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USDCAD has been bearish for the last few weeks and unfolded five waves down from 1.3657, which is an impulse and we know that every impulse will be retraced by a three-wave recovery, minimum. As such, we think this three-wave recovery can be now underway after a sharp bounce in the last few sessions, from a new low, which suggests that wave (5) is bottoming. As such, be aware of more upside in the near-term, possibly back to 1.332-1.3380 key resistance area.

Traders should also keep an eye on that daily trendline support; we have to see this one broken before major change in trend is coming into play. IN fact, while this trendline holds a drop from 2022 highs can even be wave B.

Markets

Strong Q1 earnings by several Wall Street giants seemed to run away with all the attention on Friday, but eventually it was the University of Michigan’s July consumer survey which dictated the market pulse. The headline number rose unexpectedly from 64.4 to 72.6 – strongest since September 2021 and vs 65.5 consensus – with details suggesting that the Fed’s job is far from done. 1yr forward inflation expectations increased from 3.3% to 3.4% (vs 3.1% expected) with long term expectations up from 3% to 3.1%. Consumers furthermore expect their pay checks to rise at least in lockstep with inflation and aren’t afraid they lose their jobs over the next year. The Michigan Survey triggered a sell-off in US Treasuries with the front end of the curve underperforming. US yields added 2.7 bps (30-yr) to 13.5 bps (2-yr) but still ended the week significantly lower following the earlier CPI-rally. Weekly changes ranged between -11.8 bps and -31.4 bps with the belly of the curve outperforming. German yields followed the US move on Friday to a lesser extent, adding up to 5.6 bps at the front end of the curve. The front end US Treasury sell-off helped stop the week-long rot in the dollar. No more than that though. The trade weighted greenback (DXY) ended virtually unchanged just below 100 and from a technical point of view below the support zone of 100.84 (previous YTD lows). EUR/USD in the same vein closed unchanged at 1.1228 with the weekly close above 1.1095 resistance. Stock markets ended the week narrowly mixed. The EuroStoxx50 again bumped into strong resistance at 4400 (YTD high tested already in May, June and earlier this month).

Asian trading volumes are low with Japan (Marine Day) and Hong Kong (typhoon) closed. Efforts to blow up this morning’s Chinese eco figures (see below) are overdone. The July Empire Manufacturing Survey and speeches by ECB members at the central bank’s 9th conference on central, eastern and south-eastern European countries are scheduled today. We don’t expect them to have a big market impact and start with a neutral bias for FI and FX. The agenda remains light the following days with ECB members joining the Fed’s blackout period and mostly second tier US/EMU eco data. US retail sales are exception to the rule tomorrow. Key things to watch are UK inflation numbers on Wednesday (cementing back-to-back 50 bps rate hikes by the BoE) and Japanese price figures on Friday (rising speculation of changes to the YCC policy). Q2 corporate earnings are the wildcard via risk sentiment.

News and views

Chinese quarterly growth slowed from 2.2% to 0.8% in the previous quarter this year, matching expectations. The economy is now 6.3% bigger compared to the same period last year (7.1% expected). Accompanying monthly activity data for June showed industrial production picking up from May: at 3.8% YtD y/y it also topped a 3.5% estimate, suggesting the sector is stabilizing after a long slide. Investments rose 3.8%. Retail sales this year through June slowed to 8.2% while the property sector remains in dire straits, slumping 7.9% y/y in the period January-June. It’s this combination of slowing consumer spending and the ongoing real estate tremors that dominate this morning’s market reaction. China’s yuan holds on to losses against the USD, incurred even before the GDP data release. USD/CNY trades around 7.168. Chinese stock exchanges underperform regional peers. The Politburo’s meeting later this month will probably get more attention than usual as markets increasingly anticipate fiscal and monetary support in one way or another.

Turkey has significantly raised taxes on petrol, diesel and a series of other petroleum products. In some cases the levies tripled. The move comes as the country tries to fill an estimated 4.4% gap in public finances, created by amongst other’s president Erdogan’s pre-election pledge of one month of free natural gas and reconstruction works after February’s earthquake. It’s also part of the new finance minister Simsek’s plan to cool domestic demand, which is said to be still too high after years of loose fiscal and monetary policy. That has fanned inflation. Even though price pressures have come down from a peak of 85.5% in October last year, (official) inflation was still a whopping 38.2% in June. It may well pick up again due to the steep decline in the Turkish lira over the past months. USD/TRY is trading at a record low around 26. This compares to 18.7 at the start of the year.

Daily Pivots: (S1) 0.9614; (P) 0.9636; (R1) 0.9663; More...

Intraday bias in EUR/CHF stays neutral first and outlook remains bearish with 0.9721 support turned resistance intact. On the downside, break of 0.9606 will resume larger decline from 1.0095 to 100% projection of 0.9995 to 0.9670 from 0.9840 at 0.9515.

In the bigger picture, medium term outlook is staying bearish as the pair is capped below falling 55 W EMA (now at 0.9913). Down trend form 1.2004 (2018 high) is in favor to extend through 0.9407 at a later stage. Nevertheless, decisive break of 38.2% retracement of 1.1149 to 0.9407 will raise the chance of bullish trend reversal.

Daily Pivots: (S1) 180.53; (P) 181.41; (R1) 182.62; More...

Intraday bias in GBP/JPY stays mildly on the upside for retesting 183.99 high first. Firm break there will resume larger up trend to 187.36 projection level. On the downside, however, break of 179.45 will extend the pull back to 55 D EMA (now at 177.01).

In the bigger picture, as long as 172.11 resistance turned support holds, up trend from 123.94 (2020 low) is expected to continue. On resumption, next target is 138.2% projection of 148.93 to 172.11 from 155.33 at 187.36, and then 195.86 (2015 high). Nevertheless, firm break of 172.11 will argue that larger correction is already underway.

Daily Pivots: (S1) 154.61; (P) 155.38; (R1) 156.58; More....

Intraday bias in EUR/JPY remains mildly on the upside for retesting 157.99 high. Firm break there will resume larger up trend. On the downside, break of 153.32 will extend the pull back from 157.99 to 55 D EMA (now at 152.62) and possibly below.

In the bigger picture, as long as 151.60 resistance turned support holds, rise from 114.42 (2020 low) is in progress. On resumption, next target is 100% projection of 124.37 to 148.38 from 138.81 at 162.82. Nevertheless, sustained break of 151.60 will argue that larger correction is already underway.

Daily Pivots: (S1) 0.8553; (P) 0.8566; (R1) 0.8587; More...

EUR/GBP's rebound from 0.8502 extends higher today and break of 0.8583 resistance indicates short term bottoming. Intraday bias is back on the upside for 0.8657 resistance next. Considering bullish convergence condition in 4H and D MACD, firm break of 0.8657 will be a sign of bullish trend reversal. On the downside, break of 0.8502 will resume the whole decline from 0.8977 instead.

In the bigger picture, the down trend from 0.9267 (2022 high) is still in progress. It's seen as part of the long term range pattern from 0.9499 (2020 high). Deeper fall could be seen towards 0.8201 (2022 low). But strong support should be seen from there to bring reversal. This will now remain the favored case as long as 0.8657 resistance holds.

Gold prices dipped as investors took profits following a near one-month high, but still recorded their biggest weekly gain since April on expectations of a pause in U.S. interest rate hikes. Spot gold was down 0.3% at $1,954.69 per ounce, while U.S. gold futures eased 0.2% to $1,959.30. The dollar index edged up 0.2% but remained close to its lowest level since April 2022. Analysts suggest that gold has room to expand further, with potential key levels at $1,985 to $2,000. While the outlook for gold remains positive, there may be some profit-taking at current levels. Federal Reserve Governor Christopher Waller expressed a preference for more rate hikes this year, but markets have mostly priced in one rate hike at the Fed's upcoming meeting. Higher interest rates increase the opportunity cost of holding gold. In terms of technical levels, support is seen at around $1,940, while resistance is expected in the $1,970-75 region. Stay tuned for further market developments!

US Dollar - W1 Timeframe

The reason we are looking at the chart for the US Dollar is that the two major commodities we will consider as alternative stores of value are both correlated to the US Dollar. Bitcoin and Gold are two commodities that reflect the sentiments of two separate generations as pertains to investing and wealth management. From the charts, we see the likelihood of bullish price action from the demand zone owing to the fact that the zone is also supported by a trendline.

Analyst’s Expectations:

• Direction: Bullish
• Target: 104.510
• Invalidation: 97.597

BTCUSD - W1 Timeframe

BTCUSD on the weekly timeframe is at a key decision zone. As I said earlier, Bitcoin and other cryptocurrencies represent the investment sentiments of the majority of young, tech-savvy investors who may not necessarily be inclined to invest in Bitcoin as an immediate store of value, but rather as a means of exchange. However, there are a few commercial investors that are very big on cryptocurrencies at the moment, which may spell greater adoption and stronger prices for the chief of cryptos.

Analyst’s Expectations:

• Direction: Bearish
• Target: 28341.74
• Invalidation: 32500.69

XAUUSD - D1 Timeframe

Gold on the daily timeframe presents us with a price action that is quite indicative of bearish intent. We can clearly see the supply zone and the fact that it intertwines perfectly with the 50 and 100 moving averages as likely areas of resistance. Comparing the price action on the US Dollar with this, I can conclude that bullish strength on the Dollar is certainly going to hasten the bearish price action on XAUUSD (Gold).

Analyst’s Expectations:

• Direction: Bearish
• Target: 1886.78
• Invalidation: 1975.20

CONCLUSION

The trading of CFDs comes at a risk. Thus, to succeed, you have to manage risks properly. To avoid costly mistakes while you look to trade these opportunities, be sure to do your due diligence and manage your risk appropriately.

Further internal demand deterioration in China but PBoC refrains from cutting key interest rate

• Retail sales in China decelerated to 3.1% y/y in June from May’s 12.7% y/y, weakest growth rate since December 2022.
• Q2 GDP growth in China came in below expectations at 6.3% y/y vs. consensus estimates of 7.3% y/y.
• China’s central bank, PBoC left its one-year medium-term lending facility rate unchanged at 2.65% likely due to the risk of a “liquidity trap” scenario.
• China’s proxies stock benchmarks Hang Seng Index, Hang Seng TECH Index & Hang Seng China Enterprises Index outperformed intraday against the mainland “A” shares benchmark CSI 300.

China’s Q2 GDP growth came in below expectations at 6.3% year-on-year versus consensus estimates of 7.3% but above Q1 of 4.5%; 0.8% growth for Q2 on a quarter-on-quarter basis, below Q1’s 2.2% (q/q). Retail sales for June tumbled to single-digit growth of 3.1% year-on-year from 12.7% recorded in May, its steepest growth deceleration since December 2022, almost on par with expectations of 3.2%. On the other hand, industrial production rose to 4.4% year-on-year in June, above expectations of 2.7%, and May’s reading of 3.5%, its highest growth rate since October 2022.

The labour market for youth has remained worrisome, the youth unemployment rate for 16 to 24 years old accelerated to 21.3% in June, a new high from 20.8% in May, that’s around four times the nationwide unemployment rate that remained steady at 5.2% in June.

The growth deceleration in retail sales and continued uptick in youth unemployment have further reinforced the ongoing weak internal demand environment in China since March this year that dented consumer confidence and increased the risk of a deflationary spiral.

A liquidity trap scenario is likely to see less marginal benefits from interest rate cuts

To negate weak internal demand and eroding consumer confidence, expansionary fiscal stimulus measures are likely to be more effective than more interest rate cuts, and accommodating monetary policy in a deflationary environment reduces the “marginal benefit” from an extra added effort of monetary policy stimulus; a “liquidity trap scenario”.

Hence, it is not surprising for China’s central bank, PBoC to refrain from cutting its key one-year medium-term lending facility today and left it unchanged at 2.65% after a 10-basis point reduction in June, which in turn implies a likely similar no-cut scenario for its decision on the one-year (3.55%) and five-year loan prime rates (4.2%) out later this Thursday.

China “A” shares benchmark CSI 300 dragged down by financial stocks

Fig 1: CSI 300 sectors rolling 1-month performance as of 17 Jul 2023 (Source: TradingView, click to enlarge chart)

Interestingly, the China proxies benchmark stock indices listed in Hong Kong do not suffer a steep sell-off; https://www.oanda.com/sg-en/trading/instruments/hk33-hkd/Hang Seng Index (+0.33%), Hang Seng TECH Index (-0.20%), and Hang Seng China Enterprises Index (+0.23%) at this time of the writing.

In contrast, the China mainland “A” shares benchmark stock index, CSI 300 shed -1.1% dragged down by the banks that underperformed intraday likely due to the fear of a “liquidity trap” scenario that led to slower loan growth, the CSI  300 Financials Index shed -1.44% intraday.

The Chinese economy grew 6.3% in Q2 and that’s faster than a 4.5% growth in Q1 but lower than the market estimate of 7.3%. Now don’t be blindsided by the strong look of these numbers, because the latest figures were distorted by a low base effect last year when Shanghai and other big cities were in lockdown and life in China was running at a very low speed. If we look at a seasonally adjusted basis, the Chinese economy grew by only 0.8%, slowing sharply from a 2.2% rise in Q1.

Market sentiment regarding the weakening growth numbers is mixed. In one hand, weak growth means that the government and the People’s Bank of China (PBoC) will step up efforts to further ease the financial conditions and pave the way for a quicker recovery. On the other hand, supportive policies put in place so far have had little impact. The Chinese property downturn, risk of disinflation, and falling exports have been difficult to reverse. As a result, the kneejerk reaction in markets was unenthusiastic. American crude extended retreat below the $75pb, after hitting and bouncing lower from the 200-DMA, that stands near $77pb last week. The rejection was expected, and the selloff could deepen toward the 100-DMA, near $73.50 level. Copper futures are also down this morning and testing the 100-DMA following a 7% rebound since the start of the month. Iron ore futures remain under pressure, and the Aussie is down nearly 1.30% against the US dollar, after forming a double top near the 69 cents level last week, on the back of a broad-based dollar weakness.

Zooming out, the US dollar is not further sold across the board this Monday, but the dollar index consolidates near the lowest levels since April 2022, and is below the 100 mark and is expected to further cool down. The softer dollar is good for cooling inflation elsewhere than the US, it could be good for boosting the revenues of US companies, including the Big Tech, which suffered from a rapid appreciation of the greenback last year, and it’s good for boosting the US exports – which should support the US economic growth.

So, all eyes are now turning toward the US companies’ earnings this week. The first earnings from the bis US banks came in better-than-expected last Friday and added to the overall investor enthusiasm after the US inflation data confirmed an encouraging easing in the US inflation, which in return softened the hawkish Federal Reserve (Fed) expectations and fueled a rally in both stock and bond markets.

JPMorgan Chase, Citigroup, and Wells Fargo all reported stronger-than-expected earnings last quarter due to rising interest rates. Deposits in Citigroup were nearly flat, Welss Fargo for saw its deposits fall 1% compared to Q1, and 7% compared to a year ago, and the average interest rates that the banks had to pay on deposits to prevent them from evaporating and going toward higher-yielding investments, rose 1-3% and their interest expenses climbed significantly. But still, JP Morgan’s net interest income rose 44%, Citi’s 16% and Wells Fargo’s nearly 30%! Some smaller banks like Silicon Valley Bank, Signature Bank, and First Republic struggled with the effects of higher interest rates, as well. And deposit levels at major banks have been declining, with growth turning negative and reaching -6%, its lowest level in April. Blackrock amassed some good inflows and closed the quarter just shy of $10 trillion under management. The mix of the good and the bad led Citigroup shares 4% down. Wells Fargo first rallied before closing the day in the negative on Friday. The upcoming earnings reports from Bank of America, Morgan Stanley, and Goldman Sachs will be closely watched, among other big names.

On the list of companies that are due to release earnings this week, we find Netflix, Tesla, IBM, TSM, American Airlines and American Express. Overall, analysts project that S&P 500 companies will see the biggest contraction in earnings growth during the second quarter, where profits are expected to fall by 7-9% year-over-year. That doesn’t really match what we see in the S&P500 chart, as the index advanced to a fresh high since April 2022 and is up by around 24% since last October dip. But the reality is that, with just over 5% of companies in the index having reported, profit growth for the period is on track to have contracted by 9.3% thus far, according to Bloomberg. It’s too early to call of course because the tech is what carried the S&P500 this high over the past half-a-year and their earnings should be the ones to confirm the nice rally we saw on index level, but we could come down to earth with less shinier figures on that end. Yes, AI boosts revenue, and revenue expectations but Taiwan’s exports of chips fell for the 6th consecutive month in June due to weaker global demand. Exports decreased more than 20% from a year earlier to a four-month low and when you think that the island is home to some big and loved names like Apple and Nvidia’s go-to chipmaker, TSMC, you question whether the biggest annual decline in Taiwan’s chip exports since March 2009 isn’t a warning that equity investors may have gone ahead of themselves when rushing to these stocks.

Daily Pivots: (S1) 1.6326; (P) 1.6382; (R1) 1.6477; More...

EUR/AUD rises notably today but stays below 1.6552 resistance. Intraday bias remains neutral at this point. Outlook is unchanged that correction from 1.6785 should have completed with three waves down to 1.5846. On the upside, break of 1.6552 will target a retest on 1.6785 high next. This will remain the favored case as long as 1.6231 support holds, even in case of another dip.

In the bigger picture, with 38.2% retracement of 1.4281 to 1.6785 at 1.5828 intact, rally from 1.4281 is still in progress. Firm break of 1.6785 will confirm rise resumption. Next target is 100% projection of 1.5254 to 1.6785 from 1.5846 at 1.7377. On the other hand, rejection by 1.6785 will extend the corrective pattern with another fall leg. But outlook will stay bullish as long as 1.5828 holds.