Big psychological round numbers are always great targets and points of interest. Whether it be DOW 30,000 or GBPUSD 1.4000, traders use these numbers as areas to get in and out of trades as there is usually a higher amount of liquidity. The end of the month also brings more liquidity as firms and funds re-align portfolios and rebalance their holdings.
The British pound is having a great end to July rising 0.99% so far for the month and up 6.66% for the last year. The end-of-month flows could be a rebalancing, as the US dollar continues to push lower. The euro is also benefiting from the weaker greenback plus some good news so far out of the European Union with regards to GDP and employment data.
At 9.00 am BST the German GDP is expected to be 2% and at 10:00 am BST we receive the flash European CPI figures, which could also move the market. With the EURUSD and GBPUSD, both moving higher, trading the EURGBP is not recommended unless you are adept at trading in a tight range.
For trend followers, the GBPUSD is now testing the 1.4000 level and is in the middle of the 2021 range. There is likely to be a bit of resistance at these levels, but it is looking good for a continuation higher next week. The daily 50 exponential moving average is my go-to support line, so any test of that would be a setup for a long position on the next reversal signal.
Having 74% of retail traders short the Cable also gives me some encouragement to go long as the ActivTrader sentiment indicator is great for contrarian traders like myself.
The forex heatmap shows that the Aussie is currently the weakest of the majors, but the daily AUDUSD chart shows that the daily 20 ema is currently capping prices from moving higher. With the weaker US dollar, I would expect the AUDUSD to at least test higher into the 50 and possibly 200 emas. Australian PPI and Private Sector Credit growth data were positive in the overnight session, so I am assuming the weakness in the Aussie is more to do with the Asian bourses which once again took a hit last night. The ASX is currently the only index green for the week as it held up relatively well today. Japan's unemployment rate was lower for June, while its retail trade and industry activity rose, with the good news being that all three indicators beat analysts' predictions. Coronavirus is still causing massive disruptions across the Asia-Pacific and Australasian territories with new lockdowns being implemented and current ones extended. The latest Sydney lockdown is likely to cost the Australian economy A$10bln.
This afternoon the economic calendar will be focusing on Canadian GDP, US core PCE, and the US Chicago PMI data. US Exxon Mobil, Chevron, Caterpillar, and Procter & Gamble are amongst the companies delivering their earnings reports today.
The oil markets are back green for the week, and Nat Gas is up 15.63%. With oil trading around $73 per barrel again and above the 50% level of the recent correction, I am inclined to think this grinds higher now as the US dollar depreciates.
With oil rising and the US dollar declining, the USDCAD may not get back above the H4 200-period exponential moving average for the retest of the rising trend line. The double bottom around the 1.2300 level looks like the most logical target.
As it is the end of the month, I am also looking for some profit-taking/rebalancing of portfolios, which could set up an opportunity at the daily 50 ema again on the S&P500.