The markets were very risked off today, with the yen being bid all day and the US dollar collapsing out of the rising channel it had traded in for a month. The USDJPY is the obvious candidate to watch in these scenarios as it confirms that the equities markets would drop too. US data today was mixed so a change in sentiment could come after the FOMC meeting decision.
Nothing goes up forever though looking at the S&P500 you could be forgiven for thinking that it did. Today, however, is one of those rare occasions where the risk-off sentiment resulted in the indices falling. Tonight is a big night for earnings especially in the tech sector, so it is great to see the Nasdaq and S&P500 giving investors an opportunity to get in nearly 2% lower after the Nasdaq and S&P500 reached all-time highs recently.
Looking at the forex heatmap from the youtrading.com website, the Japanese yen has been bid all day signaling all is not well in the world of risk and to confirm this, the US benchmark yields have fallen and the long bond ETF, TLT has risen.
The Swiss franc is also bid against everything bar the yen and pound, with the GBP rising on the back of better-than-expected coronavirus data.
The GBPUSD has crossed back above the daily 20 and 50-period exponential moving averages and if the US dollar index continues to head lower, the 6B pound futures show a very large cluster of orders up at 1.4000 ready to be executed.
Not all the sectors and indices are doing well though as some have seemingly topped out after the end of May into June’s peaks. The US energy, financial, industrial, and materials sectors are heading lower and as most of these attributed to the rise in inflation, the Fed should be confident in re-iterating that they see the high CPI & PCE inflation data readings as being transitory.
It should also be noted that the Russel 2000, which is made up of small-cap companies and the Transportation indices is falling from their peaks and it could be that these small-cap companies drag the large-cap companies lower.
We have had some US data out today, which started badly in the London session with the Core Durable Goods orders coming in worse than expected. New orders for the US manufactured durable goods were up 0.8% month over month in June. Factories continue to struggle with parts and labor shortages and higher material costs. Then as the US session officially started the Federal Housing Finance Agency reported on the change in the purchase price of homes with mortgages backed by Fannie Mae and Freddie Mac. The House price index rose 1.7% in May which is up 18% since last year.
The Federal Reserve Bank of Richmond’s Manufacturing Index also rose in July. The composite index inched up from 26 in June to 27 in July, buoyed by increases in the shipments and employment indexes, while the third component index — new orders — declined but remained in expansionary territory.
The Conference Board Consumer Confidence Index was relatively unchanged in July, following gains in each of the prior five months. The Index now stands at 129.1 up from 128.9 in June.
The US dollar index has for the second day traded lower and is now clearly out of the rising channel. The most obvious targets would be the daily 200 exponential moving average and then if that doesn’t hold as support, the base of the June FOMC meeting candle. Tomorrow brings about the latest FOMC and sentiment amongst traders is being affected supposedly by an imminent mandatory face mask decision from the Federal government. But the mixed data and high-risk Tier 1 event that is about to happen would usually encourage speculators to take profits.
The US Senate is being encouraged to work through the weekend to get the infrastructure bill agreed upon, so if that happens early trading next week should be interesting.
The falling US dollar has been great for the EURUSD which has also found a path out of the trading channel. Though the best price action is currently in the USDJPY as it is making a series of lower swing lows and lower swing highs. A continuation of pressure on the US dollar and a move into the yen will see this USDJPY exit the measured move of the rising channel which then opens targets at previous major swing lows. The first target would be the base of the rising channel and the 107.00 level. The next target would be the 105.00 level as that was the start of an impulsive move higher.
The ActivTrades sentiment indicator is showing an increasing number of traders moving into long positions in the hope that this correction remains supported by the recent swing lows. These traders should see their stops get taken and at that time, they may switch and that could be the indication to get out of the short positions.