The Weekly Close Out
The greenback has been moving higher throughout the week as it held its 200-day SMA. Last week’s CFTC positioning data indicated net spec shorts were chopped by about 1/3 in USD positions – the euro and pound bore the brunt of this unwind. As more shorts are covered this will be less of a tailwind for the USD. Month and quarter end flows actually worked in the dollars favour on Wednesday as DXY notched a 0.3% gain. US consumer confidence is booming according to the reading out on Tuesday as it significantly outperformed expectations. Although ADP job numbers marginally beat expectations, they haven’t been the most reliable predictor for Non-Farm Payrolls (NFP), so don’t place too much weight on them. The PMI figure out of the states was weaker than expectations, but initial jobless claims surprised positively. Combining this with the better than expected ADP data, could we get an upside surprise above consensus on NFPs? I guess we’ll have to wait and see.
The greenback is on a rampage. Price has smashed through 92 resistance as well as the 61.8% Fibonacci level. The 21-day SMA has crossed up through the 200-day SMA too. There is some resistance at the 92.7 level which price is at right now. While price remains above the 200-day SMA the bias towards price direction is upwards. The RSI is now in overbought territory, if it doesn’t continue to increase it may make some negative divergence on the recent high. On downside moves, I’d monitor the 92 level which coincides with the 61.8% Fibonacci level. To the upside, positive moves through the 92.7 and 93 resistance would put the 31 March highs in play around 93.4.
The single currency has been on the back foot against the dollar over this week. The narrative of central bank divergence between a hawkish Fed and dovish ECB is becoming more and more entrenched. Especially, when members such as Weidmann and others considered hawkish actually toe a dovish line, sending currency markets continued patience with regard to removing the crutch of asset purchases. Europe has had plenty of data to contend with this week. The Euro area consumer confidence final reading was in line with expectations. German inflation data followed suit at 2.3% YoY bang on forecasts. Eurozone inflation didn’t shock with another in-line reading. PMI data was solid across the European landscape with beats being registered. Ultimately, the NFP numbers out today will dictate where EURUSD finished up into the weekend.
The single currency has continued its slide lower against the dollar, taking out the 21 June low and now heading in the direction of 1.18. The 21-day EMA has recently crossed below the 50-day SMA and should now act as dynamic resistance, capping rallies to the upside, aided by the downtrend line. The RSI is in overbought territory and needs to push lower or it risks making negative divergence with the recent price low. On the upside, monitor 1.19 and on the downside 1.18, with a break through that level opening up the March 31 lows of 1.17.
Cable has been treading water this week, despite no domestic catalysts working against the pound the dollar has flexed its muscles and gained the upper hand. Sajid Javid has replaced Matt Hancock as Health Secretary and is much more keen on a faster reopening of the UK. The Prime Minister Boris Johnson echoed his sentiments while saying that cases are rising, but hospitalisations and deaths remain low. Finishing off his remarks that the July 19 freedom day was very likely. A faster move back to pre-covid conditions across GDP growth and the labour market will be positive for sterling crosses. It should also allow the BoE to remain one of the more hawkish banks on the block. Data wise, UK GDP QoQ for Q1 showed a very small 0.1% miss. PMIs were also softer falling below expectations. The other major story for sterling this week was news that Chancellor Sunak has decided to pullback on trying to secure a financial services equivalence deal with the EU, instead seeking to diverge and tailor its own set of rules. Like the euro, where the chips fall for Cable will be dependent on what we get with the NFP numbers.
Cable has been under pressure all week, slicing through 1.385 and 1.378 support to now eye the double bottom support levels from March and April around 1.366. The 200-day SMA is just below that level at around 1.363. If that breaks then Cable has serious problems technically. 21-day EMA is widening the gap between itself and the 50-day SMA. The RSI has made negative divergence, indicating selling momentum is weakening which could give Cable some respite. On the downside, monitor 1.366 support and on the upside watch what price does if it pushes through 1.378 to have a crack at 1.385 as well as the 21-day EMA overhead at 1.393.
The yen had been strengthening against the dollar all week as US 10-year yields slid lower, however, month and quarter end flows sent USDJPY surging on Wednesday to peak its head above the 111 resistance zone. Friday’s NFP print which will feed through to yields (key driver of USDJPY) will be a pivotal event for this cross into the weekend. We’ve got some very strong technical moves as price breaches the upper trend line of its ascending channel as well as the horizontal resistance around 111. The RSI is now getting close to overbought territory and is above the key 65 resistance level. To the upside 111.7 around the March 2020 highs would be a good area to keep an eye on while 111 on the downside would be what I’d be monitoring on moves lower.
The yellow metal has been struggling to keep its head above water and suffered its biggest monthly loss in 4 and a half years in June. On Wednesday it saw a bid higher on lower real yields despite a stronger dollar. The big event for gold will be Friday’s NFP, which if solidly above the market’s expectations could push the US-10 year yield higher on a faster expected tapering timeline. Although the main drivers for gold remain real yields and the dollar, some interesting new banking rules from Basel III came into on Monday which I thought was worth mentioning. Essentially, physical gold will be classified as a zero-risk asset under the new rules, but “paper” gold won’t. This could see increased demand for physical gold given its newly classified risk-free status.
Gold’s price action remains rather boring as it fluctuates around the 61.8% Fibonacci level and the $1750 support. Today’s NFP could be what’s needed for the yellow metal to make a more decisive move. The 50-day SMA continues to remain above the 200-day SMA, avoiding the dreaded death cross, but with the 21-day EMA still below both. The RSI has made negative divergence and is providing gold with some price support. On the upside, watch $1800 with the 21-day EMA just above that too and on the downside $1750.
OPEC+ failed to come to a conclusion on Thursday with talks being pushed out to today to try and find a solution for all members. Earlier on Thursday there were reports that Saudi Arabia and Russia were on the same page regarding raising oil output by less than 500k bbls/d a month till December 2021. Additionally, it was reported that OPEC+ were looking at releasing around 2 mln bbls/d through August to December. The delays to talks clearly indicate disagreement amongst member countries, with sources stating that the UAE weren’t happy about the original baseline and to me they are probably the hold out causing the delay. We could get some serious volatility tomorrow if production figures are released close to NFP. Reports out this week stated that Iran US nuclear talks have been postponed to an unspecified date, pushing the timeline out further for the potential lifting of sanctions and return of Iranian oil. US inventory data has been strong with both the API and official DOE numbers showing much larger drawdowns than expected. The stronger dollar has also been a bit of a headwind for oil prices.
Oil continues to charge higher despite uncertainty surrounding OPEC+ and Iran talks. The RSI remains above 53, keeping the uptrend intact as well as the 21-day EMA continuing to point in the right direction and act as dynamic support. Price needs to take out the $76.8 level to move higher towards $80. On the downside, the 21-day EMA around $73.3 would be good to monitor on any pullbacks and lower at $72.
Bitcoin has been treading water, fluctuating in its range between $31k and $40.5k. Despite negative headlines for the space, Bitcoin has held up pretty well. Over the weekend the FCA (regulator for the UK) banned the cryptocurrency exchange Binance in the UK. On Wednesday, Democrat Maxine Waters stated that her Committee has started investigating the Crypto marketplace. There haven’t been any Elon Musk tweets this week to rock the boat. Friday’s labour numbers could inject some life into Bitcoin’s price action.Could today’s jobs numbers break bitcoin out of its dull price action? The 21-day EMA is containing moves higher at the moment as well as the $35.8k resistance. Just above that is the 50-day SMA. The RSI has failed to push above 48 resistance. On the downside, range support at $31.1k becomes key and on the upside monitor the above mentioned levels.
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