Daily Market Analysis by CapitalStreetFX

[CapitalStreetFX]

Buyers Laughing To The Bank As Gold Surges Strongly After “Exit” Triumph

The price of the precious metal continues to gain support as risky assets are still heading down after Britain’s decision to leave the European Union last Friday. On Monday (27/6), gold prices rocketed to 1335.26 only an hour after the markets opened, up more than 0.9% from the last settlement.

Despite opinion polls before the referendum that showed either side in a position to win, the outcome has stunned much of Britain, Europe and the whole world. More seriously, after the vote, British Prime Minister David Cameron decided to resign. The results immediately rattled global financial markets and prompted investors to flock into safe haven assets like gold.

The U.S Dollar rose sharply on Friday in response to the win of the“Leave” campaign, as money flowed into the perceived safe-havens. Nevertheless, further increases could put pressure on the Fed’s plan of tightening its monetary policy. Since a strong currency would be likely to pressurize U.S exports and reduce inflation – which is already below the Fed’s objective of 2%, the expectations are that the Fed may go slow on any planned interest rate hikes. Moreover, the stronger dollar would also bring financial volatility into emerging markets due to their large stocks of dollar-denominated debt.

Later today, the U.S. Department of Commerce is scheduled to publish the goods trade balance for May, which indicates the difference between exports and imports. The data is estimated to come in at minus 59.5 billion, falling deeper into negative territory than the statistics in April. On the other hand, the U.S flash services PMI for June reported by Markit is expected to come in at 52.0, suggesting an expansion in comparison with the previous month.

The dollar index .DXY, which tracks the greenback against a basket of six major currencies, rocketed to 95.88, a 0.36% tick-up from the previous close.

Fig. GOLD D1 Technical Chart

According to the daily chart, the yellow metal’s price is rallying strongly towards a retest of the high of 1358.24 from Friday. RSI (14) has been ticking up to 67.23, nearing the overbought territory, indicating that the bullish trend is quite strong. Two moving averages moving under the prices still support the long position. The commodity is anticipated to climb for some time.

Trade suggestion
Buy stop at 1330.00, Take profit at 1358.20, Stop loss at 1319.41

 

[CapitalStreetFX]

Buyers Piling Into Nikkei 225 As BOJ Talks Intervention

After Britain’s vote to opt out of the European Union stunned financial markets, Nikkei 225 shares immediately plunged viciously to as low as 14812.90 – the lowest price since February 13, 2016. Yet, the Japanese N225 has experienced a sharp turnaround thanks to Bank of Japan’s intervention warnings.

The Japanese benchmark closed higher on Tuesday although the declining stocks outnumbered the rising ones by 131 to 83, and 11 ended unchanged. The increasing stocks gains more ground, led by gains in materials shares.

On Sunday (26/6), China’s top economic planner announced that the Chinese authorities aimed to cut 45 million tons of Chinese steel capacity this year, along with a further 280 million tons of coal production. This plan would help solve overcapacity and uneconomic production slack across the industrial sector and boost the steel price higher. Accordingly, steel and mining companies in the Nikkei 225 shares experienced a rise in their stocks.

The Nikkei 225 shares also witnessed a big climb from the gains in pharmaceutical industry sector after a torrent of investment into regenerative medicine in Japan. Japan’s Ministry of Economy, Trade and Industry estimated that the regenerative medicine sector would become a $950 million industry by 2020 and grow ten times to $10 billion by 2030. The potential growth of this field has attracted investor interest towards the pharmaceutical industry sector, supporting its stocks higher.

The fallout from Brexit on Friday (24/6), swayed global financial markets and prompted investors to flock into safe haven assets including the Japanese yen. Consequently, the benchmark Nikkei 225 had tumbled 7.92% on the back of the strength in the Japanese yen on Friday.

Nevertheless, on Monday (27/6), an emergency meeting was held by the BOJ before its scheduled July 28-29 gathering. Japanese Prime Minister Shinzo Abe instructed Finance Minister Taro Aso to closely monitor currency markets and take appropriate measures with a view to stabilizing the financial markets and the economy.

Additionally, the government is reported to be expanding its monetary stimulus to more than $98.03 billion in total. BOJ’s warnings of market intervention to stem excessive yen strength have eased investor concerns about recent market uncertainties.Later today, the Ministry of Economy, Trade and Industry is due to publish the retail sales report in May. The data is estimated to come in at -1.6%, lower than the reading of minus 0.9% in April.

Fig. Nikkei 225 D1 Technical Chart

On the daily chart, the index is moving upwards after nearly hitting the support at 14771.07, formed on February 12, 2016. However, the two moving averages moving above the price chart indicates that a bearish market is in the making. The trend indicator encourages a short position with a red arrow casting a shadow on the price since June 13, 2016. The market is anticipated to tick up slightly to the level of 15605.32 before falling back.



Trade suggestion

Sell limit 15605.32, Take profit at 15416.65, Stop loss at 15635.51

 

[CapitalStreetFX]

Bears Dominating EURUSD, Draghi Indicates Slower Growth Due To Brexit

On June 24th , the unexpected vote by 52% of Britons in favor of leaving the 28-nation trade bloc has pushed the global markets into a turbulent situation. The common currency, euro, dived in a brutal selloff as investors priced that a significant slowdown would engulf the eurozone economy as a result of Britain leaving the EU.

The commercial relationship between the UK and the 27 other EU nations is relatively close as exports to EU account for about 45% of UK’s total exports while the proportion of imports is around 53%, in volume terms. Hence, the “divorce” with the UK may cast a shadow on growth in the euro area.

However, since the start of this week, selling has slowed as traders take profits on positions initiated in the wake of UK referendum. This has been supporting the euro to recover slightly after a “never-seen before” decline.

At the first day of the EU economic summit, European Central Bank (ECB) Governor Draghi announced that the growth in the EU could be slower, between 0.3% to 0.5% over the next three years. The preliminary forecast for Eurozone growth, released at the beginning of June was was at 1.6% in 2016 and 1.7% in the 2 years to follow.

The two-day EU Summit will end on June 29. Further details and statements from the meeting are awaited. The greenback is falling for a second day today, after rising sharply on Friday, as investors rushed their cash from risky assets into safe-have ones amid rising concerns on a potential crisis following the results of the British Referendum.

In the first comment from FED officials since the shock vote in Britain last week, Fed Member Powell indicated that the US economy could face a drag on growth for some time as the job market has remained weak since April and strong recovery has still not been seen. Judging from his comments, markets are pricing that the FED may keep the US benchmark rate on hold until late this year. The odds of another rate hike in September or November are currently at 10.5%.

Later today, the Bureau of Economic Analysis will release core PCE Price index data in the US, with an expectation of an increase of 0.2% in May.

Fig. EURUSD D1 Technical Chart

On Friday, the Euro lost ground against the USD to hit a low of 1.09101 – the lowest since March 10. Currently, this pair is moving indecisively around the area of 1.10597 after two days of rises. However, a smaller-than-average reading on the RSI (14), along with the two MAs hanging over the price chart, indicates that the bear is still overwhelming. The level of 1.11125 is acting as a solid resistance for the price.

Trade suggestion

Sell stop at 1.10426, Stop loss at 1.10942, Take profit at 1.09967

 

[CapitalStreetFX]

EURCAD Languid Ahead of ECB Conference and OPEC Meeting

Data released on Monday reported that the EU economy remained pretty weak and signals for a strong recovery are not clearly evident yet.

The Federal Statistical Office (Destatics) today reported that the index of Germany import prices in April fell by 0.1% from the preceding month, instead of increasing 0.4% as expected by analysts. On a yearly basis, the index decreased by 6.6% while export prices dropped by 2.0%. The annual growth rates of both import and export prices have witnessed declines for the past three consecutive months.

In France, the consumer spending index (m/m) witnessed a plunge of 0.1% in April. This data was contrary to expectations for a 0.1% increase in household expenditure on goods. Meanwhile, the National Statistics Institute (INE) reported that flash Consumer Price Index (CPI) for May in Spain slumped by 1.0%, falling further from the previous drop of 1.1% in April.

Due to the slowdown in its member economies, the euro area does not seem to currently highlight any bright prospects of a recovery soon. Hence, the common currency seems to be gingerly before the ECB Press Conference on June 02.

Meanwhile, Canada’s economy has been suffering from the raging wildfires for several weeks now. Oil producers have not been able to operate, thus stealing away a large part of the economy’s exports. Also, ahead of OPEC meeting on June 02, oil prices have been moving in unclear fashion, after hitting a seven-month high, as concerns of whether any supply-cut can be implemented at all, remain on the radar. Being a commmodity reliant currency, the Canadian dollar has been affected adversely by the overall fall in oil prices over the past months and years.

The market is looking forward to the upcoming data releases from Canada that are on schedule. The Raw Materials Price Index (RMPI) in April is forecast to increase only 2.2%, well below the growth rate of 4.5% in the preceding month. Nevertheless, the Industrial Product Price Index is expected to inch up 0.2% in April, after sliding 0.6% previously.

Fig. EURCAD D1 Technical Chart

EURCAD has been fluctuating in an uncertain fashion for several days, after testing the resistance of 1.48253. Currently, the Loonie is weakening against the Euro, with the EURCAD at 1.45313. The stochastics chart shows that the pair may escape from the oversold zone as the %K line (blue line) has already reversed and crossed the %D line (red line). The price is expected to retest the current resistance at 1.48253.

Trade suggestion

Buy stop at 1.45915, Stop loss at 1.44493, Take profit at 1.47070

 

[CapitalStreetFX]

Rising Risk Aversion – Longs On German Bunds Recommended

Considered as safe-havens, bonds usually become more attractive when the markets experience instability. One of Europe’s benchmark sovereign securities, Germany’s 10-year bund, rose in Monday’s trading session as uncertainty resulting from the “Brexit” has not retreated completely.

As investors sought a safe place to park their cash, expecting market turmoil, yields on German government bonds turned negative once again post Britain’s EU Referendum and reached a record low of around minus 0.17%. For the last several days, yields have kept heading downwards and have not yet witnessed any strong bounce back. The head of euro rates strategy at Mizuho commented that the bank now anticipates that German Bund yields could decline to minus 0.2% this year, compared with previous estimates of zero percent.

The euro zone economy is completely exposed to the downside risks of Brexit. Hence, in order to relieve mounting pessimism over economic growth, the European Central Bank is expected to implement further reduction in its benchmark rates, as well as deploy additional quantitative easing measures in the upcoming months.

In a conference last weekend, ECB Executive Council member Coeure stated that the British decision in favor of leaving EU would cause further setbacks to global markets. However, he indicated and expectation that these impacts may be short-lived and stated that the central bank is ready to stabilize the situation.

Earlier today, Sentix released its monthly survey on EU investor sentiment. The data came in at 1.7 points in July– the lowest level since February 2015. Meanwhile, the reading for the preceding month was at 9.9 points. Weakening investor sentiment indicates a lack of belief in growth, implying that the euro zone could enter a period of further slowdowns/recession.

On July 06, ECB President Mario Draghi will deliver a speech in Frankfurt. Some clues and statements on current and future monetary policy are awaited. Additionally, on the same day, FMOC will release its minutes from the June meeting, which may provide deeper insights into the Fed’s view on current and medium term economic and financial conditions. Dovish leanings of the US central bank on future rate hikes may help further bolster German bunds, as expectations of interest rate hikes decrease.

Fig. German 10-year bund D1 Technical Chart

German bunds are creating a gradual up channel and hit a record high of 167.343 on the last day of June. A higher-than-average reading of RSI (14) indicates that the bulls are strongly dominant. The price is expected to enjoy support from the two MAs below and may continue to climb further. The trend indicator has suggested longs positions since May 11.

Trade suggestion

Buy stop at 167.075, Stop loss at 166.519, Take profit at 167.534

 

[CapitalStreetFX]

Shorts In Control – AUDUSD Falls As RBA Leaves Rates Unchanged

The AUDUSD is moving downwards in the current session without volatility following the Reserve Bank of Australia announcement of maintaining an unchanged benchmark rate at 1.75%.

The report from the Australian Bureau of Statistics on Monday (4/7) hinted at a steady waning of inflation, which has fallen under the 2-3% target zone. Australia’s trade balance in May fell to a seasonally adjusted -2.218 billion, from -1.785 billion in the preceding month. A negative balance of trade indicates that more goods and services were imported than exported. Additionally, Australian retail sales in May came in at 0.2%, missing the expected reading of 0.3%. The reading was most affected by a sharp deceleration of 1.1% in the household goods retailing sector.

Today, the Reserve Bank of Australia (RBA) ended its July policy meeting with no guidance on whether there might be any further easing measures in the future. RBA decided to keep its interest rates at an all-time low of 1.75%, due to political uncertainty at home and abroad and a lack of supportive data on domestic inflation.

A rate cut at the next meeting in August still lingers on the minds of some traders, with the probability of an interest rate decrease, priced at 60%. The mounting concern on interest rates, has cast a shadow on the Aussie dollar, dragging down the pair AUDUSD to 0.75067 after a 5-day up move.

Meanwhile, later today, the U.S Census Bureau is due to release some important data. Factory Orders in May are expected to register at minus 0.8%. The reading for April came in at 1.9%. A positive reading indicates rising purchase orders, which lifts manufacturing activity and vice versa. Also, the TIPPOnline consumer confidence index, also scheduled to be released later today, is forecast to come in at 49.3, suggesting continuing pessimism over current and future economic conditions.

The dollar index DXY, which tracks the strength of U.S dollar against a basket of six major currencies, fell 0.62% to 94.3 from the last settlement.

Markets are waiting for any surprises from the minutes of the June FOMC meeting, to be released on Wednesday (6/7) and, more importantly, the Non-farm payrolls on Friday (8/6).

Fig. AUDUSD H4 Technical Chart

After 5-days of a sharp rise in the buildup to the RBA meeting, the AUDUSD failed to surpass the 23.6% Fibonacci retracement, and has been falling back today. The AUDUSD is on track to weaken against the greenback. Currently, AUDUSD has been locked in an upward channel and has just hit the upper bar. The pair is expected to fall back to the 38.2% support at 0.74555. Before that, the price is nearing the two Mas, and may attempt to test the support levels. A brief correction is anticipated.

Trade suggestion

Sell stop at 0.74812, Take profit at 0.74406, Stop loss at 0.75118

Sell stop at 0.74812, Take profit at 0.74406, Stop loss at 0.75118.

 

[CapitalStreetFX]

Euro Below 1.10000 – Can Buyers Attempt Bottom Fishing?

The Euro gained against the US dollar on Monday to $1.09866 after a widely watched German sentiment survey reported increased optimism among businesses after the Brexit vote.

The Munich-based IFO economic institute said its business climate index, based on a monthly survey of some 7,000 firms, fell to 108.3 in July from 108.7 in June. However, the data was stronger than the consensus forecast from economists. Forecasts had expected a reading of 107.7. The IFO infex is a leading indicator of economic health, as businesses react quickly to market conditions, and changes in their sentiment can be an early signal of future economic activity such as spending, hiring, and investment.

According to the director of the IFO institute – Dr Clemens Furst, the German short-term economic outlook seemed to be improving significantly. In particular, sentiment among manufacturers improved with regards to the present as well as short-term future outlook. However, over a third of the respondents surveyed, still expressed their concerns over the impact of the Brexit referendum’s result.

The US dollar was down today as investors stayed cautious ahead of the FOMC meeting this week. The Fed is not expected to tighten rates on Wednesday. Investors will be sifting through its statements for hints of a near-term rate increase following the recent strong of firm U.S. economic data that have revived tightening expectations.

The US dollar index, measuring the strength of the greenback against major currencies, was down 0.09% to 97.31 compared with the last settlement.

In data being watched, US Consumer Confidence, measuring the relative level of current and future economic conditions, will be released tomorrow. It is expected to reach a reading of 95.6 in July, down from June’s 98.0. Consumer Confidence is a leading indicator of consumer spending, which accounts for a majority of overall economic activity in the US.

Fig. EURUSD Technical Chart

The euro has inched up against the US dollar today to hit 1.09889, bouncing back up from the lowest level in nearly a month. The –DI (red line) has begun to turn down towards the +DI (green line), suggesting that the bear market has become weaker. RSI is at level 40, and is expected to boost the price upwards after some time spent trading sideways. EURUSD is expected to gain a little in the short-term, to test the resistance area of 1.10601. A potential reversal could happen (if it does) if the market fails at this resistance.

Trade suggestion

Buy stop at 1.09877, Stop loss at 1.09453, Take profit at 1.10286