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by Charalambos Pissouros

Strategic Report, 2020 Newsletter 27

Technical Analysis

 1. EUR/USD WEEKLY OUTLOOK

REVIEW

EUR/USD managed to end last week slightly in the positive zone, despite declining in the second half of the week. That said, the pair is still moving below its short-term downside resistance line taken from the high of June 10th, which could be seen as a bearish indication. But in order to consider slightly lower areas, we would prefer to wait for a drop below the current low of June, at 1.1168. We will take a neutral approach, at least for now.

OUTLOOK (SCENARIO A / B)

If EUR/USD does end up sliding below the aforementioned 1.1168 hurdle, this would confirm a forthcoming lower low. The pair may then travel to the 1.1100 obstacle, a break of which could set the stage for a move further south. The next possible support might be seen near the 1.1018 hurdle, or even the 1.1000 level, marked by the highs of May 1st and 20th respectively.

Alternatively, if the bulls are able to break the previously-discussed downside line and lift the rate above the highs of June 16th and 23rd, near the 1.1348 barrier, that might help more buyers to decide on jumping into the action as well. EUR/USD could then travel to the highest point of June, at 1.1422, where the pair may get a temporary hold-up. That said, if the buyers see that obstacle only as a temporary pit-stop, a break of it would confirm a forthcoming higher high and may lift the rate to the highest point of this year, at 1.1495.  

EURUSD-Daily

 2. EUR/SEK WEEKLY OUTLOOK

REVIEW

EUR/SEK continues to trade below a short-term downside resistance line taken from the high of March 30th. Even if the rate manages to rebound somewhat, as long as it stays below that downside line, the pair may continue moving lower for some time more.

OUTLOOK (SCENARIO A / B)

A drop below the low of last week, at 10.431, could clear up the path towards further declines. EUR/SEK may then move to the current lowest point of June, at 10.336, which might stall the rate for a bit. The pair could even rebound somewhat from that line, but if EUR/SEK stays below that aforementioned downside line, the bears may take charge again and drive the rate down. If this time it is able to overcome the 10.336 hurdle, the next possible support level could be at 10.295, marked by the highs of January 3rd and 17th, 2019.

On the upside, a break of the previously-discussed downside line and a rate-rise above the highest point of June, at 10.596, would confirm a forthcoming higher high and may invite more buyers into the game. EUR/SEK could then travel to the 10.707 hurdle, a break of which may set the stage for an uprise to the 10.782 level, which is the inside swing low of May 3rd.

EURSEK-Daily

 3. GBP/JPY WEEKLY OUTLOOK

REVIEW

Overall, GBP/JPY is still trading below its medium-term downside resistance line taken from the highest point of December 2019. Despite ending last week virtually unchanged, the pair is still showing willingness to move further south, as the RSI and the MACD are below 50 and zero respectively. That said, we would prefer to wait for a violation of last week’s low at 131.76, before examining further extensions lower.

OUTLOOK (SCENARIO A / B)

A drop below the 131.76 hurdle, would confirm a forthcoming lower low, this way possibly attracting more sellers. GBP/JPY might then drift towards the lowest point May, at 129.42, which could provide a temporary hold-up. If so, the rate may rebound somewhat, however, if the sellers are still feeling a bit stronger, the pair could reverse back down, potentially breaking the 129.42 obstacle, this way confirming another lower low. That’s when we will target the 127.35 level, marked by the low of March 23rd.

Alternatively, a push above the high of last week, at 134.00, could increase the pair’s chances of going for a larger correction higher. GBP/JPY might then drift to the 136.35 zone, a break of which could lift the rate to the 137.42 level, marked by the low of June 8th and the high of June 10th. Slightly above it runs the previously-discussed downside line, which might provide additional resistance.

GBPJPY-Daily

 4. AUD/CAD WEEKLY OUTLOOK

REVIEW

From around mid-March, the pair has been trending higher, which could suggest that AUD/CAD has a chance of traveling further north. That said, throughout the whole of June, AUD/CAD seems to be moving sideways, roughly between the 0.9271 and 0.9421 levels. As long as the rate remains in that range, we will stay side-lined.

OUTLOOK (SCENARIO A / B)

A break of the upper bound of the range, at 0.9421, and a push above the current highest point of June, at 0.9444, might open the door to some further extensions to the upside, as more bulls could see it as a good opportunity to step in. The reason might be that the pair would confirm a forthcoming higher high, what may be seen as a positive sign. The pair could then drift to the 0.9509 hurdle, a break of which may lead to a test of the 0.9614 level, marked by the highest point of April 2019.

If the rate falls through the lower side of the aforementioned range, at 0.9271, this move might spook the bulls from the field temporarily, allowing more bears to run in. The pair might then slide to the 0.9191 obstacle, a break of which may increase the pair’s chances of falling further. The next possible support area could be seen near the 0.9064 level, marked by the low of May 27th.

AUDCAD-Daily

 5.  XAU/USD WEEKLY OUTLOOK

REVIEW

It had been another positive week for gold, as it continued with its journey north, while trading above a short-term tentative upside support line taken from the low of June 5th. As long as that upside line remains intact, we will continue aiming higher.

OUTLOOK (SCENARIO A / B)

A push above the high of last week, at 1779, could open the door to some higher areas, as such a move would confirm a forthcoming higher high. That may lift the price to the highest point of 2012, at 1796, where gold could stall temporarily. However, if the buyers are still feeling a bit more comfortable, they might give the precious metal a boost again, potentially overcoming the 1796 hurdle and targeting the 1827 level, marked near the high of September 19th, 2011.

On the other hand, a break of the previously-discussed upside line and a price-drop below the 1745 zone, marked by the highs of June 1st, 2nd and 11th, could signal a change in the current short-term uptrend and open the door to slightly lower areas. Such a move would also place the yellow metal back into the range, where it was trading in roughly between the beginning of April and mid-June. Gold might then drift lower within that range, towards the 1721 obstacle, a break of which could clear the path to the 1704 level, marked by the low of June 15th.

Gold-Daily

 6. BRENT CRUDE OIL WEEKLY OUTLOOK

REVIEW

Last week, Brent oil closed in the red and fell below its short-term tentative upside support line taken from the low of April 22nd. Although this might be seen as a bearish indication, we notice that the price seems to be stuck inside of a range, roughly between the 36.60 and 43.00 levels. For now, we will take a neutral stance and wait until we see the price exiting the range, before examining the next directional move.

OUTLOOK (SCENARIO A / B)

If the commodity manages to exit the range through the upper bound of it, at 43.00, that could invite more buyers into the game, possibly helping Brent oil to moved further north. We will then target the 45.64 obstacle, which is the low of March 6th. Around there, the black liquid could test the 200-day EMA, which might temporarily halt the increase. That said, if the buyers are still feeling comfortable and are able to lift the price above that 200-day EMA, that’s when Brent oil could travel to its next possible resistance, at 49.54, marked by the lowest point of February.

On the downside, we would start examining lower areas if the price falls below the lower side of the aforementioned range, at 36.60. Such a move would confirm a forthcoming lower low and Brent oil may end up sliding towards the 33.25 obstacle, a break of which might clear the path to the psychological 30-dollar mark, marked near the high of May 11th.

Brent-Daily

 7. DAX WEEKLY OUTLOOK

REVIEW

The German index ended last week virtually unchanged, despite reversing south on Wednesday. DAX also managed to close above its short-term upside support line taken from the low of March 19th. However, this morning, the cash index is already trading below that upside line. In addition to that, we notice that our oscillators, the RSI and the MACD on our daily chart, started moving lower, which might be seen as a bearish indication. However, given the proximity of the price to that upside line at the moment, we will take a neutral stance for now and wait for a break through one of our support, or resistance levels.

OUTLOOK (SCENARIO A / B)

A price-drop below the 11578 hurdle, marked by the low of June 15th, would confirm a forthcoming lower low. Such a move might clear the way to the 11340 obstacle, a break of which could set the stage for a slide to the 10865 level, marked by the low of May 22nd.

If the index climbs back above the 12616 barrier, marked by the high of last week, this may attract more buyers into game again. The price could then accelerate towards the current highest point of June, at 12930. DAX might stall there temporarily, or even correct back down slightly. However, if the price continues to balance above the previously-mentioned upside line, there may be an opportunity for the bulls to run in and lift the index higher again. If this time DAX is able to overcome the 12930 barrier, this would confirm a forthcoming higher high and the next potential resistance area could be seen at 13380 level, marked by the low of February 9th.

DAX-Daily

 FX Weekly Market Preview 

Weekly Outlook: June 29 – July 03: Fed Minutes and US Jobs Data Enter the Limelight

Following the RBNZ decision last week, this week, it is the turn of the Riksbank to decide on monetary policy. We don’t expect any policy action, but we will look for signs as to how the Bank plans to proceed with its stimulus efforts. Investors are also likely to pay extra attention to the FOMC meeting minutes and the US employment report for June as they try to assess the likelihood of more policy easing by the Fed.

Monday appears to be a relatively light day. We only get Germany’s preliminary CPIs for June, Canada’s building permits and the US pending home sales, both for May. The CPI rate is forecast to have remained unchanged at +0.6% yoy, while the HICP one is anticipated to have ticked up to +0.6% yoy from +0.5%. This would raise speculation that the CPI rate for the Eurozone as a whole, due out on Tuesday, may also stay unchanged or just tick up.

With regards to Canada’s building permits, there is no forecast available, while the US pending home sales are expected to have rebounded 19.7% in May after sliding 21.8% in April.

On Tuesday, during the Asian morning, we get the usual end-of-month data dump from Japan. The unemployment rate is forecast to have risen to +2.8% in May from +2.6%, while the jobs-to-applications ratio is anticipated to have declined to 1.23 from 1.32. Preliminary data on industrial production are forecast to show another decline in May, but at a slower pace than in April. Specifically, IP is expected to have declined 5.6% mom after falling 9.8%.

From China, we get the official manufacturing and non-manufacturing PMIs for June. The manufacturing index is expected to have slid to 50.4 from 50.6, while no forecast is available for the non-manufacturing print. Another month of expansion would be pleasant news, but we doubt that these numbers will prove major market movers. After the new flare up in infections from the coronavirus in China, market participants may prefer to wait for the July prints. It would be interesting to see whether more restrictive measures will be introduced and whether this will result in a second hit to the world’s second largest economy.

China manufacturing and non-manufacturing PMIs

Ahead of the EU open, the UK’s final GDP for Q1 is coming out and it is expected to confirm its preliminary print of a 2.0% qoq contraction. That said, we expect this release to pass unnoticed as we already have data showing how the UK economy has been performing in Q2, with the monthly GDP for April pointing to a 20.4% contraction.

Eurozone’s preliminary CPIs for June are also coming out. The headline rate is forecast to have stayed unchanged at +0.1% yoy, while no forecast is available for the core rate, which, in May, stood at +0.9% yoy. At its latest meeting, the ECB decided to increase its pandemic emergency purchase program (PEPP) by EUR 600bn to a total of EUR 1350bn, extending the horizon of the purchases to “at least the end of June 2021”, with officials staying ready to adjust all of their instruments as appropriate, to ensure that inflation moves towards their aim in a sustained manner. On top of that, last week, the ECB said it would offer EUR loans to central banks outside the Eurozone.

German vs Eurozone CPIs inflation

The preliminary PMIs for June came in better-than anticipated, but with the bloc’s composite index staying below the boom-or-bust zone of 50. Thus, combined with this, both inflation rates staying well below the Bank’s objective of “below, but close to 2%”, may keep the door for further easing by the ECB in the foreseeable future wide open.

Later in the day, we have Canada’s monthly GDP for April and the US CB consumer confidence index for June. Canada’s GDP is forecast to have contracted 12.0% mom after deteriorating 7.2% in March, while the US CB index is expected to have risen to 91.6 from 86.6.

On Wednesday, the main event may be the minutes from the latest FOMC meeting. At that gathering, the Committee decided to keep interest rates unchanged and noted that they will continue to increase purchases of bonds and mortgage-backed securities “at least at the current pace”, something suggesting that purchases can accelerate again if deemed necessary. Officials already announced tweaks to their bond purchases a few days after the meeting, widening the range of eligible assets to include all US corporate bonds. On top of that, when testifying before Congress, Fed Chair Powell himself said that there is a “reasonable probability” that more policy support would be needed. Thus, we will dig into the minutes to see whether other policymakers were in favor of further easing in the foreseeable future. If so, equities may gain on hopes for more central-bank support, while the dollar and other safe havens may come under selling pressure.

Earlier in the day, during the European morning, we have the world’s oldest central bank deciding on monetary policy, the Riksbank. When they last met, policymakers of this Bank decided to continue purchases of government and mortgage bonds up to the end of September 2020 and to leave the repo rate unchanged at 0.0%. They also said that the measures will be adjusted to economic developments. After the meeting, GDP data showed that economic activity slowed to +0.1% qoq in Q1 from +0.2%, but this was at a time when expectations where pointing to a 0.6% qoq contraction. The latest inflation data showed that both the CPI and CPIF rates rebounded to 0.0% yoy in May from -0.4%, while the core CPIF metric showed that underlying inflation rebounded to +1.2% from +1.0%. Therefore, although we may not get any policy changes at this gathering, it would be interesting to see whether the better-than-expected GDP data and the rebound in inflation would trigger any discussion with regards to scaling back QE purchases.

Sweden CPIs inflation

As for Wednesday’s data, during the Asian morning, we have Japan’s Tankan survey for Q2 and China’s Caixin manufacturing PMI for June. In Japan, both the large manufacturers’ and non-manufacturers’ indices are expected to have declined to -31 and -18 from -8 and +8 respectively, while China’s Caixin PMI is anticipated to have slid to 50.5 from 50.7.

During the EU session, we get the final manufacturing PMIs for June from the Eurozone and the UK, but as it is always the case, they are expected to confirm their preliminary estimates.

Later in the day, from the US, ahead of the Fed minutes, we get the ADP employment report for June. Expectations are for the private sector to have gained 3mn jobs, after losing 2.76mn in May. This would raise speculation that the NFP print, due out on Thursday, may also come close to that number. Indeed, the forecast for the NFP is currently at 3.07mn. However, although the ADP is the only major gauge we have for the NFPs, it is far from a reliable predictor. Even last month, when the ADP revealed 2.76mn job losses, the official employment report showed that NFPs increased 2.51mn. The final Markit manufacturing PMI and the ISM manufacturing index, both for June, are also due to be released. The final Markit index is expected to confirm its preliminary estimate, while the ISM one is anticipated to have risen to 49.0 from 43.1.

ADP vs NFP employment reports

On Thursday, all lights may fall to the US employment report for June. The reason we don’t get the report on Friday is because US markets will be closed in celebration of the Independence Day. Nonfarm payrolls are expected to have increased 3.07mn after rising 2.51mn in May, while the unemployment rate is expected to have declined to 12.3% from 13.3%. Average hourly earnings are forecast to have declined 0.6% mom after falling 1.0%, something that, barring any major deviations to the prior month prints, will drive the yoy rate down to 5.3% from 6.7%. Such a report would be an encouraging development as it would show that the US economy is on the road to recovery, despite the nation’s infected cases from the coronavirus keep increasing at a fast pace. Such a report, combined with the Fed’s willingness to do more in order to stimulate the US economy, could prove positive for the stock market, and oddly, negative for the US dollar, which has been acting as a safe haven in the aftermath of the coronavirus outbreak.

US unemployment rate

As for the rest of Thursday’s data, Eurozone’s PPI for May and Canada’s trade balance for the month are coming out. Eurozone’s PPI rate is expected to have declined further into the negative territory, to -4.8% yoy from -4.5%, while Canada’s trade deficit is anticipated to have narrowed to CAD 2.50bn from 3.25bn.

Finally, on Friday, US markets will be closed in celebration of the Independence Day.

As for the data, during the Asian morning, Australia’s retail sales for May and China’s Caixin services PMI for June are coming out. Australia’s retail sales are expected to have rebounded 16.3% mom after tumbling 17.7% in April, while no forecast is available for China’s Caixin index. Later in the day, we have the final services and composite PMIs for June from the Eurozone and the UK. As always, expectations are for confirmations of the initial estimates.

Disclaimer:

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