The markets are coming to the end of the low volume summer trading period, and we must focus on what Fed Chair Powell says at the end of this week to have any idea of where the longer-term direction of the US dollar crosses will go. For now, technicals are best, so trading off support and resistance or following along with momentum is key, as anything fundamental could be turned on its head over the course of the next week or so.
The forex market is nearly evenly split, with the commodity and Risk-On pairs trading more in the green. When we see the CAD, NZD, and AUD relatively bullish this is a sign that the speculators are pushing to capitalize on their yields relative to the zero interest and negative interest they would get from other currencies.
New Zealand is currently in lockdown as their COVID-19 positive cases trend higher and looking at a chart, now is not the time to hit the buy button. The NZDUSD has broken down out of a sideways range as traders waited and then were disappointed that the RBNZ didn’t raise the overnight cash rate.
The breakdown to 0.6800 was obviously good but for 100+ pips but now that we’re back to the old support we should consider the possibility that this is just a retest before a continuation lower. For the bulls to really step in, we would need the RBNZ to be more Hawkish, the US dollar to continue falling, and for price action to get back above that sideways range and test from above. Today the RBNZ’s Hawkesby said the central bank had considered raising the OCR by 0.50% at the recent meeting, so when the RBNZ does go, it could be bigger than previously expected.
Today there is no Tier-1 data release, so headlines and momentum are trades to look for. COVID-19, Afghanistan, China, US debt ceiling, and Infrastructure Bill would be market moving should a dramatic headline come out for either of them. So far, we have had some Bank of Japan core CPI y/y data which beat market expectations but was very low, coming in at 0.2% and the German final GDP q/q came in at 1.6% which also beat expectations but only by 0.1%. From the USA today we receive new home sales data and then tonight we get the New Zealand trade data.
Yesterday’s moves in the equity markets are showing that the path of least resistance is to the upside.
The Nasdaq is again at all-time highs and is pushing harder than the rest of the US indices. Currently trading above 15,300 and over 2.0% higher for the week the Nasdaq trader is clearly enjoying buying the dip and now targeting 15,500 and possibly 16,000. The tech industry is up over 1.43% as a whole but the bigger gains are to be found in the Energy Minerals, Consumer Durables, and Non-Energy Minerals sectors which are up this last week by 3.64%, 2.23%, and 2.10% respectively.
I only follow a few indices and for the last year, the only trade you could rely on with hindsight is the buying of the daily 50 exponential average on the S&P500. Whether this trend continues for perpetuity is going to be reliant on the USA coming up with a way to keep spending at current rates or in larger amounts, which will require the debt ceiling to be increased or removed by October 2021. Fiscal spending has meant the US economy is up by almost a trillion dollars this year which filters into the stock markets. So, for now, ‘Buy the Dip’ if you get a chance but keep your ear to the ground for the decision regarding the debt ceiling.
The US dollar index may have taken some liquidity above the previous swing high and may come back down to the $90 level but as we have the Jackson Hole symposium this week, there is no way that I am going to trade these thin markets. $94.80 to $94.30 would be a great resistance level to look for shorts at the end of the week should we get there and the floor to this range remains just below the $90 level.
The ActivTrades sentiment indicator for the Brent Crude spot price is showing that an extremely large number of traders are bullish on the oil markets. A 92% reading usually gets me looking to be a contrarian trader but it looks like there is still some headroom above before we should look for a short.
The breakdown of the rising trendline was quite impulsive when it happened, so stops must have been tripped until we got the climactic sell-off around $64 before yesterday’s dead cat bounce. Whether lots of traders are trapped short now I cannot tell, but a lot of this will have to do with the balance of news around COVID-19 and global demand plus the fate of the US dollar. Don’t diddle in the middle is my advice, trade the extremes.