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• Brent Crude oil prices rose on Wednesday due to a larger-than-expected draw in US crude inventories.
• The market anticipates further inventory reduction, leading to potential support for prices in Q4.
• Technical analysis suggests bullish continuation, with a key resistance level at 87.90 and potential for a move towards 90.00 if this level is breached.

Brent Crude enjoyed a mixed Wednesday as European session losses were wiped out by EIA data. US Crude stocks fell more than expected in a move many had anticipated as the US summer holiday period gets into gear.

Crude inventories decreased by 12.2 million barrels, bringing the total to 448.5 million barrels for the week ending June 28, according to the EIA. This decline significantly exceeded analysts’ expectations in a Reuters poll, which had predicted a draw of 680,000 barrels.

This appears to confirm market participants’ recent optimism, suggesting that a reduction in inventories toward the end of the summer will likely lead to market tightness and support prices as Q4 approaches

The chart below shows US EIA inventory numbers based on the actual first release before revisions (yellow line). The (blue line) shows the expected inventory number based on Reuters polls.

Source: LSEG (click to enlarge)

US and Oil Rig Data Ahead

Today is likely to be a quiet one with the US independence day holiday and UK election. Liquidity might prove to be an issue and thus markets may experience sideways price action.

Friday could be a blockbuster end to the week, with NFP and jobs data from the US and the return of US markets. Baker Hughes oil rig data is also scheduled for release and could also impact oil prices ahead of the weekend.

Technical Analysis on Brent Crude Oil

Oil prices ran into resistance at 87.90 on Tuesday and looked set for retracement. The EIA data yesterday however, helped push oil prices back toward the key resistance level while printing a hammer candlestick on the daily timeframe.

This makes for an interesting day with bullish continuation and a break of 87.90 finally opening the door for an assault at the 90.00 psychological level. The recovery since the beginning of June has been steep with very little retracement, something which continues to concern me.

For now though, price action and EIA data support a move higher. Given the low liquidity environment expected today, there is a chance that oil fails to close above the 87.90 resistance level, in which case NFP data tomorrow could serve as a catalyst for either a push toward 90.00 or a retracement back toward the 85.00 handle.

Brent Crude Daily Chart, July 4, 2024

Source: TradingView.com (click to enlarge)

Key Levels to Keep an Eye on;

Support

• 86.21
• 85.00 (confluence area, MA, Psychological level and previous support)
• 83.70

Resistance

• 87.90 (last week’s highs)
• 90.00 (psychological level)
• 92.50

On 25 June, we noted that the USD/CAD price had approached a crucial support level—the lower boundary of a converging triangle, which indicated a relative balance of supply and demand in the market during May.

Since then, the price has bounced twice from this level (as indicated by the arrow).

Today, as the USD/CAD chart shows, the exchange rate is breaking through this key support, indicating a disruption in balance.

This has been influenced by the weakness of the USD. According to Reuters, the US dollar has declined relative to other currencies due to weaker-than-expected US economic data released on Wednesday. These included a weak ISM Services PMI report and the ADP Non-Farm Employment Change report, which might suggest an economic slowdown.

How might the Canadian dollar's exchange rate change relative to the US dollar?

According to today's technical analysis of the USD/CAD chart:

→ the price is moving within a descending trend channel (shown in red). The median line of the channel may serve as a resistance level;

→ the fact that bulls attempted to push the price upwards, breaking the peak at Point 1, but failed—a bearish signal;

→ the sharp rise to Peak 2 was followed by an even sharper fall—a sign of bearish engulfing.

Therefore, the dominance of supply forces could lead to a continuation of the downward movement. It is not out of the question for the USD/CAD exchange rate to decline to the lower boundary of the red channel, with an attempt to break the May low around 1.359.

However, sharp movements are unlikely today due to the celebration of Independence Day in the USA.

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Upon analysing the long-term BTC/USD chart on 16 May, we constructed a "roadmap" for Bitcoin's price, which appeared as an expanding fan and consisted of a median with support levels below it and resistance levels above it.

Analysing the BTC/USD chart last time on 28 June, we pointed out that:

→ the price broke down through Support 1 following a series of weak bullish rebounds;

→ the price found support at the Support 2 line, forming a strong rebound from it on 24 June;

→ according to Marcus Thielen, founder of 10x Research, the BTC/USD rate could decline to $50,000.

How has the market situation changed over the week?

As shown by the BTC/USD chart today:

→ The price of Bitcoin has fallen below the psychological level of $60k;

→ It has also fallen below the 24 June low, marking the lowest point since 1 May.

Currently, the price is in close proximity to the 1 May low, creating a threat of a more significant decline to the price levels seen at the end of February 2024, when Bitcoin's price rapidly increased due to the influx of investors into ETF funds.

How realistic is this threat? Considering that the initiative is on the side of the bears, the scenario of further price decline is quite likely.

As today's technical analysis of the BTC/USD chart with updated data shows:

→ the price continues to decline within the red channel, staying in its lower half (a bearish sign);

→ the price has fallen below the Support 2 line, which may now act as resistance.

According to Coinglass, over the past 12 hours, more than $160 million worth of long positions have been liquidated on major cryptocurrency exchanges. Panic (and liquidation of longs) could intensify if the BTC/USD price falls below the May lows.

Support levels for Bitcoin's price could include:

→ the lower boundary of the red channel;

→ the psychological level of $55k;

→ the Support 3 line, which is part of the previously constructed "roadmap".

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Market picture

The crypto market plunged 3.6% in 24 hours to $2.17 trillion, its lowest level since late February. Triggered stop orders in this morning’s thinly liquid market added to the magnitude of the decline, sending Bitcoin briefly below $57.7K and Ethereum to $3150. Top altcoins are losing in a range from -0.7% (Tron) to -9% (Solana).

Bitcoin has lost 9.5% in just over two days of selling. At its low point on Thursday morning, the price touched the lower boundary of the descending channel and dropped below the 200-day moving average but has so far been able to bounce back above it, trying to stay within established patterns. However, this has not been entirely successful, as the price is already below the 61.8% retracement level and has updated the lows from early May. From the current position, a 12% drop to $51.5k (February consolidation area) is more likely than the same amount of growth to $65.8k (50-day MA).

Solana underwent an intensified sell-off after touching the 50-day MA and is now testing support at the 200-day MA. As with Bitcoin, a break below would force the pair to target the late February lows as a potential next stop.

News background

Despite the correction, the options market is still heavily skewed towards BTC growth, as evidenced by the strong interest in long-term options at the $100,000-120,000 strike. According to QCP Capital, this points to the likelihood of a resumption of the rally by the end of the year.

According to River, by the end of the first quarter, 13 of the top 25 US hedge funds had invested in spot bitcoin ETFs. According to the research, 534 organisations—from hedge funds to pension and insurance companies—with more than $1bn in assets have invested in BTC ETFs. Specifically, 11 of the top 25 registered investment advisers and hundreds of smaller firms have placed money in the instrument.

VanEck said the launch of the Solana ETF is largely dependent on the outcome of the upcoming US presidential election and whether Gary Gensler remains at the helm of the SEC. The firm filed to launch such an ETF last week.

Nate Geraci, president of investment firm The ETF Store, suggested that the final Form S-1 filing could be approved by 12 July, opening the way for the Ethereum ETF launch on 15 July.

Despite the ban on cryptocurrency mining in the PRC, Chinese bitcoin mining pools hold 54% of the market share, said CryptoQuant CEO Ki Yun Ju. He suggested that the government could control several cryptocurrency mining pools.

Pump.fun, a Solana-based meme token launch platform, has surpassed Ethereum in terms of daily revenue, reaching $1.99 million. According to Dune Analytics, the platform issued an additional 11,528 tokens on 1 July, bringing its cumulative total to 1,199,685.

UK PMI Construction fell to 52.2 in June, down from 54.7 in May, and below the expected 54.0. S&P Global highlighted the sharpest rise in employment in ten months, while inflationary pressures remained subdued.

Andrew Harker, Economics Director at S&P Global Market Intelligence, noted that the slowdown, particularly in housing activity, was partly due to "election uncertainty". He suggested that trends might improve once the election period ends.

Firms remain optimistic about the year-ahead outlook and increased employment significantly. Inflation pressures stayed low, encouraging firms to expand purchasing activity. Stable supply-chain conditions also supported this positive trend..

Full UK PMI construction release here.

• Yesterday’s lacklustre US ISM services PMI and ADP employment data for June increases the odds of a further US Treasury yield curve un-inversion.
• A further un-inversion above -0.08% on the US Treasury yield spread between 10-year & 2-year may trigger a bull steepening scenario.
• A potential bull steepening in the US Treasury yield curve may see an outperformance of the value factor, in turn, trigger a bullish breakout in the Dow Jones Industrial Average (DJIA).

Since the start of the year, the venerable Dow Jones Industrial Average has lagged where it underperformed the high-flying Nasdaq 100 and the S&P 500 which continued to print fresh all-time highs.

As of Wednesday 3 July, the Dow Jones Industrial Average (DJIA) year-to-date gain stood at a meagre 4.22% and has underperformed significantly against the double-digit gains seen in the Nasdaq 100 and S&P 500 which recorded stellar returns of 22.02% and 16.75% respectively over the same period.

K-shaped performance between DJIA & Nasdaq 100, S&P 500

Fig 1: 2024 YTD performance of major US stock indices with mega-cap stocks as of 3 Jul 2024 (Source: TradingView, click to enlarge chart)

The primary catalyst of the strong outperformance seen in the Nasdaq 100 and S&P 500 is due to the persistent positive momentum factor inherent only in a handful of technology mega-capitalization component stocks riding on the current artificial intelligence (AI) positive feedback loop wave such as AI-GPU chip juggernaut, Nvidia that has a magnificent year-to-day rally of 166% followed, Microsoft, Meta, Alphabet, Amazon, and Apple with the introduction of a new AI-powered iPhone model.

The lack of love for value factor is the main drag on the DJIA performance

Fig 2: Relative strength of S&P Momentum & Value ETFs with UST 2-10 yield curve as of 3 Jul 2024 (Source: TradingView, click to enlarge chart)

The DJIA has only three technology titans; Microsoft, Apple and Amazon as part of its 30 component stocks but it is heavily weighted toward value-oriented financials, industrials, and healthcare stocks.

The value factor has not been in favour and the darling of the US stock market since January 2023. The relative strength (ratio chart) of the S&P 500 Enhanced Value exchange-traded fund (re-ranked according to value factor; components stocks that have higher value scores will have a higher weightage) over the S&P 500 has continued to oscillate in a downtrend phase (see Fig 2).

In contrast, the S&P 500 Momentum ETF has outperformed the S&P 500 in the past year and continued to print a series of fresh all-time highs since early March 2024 as seen from its relative strength chart.

Hence, the current persistent underperformance trend of the value factor has caused the performance of the DJIA to fall behind the Nasdaq 100 and S&P 500. But the fortune of the DJIA may soon reverse after the release of yesterday’s lacklustre US ISM services PMI and ADP employment data for June.

Weak ISM services PMI & ADP employment may trigger a bull steepening in the UST yield curve

The US Treasury yield curve (measured by the difference between the 10-year US Treasury yield over the 2-year US Treasury yield) has been in an inverted condition (below 0%) since early July 2022.

Interestingly, the pace of the yield curve inversion has started to lose its momentum (un-invert) since December 2023 coupled with a contraction reading seen in the June US ISM services PMI where it tumbled to 48.8, its sharpest contraction since April 2020, together with three consecutive months of jobs hiring slowdown as indicated by the ADP employment data.

The odds of a potential second interest rate cut by the US Federal Reserve during the December FOMC meeting have increased to an aggregate probability of 89% from around 70% chance a day earlier according to the CME FedWatch Tool at this time of the writing.

The risk of an impending slowdown in aggregate internal demand in the US economy sees an increased chance of two interest rates cut by the Fed before 2024 ends, in turn, increases the likelihood of a bull steepening scenario on the US Treasury yield curve as the 2-year Treasury yield being more sensitive to monetary policy is likely to decrease at a faster rate over the 10-year Treasury yield if the Fed revisits its “dovish pivot” playbook.

A bullish steeping scenario is likely to favour a potential outperformance in the value factor at least in the short to medium-term horizon.

The previous brief US Treasury yield curve steepening episode from August 2020 to March 2021 led to a relative strength outperformance of the S&P 500 Enhanced Value ETF over the S&P 500 (see Fig 2).

Thus, a break above the -0.08% of the US 10-year/2-year Treasury yield spread may trigger the potential bull steepening scenario, in turn, may see the laggard DJIA to catch up with its peers as the value factor starts to shine.

Bullish range consolidation detected in DJIA

Fig 3: US Wall Street 30 medium-term trend  as of 4 Jul 2024 (Source: TradingView, click to enlarge chart)

Based on the current price actions of the US Wall Street 30 CFD Index (a proxy of the DJIA futures), it has started to evolve into a bullish “Ascending Triangle” range configuration in place since19 April 2024 according to a technical analysis perspective (see Fig 3).

Coupled with the current bullish momentum condition (higher lows above the 50 level) seen in the daily RSI momentum indicator; these positive technical elements suggest that the current three months of consolidation are skewed towards a “pause” of its ongoing major uptrend phase that remains intact since 3 October 2022.

A break above the 40,030 range resistance of the “Ascending Triangle” may trigger a potential fresh round of bullish impulsive upmove sequence for the next medium-term resistances to come in at 41,440 and 42,520/670.

On the other hand, failure to hold at the 37,150 key medium-term pivotal support invalidates the bullish bias to kickstart a potential multi-week corrective decline to expose the key long-term pivotal support at 34,940.

The NZD/USD pair has extended its upward movement into a third session, reaching 0.6106 amid growing weaknesses in the US dollar.

Negative shifts in US economic indicators, particularly June's disappointing private sector employment data from ADP and uncertain PMI signals, have supported the New Zealand dollar's recent gains. These factors have fuelled speculations about a possible interest rate cut by the Federal Reserve later in the year. However, such predictions should be approached cautiously, as the Fed has indicated it will only consider rate cuts after accumulating substantial supportive data.

Recent minutes from the Fed's meetings suggest that while inflation is trending towards the target, the movement is not yet pronounced enough to justify immediate rate cuts.

Looking ahead, the Reserve Bank of New Zealand (RBNZ) is expected to maintain its key rate at 5.5% during its upcoming meeting, marking the eighth consecutive hold at this level.

Technical analysis of NZD/USD

The NZD/USD pair recently completed a downtrend to 0.6048 and corrected back to 0.6128. Currently, the market is likely forming a consolidation range below this level. A breakout downwards could initiate a new decline towards 0.6022, aligning with technical indicators. The MACD supports a bearish outlook as its signal line is below zero, suggesting further declines.

On the hourly chart, after finding support at 0.6048, NZD/USD surged to 0.6077 and consolidated. Following an upward break, the pair reached 0.6128. We now anticipate the formation of a new consolidation range below this peak. Should the price break lower, we expect a return to 0.6077, potentially extending to 0.6022 if the downward momentum continues. This bearish potential is underscored by the Stochastic oscillator, poised to descend further from the 50 mark to 20.

Market outlook

Investors will closely monitor upcoming economic releases and central bank communications, particularly from the RBNZ and the Fed, which could significantly influence the trajectory of NZD/USD. The balance between local economic stability and global USD dynamics will be crucial in determining the near-term direction of the pair.

EURUSD remains at the front foot in early Thursday’s trading and holding under new three-week high (Wednesday’s spike at 1.0816).

Bulls probe again through cracked daily Kijun-sen (1.0791) and look for retest of daily cloud top (1.0808).

Cloud top was dented on Wednesday but subsequent pullback from new high and daily close well below cloud top, generate initial signal of bull-trap formation and warn of possible stall.

Adding to negative signals to the single currency was strong drop in German industrial orders in May that contributes to weak picture in manufacturing sector, which remains in contraction for two years.

Technical picture has further improved on daily chart, as positive momentum is rising and MA turned to almost full bullish setup however, sustained break above pivotal 1.0800 resistance zone (converged 100/200DMA’s / psychological / daily cloud top) is required to confirm bullish stance and signal continuation of recovery leg from 1.0666 higher base.

Otherwise, the downside is expected to remain vulnerable, despite prevailing bullish bias above cloud base (1.0771) and strong rally on Wednesday.

Loss of cloud base to generate initial negative signal, with drop below daily Tenkan-sen (1.0741), to confirm reversal and expose 1.0666 base for retest.

Markets are expected to operate with lower volumes today, as the US is shut for Independence Day, however, UK election, as top event today, may increase volatility.

Res: 1.0808; 1.0820; 1.0852; 1.0889.
Sup: 1.0771; 1.0741; 1.0723; 1.0700.

• AUDUSD attempts to break above sideways structure
• Oscillators are heavily tilted to the bullish side

AUDUSD has been trading sideways for more than a month now, unable to adopt a clear directional impetus. However, in the last two sessions, the bulls have been testing the upper end of the neutral pattern, where a decisive break could trigger a sharp move to the upside.

If buying pressures persist and the price closes above 0.6713, the recent resistance of 0.6732 could prove to be a strong barrier for the bulls to claim. A violation of that threshold could pave the way for the December 2023 high of 0.6870. Failing to halt there, the pair may advance towards the double top region of 0.6898, registered last summer.

On the flipside, should the pair reverse lower, immediate support could be found at the April-May resistance of 0.6643 ahead of 0.6618. In case of a downside break, the bears may attack the May support of 0.6590. Further declines could then come to a halt at 0.6558, which overlaps with the 200-day simple moving average (SMA).

In brief, AUDUSD appears ready to escape its neutral structure as the upper limit has been tested in the last two sessions. Nevertheless, a repeated failure to claim this level might lead to the pair's reversal back within the short-term range.

Daily Pivots: (S1) 204.90; (P) 205.54; (R1) 206.68; More...

Intraday bias in GBP/JPY remains on the upside for the moment. Firm break of 100% projection of 191.34 to 200.72 from 197.18 at 206.56 will target 138.2% projection at 210.17. On the downside, below 204.71 minor support will turn intraday bias neutral and bring consolidations. But outlook will remain bullish as long as 201.59 resistance turned support holds, in case of retreat.

In the bigger picture, long term up trend is still in progress. Next target is 100% projection of 155.33 to 188.63 from 178.32 at 211.62. Outlook will stay bullish as long as 197.18 support holds, even in case of deep pullback.