US100
CFD contracts on the Nasdaq 100 (US100) reacted with a significant correction after yesterday’s initial attempt to break above 16,000. The Nasdaq 100 index lost 2.3% at the close of trading on Thursday, marking the worst performance since the start of the year. This sharp decline is due to several factors. 
Firstly, it’s currently the quarterly earnings season, and not all reported results are satisfying investors. Tesla and Netflix published their earnings two days ago after the session, and the results were worse than expected, leading to nearly 10% drops in both companies during yesterday’s session. These are companies valued at approximately $820 billion and $200 billion, respectively. Given these poor results, investors are also starting to worry about upcoming releases. Yesterday’s session saw losses for Nvidia (-3.3%), Microsoft (-2.3%), Meta (-4.3%), and Alphabet (-2.3%). 
Another factor could be the recently announced upcoming rebalancing of the Nasdaq index. The new weights are set to be implemented on July 24, which is next Monday. The new weights significantly reduce the share of the largest companies such as Apple, Meta, Alphabet, and Tesla. Therefore, all passive funds will also have to revise their equity portfolios, which carries significant short-term selling pressure on large companies and, conversely, on smaller ones buying pressure, making an opportunity for saavy investors. Currently, the six largest companies account for 50% of the Nasdaq 100’s assets. Rebalancing the index will reduce these shares to 40% of the index portfolio.
Looking at the chart from a technical perspective, all the news coincided perfectly with the US100 approaching the upper limit of the upward channel. This strong reaction may indicate a short-term correction and a decline in indicators. It’s possible that we may approach the lower limit in the short term.
EURUSD - Chart of the Day
The current week is crucial for the EURUSD pair, considering today’s preliminary readings of PMI indices in the US and the eurozone for July. Generally speaking, the estimated PMI data in the eurozone is expected to be weaker than in the US for both industry and services. In addition, investors’ attention will also be focused this week on decisions by the ECB and the Fed, which will take place on Wednesday and Thursday, respectively. Currently, the market assumes the following decisions:
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Fed - the market does not foresee a surprise and with a 99.8% probability, it will raise rates by 25 basis points.
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ECB - at this moment, the market assumes that in the eurozone rates will be raised twice more by 25bp, however, the probability for the second hike of 25 bp is just over 50%.
However, in both cases, the Powell and Lagarde’s comments after the decision will be more significant. In the US, the latest labor market data are still strong, hence despite falling inflation, the tone of the conference may be perceived as neutral/hawkish. While in the EU, weakening data, including PMI, may weigh in favor of a more dovish message.
From a technical point of view, on the daily chart, EURUSD broke out of the consolidation area between 1.053 and 1.106 two weeks ago, and the rate went around 1.126. The breakout, however, was not long-lasting, and last week the price returned to the area of the upper limit at 1.112. The appreciation of the dollar occurred after stronger macro data, including from the labor market in the US. The dollar behaved stronger against most currencies. Key to maintaining the uptrend on EURUSD is defending the support area at 1.106. Otherwise, if the price returns to the consolidation area, EURUSD may retest the level of 1.10 or further 1.08.
Chart of the Day: USDCNH
The theme of the morning session that generated the most market volatility was reports of further stimulus solutions to the Chinese economy. During a meeting of China’s Politburo (i.e. an important part of the Chinese Communist Party’s Politburo focused on the State’s current political affairs), announcements were made that indicated a willingness to introduce solutions to improve the troubled property and debt markets. In the face of this news, China’s real estate-focused corporate benchmark climbed 11%, posting its biggest one-day gain in eight months and bolstering sentiment around APAC markets and the yuan itself.
Moreover, the Chinese currency itself was boosted today by another factor, namely the PBoC’s decisions to set the official reference rate for the USDCNH pair at 7.1406 (versus the expected 7.2044), which encouraged local banks to resell USD in the FX market and thus repurchase CNH.
As added by Morgan Stanley analysts, the euphoria around today’s statements is mainly due to the words that came out of the Politurbo meetings. At the time, the establishment communicated that “real estate is for living, not for speculation”, thus assuring the upcoming policy optimizations.
The USDCNH pair is trading close to 0.61% down today and is testing the support zone set by the 23.6% Fibo measure of the upward wave initiated in early 2022.
German IFO Index points to weaker sentiment in economy!
Germany - Ifo sentiment index for July:
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Actual: 87,3. Forecast: 88. Previously: 88,5
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Current Conditions: Actual: 91,3. Forecast: 93. Previously: 93,7
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Future estimates: Actual: 83,5. Forecast: 83,4. Previously: 83,6
In addition, at the same time the ECB published a study on loans in the euro area. The ECB points out that banks are reporting a record drop in the demand for loans from companies. At the same time, banks are further tightening their restrictive lending policies.
After the Ifo report and the ECB credit report, EURUSD reduces recent gains and is close to yesterday’s close.
AUDUSD
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Lower CPI data weakens the Australian dollar
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Goldman Sachs predicts a lower target rate for the RBA
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AUDUSD react to the key level at 0.679
Australian inflation slowed more than expected in the second quarter due to a decline in domestic holiday and gasoline costs, suggesting less pressure for another rate hike and causing a sharp weakening of the Australian dollar.
Annual headline inflation fell to 6.0% in June from 7.0% in March, which was weaker than the 6.2% consensus and the RBA’s own 6.3% forecast. Importantly, the RBA’s preferred measure - core inflation - the trimmed mean - slowed to 5.9% from 6.6%, which was slightly less than the market and RBA’s expectation of 6.0%.
On a quarterly basis, the Australian consumer price index rose 0.8% in Q2, which is the weakest quarterly pace since September 2021. Economists believe this signals a peak in the interest rate cycle, despite a shift in inflation from goods to services. This shift might push the Reserve Bank of Australia (RBA) to raise rates by 0.25 percentage points in August and September. As a result, Goldman Sachs lowered its peak cash rate prediction to 4.6% from 4.85%, and National Australia Bank expects the RBA to leave rates unchanged in August. Current OCR rate is 4.10%.
Chart of the Day - EURUSD
FOMC announced a 25 basis point rate hike yesterday, following a pause in hiking at June meeting. Such a decision was widely expected and traders were eager to see whether Fed Char Powell offers some more hints on future moves during the press conference. However, no such hints were offered and Powell was cautious not to provide any forward guidance.
Investors will hear from the European Central Bank today at 1:15 pm BST and the decision is expected to be similar to yesterday’s FOMC decision - a 25 bp rate hike and no hints on the future. Just like Powell, ECB President Lagarde is expected to stress that future decisions will be data-dependant. However, there is a feeling in the markets that today’s 25 bp rate hike will be the final one in the current ECB hiking cycle. Nevertheless, a clear signal that this is the end of hiking would be very dovish and could trigger volatile moves on the markets, and this is a scenario that central banks try to avoid. Interestingly, even as markets seem to be convinced that ECB will end hiking earlier than Fed, EUR outperformed USD recently and the main currency pair disconnected from bond markets in June.
EURUSD should be on watch in the early afternoon as there is a number of events scheduled that could move the pair. The most important one is ECB rate decision at 1:15 pm BST, followed by Lagarde’s presser at 1:45 pm BST. In between those two investors will be offered flash Q2 GDP reading from the United States that may also trigger moves on EURUSD.
Taking a look at EURUSD at the H1 interval, we can see that it is recovering from a recent correction. The pair broke above the 38.2% retracement of a recent correction this morning and continue to move higher. A near-term resistance zone to watch can be found in the 1.1150 area, marked with 50% retracement and the 200-hour moving average (purple line).
Chart of the day EURJPY
EURJPY is one of the currency pairs that is experiencing elevated volatility today. Bank of Japan meeting is a prime reason behind JPY-volatility while slew of data releases from Europe as well as speeches from ECB members is ensuring EUR-volatility.
Bank of Japan decided to keep interest rates and other monetary policy settings unchanged at a meeting today. There were some expectations that BoJ may announce changes to yield curve control and it did… to some extent. BoJ said that bandwidth around target yield will remain unchanged at ±0.5% but it will allow greater flexibility, meaning that yields may be allowed to deviate as much as 1% from the target. While not a clear and explicit change to yield curve control parameters, the move is seen as paving that way for dropping YCC altogether in the future
Moving on to EUR-side, there were some interesting comments offered by ECB members this morning. Stournaras said that if a hike is delivered at the September meeting it will be the last one and rates will stay at the peak for a few months. Similar comments were voiced by Vasle who said that the September meeting may bring a hike or a pause in the cycle. Apart from ECB speeches, a number of macro reports from Europe was released today, including an unexpected pick-up in Spanish inflation in July. There is one more key piece of data from Europe scheduled for release today - German CPI report at 1:00 pm BST.
Taking a look at EURJPY chart at D1 interval, we can see that the pair is realizing an important technical pattern - double top. Pair broke below the neckline of the pattern in the 153.50 area, paving the way for a deeper drop. Textbook range of the downside breakout from the pattern suggests a possibility of EURJPY dropping to as low as 149.00. However, it should be noted that today’s BoJ decision triggered massive volatility with the pair trading 1% higher at one point earlier today and 1% lower at another. Currently the pair is little changed on the day and the shape of today’s daily candlestick shows that there is a lot of indecisiveness on the market.
Chart of the Day - US500
The S&P 500 (US500) recently reached a critical resistance level at 4631, raising questions about the market’s next moves. Last week, the Federal Reserve implemented a widely anticipated 25 bps interest rate hike, and market participants closely monitored Fed Chair Powell’s press conference for hints about future policy decisions. However, Powell offered no clear signals, emphasizing the Fed’s reliance on data for future choices. Economic data following the FOMC meeting pointed to a soft landing scenario, with US Jobless Claims surpassing expectations, but the US PCE and Employment Cost Index falling short of forecasts.
In the upcoming week, several economic data releases will play a crucial role in shaping market sentiment. These include the ISM Manufacturing PMI, US Job Openings, US ADP data, US Jobless Claims, ISM Services PMI, and the highly anticipated US NFP report. The market’s focus on the soft-landing narrative suggests that positive data may push the market higher, while disappointing data could trigger downward movements. Despite some short-term caution, the S&P 500’s overall trend remains bullish. However in the short-term a pullback or consolidation phase is expected before any potential further highs. Ultimately, the ongoing rally may lead the index to new all-time highs, with a healthy consolidation period in the weeks and months ahead.
Examining the daily timeframe, the S&P 500 encountered resistance at 4631, leading to a pullback as sellers took the opportunity to secure profits. Potential support levels for a pullback could be at 4550 and 4500. The index’s price is currently trading near the upper boundary of an ascending channel (indicated by the blue line) that has been respected since February 2023. The next crucial resistance level to watch for is around 4700-4730 points.
AUDUSD
RBA decided to keep rates unchanged at the second meeting in a row, pressuring AUD
AUDUSD is trading 0.7% lower, slightly more than an hour after RBA policy announcement. Reserve Bank of Australia has decided to hold rates unchanged for the second meeting in a row. Expectations ahead of the meeting were split - economists saw a chance for a 25 bp rate hike while money markets priced in an over-60% of rates staying unchanged. Statement was Fed-like with hints that further tightening is not off the table but will be data-dependent. A lower-than-expected CPI print for Q2 2023 likely gave RBA comfort to keep rates unchanged today.
Market participants seem split on what comes next. Some say that the RBA will deliver one more rate hike this year. However, money markets are rather conservative with pricing - peak is currently seen at around 4.25% in December, down from yesterday’s pricing of 4.35% peak at the turn of 2023 and 2024. NAB and ANZ signal that one more hike may come what would support AUD. However, other see AUDUSD dropping to as low as 0.6400 should global slowdown triggered by US recession materializes.
Market pricing for rate hikes at future RBA meetings is low but at the same time it should be noted that market does not expect cuts until the end of 2024 either.
AUDUSD is dropping significantly today, although it still trades relatively far above local lows from the previous week. The pair is trading sideways in a wedge pattern.
GBPAUD - Chart of the Day
The Reserve Bank of Australia (RBA) surprised markets with a dovish policy decision today. RBA left rates unchanged, with the main cash rate staying at 4.10%. Median consensus among economists surveyed by Bloomberg was for a 25 basis point rate hike. Meanwhile, money markets saw a less than 40% chance of a 25 bp rate move today. Ultimately, it turned out that the market was right and economists seem to have overestimated the impact of solid jobs data on RBA stance and underestimated impact of lower-than-expected Q2 CPI data. While statement released along with the decision did not rule out further hikes, there is a feeling that RBA may stay on pause now. Why? There is a number of reasons:
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Albeit still solid, labor market is loosening up
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Inflation trends develops better than expected
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Previous rate hikes are impacting economy, crimping demand
Having said that, RBA may want to stay on hold for now as its previous policy actions seem to be taking effect. Money markets also support this view - no change in the level of rates is priced in for September or October meetings.
Traders will get to hear from one more central bank this week - Bank of England on Thursday, 12:00 pm BST. Economists also expected BoE to deliver 25 basis point rate hike, just as they did in case of RBA. However, in this case there is no disconnect between economists and money markets - money markets fully price in a 25 bp BoE rate move this week. Moreover, a total of three 25 basis point rate hikes is priced in for the next three meetings. The biggest risk for GBP seems to be a potential dovish turn from BoE, similar to Fed and RBA. However, it looks rather unlikely that given current economic picture in the United Kingdom, Bank of England will decide to stay on hold and issue a dovish guidance.
Taking a look at GBPAUD at H1 interval, we can see that a recent drop on the pair was halted at the 200-hour moving average (purple line) in the 1.9085 area. Pair rallied today, driven by AUD weakness, and has almost fully erased the aforementioned drop. A near-term resistance zone to watch can be found ranging below 1.9350 mark.
Chart of the Day - Gold
Fitch downgrading US credit rating from AAA to AA+ is the big news in the markets today. However, the market’s reaction has been fairly muted given how significant this news can be. It should be noted that Fitch is the second major ratings agency to downgrade US credit from top-tier rating - S&P did so back in 2011 and has not upgraded it back since. Should the third major ratings agency - Moody’s - follow suit and also downgrade US credit from AAA grade, this could have serious implications on US bonds. Some funds are obliged to hold only AAA grade bonds and once neither of three major agencies has such a rating on US credit, those funds may be obliged to sell their Treasury holdings, potentially triggering a slump in the TNOTE market.
However, the rationale behind Fitch downgrade is disputed. Fitch said that repeating debt ceiling disagreements over the past 20 years, last-minute solutions to debt ceiling problems, rising general government deficit as well as issues with US governance are the reasons behind the move. US officials rejected the rationale behind the decision saying that downgrade from Fitch is baseless and bizarre.
Announcement from Fitch yesterday after close of the Wall Street session triggered some volatile market moves. US equity futures launched overnight trading with an around 0.4% bearish price gap. There were also some notable safe haven flows into USD, JPY and gold. However, a bulk of those moves have been reversed already.
Taking a look at GOLD chart at D1 interval, we can see that a potential major reversal pattern is building up. GOLD pulled back to the $1,940-1,950 price zone, where previous price reactions as well as the 50-session moving average (green line) can be found, but bearish momentum began to slow. Should we see a rebound off this area, the right should of a potential inverse head and shoulder pattern would surface. In such a scenario, neckline of the pattern at $1,980 will be on watch as a break above could trigger an almost $90 jump, which would push GOLD close to all-time highs.
Chart of the Day - EURUSD
The dollar continues to appreciate after yesterday’s strong labor market data and the latest dovish comments from the ECB president, Lagarde. Yesterday’s ADP report showed employment growth of 324,000, compared to significantly lower expectations of 190,000. If the good ADP data are confirmed by Friday’s NFP reading, it may encourage the Fed to continue raising interest rates at the September FOMC meeting. The discrepancy between NFP and ADP was quite large last month, but growth above 200,000 NFP would still give a very high chance of a Fed hike in September. Analysts’ estimates assume a publication at the level of 200,000. Currently, the market is pricing an 82% chance of no hike at the next September meeting of the Fed. However, these estimates could still change significantly if subsequent data continue to show a strong labor market and rebounding inflation.
This last, more hawkish sentiment favors the appreciation of the dollar, which, after reaching a medium-term peak at the level of 1.12640, continues to correct downward. Historically, the announcement of the end of the interest rate hike cycle almost always coincided with a weakening of the dollar, regardless of the macroeconomic situation. Recent comments from Jerome Powell indicate that the Fed would like to see sustained low inflation and a weakening labor market. For this reason, recent strong NFP publications raise questions about a pause or end to the hikes. A continuation of the strengthening of the dollar could cause the EURUSD pair to retest the level of 1.0855.
Chart of the Day - USDCAD
USDCAD is one of the pairs to watch in the early afternoon as the first Friday of a new month has come and therefore it is time for release of jobs data from the United States and Canada. Of course, report from the United States will be watched more closely than Canadian one but the fact that both will be released at the same time (1:30 pm BST) means that USDCAD is likely to become very volatile around that hour.
The US report is expected to show a 200k increase in non-farm payrolls, slightly lower than the 209k reported in June. Unemployment rate is seen staying at 3.6% while annual wage growth is seen slowing from 4.4 to 4.2% YoY. Fed Chair Powell stressed that the September decision will be data-dependent and there are 4 key US macro reports ahead of the September 20, 2023 meeting - 2 jobs reports and 2 CPI reports. NFP report for July is the first one of the four and will be watched closely. A higher-than-expected jobs gain and a smaller drop in wage growth would likely boost hawkish bets in the markets and may trigger gains on the USD market as well as declines on equities.
The Canadian report is not expected to have as much gravity as the Bank of Canada is largely seen as having already finished its rate hike cycle. Nevertheless, release is likely to trigger some short-term CAD-volatility.
Taking a look at USDCAD chart at D1 interval, we can see that the pair has experienced strong gains recently, driven by strengthening of US dollar (USDIDX - light blue overlay). However, advance was halted after the pair reached resistance zone ranging above 50% retracement of the downward move launched at the turn of May and June 2023 (1.3370 area). This is a price zone that had halted advance in early-July as well. A strong US report combined with weaker Canadian data could trigger a break above the aforementioned 1.3370 area. In such a scenario, the next resistance to watch can be found ranging above 61.8% retracement (1.3440). On the other hand, should we see CAD gain against USD - drop in USDCAD - the support level to watch can be found at 38.2% retracement (1.3300 area).
Chart of the Day - Wheat
In terms of market-moving news, this past weekend has been very calm with neither politicians, nor central bankers delivering any significant comments. However, recent developments in the Russia-Ukraine war are pushing wheat as well as crude prices higher at the beginning of this week.
Russia has intensified shelling of Ukrainian ports after withdrawing from the Black Sea grain export agreement. Also, attacks of Ukrainian maritime drones on Russian Navy vessels have become more frequent recently. It was reported that apart from Russian Navy warships, a Russian oil tanker was also targeted this past weekend. This has led to a small jump in oil prices at the beginning of new week’s trade as investors fear that it may limit Russia’s ability to export its crude via Black Sea. However, it also means that return to the Black Sea grain export deal may be harder as hostilities at sea are picking up. As a result, we are observing an over-3% jump in wheat prices today.
Taking a look at WHEAT at D1 interval, we can see that the commodity has recently made another failed attempt at breaking above the 765 cents per bushel resistance zone. Price pulled back later on and declines were once again halted at the 625 cents per bushel support zone. Price is trying to bounce off this area today. A near-term resistance zone to watch can be found ranging around 665 cents per bushel, marked with previous price reactions as well as 50-session moving average (green line). However, if bulls fail to maintain control over the market and the price breaks below the aforementioned 625 support, a deeper drop may be looming. This is because the zone marks the neckline of a double top pattern. A break below the neckline would confirm the pattern and may trigger a drop with a textbook target range of 475 cents per bushel.
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Important Technical Setup on Gold
Gold is once again trading near its lowest levels in a month, but bulls are seeking hope in the recent rebound that occurred on Friday and was preceded by a small doji candlestick. Gold recovered from initial declines on Friday and gained significantly by the end of the day as US jobs data came in mixed and EURUSD rebounded.
Friday’s candlestick could potentially mark a local low and also the right shoulder of an inverse head and shoulders pattern. Today, we are witnessing a pullback in gold, which puts the fate of the right shoulder at stake.
As seen in recent months, there is a significant correlation between gold and EURUSD. Having said that, rebound in EURUSD could be the best scenario for gold bulls. In theory, it may happen this Thursday when US CPI data for July is released at 1:30 pm BST. Market expects headline US CPI inflation to accelerate from 3.0 to 3.3% YoY, with a monthly increase of 0.2% MoM.
Neckline of the inverse head and shoulders pattern on GOLD can be found in the $1,980 area. Should we see price rise and break above this hurdle, it could pave the way for a larger upward move with a textbook range of the breakout from the pattern being $2,066 per ounce.
Chart of the Day - USDJPY
The Bank of Japan (BoJ) clarified that its recent yield curve adjustment, announced on July 28th, was intended to sustain the current loose monetary policy rather than indicate policy normalization. The BoJ allowed the 10-year Japanese Government Bond yield to trade above 0.5% in a flexible manner, deviating from a strict cap approach. Despite global anticipation of policy normalization due to rising wages and inflation, the BoJ remains cautious, questioning whether inflation’s rise is demand-driven and durable enough to exceed 2%, indicating that a shift in policy direction is not imminent.
USDJPY currency pair rises as the US dollar is recovering from losses experienced toward the end of the previous week. The positive momentum in the 10-year US treasury yield is playing a role in bolstering the dollar’s performance, despite a retracement on Friday that didn’t fully negate the broader upward trend. Investors are eagerly awaiting the upcoming release of the US Consumer Price Index (CPI), which is anticipated to be higher than the last month figures and expected to reach 3.3% Y/Y and core inflation to be the same as previous month at 4.8% Y/Y.
USDJPY currency pair is currently trading at 143.1, indicating a 0.43% increase for the day. The price recently found support at the level of 137.8 and has been steadily advancing since then. The next key target level is the previous local high at 145, which is anticipated to act as a significant resistance level. However, if the price fails to breach this level, a potential downward move to the levels of 143 or 140.4 could be anticipated.
DE30 - Chart of the Day
Global markets have calmed after yesterday’s turmoil that was triggered by a combination of a few factors - Moody’s rating agency downgrading a number of US banks, Italy approving a windfall tax on 2023 bank profits and China releasing disappointing trade data for July. Major European stock markets indices launched today’s trading with around 1% gains and an empty economic calendar suggests that things may remain calm until US CPI release tomorrow at 1:30 pm BST.
German DAX is trading 1% higher on the day. Taking a look at DAX futures (DE30) at D1 interval, we can see that the index is attempting to break back above the psychological 16,000 pts mark. Bulls managed to halt declines and defend the upward trendline in the 15,900 pts area. It should be noted that DE30 has been largely stuck in the sideways move in the 15,900-16,300 pts range over the past 3-4 months, spare for few false breakouts. A positive price reaction to the lower limit of the range suggests that a move towards the 16,300 pts may be next. However, a stronger catalyst may be needed to push the index above the trading range.
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Bitcoin - Chart of the Day
Despite positive news in the cryptocurrency market, such as PayPal launching its own stablecoin and the approval of Bitcoin ETFs in Europe, cryptocurrencies remain under selling pressure. Delays in Bitcoin ETF applications by US funds, including BlackRock, have significantly contributed to the declines. Additional catalysts include issues with the decentralized exchange Curve and weaker macroeconomic sentiment in recent days.
In light of these events, yesterday Bitcoin once again broke below the $29,000 level and is currently trading around $28,600. The nearest support level is $28,300, which was tested overnight. After that, the Bitcoin price reacted strongly, rebounding by $400. If this year’s upward trend is broken (blue line), we could expect the Bitcoin price to drop to $27,500 or even $26,200. On the other hand, with a positive catalyst, the Bitcoin price could swiftly return above $29,000, and even reach $29,700. Nevertheless, given the absence of positive news, further downward pressure can be expected in the coming weeks.