Daily Market Analysis From Forexmart

A small pullback should not be misleading, sell-off of risks will continue. Overview of USD, CAD, JPY

The markets slightly recovered after a sharp decline on Monday, but there are no special reasons for a positive return.

News regarding the coronavirus is disappointing. According to the head of the US Centers for Disease Control (CDC), 83% of new cases in the US are associated with the Delta strain, compared with 50% a week earlier, and if the trend towards a worsening of the situation continues, another package of restrictive measures may be required. These fears increase the flight from risk.

The tension was supported by the Bank of Australia. The minutes of the RBA published yesterday noted that the economic results are still far from meeting the Bank's inflation and employment target, and therefore, the arguments in favor of maintaining the procurement program at the level of $ 5 billion per week remain. Moreover, the RBA provoked the situation through the media, suggesting that if the current restrictions in Sydney and the Victoria District last until August, the Bank will have arguments in favor of canceling the July decision to reduce the volume of purchases. This decision is also in favor of an increase in demand for protective assets.

It can be assumed that the demand for protective assets will dominate in the coming days again, and the US dollar will continue to rise against commodity currencies.

USD/CAD

After the Bank of Canada's meeting last week, where it left monetary policy unchanged (a decline in purchases from $ 3 billion to $ 2 billion per week was expected and confirmed), no significant macroeconomic events occurred. The rate hike is expected in the second half of 2022, which is around the same time as the forecast for the Fed rate. There was no harsh reaction to the improvement in the economic situation, which somewhat disappointed the bulls. It seems that BoC will adhere to cautious positions and does not intend to be the first to make poorly calculated steps.

The net long position on CAD fell by 1.2 billion during the reporting week. This is quite a deep adjustment. And although the advantage remains for the Canadian dollar (+2.1 billion), the trend is clearly not in its favor. The estimated price rises.

The Canadian dollar passed the resistance level of 1.2626 almost without stopping, not giving any reason to wait for a decline. Thus, the movement to the next target of 1.3010/20 is justified. The need for a correction may interfere since the spot price has gone significantly higher than the calculated one, but it is logical to use any decline for purchases.

USD/JPY

The nationwide core consumer price index rose by 0.2% y/y in June. This is the second month above zero and the growth slightly exceeded the forecast. For Japan, which has been suffering from deflation for several decades, even such minimal growth is already positive.

However, it is clearly too early to be optimistic. On August 20, data for the base year 2020 will be published. There will be new significant factors, which will reduce the inflation index by 0.2% according to the calculations of Mizuho Bank; hence, a slight downward shift is expected. This means that the Bank of Japan's plans to disperse inflation to 2% remains a dream.

The seemingly positive dynamics in the corporate prices and import prices, which showed +2.3% in June – the maximum since 1981, will not help either. The reason here is almost exclusively in the growth of oil prices, and since the growth of consumer incomes remains consistently low, there is no need to wait for inflation growth.

In other words, there are no signs that the Bank of Japan can follow other central banks to consider measures to exit from the super-soft policy.

Japanese yen's net short position declined by 1.456 billion. The demand increased amid a flight from risk. The estimated price is confidently turning down after a long period of stagnation.

 

July 22 economic calendar:

Today, the results of the planned meeting of the European Central Bank (ECB) will be released, where market participants are anticipating new information on the prospects for EU's monetary policy.

It is clear that there will be no fundamental changes, so most traders are not waiting for the results of the meeting, but for the press conference of the ECB President Christine Lagarde, where the ECB's plans for the future can be announced, as was recently done by the Federal Reserve System (FRS).

In this case, it is worth carefully monitoring the information from the meeting, as well as from the press conference, since a speculative jump will be set in the market depending on it.

So, if the ECB leaves everything as it is (unchanged), then the US dollar can get support again. But if the head of the ECB repeats the path of the Fed and announces an early increase in the refinancing rate, then the euro will go into a growth phase.

ECB meeting results - 11:45 00 Universal time

ECB President press conference - 12:30 Universal time

During the US trading session, America will release its weekly data on applications for unemployment benefits, where they are predicted to reduce their volume.

Volume of initial applications for benefits may fall from 360 thousand to 350 thousand.
Volume of repeated applications for benefits may fall from 3,241 thousand to 3,100 thousand.

Weekly data on applications for unemployment benefits - 12:30 Universal time.

In simple terms, a decline in the number of applications for benefits can lead to a strengthening of the national currency – USD.

Trading recommendation for EUR/USD on July 22, 2021

Looking at the EUR/USD trading chart, one can see price fluctuations along the level of 1.1800, where the accumulation process of trading forces is already taking place. The existing amplitude may well expand by 25-30 points, which will eventually lead to a new round of acceleration.

To put it simply, traders are waiting for the ECB meeting and press conference, which can be followed by speculative hype in the market.

Sell positions:

Traders consider this if the price is kept below the level of 1.1750, in the direction of 1.1700.

Buy positions:

Traders consider this if the price is kept above the level of 1.1830, in the direction of 1.1900.

Trading recommendation for GBP/USD on July 22, 2021

As for the trading chart of the GBP/USD, it can be seen that the correction is still relevant in the market, but the resistance area of 1.3750/1.3800 is standing in the way of buyers, which can negatively affect the volume of long positions.

To simply put it, the correction course can go to a slowdown and completion.

Sell positions:

They are considered by traders if a price rebound occurs from the resistance area of 1.3750/1.3800, which will eventually lead to the continuation of a decline in the direction of the pivot point of 1.3571.

Buy positions:

Traders are still in the area of the 1.3650 level and profit-taking is currently taking place. The entry into the deal was taken into account in the previous analytical review.

 

Trading recommendation for EUR/USD on July 23, 2021

Looking at the EUR/USD trading chart, one can see that the quote follows the area of this week's local base, where the volume of short positions was reduced again.

In this situation, it is worth adhering to the borders of the previously specified amplitude of 1.1750/1.1830, where the most significant price changes will occur after the price has been held outside a particular border in the H4 interval.

Sell position:

Traders will consider this if the price is kept below the level of 1.1750, in the direction of 1.1700.

Buy position:

Traders will consider this if the price is kept above the level of 1.1830, in the direction of 1.1900.

Trading recommendation for GBP/USD on July 23, 2021

As for the trading chart of the GBP/USD, it can be seen that the price area of 1.3750/1.3800 still acts as a resistance in the market, leaving a chance for a change in trading interest. The strongest sell signal will come from the market after the price is kept below the level of1.3725; or else, there will be a prolonged stagnation.

Sell position:

Traders will consider this if the price is kept below the level of 1.3725, which will open the way towards the coordinates 1.3700, 1.3640, and 1.3570.

Buy position:

Traders considered this in the middle of the week, which made it possible to earn a profit on the correctional course. At the moment, traders have already taken profit and are considering sell positions, but their opinion may change if the price is kept above the level of 1.3800 in the H4 timeframe.

 

Hot forecast for GBP/USD on July 26, 2021

The trading week commences quite calmly and quietly, since the macroeconomic calendar is almost empty. Only during the US trading session will data on sales of new homes in the United States be published, which may contribute to the strengthening of the dollar. This is because these same sales is likely to increase by 1.4%, which is quite a lot.

During the technical correction from the variable support point of 1.3570, the GBP/USD currency pair reached the price range of 1.3750/1.3800, where there was a reduction in the volume of long positions, which led to stagnation.

Please note that the quote in the process of slowing down formed an amplitude in the range of 1.3720/1.3785, which confirms the theory of interaction of trading forces, relative to the range of 1.3750/1.3800.

The market dynamics has signs of slowing down, but due to the existing amplitude, an accumulation process may occur, which in turn will lead to a natural acceleration.

In the current location of the price, the same amplitude course of the price is observed within the area of interaction of trading forces.

Considering the trading chart relative to the daily period, a consistent process of changing the trading interest is visible, from an ascending direction to a descending one.

In this situation, it can be assumed that the 1.3750/1.3800 area will continue to put pressure on buyers, but entering the market on a downward trajectory will be considered by traders after holding the price lower than 1.3725 for a four-hour period. Otherwise, the accumulation process will be delayed within the specified limits.

From the point of view of complex indicator analysis, it can be seen that technical instruments in the minute and hour periods have a variable signal, while the daily period continues to signal a sale.

 

Trading recommendations for starters of EUR/USD and GBP/USD on July 27, 2021

Analysis of trading charts from July 26:

The EUR/USD pair managed to show an upward interest, but it was limited by the range of 1.1750/1.1830 previously set in the market.

To simply put it, the quote still follows the sideways amplitude.

Trading expectations from July 26 considered the strategy of breaking through one or another border of the side range (1.1750/1.1830), but the signal was not confirmed, and the quote is still moving in the established range.

The GBP/USD pair still managed to resume the upward movement after 30 hours hovering around the interaction area of trade forces of 1.3750/1.3800, keeping the quote above the level of 1.3800.

Considering the upward movement from the pivot point of 1.3570, market participants retraced the pound sterling by almost 100% relative to the decline from July 16-20.

Trading expectations from July 26 considered both a rebound and a breakdown relative to the area of 1.3750/1.3800, thereby giving the opportunity to stay in sync with the market.

Trading recommendation for EUR/USD on July 27, 2021

Looking at the EUR/USD trading chart, one can see that the quote has been within the lateral range of 1.1750/1.1830 for more than 150 hours, which focuses a lot of attention from speculators.

In this case, market participants are focused on the outgoing impulse relative to one or another border of the established range, which will indicate the next price movement in the market.

Expectations and prospects:

Traders consider this if the price is kept below the level of 1.1750 in the direction of 1.1700.

Traders consider this if the price is kept above the level of 1.1830 in the direction of 1.1900.

Trading recommendation for GBP/USD on July 27, 2021

As for the trading chart of the GBP/USD, it can be seen that there is a slight stagnation within the area of 1.3800/1.3845, which indicates that buyers are hesitant to take further actions. The reduction in the volume of long positions may be a local manifestation in the market due to the recent acceleration.

To confirm buyers' intentions, the price needs to hold above the level of 1.3850, which will open the way towards 1.3900.

If the upward interest is limited, and the quote manages to return below the level of 1.3780, an increase in the volume of short positions is not excluded, and this will cast doubt on the next growth.

• Short positions or Short means sell positions.
• Long positions or Long means buy positions.

 

European stock markets closed lower

The British FTSE 100 fell 0.42%, the German DAX dropped 0.64%, and the French CAC 40 fell 0.71%. Italy's FTSE MIB and Spain's IBEX 35 lost 0.83% and 0.87%, respectively.

Dassault Systemes shares gained 1.3%. The French software developer has improved its financial forecasts for 2021 amid growing software sales.

LVMH Moet Hennessy Louis Vuitton SA fell 0.6%. The world's largest luxury goods manufacturer increased revenues by 56% in the first half of the year, while net profit jumped 10 times.

Reckitt Benckiser Group Plc shares fell 8.4%. The British company, which produces and sells hundreds of household chemicals and medicines, received a pre-tax loss in the first half of this year and reduced its revenue.

Just Eat Takeaway.com gained 4.3%. A shareholder in Cat Rock Capital has called on the Dutch food delivery service to strike a merger deal with other major global players in the industry.

The leaders of growth among the components of the Stoxx Europe 600 index were securities of the British chemical company Croda International Plc, which jumped 5.6%. Meanwhile, the leaders of the fall were the shares of the Swiss-American manufacturer of computer peripherals Logitech International SA, which fell 9.9%.

Investors are awaiting the results of the meeting of the US Federal Reserve System (FRS), which will be summed up on Wednesday, as well as reports of large American companies, including Apple Inc., Alphabet Inc., Microsoft Corp. and Starbucks Inc.

 

USD rises ahead of Fed's meeting

The US dollar fell slightly due to durable goods orders data. Shortly after, it was trying to strengthen against a basket of six major rivals. Today, the most anticipated event of the week will take place - the FOMC meeting. Yet, many experts think that Fed Chairman Jerome Powell is unlikely to announce certain changes to the monetary policy. So, his testimony will hardly surprise market participants. Moreover, the Fed will clarify its position in the Jackson Hole meeting which is scheduled for September. However, investors are still awaiting the current meeting with bated breath. The main question is how the market will react to the Fed's meeting.

Currently, China's stock market is in the spotlight. It has collapsed significantly due to the ongoing tightening of regulation on large IT companies. Sharp fluctuations in China's equity market may adversely affect stock markets in other countries.

Hence, demand for safe-haven currencies is rising after the fall in government bond yields. Treasuries are declining despite expectations of the reduction in the bond-buying program. Usually, this would lead to an increase in government bond yields.

The greenback seems to have resumed bullish momentum. It may soar to new highs amid turmoil in the market. Besides, the US currency may strengthen if the Federal Reserve hints about the probable reduction of the bond-buying program.

The yen rose moderately following a sell-off in China's stock market. The rebound of the Japanese stock market from the recent low was much more modest in comparison with other countries.

The US dollar index is growing moderately before the Fed's meeting. Maybe traders have already started factoring in Jerome Powell's hawkish remarks.

The EUR/USD pair, as the main barometer of risk sentiment in the market, opened the trading day with a decline. Yesterday, it remained almost unchanged. The pair may even climb to 1.1900 if the Fed's meeting outcome does not stir panic in the market.

If Powell does not provide new comments about the bond-buying program, the euro will continue to fluctuate between the levels of 1.1700 and 1.1800 with possible rebound to the 19th mark. Investors are certain that the Fed will not reveal anything new until the Jackson Hole meeting in autumn where it will discuss whether to raise the debt ceiling.

Experts believe that the euro will rally in the near future. For instance, economists at Commerzbank assume that the pair may return to the area of 1.1860-1.1930.

Strong resistance levels are located at 1.1884 and 1.2008. These level may halt the pair's growth. After breaking through 1.1750, the next target will be the area of 1.1704–1.1600.

 

EUR/USD and GBP/USD: Trading recommendations for novice traders for July 30, 2021

Economic calendar for July 30

Today, in terms of the economic calendar, we have preliminary data on inflation in Europe, where it is predicted that consumer prices will rise from 1.9% to 2.0%.

Given the growth of the European currency over the past days, inflation indicators could have already been taken into account in the quotes.

Inflation in the EU - 09:00 UTC

We study and analyze

• The consumer price index is prepared by Eurostat, which determines the change in prices of a selected basket of goods and services for a given period. This indicator is considered a key indicator for assessing inflation. From the point of view of fundamental analysis, the rise in inflation is a positive signal for the national currency, but when consumer prices rise faster than forecasted, it is not considered the best signal.

Trading plan - EURO/DOLLAR for July 30

Analyzing the current Euro/Dollar trading chart, you can see that the resistance level at 1.1900 puts pressure on buyers, which leads to a slowdown and a rebound in the price.

In this situation, traders consider two possible scenarios of price development at once:

The first plot proceeds from the natural basis of the past, associated with the resistance level of 1.1900, which contributes to the increase in the volume of short positions.

In simple terms, traders are looking at a rebound from 1.1900 towards 1.1830.

The second plot assumes that the correction from the pivot point 1.1750 will remain relevant in the market and after a short stagnation along the 1.1900 level, it will still be broken by the price along an upward trajectory. For the trading scenario to coincide on the market, the quotes must hold higher than 1.1915 in a four-hour period, this will open the way in the direction of 1.1950-1.1975.

Trading Plan - Pound/Dollar for July 30

Analyzing the current Pound/Dollar trading chart, you can see that the area of the psychological level of 1.4000 acts as a resistance in the market, which leads to a slowdown and a rebound in the price. The logical basis of the past associated with this level can play into the hands of sellers, which will lead to an increase in the volume of short positions.

In simple terms, the rebound stage may well lead to a downward move towards the 1.3900 level.

An alternative scenario for the development of the market will be considered by traders if the price is kept above 1.4050 in the daily period. In this case, the chances of buyers will increase to return the quotes to the area of the local high of the medium-term upward trend.

 

Analysis and trading recommendations for EUR/USD and GBP/USD on August 2

Analysis of transactions in the EUR / USD pair

Euro fell on Friday despite good GDP and inflation reports from the Euro area.

Trading recommendations for August 2

EUR / USD will again move depending on the economic reports that the Euro area will release today. Strong data on manufacturing activity will lead to a price increase, while a weaker than expected report could result in another decline in the market. Then, in the afternoon, a similar report will be published from the US. This time, if the data expectations exceeds, dollar will regain its strength, which could lead to a decline in the pair.

For long positions:

Open a long position when euro reaches 1.1882 (green line on the chart), and then take profit at the level of 1.1920. Demand will increase if the Euro area publishes strong economic data. But before buying, make sure that the MACD line is above zero, or is starting to rise from it.

It is also possible to buy at 1.1857 and 1.1818, but the MACD indicator line must be in the oversold area in order to bring about a market reversal to 1.1882.

For short positions:

Open a short position when euro reaches 1.1857 (red line on the chart), and then take profit at the level of 1.1818. A decline will occur if the Euro area releases weak economic reports. But before selling, make sure that the MACD line is below zero, or is starting to move down from it.

It is also possible to sell at 1.1882 and 1.1920, but the MACD line must be in the overbought area in order to provoke a market reversal to 1.1857.

Analysis of transactions in the GBP / USD pair

Pound did not hit the local high last Friday. To be more specific, it was the multiple failed attempts to break through 1.3975 that led to the closure of many long positions in the market.

Trading recommendations for August 2

Pound will trade today depending on the data on UK manufacturing activity. If the figure turns better than the forecast, then GBP/USD will increase rather sharply. Then, in the afternoon, a similar report will be published from the US. This time, if the data exceeds expectations, dollar will regain its strength, which could lead to a decline in the pair.

For long positions:

Open a long position when pound reaches 1.3910 (green line on the chart), and then take profit at the level of 1.3956 (thicker green line on the chart). GBP/USD will climb up if UK publishes good PMI data. But before buying, make sure that the MACD line is above zero, or is starting to rise from it.

It is also possible to buy at 1.3885 and 1.3846, but the MACD line should be in the oversold area in order to set off a market reversal to 1.3910.

For short positions:

Open a short position when pound reaches 1.3885 (red line on the chart), and then take profit at the level of 1.3846. A decline will occur if UK releases weak economic reports. But before selling, make sure that the MACD line is below zero, or is starting to move down from it.

It is also possible to sell at 1.3910 and 1.3956, but the MACD line should be in the overbought area in order to trigger a market reversal to 1.3885.

 

Another trillion dollars for the American economy

Yesterday, the leading US stock indexes fell slightly, but in general they continue to be near their absolute highs and can update them any time. All three leading indexes, the S&P 500, Dow Jones, and NASDAQ Composite, maintain upward trends. We have already mentioned earlier why this is happening. First, the Fed continues to buy bonds and mortgage-backed securities from the open market, saturating it with liquidity. And all the cash immediately flows into the most profitable stocks that can provide profit to their investors in the future. Moreover, the profit is not even a dividend, but a profit due to a constant increase in value. The dividends of almost all American companies are already below the current inflation. Therefore, it is extremely difficult to make a profit from dividend payments in the near future. However, since investors do not have much choice, and stocks are the most common investment tool, it is the stock market that capital continues to flow.

At the same time, the US Senate agreed on a new package of assistance to the US economy. Previously, it appeared under the name "infrastructure package". It can be recalled that Joe Biden offered two stimulus packages for the American economy, each of about $2 trillion. As you can see, the final version of the first package is half as small. However, we have not yet seen the second package, which is the "social" one. The infrastructure package will be aimed at investing in roads, bridges, ports, the internet, and other facilities over the next 5-8 years. It is noteworthy that the source of the formation of this package is planned to be tax revenues, but not the attraction of loans. In other words, the US government will not climb into even greater debts to finance this $1 trillion package. Of course, we cannot judge where this money will come from. In America, they really like to live on credit, and the size of the public debt in the United States already exceeds the volume of GDP. Simply put, the States owe more money than their economy is worth. In fairness, it should be noted that about half of the debts are debts to themselves. Simply put, the American government owes American investors, various American funds, the Fed, and so on. For example, the United States owes China or Japan only $1 trillion, which is not so much. Thus, a default is unlikely to threaten Washington. Moreover, the money is spent on improving infrastructure, which will attract new investors to America even more in the future. The Fed can also print money in almost any volume without fear of hyperinflation, since the dollar remains the world's number one currency. One way or another, the US economy continues to accelerate and will continue to do this for many years to come.