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Technical analysis

The EMA(50) and the EMA(100) cross, which is favourable for opening an order

The EMA(50) is above the EMA(100), which is beneficial for bulls

The MACD indicator is above 0 and pointing down

The RSI is slightly below 50.

What the possible outcomes are

The XAUUSD pair recovered modestly from 1,795 and now defends the 1,800 price level. Technical indicators show a possible upward movement, although its potential is limited.

If the price passes the initial resistance level of 1,808.93, it could test the next one higher at 1,825.12.

Alternatively, if the price reverses, then it could reach the first support level of 1,798.82. A pass below the first level can move the price up lower toward 1,791.44.

Key levels

Support 1,798.82 1,791.44

Resistance 1,808.93 1,825.12

The EURUSD was little changed in the overnight session as divisions emerged among European Central Bank (ECB) members. The bank concluded its first meeting in its new policy framework yesterday and left interest rates and quantitative easing policies unchanged. It pledged to maintain this policy until inflation rose to 2%, which will be in the next 1 to 2 years. Still, some of the committee’s most hawkish members criticized this decision. According to the Financial Times; the Belgian and German bank heads strongly objected to the wording of the statement. The Bundesbank head said that the new conditions were too aggressive and increased risks for higher inflation.

The GBPUSD pair maintained the bullish momentum ahead of the latest UK retail sales numbers. Economists expect data to show that sales increased by 0.4% in June leading to a 9.6% year-on-year gain. They also see the core retail sales rising by 0.6% on a month-on-month basis and by 8.2% on an annualised basis. The pair will also react to the latest flash manufacturing and services PMIs. The pair has been relatively resilient even as the UK faces significant challenges as Delta variant cases reportedly rise.

The economic calendar will be relatively busy today as Markit publishes the flash manufacturing, services, and composite PMI numbers. Data from some countries like the UK and EU is expected to remain steady due to the reopening. Other important numbers scheduled for today are the Canadian and Mexican retail sales data, Singapore inflation, and Sweden producer price index data.

GBPUSD

The GBPUSD pair held steady during the American and Asian sessions. It is trading at 1.3766, which is slightly below yesterday’s high of 1.3786. On the hourly chart, the pair has formed a bullish flag pattern and is below the 61.8% Fibonacci retracement level. The Relative Strength Index (RSI) has formed a bearish divergence pattern. It is also slightly above the 25-day moving average. Therefore, the pair will likely break out higher ahead, or after, the latest UK retail sales data.

EURUSD

The EURUSD remained in a tight range after the ECB interest rate decision. It is trading at 1.1775, where it has been in the past few days. The pair has formed a falling wedge pattern on the four-hour chart. This wedge is nearing its confluence zone. It is also slightly below the 25-day moving average while the MACD is slightly below the neutral line. Therefore, the pair will likely remain in this range today. An eventual bullish breakout may happen next week around the Fed decision.

EURGBP

The EURGBP sell-off accelerated during the overnight session. It is trading at 0.8552, which was the lowest level since Tuesday. The pair is substantially lower than this week’s high of 0.8670. The Awesome Oscillator moved below the neutral line while the Relative Strength Index (RSI) fell to the oversold level. It has also declined to the middle line of the descending channel. Therefore, the pair will likely keep falling as bears target the next key support at 0.8500.

Market movers today

• Today's key releases are the preliminary PMIs for the euro area, the US, and the UK for July. We are looking for whether we are seeing a peak in manufacturing and price pressure, which have been major themes in the first half of the year.
• This morning, UK retail sales for June are due out. Consensus is looking for a modest increase.

The 60 second overview

ECB decision: Yesterday's ECB meeting was the first following the strategic review published earlier this month. On bond buying nothing is changed and the PEPP is still set to expire in March next year. The largest change was on forward guidance, where the ECB now needs to see inflation reach 2% well ahead of the end of its projection horizon before considering hiking monetary policy rates. This wording is compared with the June statement saying 'to the end of the forecast horizon' a dovish shift on forward guidance and EUR yields subsequently declined with periphery outperforming core. For details see more here: Flash ECB Research: Stepping up on inflation ambitions, but not on tools, 22 July.

Coal: Thermal coal (coal which is burnt in power plants to produce electricity) is probably this year's best performing asset class so far, with price increases of 80% on Australian exports and 44% on South African. This puts price levels at their highest since 2009. Of other asset classes only oil is close with Brent crude 44% higher. An explanation for the rally primarily stems from China with local production down following covid-restrictions as well as a drought in the southern part of the country leaving little to no hydroelectric production. Global electricity demand is according to the International Energy Agency set to grow by 5% this year and 4% next year (-1% in 2020). Renewable energy sources are only expected to cover around half of the increase in net demand.

Equities: As indicated in pre-market trading both European and US indices ended yesterday in positive terrain with European stocks outperforming. The S&P500 returned 0.2% on a generally quiet day in both fixed income and equities during the US session after the previous days have been dominated by stronger than expected Q2 earnings for US firms. This morning futures point towards a positive opening in both European as well as US markets, despite Asian indices ending the day lower.

FI: A quiet day in US treasuries with yields in general marginally lower and curves slightly flatter. EUR investors reacted to the ECB meeting by sending yields lower and Bund yields declined by around 3bp ending the day at -0.43% with periphery outperforming.

FX: As expected, the ECB meeting was a non-event for FX markets. The EUR initially found its clue from relative EUR fixed income performance but during the press conference the single currency stabilised at close to unchanged levels for the day. Looking ahead, we strategically favour more EUR/USD downside but emphasise that this is much more a play on USD real rates, global inflation exposure and global cross asset moves than it is a play on ECB monetary policy. Also in the rest of FX majors space yesterday proved a quiet session.

Credit: On the back of a strong earnings season so far, the credit markets seems have shrugged off any Delta-variant related fears. Yesterday the bullish sentiment continued with itraxx main tighter by 1bp to +47bp and xover tighter by 3bp to +235bp.

UK Gfk Consumer Confidence rose from -9 to -7 in July. The index has improved for six months in a row. Personal financial situation over next 12 months was unchanged at 11. General economic situation over the next 12 months dropped from -2 to -5. However, major purchase index rose from -5 to 2.

Joe Staton, Client Strategy Director GfK, says: "The healthy seven-point rise in the major purchase measure aligns with strong retail growth figures that reflect the gradual unlocking of the UK high street and release of pent-up demand as Brits hit shops, restaurants and venues. However, threats from increasing consumer price inflation, rising COVID infection figures, and the looming end of furlough and the Job Retention Scheme could put the brakes on this rebound.

Full release here.

Australia PMI Manufacturing dropped from 58.6 to 56.8 in July, a 4-month low. PMI Services dropped from 56.8 to 44.2, a 14-month low. PMI Composite dropped from 56.7 to 45.2, also a 14-month low.

Jingyi Pan, Economics Associate Director at IHS Markit, said: "Latest indications from the IHS Markit Flash Australia Composite PMI suggested that Australia's growth streak had been brought to a halt in July, and perhaps no surprise given the renewed lockdowns aimed to bring the COVID-19 situation under control."

Full release here.

Oil (CL) has ended wave ((4)) pullback on June 7 at 65.24. Since then, it has rallied and surpassed 50% of the drop that began on June 6. We saw the highest point at the price of 76.98 and it had a strong bearish reaction in clear 3 waves (A), (B) and (C) forming a zigzag Elliott Wave structure. Wave (A) was an impulse that fell to 70.76. The rally from there was corrective in 7 swings reaching 76.4% Fibonacci retracement to terminate wave (B) at 75.52. Afterwards, Oil continues dropping forming another impulse that concluded wave (C) of ((4)) at 65.24. Down from wave (B), wave 1 ended at 71.68 and rally in wave 2 ended at 72.93. Oil then resumes lower in wave 3 towards 65.63, rally in wave 4 ended at 67.40, and final leg wave 5 ended at 65.24.

Oil has started to rally in wave ((5)). The bounce from wave ((4)) low at 65.24 looks impulsive. Wave ((i)) ended at 67.65 and the correction as wave ((ii)) ended 66.45. The rally continues and wave ((iii)) completed at 70.51. Wave ((iv)) pullback dropped toward 69.87 and from there, oil extends higher again. Near term, we expect a marginal high to complete wave ((v)). This should complete wave 1 in larger degree and see a pullback in 3 swings at least before the rally resumes. As far as July 20 pivot low at 65.24 remains intact, expect dips to find support in 3, 7, or 11 swing for more upside.

Oil 60 Minutes Elliott Wave Chart

STOCKS

Equities remain higher within their consolidation range and can move up towards the upper end of their range. As mentioned yesterday, the bias now is bullish to see an upside breakout of the range eventually. Dow can test 35000-35100 and a break above it will pave way for 36000. DAX can rise to 15800 on a break above 15600. Nikkei is closed today. Shanghai oscillates within its 3500-3625 range. Sensex and Nifty are moving up within their 52000-51000 and 15600-15900 range respectively.

Dow (34823.35, +25.35, +0.07%) sustains higher and has room to test 35000-35100 on the upside. Our view is bullish to see a break above 35100 and test 36000. But, while 35100 holds, a consolidation between 33000 and 35100 can be seen for some more time before a break above 35100 happens.

DAX (15514.54, +92.04, +0.60%) has moved up further. As mentioned yesterday, a break above 15600 will pave way for a revisit of 15800 and will keep the chances high of seeing 16000-16200 from here itself. A fall below 15400 will bring back the danger of seeing 15000-14800 on the downside first before seeing 16000-16200 on the upside.

Nikkei (27548) is closed today.

Shanghai (3569.70, +7.04, +0.20%) has dipped within its 3500-3625 range today. The sideways remains intact and our bias is bullish to see a break above 3625 and a rise to 3700-3800 eventually.

Sensex (52837.21, +638.70, +1.22%) has risen within its 52000-53000 range as mentioned yesterday. We retain our bullish view of seeing a break above 53000 and a rise to 54000 and higher levels going forward. Supports are at 52000 and 51000.

Similarly, Nifty (15824.05, +191.95, +1.23%) has moved up within its 15600-15900 range as expected. The broader outlook is bullish to break 15900 and rise to 16000-16200. Key supports are at 15600 and 15500.

COMMODITIES

Crude prices have risen and could test immediate resistance above current levels from where a fall can be seen soon. Gold has scope for a fall towards 1780 while within the 1820-1780 range. Silver and Copper trade higher today and needs to sustain to test 26 and 4.40 before coming off from there. If Copper manages to break above 4.40, it can head towards 4.60 in the medium term.

Brent (73.64) has risen above 72.50 mentioned yesterday and could have scope for a re-test of 74-76 zone before facing another rejection from there. WTI (71.74) is up too and could rise to 72-74 before again facing rejection.

Gold (1803.80) is holding above 1800 but while the Dollar rises and attempts to head towards 93 again, Gold has fair scope to fall to support near 1780. Any break below that will be triggered by a sharp surge in dollar Index beyond 93.30 which would then indicate fresh bearishness for Gold in the longer run. But for now, we may expect a possible fall to 1780 before a bounce is seen again. 1820 continues to hold on the upside keeping a near term range of 1820-1780.

Silver (25.41) had risen to 25.54 but has come down slightly from there now. While above 25, we may expect a rise towards 26. Failure to sustain above 25 in the near to medium term will drag it lower towards 24.

Copper (4.3585) has attempted to break above the 4.15-4.30 range but needs to break above 4.40 to turn bullish for the medium term towards 4.60.

FOREX

Dollar Index has risen and heads towards 93-93.30. Euro is stuck within the 1.1750-1.1830 range and is not clear which side to break. We would wait for more clarity on further direction. EURJPY may fall towards 129 while below 130. Dollar Yen may remain ranged within 110.80-109.00. Aussie and Pound looks bullish for the near term. USDINR can test 74.20 while resistance at 74.60 holds well for now.

Dollar Index (92.85) has risen sharply from yesterday’s low of 92.50. Immediate range of 92.50-93.30 may hold for the near term within which the index can attempt to rise over the next few sessions. Any break above 93.30 would be indicative of medium to long term bullishness.

Euro (1.1771) is oscillating within 1.1750 and 1.1830, unable to decide which way to go and we have to wait to see a break out on either side. We may expect sideways consolidation for a few more sessions.

EURJPY (129.78) is likely to remain within 130-128.50 region and a break on either side of the range is needed for the cross to give clarity on further direction from here.

Dollar-Yen (110.23) is likely to hold within 110.80-109.00 region for the near term. Any break on either side will give more clarity on further movement from here.

Aussie (0.7379) is holding well above 0.73 and can rise towards 0.75 eventually. Immediate view is bullish while above 0.73.

Pound (1.3762) is heading towards important level of 1.38 from where a rejection looks possible which can drag down Pound to 1.37 again. Sustained rise above 1.38 can be a bit of a surprise which would then pave way for a rise towards 1.39 eventually.

USDCNY (6.4709) is likely to move up within the 6.45/45-6.49/50 region and eventually break on the upside soon. Failure to rise from current levels could keep it above 6.44 within a narrow trade.

USDINR (74.4650) came down sharply yesterday to test 74.33 before bouncing back from there. A test of 74.20 is possible on the downside while resistance near 74.60 holds. Any break below 74.20 would be further bearish towards 74.00-73.80 in the longer run. For now, watch support at 74.20.

INTEREST RATES

The US Treasury yields have dipped slightly but remain well above their key supports. While above the support, we expect the Treasury yields to see a corrective bounce in the coming weeks and then resume the broader downtrend. The German yields remain bearish and have come down further as expected. There is little room to test their intermediate supports from where we expect a corrective bounce going forward. The 5Yr GoI has risen back above 5.64% contrary to our view of testing 5.6% on the downside. It can now remain in the range of 5.66%-5.7% for a few sessions.

The US 2Yr (0.20%), 5Yr (0.72%), 10Yr (1.28%) and 30Yr (1.92%) have dipped slightly across tenors. Our view remains the same. While above 1.9%, the 30Yr can see a corrective rise to 2.1%-2.2%. Similarly the 10Yr can test 1.45%-1.5% while it sustains above 1.2%. Thereafter the broader downtrend can resume.

The German 2Yr (-0.73%), 5Yr (-0.71%), 10Yr (-0.43%) and 30Yr (0.05%) have come down further in line with our expectation. The 10Yr and 30Yr are coming closer to their key support at -0.45%/-0.50% and 0%/-0.05%. We expect these supports to hold and the yields to see a corrective bounce in the coming weeks.

The 10Yr GoI (6.2021%) oscillates around 6.2% with muted trades. The 5Yr (5.6814%) has risen back sharply above 5.64% again thereby reducing the danger of seeing 5.6% on the downside. We expect it to remain in the range of 5.66%-5.7% in the near-term.

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USDCHF is struggling to dip beneath the 100-day simple moving average (SMA) at 0.9155 following the recent evaporation of upside momentum. That said, the pair is somewhat presently stuck between the stabilized upper and lower frontiers of the Bollinger bands at 0.9259 and 0.9114 respectively. The SMAs at this point in time are not really signalling a definitive price direction.

The short-term oscillators are suggesting a slight increase in negative momentum. The MACD, in the positive area, is holding below its red trigger line, while the RSI is tiptoeing across the 50 level, looking inclined to dip beneath it. That said the negatively charged stochastic oscillator is promoting downside price action.

If sellers drive the price below the 100-day SMA at 0.9155, preliminary tough support could develop at the lower Bollinger band at 0.9114, which happens to also be the 50.0% Fibonacci retracement of the up leg from 0.8757 to 0.9472. Hovering beneath this level is a support band formed between the 50- and the 200-day SMAs at 0.9092 and 0.9071 respectively. If sellers decisively take the lead, the 61.8% Fibo of 0.9030 could be challenged before the hardened floor from the 0.8965 low until the 76.4% Fibo of 0.8924 comes into play.

Otherwise, if the pair oversteps the mid-Bollinger band at 0.9190, buyers may encounter a durable resistance section of 0.9230-0.9274. Climbing above the upper Bollinger band, the 23.6% Fibo at 0.9302 could impede the price from jumping to test the 0.9369 and 0.9400 barriers. From here, only a thrust above the long-term restrictive line, pulled from the 1.0235 peak, and beyond the resistance region of 0.9438-0.9472 could strengthen the bullish outlook.

Summarizing, USDCHF is sustaining a neutral demeanour squeezed between the Bollinger bands. An initial break either above the upper or lower Bollinger band at 0.9259 or 0.9114 respectively could boost a price direction in the near-term.

Markets

Market had two main topics to keep in focus today. First, would markets continue to build on yesterday’s easing of growth fears that dominated trading up until Tuesday? Second topic would be the ECB policy meeting as it pre-announced to update its forward guidance in line with recent review of its policy framework. With respect to global market conditions, the risk-off repositioning continued to ease further. European equities indices are rebounding between 0.5% and 1.0%, suggesting a more constructive market assessment on the growth prospect compared to early this week. However, developments on core (US and German) bond markets still suggest underlying fragility. In this respect, US jobless claims printing at a higher than expected 419k from 368k last week illustrated an ongoing noise on the path of the recovery (including its consequences for the labour market). After a rebound late on Tuesday and yesterday, US yields still show hesitancy declining between 0.6 bp (2-y) and 2 bp (30-y). In this respect, US 10-y yield remains below the 1.30% reference. Cyclical commodities including oil and copper are holding on to yesterday’s rebound or even slightly gaining further.

With respect to the ECB policy meeting, the ECB as announced adapted the forward guidance in order to underline its commitment to maintain a persistently accommodative monetary policy stance to meet its newly formulated inflation target. The new ‘global’ forward guidance now reads: ‘In support of its symmetric two per cent inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees a) inflation reaching two per cent well ahead of the end of its projection horizon and b) durably for the rest of the projection horizon, and c) it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target’. At the same Lagarde basically maintained the economic assessment of the June meeting, with risk to the outlook seen as broadly balanced. The economy still needs broadly favourable financing conditions. In this respect, the Bank didn’t change its ‘cyclical’ guidance confirming PEPP asset purchases in current quarter at a significantly higher pace compared to Q1 and on the € 20bln monthly APP purchases. Detailed guidance on the sequence of PEPP and APP asset purchases apparently wasn’t discussed. That might happen when the ECB has new economic forecasts in September. European yields dropped temporarily after the publication of the statement but German yields currently are trading less than 1 bp different from yesterday’s close.

The calm somewhat reduced the dollars’ safe haven appeal. The trade-weighted index DXY declines from the 92.80 area to trade near 92.60. EUR/USD regained the 1.18 barrier with the rebound slightly accelerating toward the end of the ECB press conference. The recalibration of forward guidance apparently didn’t contain a ‘soft surprise’ for FX markets. At the same time, the technical picture hasn’t changed. For an improvement a rebound above 1.1880/95 area is needed. Sterling initially continued its risk-on rebound with EUR/GBP nearing the 0.8550 area intraday. CBI order data were solid. However, BoE’s Broadbent, in a speech joined the doves, indicating it might be right to overlook current (assumed temporary) rise in inflation. EUR/GBP currently again trades in the 0.858 area.

News Headlines

The Indonesian central bank left its key policy rate unchanged at 3.5% and cut growth prospects as the country grapples with the worst wave of the coronavirus so far. “For 2021, all BI [Bank Indonesia] policies are pro-growth to encourage growth”, the governor said during a briefing. The central bank now sees the economy growing 3.5%-4.3% this year vs. 4.1%-5.1% earlier after the government imposed stricter rules to contain the pandemic. Inflation was left unchanged at 2%-4% for 2021, partially the result of the weakening of the Indonesian rupiah. USD/IDR is currently trading stable around 14883 but has lost more than 4% since the start of the year.