What we are looking for
- USD near-term correction: There are mounting signs of a near-term correction in the USD. We will be watching important near-term resistance levels on major pairs.
- Indices engaging a technical recovery: Improved risk is encouraging a more positive outlook for equities.
- Data trading: A quiet day for data traders with no major announcements due.
There has been a shift in sentiment for major markets. Notable hawks on the FOMC (Waller and Bullard) have played down the prospects of a 100 basis points (bps) rate hike at the FOMC next week. Furthermore, the University of Michigan Consumer Inflation Expectations gauge (which was a key component in ushering in a hawkish tilt from the Fed in June) has fallen sharply. This weighed on the USD into the weekend and continues to do so on Monday morning. We also saw this pulling a Wall Street rally into Friday’s close and US futures are higher again this morning.
With the Fed now into its Blackout period, we could see this inducing a continued near-term bout of profit-taking on an overbought USD. Near-term resistance levels on major pairs will be watched with interest, whilst indices and commodities are also rallying. Again, the reaction around near-term resistance levels will gauge how far these recoveries can go.
It is a quiet start to the week for the economic calendar. There are no key data announcements due today.
Market sentiment improves: USD is falling for a second successive day, allowing rallies on major forex pairs against the USD, commodities and indices.
Treasury yields are stable to slightly higher: We have seen previously that when yields have a degree of stability (less volatile) this sets up for a more positive outlook for risk appetite. Yields are c. +2bps for both 2-year Treasuries and 10-year Treasuries.
China COVID infections remain high: The situation in Shanghai remains severe and the PBoC Governor said that the economy faces downward pressure.
Fed moves into its blackout period: The FOMC has moved into its blackout period which comes into force a week and a half before the FOMC meeting. There will be no FOMC communication until the press conference on 27th July.
Oil rebounds: US President Biden has failed to secure any commitments from Saudi Arabia on increasing oil production levels. This has helped oil to recover again this morning.
Cryptocurrencies recovering: There are realistic prospects of a crypto rally. In the past week, there has been a notable improvement in sentiment. A strong rally on Bitcoin over the weekend and today have added over +6% and resistance at $22,530 is being eyed. Above would be a one-month high.
- There are no key data announcements due today
Major markets outlook
Broad outlook: Risk positive bias across major markets. USD is near-term corrective, with commodities and indices moving higher.
Forex: USD is a solid underperformer, with GBP, AUD and EUR performing well.
- EUR/USD has engaged a technical rally with a move above 1.0120 which is a one-week high. If resistance around 1.0190/1.0220 can be breached then it opens for a more considerable rally towards 1.0350. A daily RSI momentum buy signal adds to the improving outlook near term. Support has formed initially at 1.0040/1.0080.
- GBP/USD has rebounded well in the past two sessions to break a 3-week downtrend and now eye a test of initial resistance at 1.1965. This is the first lower high of the downtrend, with further resistance at 1.2055 then overhead. . There is a near-term unwind of negative momentum configuration, but we remain mindful that this looks to be a near-term technical rally and will favour selling into strength once the rebound has played out. Initial support at 1.1875 protects the now key low at 1.1760.
- AUD/USD has broken a mini downtrend channel of the past four weeks which could now open a recovery towards the more considerable three-month downtrend currently around 0.6965. However, we continue to favour selling into strength. And the resistance between 0.6830 and 0.6895 is the first important medium-term basis of overhead supply. Initial support at 0.6780/0.6835.
Commodities: Near-term technical rallies are building, especially on oil.
- Gold has ticked higher this morning to leave a low at $1697 above the key 2021 low of $1676. Momentum is looking to unwind from oversold and a technical rally threatens. Near-term overhead supply comes in around $1723/$1732 but the main resistance to watch is $1745/$1752. Above $1752 is needed to engage a recovery of note. We continue to see near-term rallies as a chance to sell but wait for this technical rally to play out first.
- Silver has picked up and is now looking to test the resistance between $18.90/$19.48 which is the barrier to a continuation of a technical rally. We have already seen a buy signal on the RSI which points to a rebound and above $19.48 would open towards a recovery into $20.2/$20.45. Initial support is at $18.65 above the low of $18.14.
- Brent Crude oil has picked up well in the past few sessions. Instead of seeing intraday rallies sold into, the moves are now holding and a mini technical rally is developing. There is a downtrend channel of the past 4 to 6 weeks that has scope for a rebound into resistance at $107.65/$109.65. Initial support around $100.50 is an initial higher low.
Indices: Wall Street is recovering to now test a crucial pivot area of resistance.
- S&P 500 futures picked up strongly from 3724 and is into the second day of decisive recovery. A test of what is important near to medium-term resistance band of 75 ticks between 3875/3950 is now being eyed. Also, the barrier of a near four-month downtrend is being tested. With the daily RSI again into the 50/55 area where near-term rallies have consistently failed, this is an important momentum in the outlook. A close above 3950 would open a much more considerable recovery. Initial support at 3845/3865.
- German DAX has seen a remarkable recovery in the past couple of sessions. A rebound has broken a four-week downtrend and is testing resistance at 13,012. A close above would complete a small double bottom reversal pattern and imply a recovery of c. +600 ticks. This would then bring a test of the next key resistance band 13,200/13,430 firmly into play. Initial support is at 12,760/12,830.
- FTSE 100 has swung sharply higher in the past two sessions and has moved above 7229 resistance. A close above today would bring an improving outlook and open a move to test the resistance around 7300/7370 which marks the top of a one-month choppy trading range. Initial support is at 7162/7200.
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