barrel.
China is resorting to local lockdowns to combat the new outbreak in the virus. The 61 cases reported Monday were the most in four months. Separately, New Zealand became the latest country to suspend the extradition treaty with Hong Kong. That means that of the intelligence-sharing Five Eyes, only the US has not done so, though it has threatened to do so.
India has banned almost 50 Chinese apps to largely check the workaround the 59 apps banned last month. Another 250 apps are under review. India has cited threats to user privacy and national security. This is a new front in the confrontation with China. The US and Japan are considering their own bans on some Chinese apps.
The dollar is in a quarter of a yen range on either side of JPY105.45, as it is confined to yesterday’s range. The upside correction does not appear over, and the greenback could test previous support and now resistance near JPY106, where an option for $600 mln expires today (and a $1.8 bln option expires Thursday).
The Australian dollar is little changed as it moves within the $0.7065-$0.7180 range that has confined it for around a week now. It has held above $0.7115 today, but it may be retested. The PBOC set the dollar’s reference rate at CNY6.9895 today, nearly spot on where the models suggested. After falling to a four-day low near CNY6.9870, the dollar recovered back above CNY7.0. China seems intent on not allowing the US to get an advantage by devaluing the dollar, something that President Trump has advocated. A stable dollar-yuan rate in a weak dollar environment means that the yuan falls against the CFETS basket. Against the basket, the yuan is at its lowest level in a little more than a month.
News from Europe is light and the week’s highlights which include the first look at Q2 GDP (median forecast in the Bloomberg survey is for a 12% quarterly contraction), June unemployment (~7.7% vs. 7.4%), and the first look at July CPI (median forecast is for a 0.5% decline for a 0.2% increase year-over-year) still lie ahead.
Today’s focus is mostly on earnings and bank earnings in particular. European banks are being encouraged to extend the hold off of dividend payout and share buybacks that were first introduced in March. This may be worth around 30 bln euros. The UK is fully aboard too. In terms of loan-loss provisioning, European banks are expected to set aside around the same amount as they did in Q1, which was about 25 bln euros. In comparison, the five largest US banks have added a little more than $60 bln in the first half to cushion sour loans.
Fitch lowered its five-year growth potential for the UK from 1.6% to 0.9%. It also took EMU’s potential to 0.7% from 1.2%. This could weaken the resolve of asset managers, where industry surveys suggest a desire to be overweight European stocks and the euro on ideas of economic and/or earnings outperformance. That said, the number of analyst upgrades has surpassed the number of downgrades in Europe for the first time this year.
The euro reached $1.1780 yesterday. As the momentum stalled in Asia, some light profit-taking has been seen that saw it briefly dip just below $1.17 in early European turnover. Intraday resistance is seen near $1.1740-$1.1750. In the recent move, the session high has often been recorded in North America, and we’ll watch to see if the pattern holds today. The market may turn cautious ahead of tomorrow’s outcome of the FOMC meeting.
Sterling poked above $1.29 yesterday for the first time in four months. It made a marginal new high today (~$1.2905), but it too is consolidating. Support is seen in the $1.2830-$1.2850 area. As the euro was trending higher against the dollar yesterday, it also rose to about CHF1.0840, its highest level here in July. However, today’s consolidation has seen the euro slip back to around CHF1.0775. Look for it to find support above CHF1.0760.
The US reports house prices, Conference Board consumer confidence, and the Richmond Fed’s July manufacturing survey. Even in the best of times, these are not the typical market movers. The focus instead is three-fold: corporate earnings (today’s highlights include McDonald’s, Pfizer, and 3M), the negotiation over the fiscal bill, and the start of the FOMC meeting. Canada has not economic reports, while Mexico’s weekly reserve figures are due. It continues to gradually accumulate reserves. They have risen by about 4.5% this year after a 3.5% increase last year.
The Economic Policy Institute estimates that a cut in the $600 a week extra unemployment insurance to $200 a week will reduce aggregate demand and cut the number of jobs that were projected to be created. It expects a loss of about 2.5% growth and 3.4 mln fewer jobs. After this week’s FOMC meeting and the first look at Q2 GDP, the US July employment report is due at the end of next week.
It is one of the most difficult high-frequency economic reports to forecast. Still, the outlook darkened after last week’s increase in weekly initial jobless claims, which covered the week that the non-farm payrolls survey is conducted. Another increase, which is what the median forecast in the Bloomberg survey expects, is only momentarily going to get lost in the excitement around the GDP report.
The relatively light news day allows us to look a little closer at Mexico’s June trade data that was out yesterday. Mexico reported a record trade surplus of $5.5 bln. Yet, it is not good news. Mexico is hemorrhaging. The IGAE May economic activity index, reported at the end of last week, showed a larger than expected 22.73% year-over-year drop. The 2.62% decline in the month was nearly three times larger than economists forecast. With the virus still not under control, the government’s forecast for a 9.6% contraction this year is likely to be overshot. The record trade surplus was a function of a larger decline in imports (-23.2%) than exports (-12.8%).
Auto exports are off more than a third (34.6%) this year, to $47.5 bln. Other manufactured exports are down 3.4% to $113.8 bln. Petroleum exports have fallen by nearly 42% in H1 to $8.0 bln. Agriculture exports edged up by 7.3% to $10.5 bln to surpass oil. The peso’s strength reflects not the macroeconomy but its high real and nominal interest rates in the current environment. Yesterday, the dollar fell below MXN22.00 for the first time this month. The June low was near MXN21.46.
The US dollar initially extended its losses against the Canadian dollar, slipping to CAD1.3330, just ahead of last month’s low (~CAD1.3315) before rebounding to almost CAD1.3400. The upside correction could run a bit further, but resistance in the CAD1.3420-CAD1.3440 area may offer a sufficient cap today. The greenback found support against the Mexican peso near MXN21.90 and bounced back to around MXN22.07. Resistance is seen near MXN22.20. The peso is up about 4.5% this month, but within the region has been bettered by Chile (~+6.75%) and Brazil (~+6.15%). The Colombian peso’s almost 2..2% gain puts it in the top 10 best performing emerging market currencies so far this month.
The Dollar/Yen is bouncing higher on Tuesday after hitting a four-month low the previous session. The rally was fueled by position-squaring and short-covering ahead a Federal Reserve monetary policy announcement on Wednesday and as U.S. policymakers edged closer to approving another massive stimulus package.
The world’s reserve currency has been tumbling since July 20 after trading mostly rangebound since early April as cracks in the U.S. coronavirus recovery and crumbling yields sent investors into higher yielding currencies. The plunge in U.S. yields tightened the spread with Japanese Government yields, making the Japanese Yen a more attractive investment.
At 08:30 GMT, the USD/JPY is trading 105.589, up 0.213 or +0.20%.
Daily Swing Chart Technical Analysis
The main trend is down according to the daily swing chart. A trade through 105.118 will signal a resumption of the downtrend. The main trend will change to up on a trade through 107.530. This is highly unlikely, but there is room for a normal 50% retracement of the recent break.
The minor range is 107.530 to 105.118. Its 50% level at 106.324 is the first upside target.
The main range is 112.226 to 101.185. Its retracement zone at 106.706 to 108.008 is the second retracement zone resistance. This zone is also controlling the longer-term direction of the USD/JPY.
Daily Swing Chart Technical Forecast
The direction of the USD/JPY the rest of the session on Tuesday is likely to be determined by trader reaction to 105.118.
Holding above 105.118 will indicate the presence of buyers. If this creates enough upside momentum over the near-term then look for a possible rally into the minor 50% level at 106.324, followed closely by the main 50% level at 106.706.
Taking out 105.118 will signal the presence of sellers. If momentum increases on the move then look for a potential acceleration to the downside. The daily chart shows there is plenty of room to the downside with the next major downside target the March 9 main bottom at 101.185.
A third scenario is possible. While taking out 105.118 signals a resumption of the downtrend, turning higher for the session after posting a lower-low will put the Forex pair in a position to form a potentially bullish closing price reversal bottom. This won’t change the trend to up, but it could trigger a 2 to 3 day counter-trend rally with 106.324 the first target.
It’s was another quiet start to the day on the economic calendar. There were no material stats through the Asian session to provide the majors with direction.
A lack of stats left the markets in the hands of geopolitics and COVID-19.
Tensions between the U.S and China and the continued spike in new U.S COVID-19 cases support the Asian majors amidst the Dollar meltdown.
Looking at the latest coronavirus numbers
According to figures at the time of writing, the number of new coronavirus cases rose by 229,469 to 16,642,263 on Monday. On Sunday, the number of new cases had risen by 213,347. The daily increase was higher than Sunday’s rise and up from 182,589 new cases from the previous Monday.
Germany, Italy, and Spain reported 7,167 new cases on Monday, which was up from 663 new cases on Sunday. On the previous Monday, 5,413 new cases had been reported. The spike came from Spain that had not reported any new cases for 2 consecutive days before a 6,361 jump on Monday.
From the U.S, the total number of cases rose by 61,571 to 4,433,410 on Monday. On Sunday, the total number of cases had increased by 56,130. On Monday, 20th July, a total of 62,790 new cases had been reported.
At the time of writing, the Japanese Yen was up by 0.07% to ¥105.30 against the U.S Dollar. The Aussie Dollar was up by 0.28% to $0.7169, with the Kiwi Dollar up by 0.21% to $0.6698.
The Day Ahead:
For the EUR
It’s a particularly quiet day ahead on the economic calendar. There are no material stats from the Eurozone to provide the EUR with direction.
A lack of stats will continue to leave the EUR in the hands of COVID-19 and geopolitics. With the Greenback on the slide as a result of the continued rise in new COVID-19 cases, only an EU-wide 2nd wave can really do any damage.
At the time of writing, the EUR was up by 0.11% to $1.1765.
For the Pound
It’s another particularly quiet day ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction.
A lack of stats will leave the Pound in the hands of Brexit and market risk sentiment.
At the time of writing, the Pound was up by 0.13% to $1.2899.
Across the Pond
It’s another relatively busy day ahead for the U.S Dollar. July consumer confidence and May house price figures are due out later today.
With the FED in action tomorrow, we can expect plenty of interest in the consumer confidence figures. The U.S is struggling with the 2nd wave of the COVID-19 pandemic. Concerns over the impact on the economy amidst current unemployment levels will likely weigh.
Away from the calendar, the U.S stimulus package, tensions between the U.S and China, and COVID-19 will also influence.
It’s a particularly quiet day ahead on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.
Concerns over the impact of COVID-19 on the U.S economy has limited the upside for the Loonie. Rising tensions between the U.S and China have also impacted. The narrative is unlikely to change anytime soon, particularly as the U.S struggles to curb the 2nd wave spread of the virus.
At the time of writing, the Loonie was up by 0.16% to C$1.3334 against the U.S Dollar.
The US dollar has gotten hammered against the Japanese yen during the trading session on Monday to kick off the week, reaching down towards the ¥105 level. This is a market that has a lot of crosswinds at the same time, as the US dollar itself is getting hammered, but at the same time we are seeing stock markets rally significantly, something that typically picks this pair up.
Overall, it is obvious that markets are focusing on the US dollar more than anything else, so I do like the idea of picking up bits of value as they occur, and it is also worth noting that we are near a major uptrend line. I think that the ¥105 level holds, at least in the short term. Longer-term though, it is very likely to break down. After all, the US dollar is in serious trouble to say the least, as we are seeing the US dollar get beat up on by almost all currencies.
USD/JPY Video 28.07.20
If and when we break down below the ¥105 level, I think it is very likely that this market goes looking towards the ¥102 level, an area that has been crucial more than once, and will clearly attract the attention of the Bank of Japan. Underneath there, then the dreaded ¥100 level could be targeted next which is an area where they have intervened more than once. In the short term, do not be surprised at all to see a rally towards the ¥106 level, possibly a little bit above there, before sellers step back in and push this lower. We have seen a definite shift in this pair to the downside.
Emerging market currencies are fully participating, with the JP Morgan Emerging Market Currency Index posting its fifth gain in six sessions. The greenback’s retreat appears to have become decoupled with the equity market. The yen’s strength, for example, had a limited impact on Japanese shares, which were narrowly mixed, with the Topix rising and the Nikkei falling.
Asia Pacific bourses were mixed, though most of the large ones, including China, South Korea, Australia, and Taiwan advanced. Note that the shake-up in the chip space that saw Intel shares crushed at the end of last week lifted Taiwan Semiconductor Manufacturing Company up 10% and helped the Taiex rise 2.2%. European stocks were struggling, but the better than expected German IFO helped equities recover. US equities are trading higher after the S&P 500 posted back-to-back losses at the end of last week for the first time this month. Bond markets are also mixed.
The European core is doing better than the periphery, but yields are +/- 2 bp. The US 10-year is near 57 bp. Gold is rallying for the seventh consecutive session at around $1944 is at new record levels. Its 2% gain is the most in three months. Oil, on the other hand, is little changed with the September WTI contract trading quietly around $41 a barrel, inside the pre-weekend range.
Japan reported it May All Industries Activity Index fell 3.5% in May after the April reading was revised to -7.6% from -6.4%. This is like a proxy for GDP. While the US and EMU report Q2 GDP this week, Japan’s first estimate is not due until the middle of next month. Separately, the May Leading Index was revised lower (to 78.4 from 79.3) but still held on to a small gain from April’s 77.7.
Hong Kong’s imports and exports recovered in June, but not by as much as had been hoped. Exports fell 1.3% from a year ago, a 7.4% slide in May. Economists had project outright growth. Imports fell 7.1% from a year ago. Economists had expected that May’s 12.3% slump would have been halved. The net result was an HKD33.3 bln deficit. Of note, Hong Kong’s exports to China rose 8.8% from a year ago, while its exports to the US were 21.4% below a year ago (-14.4% in May). Exports to Taiwan were also stronger. Exports to Europe were weaker.
Helped by the economic recovery and government infrastructure spending, China reported June industrial profits rose 11.5% year-over-year, following May’s 6% improvement. Still, profits were off 12.8% in H1 from a year ago. Private sector and foreign businesses trailed in the profit-recovery, underscoring the role of state-owned enterprises. Although the manufacturing sector led the rebound in the PMI to be released at the end of the week, it is the service sector that appears to be recovering quicker.
The dollar was sold through JPY106 before the weekend while Tokyo was on holiday. The market was cautious and took it back to JPY106 at the close. Japanese traders sold the dollar back off to around JPY105.45 before Europe entered the fray and has kept it in a narrow range near its trough, awaiting the US market leadership. Initial resistance is seen near JPY105.70. The Australian dollar is firm near $0.7120.
It reached a high last week, closer to $0.7180. The intraday technicals suggest it is poised to move higher in North America today. The PBOC set the dollar’s reference rate at CNY7.0029, which was stronger than expected, and the yuan snapped a three-day decline. The greenback finished the mainland session near its reference rate.
The German IFO survey lent credence to the improvement seen in the preliminary PMI before the weekend. The current assessment rose to 84.5 from 81.3. It is the best since March. The expectations component improved to 97.0 from 91.6, its best since November 2018. This lifted the assessment of the overall business climate to 90.5 from 86.3. It has not been this high since January.
The idea that Europe is outperforming the US is so far limited to some recent PMI surveys and may be vulnerable to the new flare-up in Covid-19 in several countries, including Spain and France. The divergence is unlikely to be reflected in this week’s first estimate of Q2 GDP. The eurozone contracted by 3.6% quarter-over-quarter in Q1 and is expected to have shrunk by another 12% in Q2. The US contracted by 5% at an annualized pace in Q1, which is about 1.2% quarterly. The median forecast for Q2 GDP in the Bloomberg survey is for a 35% annualized decline, which is about 7.8% on a quarterly basis.
The EU debt issuance under the Recovery Plan is embraced by some as the Hamiltonian moment. We recognize its potential but are reluctant to extrapolate to a fiscal union from what could be one-off emergency measures. We have suggested it could be scaffolding but that the building of the greater union is still in the distant future. Bundesbank President Weidmann cautioned that while he endorsed the action, it should not serve as “a springboard for large scale EU debt for regular household financing.” He emphasized the temporary nature of it, and urged a control mechanism to ensure the funds are spent “wisely and efficiently.”
The euro’s run higher is being extended for the 10th session of the past 11. It has fallen once since July 9. Today’s push in the Asia Pacific timezone saw $1.1725 before consolidating and easing to almost $1.1680 in the European morning. This pullback may provide a better buying opportunity for North American dealers who have been consistent dollar sellers in the run. Sterling is bid as well and has moved above last month’s high (~$1.2815) to rise to its best level since March (~$1.2860). Support now is seen near $1.2800. Meanwhile, the euro, which had tested the GBP0.9000 area last week, tested the upper end of this month’s range near GBP0.9140.
The US reports June durable goods orders today and the Dallas Fed’s manufacturing survey. The manufacturing and housing market seems to be leading the US recovery, and this is expected to be evident in today’s reports. Headline durable goods orders are expected to have risen by around 7% after the 15.7% gain in May.
However, the May report was bolstered by defense and aircraft orders. Excluding these, June orders will likely be stronger than May’s 1.6% increase. The report may help economists fine-tune their forecasts for Q2 GDP, which is released later this week. Of course, the FOMC’s two-day meeting, which concludes Wednesday, is the other main highlight of the week.
The moratorium on evictions from federally-backed rental properties enshrined in the CARES Act came to an end over the weekend. The landlords can give tenants a 30-day notice to vacate the premises. Prior to the passage of the moratorium, federally-backed apartment buildings accounted for a third of eviction cases.
The $600 a week extra unemployment insurance is set to expire at the end of the week. Some Republicans are pushing for an employment bill to be passed this week, which would tie the extra compensation to the previous pay, capping it at around 70%, according to press accounts. Part of the problem, and why this approach was previously rejected, is the logistical challenge that may prove to be beyond the capacity of many states to properly implement.
At just below 59 bp, the 10-year posted its lowest weekly close in history. The 10-year real yield closed at a record low of minus 92 bp. A dovish FOMC statement is expected amid the mounting virus cases and the escalation of US-China tensions, as officials prepare for additional measures as early as September. Unlike a year ago, the US-China tensions are not being spurred by rounds of tariffs but geopolitics. In fact, it appears that China has stepped up its purchases of US agricultural products in recent weeks.
The US dollar bears have their sights set on last month’s low near CAD1.3315. The greenback was sold through CAD1.34 last week but straddled the area in the previous two sessions. The Canadian dollar often lags behind the other major currencies in moves against the US dollar. The CAD1.3400 area should offer initial resistance, and a move above CAD1.3450 would likely squeeze the greenback shorts.
Mexico reports its June trade balance today. It is expected to return to surplus after two months of large deficits (~$3.5 bln). The dollar is trading a little above this month’s lows (~MXN22.1550). A break could see MXN21.90-MXN22.00. The peso’s strength is not so much a reflection of its domestic economic situation as much as it is about the broader risk appetites and its high real and nominal rates.
You know that in our trading Sniper videos, we always show three of the best trading setups on the market. This Monday morning, gold is the hottest story and could easily be viewed as a big trading occasion as it hits new all-time highs! Well, it definitely is a top story, but not necessarily a trading occasion. There is a possibility it will go even higher, but price action traders won’t be rushing to buy gold, now that the risk-reward ratio is not at desirable levels. So even though gold is the hot topic of the day we will be analyzing the US dollar.
Let’s start with the GBPUSD, where buyers are pushing forward encouraged by two significant breakouts. The first one is the breakout of the upper line of the symmetric triangle and the second one is the breakout of the 1.277 horizontal resistance, which has been crucial for the Cable since 2019. The price closing the day above that resistance, will be an extremely strong buy signal.
The second pair is the USDJPY, which we’ve mentioned many times in the last few days. During most of July, the price was locked inside the triangle pattern, and we’ve mentioned that a breakout of the lower line of this pattern would give us a proper sell signal. The breakout did happen but the scale of the drop was surprising. Not only did it go through a significant drop but the price also broke a crucial support on the psychological 106 barrier. Sentiment here is negative.
The last pair today is the AUDUSD, where the USD is also lower. From a technical point of view, the buy signal for the Aussie comes from the bullish breakout from the wedge pattern. As long as the price stays above the upper line of this formation, sentiment is positive.