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The Weekly Close Out

Luke Suddards
Research Strategist
Jul 23, 2021
A volatile week comes to a close with lots to unpack. Let's take a look at each key asset class below.


The dollar has derived its strength early this week from its pure risk-off safe haven status. It really is as simple as that. Equities down dollar up. Rising covid cases as a result of the delta variant caused market fears over slowing growth (Bank of America have downgraded their US 2021 GDP estimates from 7% to 6.5%). Then equities bounced back and the dollar still remained firmish. I’d put this down to a slight recovery in yields both nominal and real as well as shorts being a little nervous to implement fresh positions. Economic data wise jobless claims disappointed both on continuing and initial claims, proving the sticky nature of weening people off support. Later today we’ll get flash PMIs out to give us some more insights into July’s economic conditions. Another week of positioning data from last week showed shorts being trimmed further, where the lion’s share of this came from the euro, pound and CAD. Next week we’ve got the Fed meeting, which I’ll be doing a preview on.


DXY continues its travel within the ascending channel. Maintaining the 92.8 mini support. Looks like the golden cross - 50-day SMA crossing above the 200-day SMA is going to take place imminently. For now dips are being supported by the 21-day EMA and lower line of the ascending channel. However, the only negative I can see on the charts is the negative divergence on the RSI, however, it still remains above the key 55 support level. On the upside the March 31 high around 93.5 would be my initial target and on the downside I’d monitor the 92.3/4 zone (21-day EMA).


EURUSD held up pretty well on the risk-off move, proving its defensive qualities. The big event for the single currency was the ECB Meeting yesterday, which didn’t do much to invigorate the currency. There were no policy changes with regards to their benchmark interest rate and PEPP pace, however, we did get the widely expected (and priced in) changes to forward guidance. The key points which stood out for me which really signal “lower for longer” were 1) Inflation reaching 2% well ahead of the end of the projection horizon 2) Durably staying at 2% 3) Realized inflation. Now we didn’t get an explicit calendar date when rate lift-off could occur which would have been nice and seen as very dovish, but in order to maintain flexibility the ECB kept dates out of the discussion. With current core inflation forecasts for 2023 at 1.4%, one has to wonder if we could see them hike rates by 2030 (bit of sarcasm by me or is it?). Economic data was a bit of a mixed bag with euro area consumer confidence missing, PMI in line and German PMIs beating.


EURUSD remains in a solid downtrend with the 21-day EMA capping rallies. A death cross – 50-day SMA crossing below the 200-day SMA has actually taken place and usually leads to further bearish price action. Looks like there is some support around 1.175 that is attracting some bids of late. 1.17 is a key support level, which if it were to break could see us test September November lows from 2020 around 1.162. The RSI is making divergence with the price candles, which could cause some abate in selling pressure.


Cable bore the brunt of the risk-off sell-off earlier in the week given its high beta/cyclical relationship to risk, dropping as low as 1.357 (levels not seen since February). But when risk sentiment turned Cable rocketed higher. More pertinent for EURGBP, however, FX traders seemed to dismiss the latest Brexit flare up over Northern Ireland. Without going into too much detail, essentially the UK government wants goods conforming to UK rules to be able to circulate freely in NI as long as they are going to remain in NI and the other point was to remove any ECJ governance with respect to the protocol. Fears over Article 16 being triggered were averted when Frost stated now isn’t the right moment, however, he feels that the threshold has been reached for such actions. The EU have responded in typical fashion stating that they are not prepared to renegotiate anything. To be continued I guess. On the central bank front, we had Deputy Governor Broadbent being the latest mouthpiece for the dovish camp, stating no action could be the best response to deal with price pressures that will be transitory. PMI flash data for July disappointed, missing estimates quite a bit. For me a big concern is no longer the pandemic, but rather the “pingdemic” due to the test and trace app. There’s no point having an exceptional vaccination rate tied with an expected strong economic recovery and reopening if large swathes of the population are having to isolate, reducing spending - particularly in the hard hit hospitality sector.


Cable briefly slid below the 200-day SMA and double bottom lows we saw in March and April. However, bulls will be happy to see price back above the 200-day SMA and pushing up against 1.378 resistance and the 21-day EMA. The RSI remains below the 53 level. The 21-day EMA looks like its acting as dynamic resistance on price rallies. Thankfully, the 50-day SMA is far away from making a death cross with the 200-day SMA.


The yen benefited on the strong risk-off move, however, gave back its gains when risk sentiment became more optimistic and US 10-year yields moved higher too (just above the 200-day SMA). Candles are back above the 21-day EMA and 50-day SMA having a look at 111 resistance. The RSI dipped briefly below the 46 level, but has now reclaimed this zone. Price needs to get back into its channel for bulls to be more confident. 111 first upside price target and 110 around the 50-day SMA would be my downside area to monitor.



Gold actually saw a big drop on Monday despite its usual safe haven characteristics. The stronger dollar probably didn’t help in that regard. It could have also been for technical reasons as price hovers right on the 200-day SMA. As the week progressed real yields moved higher combined with the dollar which has been keeping the yellow metal subdued around $1800.


Gold is seeing some high altitude sickness around the 200-day SMA and is now hovering on its upper trend line of the descending channel around the $1800 level. The 50-day SMA is still above the 200-day SMA for now. The 21-day EMA looks to be working against gold of late capping some gains. The RSI was rejected around the 55 resistance area. Upside target $1840 (50-day SMA) if price can break through the 200-day SMA and on the downside I’d say keep an eye on $1768 support.


Crude looked like a rollercoaster this week with large volatility swings. Risk-off, a stronger greenback and OPEC+ agreements – the black liquid had it all. On the OPEC+ front UAE and the Saudis kissed and made up. Total group production will increase by 400k b/d on a monthly basis from August 2021 until they’ve returned the 5.8 mln b/d of production cuts that have been made (should occur around September 2022). The group will continue to meet on a monthly basis with the next meeting scheduled for the 1st of September. December this year will be a big one as that 400k b/d could be revised lower if demand is softer. The production pact has been extended from April 2022 to end of 2022. From May 2022, the UAE’s baseline will rise to 3.5 mln, less than they wanted initially, but better than nothing. Iraq, Kuwait, Saudi Arabia and Russia will also see upward revisions to their baselines. The baseline adjustments won’t alter the pace of the 400k b/d of monthly output. I think you can view this deal as negative or positive. Negative – more members received a baseline hike than expected, but positive that producers now are on good terms and we avoid a price war. US production has been increasing and inventory expectations were missed breaking the previous 8 week drawdown streak.


Given its wild gyrations discernible chart patterns aren’t appearing on crude’s chart. Price is above its 50-day SMA and 21-day EMA. It’s positive the 21-day EMA didn’t cross below the 50-day SMA. Price is back above the $72 support and is inching at getting back into the ascending channel. The RSI is right back up to the key 53 level and will need to push through here to see price follow through too. There is a touch of resistance around $74 too.


Not much in Crypto land this week except two titans debating it – Musk and Twitter’s CEO Jack Dorsey. Some say the rally we saw was as a result of that debate, but it also could have been a good technical level to accumulate. Given its high risk nature Bitcoin was embroiled in the severe sell-off earlier this week and fell below a key level - $30k. Bitcoin remains stuck in a low volatile range pattern without a discernible direction being taken. It’s good that price regained the $30k level and is now back in the range bounds. Price is being capped by the 21-day EMA currently and above that the 50-day SMA would work against upside too. The RSI continues to remain below the 48 level, marking peaks of previous price rallies.


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