Daily Market Analysis

Strong results from Twitter and Snap across the pond plus the expected dovish ECB meeting has given a lift to markets overnight and this morning. US stocks notched their best three-day advance since April with sentiment being boosted after hours by the two US social media companies, even as Intel guided lower on margins.  It seems like the online advertising arena remains strong and this is also helping tech titans like Facebook and Alphabet. They report their latest earnings next week, together with Tesla, Apple, Microsoft and Amazon in a massive week for the tech titans.

The Nasdaq enjoyed another day of gains led by tech and healthcare and is now within striking distance of 15,000 and all-time highs. The 21-day SMA capped the downside earlier in the week with bulls hugely excited about next week’s earnings releases.

USD to stay supported

The DXY had a positive session in the end yesterday after gyrating across the three different trading zones. But the dovish (lower forever?) ECB gave fresh fodder to DXY bulls and the index closed pretty close to its recent highs above 93. Trendline support from the June lows was pierced but the afternoon rally and solid close points to more gains and new highs soon.

Next week’s FOMC meeting will be watched with keen interest, though there is no new dot plot or projections. The Fed is poised to begin policy normalisation in the face of heightened inflation, although it may underline the long way to achieve this fully. But the global recovery and potential periods of risk aversion around the Delta variant during thin markets should help enhance the greenback.

GBP picks up but headwinds loom

Sterling outperformed other major currencies yesterday and has enjoyed a relatively good week. But there are clouds on the horizon with Brexit issues rearing their head again as the UK seeks to unpick the Northern Ireland protocol. The grace period for Northern Irish trade concessions ends on October 1 so the build-up to this deadline may be a potential focus for markets. The mass isolation experiment and release of restrictions is grabbing the attention in the near term.

GBP/USD has clawed its way up past the 200-day moving average and the March and April lows. Trendline resistance from the June highs lies around 1.38 so we may see the cable recovery stalling near here.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. Innovative Trading Group(Innovative Trading Group), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

The European Central Bank (ECB) policy meeting for July offered no major surprises. As widely expected, interest rates were left unchanged while the central bank kept other monetary policy tools on hold. However, the new element worth paying attention to was the adjusted forward guidance on interest rates, reflecting the new 2% inflation goal.

Doves were certainly in the building as the central bank pledged to keep interest rates at record lows for even longer to help the eurozone economy. Although ECB President Christine Lagarde stated that ‘the recovery in the euro area economy is on track’, she warned that the Delta variant of Covid-19 threatened Europe’s economic recovery.

All in all, the change in the ECB’s forward guidance was seen as dovish as it allowed for more easy monetary policy. Because of this, it is safe to say that the ECB will remain dovish for the time being or until inflation reaches its 2% target – meaning any soft tapering or rate hikes are out of the picture. This could also increase the possibility of the central bank extending its Pandemic Emergency Purchase Programme (PEPP) beyond March 2022. It is worth keeping in mind that any tweaks to the pace of PEPP are not expected to take place until September 2021 when the ECB issues updated economic forecasts.

Earlier in the week, we took a deep dive into what to expect from ECB meeting and how this could impact the euro. Fast forward, the euro has depreciated against every single G10 currency today.

In regards to the EURUSD, it remains under pressure on the daily charts with prices struggling to keep above 1.1751 as of writing. A breakdown below this point could open the doors towards 1.1704 and 1.1620.

Should 1.1751 prove to be reliable support, a rebound back towards 1.1850 could be on the cards.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. Innovative Trading Group(Innovative Trading Group), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Most Asian markets are modestly in the green overnight after the rebound in stock markets Stateside. The S&P500 enjoyed its best day since March with performance driven by cyclical stocks, while small caps gained some 3%. European equities have opened up positively and US futures are mixed at present.

Monday’s volatility has abated for the time being though summer markets and thin liquidity can always throw up new curveballs. The VIX, sometimes known as Wall Street’s fear gauge, has dropped back from above 25 to below 20.

S&P marker

The recent low in the S&P500 at 4,233 is now significant as a clear support line in the sand. The scale of yesterday’s rebound means any renewed weakness through this level could lead to increased volatility and further market ructions. The 50-day moving average also held up the main US equity index and has acted as reliable support this year. If markets stabilise into the end of the week, dip buyers and the bulls may look to push on higher. A more protracted global recovery means policy stimulus remains in place for longer.

USD carries on higher

The main dollar index (DXY) hit 93.19 this morning, its best level since the start of April.

While equity markets are trying to regain a footing, the strength in the greenback as well as in JPY does give off mixed signals. Indeed, AUD/USD and NZD/USD are pushing to new lows and levels not seen since November.

The more hawkish central banks reside in the cyclical FX space (CAD, NZD and NOK) so many market watchers see the dip here as a correction more than something more long term. It’s a question that will be answered over the following sessions and weeks no doubt!

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. Innovative Trading Group(Innovative Trading Group), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

All eyes will be on the European Central Bank (ECB) meeting on Thursday.

The ECB is widely expected to leave monetary policy unchanged. However, it may be unwise to label this event as a snoozer given how this will be their first meeting since the conclusion of the strategy review.

Before we take a deep dive into what to expect on Thursday, it is worth keeping in mind that the euro has appreciated against most G10 currencies this month, excluding the dollar, yen and swiss franc.

Interestingly, the EURUSD is trading below the 1.1800 level as of writing with the path of least resistance pointing south as the dollar appreciates. How the currency pair concludes this week is likely to be influenced by what happens during the ECB meeting.

There are some of key things to look out for during Thursday's policy meeting.

• 1) With the new inflation target of 2% established (up from “below, but close to 2%) and the ECB allowing inflation to overshoot the target, investors will be looking for any change in central bank's forward guidance. A potentially more dovish shift in the policy stance is likely to inspire euro bears.
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• 2) It will be interesting to see whether the ECB addresses what happens to the mammoth 1.85 trillion-euro Pandemic Emergency Purchase Programme (PEPP) which expires in March 2022. As of now, PEPP is not due to be reviewed until September when the latest staff forecasts are released.
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• 3) Given how inflation remains a hot topic across the board, market players may be watching to see whether the ECB says anything about the latest CPI figures. Eurozone inflation cooled in June to 1.9% from 2.0% in May.
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• 4) If there is any mention of the Covid-19 menace and risks it presents to the Eurozone economy. According to a Reuters tally, Europe has become the first region worldwide to cross 50 million coronavirus cases. As the more contagious Delta variant spreads its poisonous tentacles across the region, this may fuel concerns over the continent’s economic recovery.
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• 5) Let’s not forget about ECB President Christine Lagarde's press conference. Lagarde expects the PEPP to continue to at least March 2022 but it may be followed by a ‘transition into a new format’. If she adopts a dovish and cautious tone on Thursday, this may result in a weaker euro. While the ECB is unlikely to sound hawkish, any surprises could send the euro charging higher.

Redirecting our attention back towards the technicals, the EURUSD remains under pressure on the daily charts. There have been consistently lower lows and lower highs while the MACD trades below zero. Sustained weakness below the 1.1800 level could signal a decline towards 1.1704. Should bears break through 1.1704, the next key point of interest can be found at 1.1620 - a level that has not been seen since November 2020.

Alternatively, a strong move back above 1.1800 could trigger an incline towards 1.1860 and 1.1900, respectively.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. Innovative Trading Group(Innovative Trading Group), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

A wave of risk off sentiment engulfed markets yesterday after US and European shares tumbled on growing concerns over the Covid-19 Delta outbreaks threatening the global economic recovery.

The sour mood is likely to dish out more punishment to equity markets today as investors seek refuge in safe haven destinations. Given how the outbreaks are being reported in places ranging from Australia to Indonesia and the United Kingdom, caution is likely to remain the name of the game. Even though US futures are climbing after the S&P 500 collapsed like a house of cards overnight, the selloff could resume if investors look beyond corporate earnings to focus on global growth fears.

‘Freedom Day’ arrives, what next?

Yesterday was labelled as “Freedom Day” in England where all lockdown restrictions were lifted despite the surging Covid-19 infections. While this development can be seen as a step back into some normality, there are concerns over whether this will lead to a reimposition of lockdown measures across the UK.

It must be kept in mind that the economic recovery remains fragile with the Bank of England expecting unemployment to rise as the furlough scheme winds down in September. Surging infections and the uncertainty it presents are the last things the UK economy needs at such a crucial period.

The British Pound has depreciated against most G10 currencies this week, notably the dollar, swiss franc and yen. Given how GBPUSD closed below the 200-day Simple Moving Average yesterday, the path of least resistance remains south with the next key level of interest found at 1.3600.

Currency spotlight – EURUSD

The main risk event for the euro this week will be the European Central Bank meeting on Thursday.

Although the ECB is widely expected to leave monetary policy unchanged, this will be their first meeting since the conclusion of the bank’s Strategy Review. This means investors will be looking for any change in the central bank's forward guidance and potentially a more dovish shift in the policy stance.

Looking at the technical picture, EURUSD remains under pressure on the daily charts. A solid break below 1.1770 could inspire a decline towards 1.1700. Alternatively, a move back above 1.1800 could trigger a rebound towards 1.1860.

Commodity spotlight – Gold

Gold remains under the mercy of an appreciating dollar. However, subdued treasury yields in addition to mounting concerns over surging Covid-19 cases across the globe may cushion downside losses.

As the risk-off mood sends investors rushing towards destinations of safety, gold is likely to find some support. Nevertheless, bears are still lingering and may snatch control if prices sink back below the $1800 psychological level.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. Innovative Trading Group(Innovative Trading Group), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.