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Stock markets are ending the week on a high and once again we have the Fed to thank for it.

Equities in the US enjoyed a nice rebound on Thursday when New York Fed President John Williams claimed that given the more limited resources at their disposal than in the past, preventative rate cuts would be more suitable than waiting for disaster, a clear nod to what we can expect at the upcoming meeting later this month.

Of course, a rate cut was already fully priced in but those comments - some of which were later shared by vice Chair Clarida - prompted a surge in the odds of a 50 basis point cut, to the point that it's now viewed as a coin toss.

This further highlights that while the fundamentals are showing pockets of weakness, highlighted by a rocky start to earnings season, investors are becoming increasingly reliant on the Fed to keep the party going. While that shouldn't be the Fed's concern, the argument for preventative cuts is fair, although 50 basis points to get things going seems quite drastic when the economy is still very healthy.

Gold pares gains after surge on weaker dollar

As you'd expect, the comments reverberated around the rest of the market as well, with the dollar taking another tumble on the prospect of more aggressive easing than the Fed had previously signaled. This has brought some relief to some other currencies like the pound which has suffered in recent months. That said, sterling is back in the red today so the joy was short-lived.

Gold was given a strong boost by the news, surging beyond its recent peaks to break $1,450 although that little shot of adrenaline hasn't been enough to sustain the rally, with the yellow metal trading back around $1,440. A more accommodative Fed is of course good for gold though so more joy may lie ahead.

Oil higher after US shoots down Iranian drone

It was a strange day for oil prices on Thursday and while they are trading higher today, they look like they don't know what to do with themselves. The news of the US shooting down an Iranian drone may another time have caused prices to spike aggressively but instead traders took it in their stride. Perhaps this just isn't enough of an escalation any more to spark traders interest, which would be a sign of how bad things have got.

Bitcoin pares gains after Thursday's spike

Cryptos are unusually one of the more relaxed instruments on Friday, perhaps taking a well deserved break after weeks of chaos. Needless to say, they've spent plenty of time in the headlines recently and have been a hot topic in Washington. Bitcoin spiked yesterday on an apparent good news story for the space, with one lawmaker claiming it can't be killed. This is hardly worthy of a 10% turnaround but after a period of such negative attention, perhaps it was just the kind of headline enthusiasts were craving.

GBPCAD slipped aggressively from the May 6 top of 1.7727, breaking through the congested support lines formed during the August 2018-March 2019 up leg, with buyers only seeming to make progress in stalling this down push yesterday.

The short-term simple moving averages (SMAs) of 14- and 21-days still agree with the south move, and furthermore, the 14-day SMA paused the buyer’s effort to start a pullback. The long-term SMAs of 50-, 100- and 200-days also concur, with a bearish cross of the 50-SMA below the 200-SMA. The MACD and the RSI continue to show negative momentum as they remain in negative areas. The ADX implies that the down trend is very strong.

A continued collapse in the pair would require the 14-day SMA and initial resistance of 1.6425 to hold, and possibly the 100-SMA to cross below the 200-SMA, which would send the price to test a twenty-two-month low of 1.6145.

A shift to the upside would require the pair to break the initial barriers of the 14-SMA and the resistance of 1.6425, before tackling the 21-SMA and then the 23.6% Fibo of the down leg from 1.7727 to 1.6145, of 1.6520. Jumping the hurdles of congested resistances coupled with the 38.2% Fibo of 1.6750 and the 50-SMA around there would make further northward displacement seem easier.

Summarizing, the bearish bias is prevalent across all time frames for now.

USDTRY has been in a downtrend over the last two months following the pullback on the seven-month high of 6.2440. The pair is holding beneath the 20- and 50-simple moving averages (SMAs), however, the momentum indicators are signaling for some gains in the short-term. The RSI is pointing marginally up in the negative zone, while the MACD posted a bullish crossover with its trigger line below the zero line.

In case of another step lower and a penetration of the four-month low of 5.5780, the price could touch the immediate support of the 61.8% Fibonacci mark of the upward wave from 5.1330 to 6.2440 around 5.5553. Steeper declines could push the price until the 5.3000, registered on March 26.

Alternatively, if the market corrects higher, the very short-term bullish action may pause initially near the 50.0% Fibo of 5.6860, which stands near the falling trend line. A rally on top of the latter would probably stage fresh buying pressure with the price moving next to the 5.7775 level and the 38.2% Fibonacci region of 5.8170, which coincides with the 50-day SMA.

Finally, the price is still developing in a descending move in the near term, and traders should wait for a penetration of the diagonal line for posting gains.

USD was on the retreat yesterday as Fed officials strengthened expectations for the Fed to cut rates in its July meeting. NY Fed President John Williams held an argumentation about the Fed taking pre-emptive measures, which was interpreted as a dovish signal. Similar comments were made by Fed’s Clarida who stated to media that the bank may have to act early and not wait “until things get so bad. Analysts were quick to note that despite there being an effort to revise William’s statements later on, no such effort was made for Clarida’s statements, which were at the same tone. We could see the USD remaining under pressure and Fed driven, while today’s financial releases could take a back seat for today. EUR/USD rallied yesterday, breaking the 1.1260 (S1) resistance line (now turned to support), yet relented some of its gains during today’s Asian session. The pair seems to have stabilized somewhat later on, yet we could see it rising further should Fed officials sound dovish once again. Should the pair come under selling interest of the market, we could see it breaking the 1.1260 (S1) support line and aim for the 1.1220 (S2) support barrier. Should the pair’s long positions be favored by the market, we could see it aiming if not breaking the 1.1300 (R1) resistance line.

GBP strengthens on Brexit prospects

The GBP strengthened yesterday as Michel Barnier stated that the he is ready to work on alternative arrangements for the Irish border. The comments made early during the European session spurred optimism among pound traders, that a solution to the issue may be found. Pound bulls were also supported by strong retain sales growth rates which outperformed expectations and passed on into the positives. Additional to that, the UK Parliament voted to block the possibility that the new PM would close the UK Parliament to pass a no deal Brexit. It should be noted that at least 30 Tory MP’s revolted, including Finance minister Philip Hammond either by voting the motion or abstaining. Should there be further positive headlines about Brexit we could see the GBP strengthening further. Cable rose yesterday, as the pound strengthened against the USD, breaking the 1.2475 (S1) resistance line (now turned to support and continued its rally in the American session, aiming for the 1.2560 (R1) resistance level. The pair could be correcting lower today, especially should there be negative headlines for Brexit. On the flip side should the dovish statements of Fed officials continue today, we could see the pair rising. Should the bulls dictate the pair’s direction, we could see it breaking the 1.2560 (R1) resistance line and aim for the 1.2665 (R2) resistance hurdle. Should the bears take over, we could see the pair aiming if not breaking the 1.2475 (S1) support line and move on to lower grounds.

Other economic highlights, today and early tomorrow

Today, during the European session, we get Germany’s PPI rate for June. In the American session, we get Canada’s retail sales growth rates for May and from the US the preliminary University of Michigan consumer sentiment for July, as well as the Baker Hughes active oil rig count. Please note that today, St Louis Fed President Bullard, Boston Fed President Rosengren and BoJ Governor Kuroda are scheduled to speak. Given the recent volatility, we expect market participants to be closely watching the scheduled speeches.

EUR/USD H4

Support: 1.1260 (S1), 1.1220 (S2), 1.1180 (S3)
Resistance: 1.1300 (R1), 1.1340 (R2), 1.1390 (R3)

GBP/USD H4

Support: 1.2475 (S1), 1.2375 (S2), 1.2280 (S3)
Resistance: 1.2560 (R1), 1.2665 (R2), 1.2765 (R3)

The US dollar fell yesterday against a basket of major currencies after a speech by the head of the Federal Reserve Bank of New York, John Williams. The official said yesterday during the banking conference that in case low rates and inflation, the regulator would have to take the necessary measures to stimulate the economy. Investors took his words as a signal to lower interest rates at the next Fed's meeting. The US dollar index (#DX) closed yesterday in the red zone (-0.42%).

Despite this, today the US dollar is recovering losses. Positive economic statistics, which was published yesterday, supported the American currency. Thus, the Philadelphia Fed Manufacturing Index counted to 21.8, while experts expected 5.0. The number of initial jobless claims was 216K, which coincided with forecasts. Also, US Treasury Secretary Steven Mnuchin said yesterday that negotiations with China were continuing, and one shouldn’t believe everything the media says. Earlier, some publications have reported that negotiations are actually suspended due to the fact that the US government has not weakened sanctions against Huawei Technologies.

The British pound strengthened against the US dollar. Optimistic economic data in the UK was published yesterday. Thus, the volume of retail sales rose in June by 1.0%, while experts expected a decline by 0.3%. The core retail sales index (yoy) rose by 3.6% in June instead of 2.7%.

The "black gold" prices are rising after lowering the day before. At the moment, futures for WTI crude oil are testing the mark of $55.90 per barrel.

Market Indicators

• Yesterday, in the US stock markets, a variety of trends was observed: #SPY (+ 0.37%), #DIA (-0.00%), #QQQ (+ 0.11%).
• The yield on 10-year US government bonds is at 2.04-2.05%.

The news feed 2019.07.19:

• The core index of retail sales in Canada is at 15:30 (GMT+3:00);
• Michigan consumer sentiment and expactations at 17:00 (GMT+3:00).

The common European currency traded with low volatility against the Japanese Yen on Thursday. The currency pair made about 24 pips movement during yesterday's trading session.

Given that the currency exchange rate has reversed from the lower boundary of a descending channel pattern, it is likely that the pair could aim for the upper band of the channel pattern at 121.63 before the end of today's trading session.

However, technical indicators demonstrate that the EUR/JPY exchange rate might continue its movement in the descending channel pattern during the following trading session.

The Australian Dollar appreciated about 53 base points against the US Dollar on Thursday. The currency pair breached the weekly R1 at 0.7062 at the end of yesterday's trading session.

Everything being equal, it is likely that the AUD/USD exchange rate will make a brief retracement down towards a support cluster formed by the 50– and 100-hour SMAs at 0.7031.

If the support cluster holds, a potential upside reversal could occur during the following trading session.

The US Dollar depreciated about 74 base points against the Canadian Dollar on Thursday. The currency pair breached both the 50-, 100– and 200-hour SMAs during yesterday's trading session.

As for the near future, it is likely that the exchange rate will continue its downward swing. The potential target for bearish traders will be near the weekly S1 at the 1.2983 regions.

Furthermore, technical indicators suggest bearish signals on both the smaller and the larger time frame charts.

The New Zealand Dollar appreciated about 62 base points against the US Dollar on Thursday. The exchange rate tested the weekly R2 at 0.6787 during yesterday's trading session.

As for the near future, most likely, the NZD/USD currency pair might continue its upward movement. Bullish traders could aim for the upper boundary of an ascending channel pattern at 0.6840.

However, a resistance cluster formed by the weekly R2 and the Monthly R2 at 0.6787 could hider bulls from pushing the rate up today.

Gold finally broken out of consolidation and hit as high as 1452.94. 100% projection of 1160.17 to 1346.71 from 1266.26 at 1452.80 is breached but there is no sign of topping yet.

Near term outlook will stay bullish as long as 1414.62 minor support holds. Firm break of 1452.80 will target 161.8% projection at 1568.08. Though, break of 1414.62 will bring consolidations again.

The 1568.08. projection level is also in proximity to 61.8% retracement of 1920.70 to 1046.37 at 1586.70. Thus, strong resistance will likely be seen there to limit upside, at least on first attempt.