07-Jul-2020

1) GBP/USD: Boris’ Careless Care Home Comment, Weak Stimulus, Downtrend Resistance, All Point Down
2) EUR/USD: Next Leg Higher? Triple Top and Triple Troubles Are Pointing Lower
3) USD slips amid a risk on rally

 

 

1) GBP/USD: Boris’ Careless Care Home Comment, Weak Stimulus, Downtrend Resistance, All Point Down

The embattled PM – who personally suffered badly from COVID-19 – may be preparing for a potential inquiry. Some 20,000 people have died at care homes and the UK has the highest mortality rate in Europe.

Chancellor of the Exchequer Rishi Sunak will meet lawmakers later on Tuesday and may provide more details ahead of unveiling the government’s stimulus plan on Wednesday. However, the media has already reported that the government is set to allocate £3 billion to the green investment package – falling short of similar pledges from other large European countries. If the rest of the package is underwhelming, sterling could continue suffering.

Both comparisons to the continent – in coronavirus and green investment – are unflattering and come amid the deadlocked Brexit talks. Negotiators continue talking in the background and the lack of any statements may be evidence that progress is being made. However, past experience has shown that radio silence early in the week eventually ended in acrimonious statements on Friday.

Broader markets are on the back foot on Tuesday, reversing some of Monday’s gains. Stcoks surged amid China’s encouraging of a bull market, falling US coronavirus cases, and an upbeat ISM Non-Manufacturing Purchasing Managers’ Index figure.

These three factors are now working in reverse – Beijing is calling for “rational” behavior, pouring cold water on its previous call for buying. America’s COVID-19 cases may have been depressed due to the weekend effect and may see a bump up now. Finally, data may worsen with Tuesday’s JOLTs job openings report, set to show a decrease in hiring in May. While the statistic is lagging, the fact that the Federal Reserve is watching it makes it important.

There have been no new significant opinion polls ahead of November’s presidential race, leaving challenger Joe Biden nine points ahead of incumbent President Donald Trump. Markets have yet to tune into the news.

Cable is capped under a moderate downtrend resistance line set by lower highs. Momentum on the four-hour chart has turned to the downside but the currency pair is still holding above the 50, 100, and 200 Simple Moving Averages on the four-hour chart.

Support awaits at 1.2440, a low point early in the month, followed by 1.24, a stubborn cap from last week. Next, 1.2340 and 1.23 are eyed.

Resistance is at 1.2525, Monday’s high, followed by 1.2550, the late June peak. The next cap is at 1.2615.

 

2) EUR/USD: Next Leg Higher? Triple Top and Triple Troubles Are Pointing Lower

Correction after hitting a near two-week high? EUR/USD’s upward path may be in jeopardy, at least for now. Europe’s control of coronavirus is promising and hopes for massive EU stimulus are also supportive, but the currency pair has three reasons to extend its downward correction.

Monday’s primary market drive came from China – where state media touted a bullish stock market to follow up the recovery. Stocks surges in Shanghai and searches for “open stock account” skyrocketed in Chinese search engines. Optimism carried away shares in other areas and the safe-haven dollar came under pressure.

Trading volumes hit the highest since 2015 – but that year’s rally eventually ended in a burst bubble. Perhaps aware of the dangers of pumping up valuations, all four of China’s major state-owned financial outlets called for investors and speculators to be rational – weighing on stocks. That is allowing the dollar to recover.

Germany’s economy is rebounding – but less than expected. Industrial output rose by 7.8% in May, weaker than expected. Tuesday’s publication follows Monday’s disappointing Factory Orders figure which advanced by only 10.4%. While these increases are massive in absolute terms, they follow plunges in April and March.

The Sentix Investor Confidence also recovered to -18.2 points, but that still reflects deep pessimism. France’s trade balance deficit grew more than expected

Overall, the road to recovery is slow, despite Europe’s controlled opening up.

US investors clung onto encouraging US COVID-19 statistics, showing fewer than 50,000 new cases and a drop in deaths below 300, as per the Center for Disease Control. However, it is essential to note that reports coming out on Monday suffer from the “weekend effect” – underreporting over the weekend.

The past weekend has been longer – due to Independence Day – and administrative work may be catching up on Tuesday. Reports from Florida, California, and Texas – where some hospitals are overwhelmed – may dampen the mood and boost the greenback.

EUR/USD has been on the back foot and has room to extend its decline.

The US calendar features the JOLTs job openings report for May– a labor market update that is eyed by the Federal Reserve and has some importance despite its late release. The Non-Farm Payrolls already released on Thursday relate to June.

The ISM Non-Manufacturing Purchasing Managers’ Index smashed expectations with 57.1 points – yet it probably fails to effect the recent decline in economic activity due to the spread of the virus. Raphael Bostic, President of the Atlanta branch of the Federal Reserve, said the recovery probably leveled off.

The virus and the economy have political implications.

Euro/dollar is trading above the 50, 100, and 200 Simple Moving Averages and momentum remains positive – but its third failure to break above 1.1350 is a bearish sign. What cannot go up must come down, at least for now.

Support awaits at 1.1265, a swing high from last week, followed by 1.1220, a support line from back then. The next lines to watch are 1.1185 and 1.1185.

Initial resistance is at the swing high of 1.13, followed by the triple-top of 1.1350 mentioned earlier. Further above, 1.1385 and 1.1410 await EUR/USD.

 

3) USD Slips Amid a Risk on Rally

The euro currency made some gains on Monday as price action tried to break out from the triangle pattern.

Prices briefly tested highs near 1.1347 before pulling back toward the close of the European session.

The overall trend in EURUSD remains flat with no major bias building up. A pullback could see the euro testing the 1.1261 level of support.

Alternately, a successful breakout above 1.1347 could signal a move toward the 1.1400 handle eventually.

The pound sterling is seen holding its ground against the US dollar. Prices are up a modest 0.14% as the cable attempts to test the 1.2516 resistance level.

The cable initially pulled back after testing this level just last week. A successful breakout above 1.2516 could open the way for the currency to rise to 1.2643 thereafter.

To the downside, the swing low near 1.2437 will keep the cable from posting further declines for now.

A break down below this level will of course accelerate the declines back to the 1.2344 level of support.

Oil prices are somewhat bullish on Monday. Price action is modestly trading above the 40.00 handle. But crude oil is not out of the woods yet.

A clean breakout above 40.00 is required to confirm the upside bias. For the moment, prices are strongly trading around the rising trend line.

This might potentially trigger a move lower if the commodity fails to post any further gains above this level.

A minor resistance level might form near the previous swing high point at 41.60.

The precious metal is recovering following last week’s decline from a fresh nine-year high.

Price action is trading around the 1783 level with the 4-hour chart signaling a Doji candlestick pattern.

This could potentially either signal a continuation or a reversal to the recent uptrend. Prices are still a little away from the 1800 level.

Any near term dips could, of course, attract new buyers into the market.

The price level near 1773 remains a likely spot to hold the precious metal from further declines in the near term.