Risk appetite has suffered today in choppy and changeable market conditions. News that the Trump Administration is considering the imposition of tariffs on $3.1bn in EU and UK imports in reply to European subsidies for Airbus deemed illegal by the WTO has not gone down well. European stocks are trading over 2% lower on the day while US stocks have opened up on a weak footing.
The positive mood of yesterday has also stalled due to more contagion fears, with the rising Covid-19 case counts in the US especially putting the brakes on dollar bears. California, Texas and Arizona each reported fresh record highs while Florida also had a large daily increase.
Overnight saw the RBNZ open the door to more stimulus as the bank reiterated downside risks to the economy and highlighted recent NZD strength as putting pressure on export earnings. The kiwi is today’s clear major loser with a 0.8% loss, one hour into the US session.
Currency too strong for dovish RBNZ
With the kiwi up by 6% or so since mid-May, the RBNZ did not mess about in stating their concerns at its appreciating currency. It seems their bar for acceptance of NZD strength is pretty low and the bank is continuing to work towards putting in place “a broader range of monetary policy tools.”
NZD/USD looked to be breaking out of its recent range yesterday but printed a ‘doji’ candle highlighting some indecision and today’s buying of king dollar has pushed the pair firmly back into that consolidation. Support comes in around 0.6380 while a move higher will need to break yesterday’s high above 0.6533 to confirm that upside momentum is back on track.
Commodity Spotlight: Oil
Oil is falling after an industry report signalled another increase in US crude stockpiles. If confirmed by the weekly government report tomorrow, this would be the third weekly gain emphasising the easing in physical markets. Traders are also worried that fuel demand may be hampered by the surging coronavirus cases in the US.
Yesterday, WTI hit levels not seen since March’s capitulation, creeping up to new cycle highs at $43.92. Strong support exists around $37 so watch out for range trading if prices are unable to push above the recent highs.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.
Chris Vermeulen Chief Market Strategies Founder of Technical Traders Ltd.
The eurozone economic data released this week reflected a further pickup in activity over the last month. This came in line with the easing of lockdown measures.
The eurozone manufacturing PMI for June rose to a four-month high of 46.9. This reading marked a significant increase from the prior month’s 39.4 reading. It was also well above the expected 43.8 level.
Despite still being in contractionary territory, this latest reading marks a continued recovery in the factory sector. The data has boosted expectations that manufacturing could move back into expansionary territory as of the next reading, provided the current trend continues.
Services PMI was equally buoyant last month. The sector improved to 47.3 from the previous month’s 30.5, marking an almost 20-point recovery.
The reading was well above the 40.5 expectation and brings the sector almost back into expansionary territory.
French Data Soaring
In terms of member data, the French manufacturing reading was the most promising.
The index there rose to 52.1. well above the 46.1 level forecast. This increase from the prior month’s 40.6 level brings the factory sector back into expansionary territory.
The French services sector also saw a firm rebound over the month, rising to 50.3. This marks a nearly 20-point increase from the prior month’s 31.1 reading. It was also well above the 44.9 reading forecast.
German Data Not as Strong
In Germany, the increase wasn’t as high. However, there was still some progress, and the recovery continued over the month.
The German manufacturing PMI rose to 44.6 from the prior month’s 36.6 reading. This was was well above the 41.5 reading forecast.
The services sector recovered to 45.8 from the prior month’s 32.6 level and was well above the 41.7 level forecast.
Tentative Hopes Emerging but Risks Remain
With lockdown measures easing further across the eurozone, the expectations are for these PMI sets to rebound into expansionary territory over this month.
This should help alleviate some of the pressure on the ECB. At its last meeting, the central bank almost doubled its QE program, adding a further 600 billion EUR of purchases while signaling its willingness to act further if necessary.
The main risks now stem from a potential second wave of the virus as lockdown easing continues. In such circumstances, lockdowns might need to be reintroduced which would be devastating for the eurozone economy.
EURJPY Finds Support, Bulls Testing Trend Line Once Again
The rebound in EURJPY off the 115 lows made it as high as 12 before reversing sharply. The correction lower found support at the 119 level and price is now challenging the bearish trend line once again, with the 121.50 level adding further resistance.
If price can break back above here, focus will be on further upside once again with the 122.61 level the next upside region to watch.
The precious metal is finally making some headway after nearly two months of being stuck in a range.
Gold prices are rising steadily after clearing the key level above 1747. This level has proven hard to breach in earlier attempts.
However, a bit of consolidation above this level adds to the bullish bias for now.
Overall, if the momentum continues, we expect gold prices to touch the 1800 level for the first time in nine years.
As a result, look for any pullbacks in the precious metal which is likely to only attract more new buyers into the market. This upside bias holds as long as price holds up above the 1747 handle.
– We warned about this move many months ago and just 6 days ago we issued a research post suggesting Gold had cleared major resistance and would start a rally mode to push above $2000 – possibly above $2100. Well, guess what happened right after we made that statement? Yup – Gold started to rally higher and is currently trading near $1790 – about to break $1800 for the first time in 2020.
You can read some of our most recent Gold articles below:
What we really want you to focus on is the fact that Gold is rallying to levels above $1800 (near all-time highs) while the US stock market has entered an upside parabolic price trend. What does it mean when metals are rallying and the stock market is rallying at the same time? The supply-side of precious metals has been restricted because of the COVID-19 virus event and central banks have been accumulating Gold and Silver over the past 7+ years by large amounts. This suggests central banks and precious metals traders believe metals prices will continue to skyrocket while the risks to the equities markets, credit markets, and global economy increases.
Gold prices climbed in the early 2000s after the DOT COM bubble burst (starting to rise in 2002). The US stock market eventually bottomed near April 2003 – yet Gold continued to rally from near the $281 level to $992 in early 2008 – a massive +665% over just 5 years.
Gold continued to rally after some wild rotation near the 2008 peak in the US stock market. Gold bottomed in November 2008 near $710 before rallying to $1924 in September 2011. This rally took place while the US stock market was also rallying because of the fear in the market from the 2008 (and 1999 DOT COM), market collapse events had not subsided. Traders and Investors were still very fearful of the truth of the economic recovery and stock market recovery at that time – so they continued to hedge in precious metals.
Right now, the US stock market has entered a massive parabolic upside price move while Gold is starting a breakout upside price move targeting the 2011 all-time high near $1924. What this is telling us is that global investors and traders are very fearful of this rally in the stock market and are actively hedging in Gold and Silver. Traders understand the risks to the credit and banking system and are playing the rally in the stock market cautiously while “loading up” on Gold as a means to protect against unknown risks.
Read the first part of our “Markets Go Parabolic” article below:
We believe the upside price move in Gold, coinciding with a potential parabolic upside price move in the US stock market, could represent a very unique scenario where the US Federal Reserve and Global Central Banks have entered the ultimate battle to attempt to regain control of the global capital and credit markets after the 2008 credit crisis and the current COVID-19 economic crisis. The only reason Gold is climbing to near new all-time high levels is that global risk has become a major issue and the US Fed as well as central banks are doing everything possible to provide capital liquidity and support through what may become an extended global recession.
Right now, Gold is hedging global market risks and unknowns. Once Gold clears the $2000 price level, we believe Gold will enter a parabolic upside price trend that could accelerate well above $3250 very quickly – possibly before the end of 2020. This would indicate that global traders and investors have priced global market risk at likely 3x higher than most common risk-off market scenarios. The only other time when this extreme risk factoring took place in Gold was in early 1980 when interest rates were 15% or higher and the US economy had entered a period of stagflation (the late 1970s). At that time, the price of Gold reached nearly 7x the price of the SPX at that time before contracting after a peak in 1981.
If our research is correct, Gold has just begun an upside price rally that will attempt to hedge credit and global market risks resulting from the past 10+ years of US Federal Reserve and global central bank intervention. The attempts of the global central banks to support the credit and capital markets have created a massive credit/debt bubble that has pushed the US stock market into an incredible bubble rally. We’ve seen nothing like this in recent history.
Until fiscal responsibility returns to the global markets, expect Gold and Silver to continue to hedge global risks and while the world continues to expand debt and credit in an attempt to support weaker economic data/output – continue to expect hedging to continue. Until global investors perceive the debt/credit risks have abated – Gold and Silver will continue to rally in an attempt to hedge the massive risks to the global credit and banking sectors.
At this point – it is like a game of “chicken”. Either the global central banks find some way to prompt organic economic growth or the precious metals markets will continue to illustrate the fear in the markets related to credit risks. Should the credit markets or banking sector collapse or experience any real extended risks, Gold could rally to unbelievable levels (like in 1979~80; where the price of Gold was over $650 per ounce and the price of the SPX was $110). If that were to happen at today’s levels, Gold would reach levels above $22,250 or higher. Think about it.
We continue to urge our clients to stay very cautious of the current price rally in the US stock market as we continue to see risks shuffling just below the surface. Watch Gold and Silver. Once these metals start to really breakout, you are going to see a big shift in how investors perceive risk in the global markets. Read our article about the US stock market going parabolic – it is important that you understand what is happening right now.
WHAT WOULD THAT LOOK LIKE FOR SILVER?
Silver is likely one of the most incredible opportunities for skilled technical traders ever. This secondary precious metal is still trading below $19 per ounce – well below the $50 per ounce peak reached in 2011. If you understand our logic and can appreciate how Gold could rally to levels above $5000 or $10,000 because of extreme risk factoring, then consider that Silver could rally to levels above $250 per ounce given the same risk factors – that’s a 1300% price increase.
This is why we continue to urge our clients and followers to stay cautious – stay very cautious. We’ve been mostly in cash and have been executing very selective “low allocation” trades over the past 5+ months. We called for a massive super-cycle event in August 2019 based on our 600+ year super-cycle modeling. When that longer-term super-cycle was delayed because of the US/China trade deal news near the end of 2019, we knew the super-cycle event would happen at some point in the near future. Along comes the COVID-19 event about 60 days later. It just took another 2 months for the world to understand how much risk was involved in a global pandemic event. The process of the world reacting to the COVID-19 risks set off a series of events that leads us to right now.
Pay attention. There will be no Mulligans in this round of play. You’ll either be prepared for what is likely to happen or you’ll take far greater risks than you should throughout the next 5+ years. We’re here to help. Read our research and learn how we can help you protect and grow your wealth.
Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.
Chris Vermeulen Chief Market Strategies Founder of Technical Traders Ltd.
The pound sterling has been mimicking the moves of the EURUSD currency pair.
Price action is on a strong rebound following the declines to the 1.1268 level of support.
At the time of writing, the GBPUSD currency pair is testing the technical resistance area near 1.2526.
A strong breakout above this level will validate the upside momentum. Following this, there is scope for GBPUSD to continue higher and potentially challenge the 16 June highs above 1.2643.
There is also a strong scenario for price action to get caught in a range within 1.2643 and 1.2368.
Oats price is retracing lower after rebounding to 6-month high three weeks ago. Prices rebounded over 28 percent after agricultural commodity prices fell following the advent of coronavirus outbreak. A bearish setup has developed currently. At the same time, Canada’s department of Agriculture and Agri-Food estimate of domestic oats ending stocks was lowered by 100,000 tons to one million tons, according to the Outlook for Principal Field Crops report. Canada is the top world exporter of oats. Lower supply estimates are an upside risk for oats price. However the report stated “abundant global supplies” as a bearish factor for oats prices.
A handful of technology companies have benefited from coronavirus. Amazon has profited handsomely, as have streaming and video conferencing platforms like Netflix and Zoom. But the pandemic has laid bare the shaky foundations of a number of other platforms that bill themselves as technology companies and have enjoyed the high valuations that come with this label.
Major losers from the pandemic include the ride hailing apps: Uber, Grab (in South East Asia), Ola (India) and Didi Chuxing (China). Quite simply, people are not taking taxis. Office sharing businesses such as WeWork (which was, of course, already struggling) are also in trouble with virtually no occupancy. A similar situation is occurring in the accommodation sector with Airbnb and hotel bookings start-up Oyo.
As a result, investment in tech businesses is crumbling. But at the same time this is clearing the way for the few winners to buy bigger stakes in those that are struggling.
Swimming naked
Two decades on from the dot-com collapse there is the likelihood of another crash in the technology sector. As with the build up to the dot-com bubble, an abundance of venture capital funding has fuelled speculation and encouraged investors to make bets on the next Google or Amazon.
As Warren Buffett once said: “Only when the tide goes out will we see who has been swimming naked.” In effect, the tide has gone out and lots of start-ups that were billed as revolutionary technology companies are all in significant trouble.
The only redeeming feature at the moment is how much cash many start-ups have to withstand the collapse. How long they have will vary. WeWork will struggle to survive a year without further investment. The ride hailing apps meanwhile are well funded but may also find this to be a very difficult year. They are under pressure to cut their losses and break even but this goal is even further away now.
Image by PublicDomainPictures from Pixabay
The secretive Airbnb has recently been raising money at high cost. This suggests investors see a significant risk to the business and so cash is limited. The proposed listing this year is now highly unlikely.
A major problem with lots of the start-ups that are now struggling is that they look like technology businesses but they have merely used new technology to disrupt existing industries. Uber follows the dynamics of the taxi industry, WeWork the office rental industry, and Airbnb the accommodation booking industry.
Winner takes all
Facebook, Amazon and Google differ in that they all started new industries. They created network effects – where the more people that use the platform, the better it becomes – from which they benefited enormously.
Network effects can create a winner takes all situation. The more of your friends and colleagues who are on a particular social network the more likely you are to join and use it. Similarly the more suppliers who compete to sell on Amazon, the more choice and competitive prices is offered to customers. Having more customers attracts more sellers.
It is harder to see the network effects in businesses like WeWork – there are few reasons to be loyal and the entry barriers to market for competitors are low. Even with taxi ride hailing apps, in which Uber was a first mover, all taxi firms now have an app and network effects are quite limited once a level of responsiveness has been achieved – it’s easy for customers and drivers to switch to competition apps.
Similarly, accommodation booking sites are all accessed in the same way now via an app, and it is very easy to compare accommodation availability and costs. Airbnb was a first mover in home rental but this sector has been beset by issues relating to fraud and safety.
Hence all these markets are going to remain very competitive in the longer term and this means low margins and low returns. It is no surprise the share prices of ride hailing businesses have halved. In these industries technology is no longer a competitive advantage as almost all the competitors now have similar technology. The technology is simply infrastructure.
Cash flow and consolidation
Stock markets are shaky and Airbnb has cancelled its initial public offering. The appetite for new listings is weak and is likely to remain this way, suggesting it will be difficult for venture capital investors to exit their investments. If there is no exit route to make money, then why invest?
A consequence is that there is likely to be a reduction in investment in technology start-up businesses. Cash will be in much shorter supply and venture capital investors will have to choose more carefully where to invest.
Meanwhile, we are already seeing the real technology giants move in. Amazon, for example, was the biggest investor in distressed UK takeaway app Deliveroo’s latest round of fundraising. This month also saw the merger of two other food delivery services, with Europe-based Takeaway.com, fresh from buying Just Eat, now buying US-based Grubhub. We can expect more consolidation in the months ahead.
The single currency has continued to grow against the greenback. Since the beginning of this week, quotes growth has exceeded 150 points. Yesterday, the euro was supported by optimistic data on economic activity in Germany and the Eurozone. The demand for risky currencies has resumed after comments by White House Trading Adviser Peter Navarro. The official said that the trade deal with China remains in force. At the moment, EUR/USD quotes are consolidating in the range of 1.1285-1.1325. A trading instrument has the potential for further recovery. Positions should be opened from key levels.
The Economic News Feed for 2020.06.24:
At 11:00 (GMT+3:00), the German IFO business climate index will be published.
Indicators signal the power of buyers: the price has fixed above 50 MA and 100 MA.
The MACD histogram is in the positive zone, but below the signal line, which gives a weak signal to buy EUR/USD.
Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which indicates the bearish sentiment.
Trading recommendations
Support levels: 1.1285, 1.1255, 1.1220
Resistance levels: 1.1325, 1.1350, 1.1400
If the price fixes above 1.1325, further growth of EUR/USD quotes is expected. The movement is tending to 1.1350-1.1380.
An alternative could be a decrease in the EUR/USD currency pair to 1.1255-1.1220.
The GBP/USD currency pair
Technical indicators of the currency pair:
Prev Open: 1.24582
Open: 1.25085
% chg. over the last day: +0.45
Day’s range: 1.24656 – 1.25427
52 wk range: 1.1466 – 1.3516
The GBP/USD currency pair is in a sideways trend. There is no defined trend. GBP/USD quotes are testing the following key support and resistance levels: 1.2450 and 1.2530, respectively. A further increase in the British pound against the US currency is possible. Yesterday, a series of optimistic data on UK economic activity was published, which supports the British pound. Positions should be opened from key levels.
Today, the news feed on the UK economy is calm.
Indicators do not give accurate signals: the price has crossed 50 MA and 100 MA.
The MACD histogram is in the positive zone, but below the signal line, which gives a weak signal to buy GBP/USD.
Stochastic Oscillator is near the oversold zone, the %K line has crossed the %D line. There are no signals at the moment.
Trading recommendations
Support levels: 1.2450, 1.2380, 1.2335
Resistance levels: 1.2530, 1.2585, 1.2670
If the price fixes above 1.2530, further growth of GBP/USD quotes is expected. The movement is tending to 1.2580-1.2620.
An alternative could be a decrease in the GBP/USD currency pair to 1.2400-1.2370.
The USD/CAD currency pair
Technical indicators of the currency pair:
Prev Open: 1.35198
Open: 1.35518
% chg. over the last day: +0.19
Day’s range: 1.35277 – 1.35832
52 wk range: 1.2949 – 1.4668
The loonie continues to be traded in a prolonged flat. The technical pattern is ambiguous. Financial market participants expect additional drivers. At the moment, the following local support and resistance levels can be distinguished: 1.3530 and 1.3580, respectively. We recommend paying attention to the dynamics of “black gold” prices. Positions should be opened from key levels.
The news feed on Canada’s economy is calm.
Indicators do not give accurate signals: the price has crossed 50 MA and 100 MA.
The MACD histogram has started rising, which indicates the development of bullish sentiment.
Stochastic Oscillator is in the neutral zone, the %K line has crossed the %D line. There are no signals at the moment.
Trading recommendations
Support levels: 1.3530, 1.3490, 1.3455
Resistance levels: 1.3580, 1.3625, 1.3680
If the price fixes below 1.3530, USD/CAD quotes are expected to fall. The movement is tending to 1.3490-1.3455.
An alternative could be the growth of the USD/CAD currency pair to 1.3625-1.3650.
The USD/JPY currency pair
Technical indicators of the currency pair:
Prev Open: 106.882
Open: 106.512
% chg. over the last day: -0.34
Day’s range: 106.385 – 106.645
52 wk range: 101.19 – 112.41
Yesterday, there were aggressive sales on the USD/JPY currency pair. The trading instrument has overcome and fixed below the key extremes. At the moment, USD/JPY quotes are consolidating. The local support and resistance levels are 106.40 and 106.65, respectively. The technical pattern signals a further decline in the trading instrument. We recommend paying attention to the dynamics of US government bonds yield. Positions should be opened from key levels.
The news feed on Japan’s economy is calm.
Indicators signal the power of sellers: the price has fixed below 50 MA and 100 MA.
The MACD histogram is in the negative zone, but above the signal line, which gives a weak signal to sell USD/JPY.
Stochastic Oscillator is in the neutral zone, the %K line is below the %D line, which also indicates the bearish sentiment.
Trading recommendations
Support levels: 106.40, 106.10, 105.80
Resistance levels: 106.65, 106.80, 107.05
If the price fixes below 106.40, a further drop in USD/JPY quotes is expected. The movement is tending to 106.10-105.80.
An alternative could be the growth of the USD/JPY currency pair to 106.90-107.10.
After breaking 1.1280 to the upside and then reaching 1.1345, EURUSD has finished the descending impulse at 1.1300 along with the correction towards 1.1325. Possibly, today the pair may form a new descending structure to reach 1.1260 and then resume continue trading upwards with the target at 1.1350.
GBPUSD, “Great Britain Pound vs US Dollar”
After expanding the consolidation range up to 1.2540, GBPUSD is trading downwards to reach 1.2420. After that, the instrument may start another growth towards 1.2482, thus forming another consolidation range between the two latter levels. If later the price breaks this range to the downside, the market may resume falling with the target at 1.2277.
USDRUB, “US Dollar vs Russian Ruble”
USDRUB is still falling towards 68.40. After that, the instrument may correct to reach 69.20 and then resume trading downwards with the target at 67.80.
USDJPY, “US Dollar vs Japanese Yen”
After finishing the descending wave at 106.06, USDJPY has completed the ascending impulse towards 106.55; right now, it is consolidating around this level. Possibly, the pair may continue growing to reach 106.90 and then fall towards 106.50. Later, the market may resume trading upwards with the target at 107.25.
USDCHF, “US Dollar vs Swiss Franc”
After reaching the downside target at 0.9420, USDCHF has completed the ascending impulse towards 0.9453 along with the correction at 0.9435, thus forming a new consolidation range between these two levels. If later the price breaks this range to the upside, the market may resume growing towards 0.9550; if to the downside – form a new descending structure with the target at 0.9419.
AUDUSD, “Australian Dollar vs US Dollar”
After completing the ascending wave at 0.6975, AUDUSD has finished the descending impulse towards 0.6923 along with the correction at 0.6960, thus forming a new consolidation range between these two levels. If later the price breaks this range to the upside, the market may form one more ascending structure towards 0.7022; if to the downside – resume trading downwards with the target at 0.6800.
BRENT
Brent has completed the ascending wave towards 43.90; right now, it is falling to reach 41.37. Later, the market may start another growth towards 42.60 and then form a new descending structure with the target at 40.30.
XAUUSD, “Gold vs US Dollar”
After breaking 1763.00 to the upside, Gold is expected to continue growing towards 1776.20. Later, the market may fall to return to 1763.00 and then form one more ascending structure with the target at 1800.00.
BTCUSD, “Bitcoin vs US Dollar”
BTCUSD is consolidating around 9600.00. Possibly, the pair may fall towards 9500.00 and then form one more ascending structure to reach 9850.00. After that, the instrument may resume falling inside the downtrend with the target at 9500.00.
S&P 500
The Index is still consolidating around 3114.0. Possibly, today the pair may grow to reach 3165.5 and then fall to return to 3114.0. If later the price breaks this range to the downside, the market may resume trading downwards to reach 2958.5; if to the upside – form one more ascending structure with the target at 3233.3.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
