Earnings season can be great for trading especially if the earnings are good and long-term trends can continue. Buying the dip looks like the easiest of all trades, but at the beginning of this week the markets were looking very heavy, and the Top was being called.
Risk-On sentiment has returned but the rising US dollar has capped commodity prices.
Technology stocks and US manufacturing are fuelling the current bullish momentum in the equities markets.
US Flash Manufacturing PMI came in at 63.1 for July beating analysts’ predictions of 62.0 US Services Flash PMI faltered which brought down the composite reading too. The Russel 2000 is falling for the second day having found resistance at a previous market structure swing low and the 2240 level.
Tech firms however are beating analysts’ expectations and reporting very bullish earnings reports. Snap and Twitter both came in better-than-expected last night along with Intel and this morning Snap's share price rocketed from the open.
The Nasdaq had hit an all-time high in the overnight and London session before pulling back towards yesterday’s settlement levels.
At the time of writing the Tech index had found support from the hourly 20-period exponential moving average and was testing the intraday all-time high.
With the S&P500 also approaching all-time highs after it found major support from the daily 50 ema, the end of the week is looking extremely bullish for the US equities markets, which should lift Europe and Asia assuming nothing awful happens at the start of next week.
The forex heat-map literally takes the temperature of the currencies and as the London session comes to an end for the week the US dollar and New Zealand dollar remain the strongest pairs and as they were this morning, the Japanese yen is the weakest.
The weekly USDJPY chart shows that the cross was bought up from around the 109.00 level and has traded at least 150 pips higher to close the week green. Price action and momentum suggest that there is more upside to come, and the major support from the weekly Ichimoku cloud is several hundred pips below. With the yen weakening at the end of the week’s trading, the risk-off mood has dissipated off the charts if not from the real economy. The Olympics has started with the opening ceremony performances in empty stadiums and with higher cases of coronavirus being recorded and a state of emergency in Tokyo.
Oil is struggling to break through the market structure resistance around the $70-$71.50 level and that is in large part due to the potential oversupply, reduced demand, and stronger US dollar.
US dollar index refuses to break lower and is once again testing the $93 level.
In this morning’s strategy video, I had talked about expecting the GBPUSD to come off from resistance and find some orders below. The H4 chart shows how the pound has been very resilient today, regardless of the weaker than expected UK Flash PMI’s and stronger US dollar. I am putting this down to the weaker EURGBP which could potentially close red if it were to drop a few more pips. The EURUSD is currently at the support level found before the ECB meeting and I am looking for at least a look below the 1.1750 in the coming sessions.
Next week is light in terms of Tier 1 data with Wednesday being the initial focus as we have the latest FOMC statement and Press Conference. On Thursday the US Advance GDP will be closely watched as will the Core PCE out of Friday.