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Long-covering pushes US dollar lower

The US dollar gave back some of its recent gains overnight, as delta-variant nerves eased on the back of strong US corporate earnings. That saw a reduction in haven flows, pushing US bond yields slightly higher and causing some US dollar outflows. The dollar index fell 0.20% to 92.77, where it remains in Asia in subdued regional trading.

In the bigger picture, the US dollar continues to hold onto most of its recent multi-week gains, and a dovish ECB later today could lift the dollar index once again. Having said that, with delta complacency rising as the week has gone on, the US dollar could just as easily drift lower into Friday with no real data to change the narrative this week. A break of 92.50 by the dollar index likely signals more US dollar weakness into the week’s end and early next week.

As outlined above, EUR/USD’s fate will be decided by the ECB this afternoon and should be good for 150 points either way from its present level at 1.1800. Sterling’s price action has also turned constructive, with GBP/USD rallying impressively 0.65% to 1.3715 overnight, recapturing its 200-day moving average (DMA) at 1.3703. Although the driver of the rally is elusive to me, I do respect the price action. The technical picture suggests now that a rally through 1.3730 could extend quickly to 1.3800.

AUD/USD and NZD/USD both recovered with risk appetite in general overnight, as did regional Asian currencies. However, both Australasians and regional Asia FX remain vulnerable to another swing south in risk sentiment in what has been a schizophrenic week. The IDR, MYR and THB remain heavy, and I consider them the most vulnerable to further Covid-induced sell-offs. A surprise cut by Bank Indonesia today could send USD/IDR sharply higher.

Daily Pivots: (S1) 0.8620; (P) 0.8645; (R1) 0.8670; More...

Intraday bias in EUR/GBP is turned neutral first with the current sharp retreat. A temporary top was formed at 0.8668 after rejection by 0.8670 resistance. On the upside, firm break of 0.8670 will affirm the case that whole rebound from 0.8470 is resuming through 0.8718 resistance.

In the bigger picture, price actions from 0.9499 are still seen as developing into a corrective pattern. That is, up trend from 0.6935 (2015 low) would resume at a later stage. This will remain the favored case as long as 0.8276 support holds. However, firm break of 0.8276 support will suggest that rise from 0.6935 has completed and turn medium term outlook bearish.

US earnings lift Wall Street

Wall Street once again rose overnight, as Monday’s delta-dip became buy-the-dip, supported by strong US corporate earnings. The S&P 500 rose 0.82%, with the Nasdaq climbing 0.92% and the Dow Jones finishing 0.83% higher. US markets shrugged off the procedural defeat of the US infrastructure bill in the Senate as administrative, with the real fireworks to come next week.

Although Japan markets are closed, the rest of Asia has contented itself with hitching its wagon to the Wall Street rally with headline drivers and data points thin on the ground today. The Kospi has jumped 1.10%, as strong US earnings boosted major stocks in Seoul. The Shanghai Composite is 0.30% higher in China, and the CSI 300 is 0.10% higher. Hong Kong has leapt 1.75%, dragged higher by the Evergrande rollercoaster. The property developers share jumping 10% at one stage after it said it had “resolved” some issues with lenders on some of its projects. Expect China technology and property stocks to keep Hang Seng volatility alive and well.

Singapore has also leapt 1.30% higher today, with Kuala Lumpur climbing 0.55% and Jakarta rallying by 1.20%. Bangkok has risen 0.20%, with Manila jumping by 1.30% and Taiwan climbing by 0.85%. Australia’s ASX 200 is 1.05% higher, with the All Ordinaries rising by 0.90%.

Given that the Covid-19 issues sweeping Asia have not gone away, and in fact, you could argue they have got worse, the breadth of the Asia-Pacific rally is quite surprising. I attribute it to a combination of complacency, a slow news day, and pent-up buying demand leading to fast-money retail flows piling back into the market. Assuming the music keeps playing in Europe and the US tonight, Asia could well finish the week on a positive note. I will note that fast-money flows are just that, and the winds could change direction very quickly in these types of markets. Investors who insist on playing should remain light on their feet.

Daily Pivots: (S1) 1.5993; (P) 1.6062; (R1) 1.6097; More...

Intraday bias in EUR/AUD is turned neutral with current retreat. Some consolidation could be seen, but further rise is expected as long as 1.5773 support holds. Break of 1.6128 will resume the whole rise from 1.5250, which correctives the down trend from 1.9799, to 1.6827 resistance next.

In the bigger picture, outlook stays bearish with 1.6033 support turned resistance intact for now. Fall from 1.9799, as a correction to to long term up trend from 1.1602 (2012 low) is still in favor to resume through 1.5250 later. However, firm break of 1.6033 will argue that such decline has completed. Stronger rebound would then be seen 38.2% retracement of 1.9799 to 1.5250 at 1.6988.

Technical analysis

The four-hour time frame shows that a bullish inverted head and shoulders pattern has formed after the BTCUSD pair rallied back above the $32,000 resistance level.

The Ichimoku indicator shows that the BTCUSD pair will break above the Ichimoku cloud if they are able to overcome the $32,800 resistance level.

What the possible outcomes are

In our most likely scenario, the BTCUSD pair breaks above the $32,800 resistance level and then starts to advance towards the next strongest area of resistance, around the $35,000 level.

Alternatively, the BTCUSD pair may correct back towards the $31,000 level to attract fresh buying interest before attempting to break above the $32,800 resistance level.

Key levels

Support $31,600 $31,000

Resistance $32,800 $35,000

Technical analysis

The GBPUSD pair now has a bullish short-term trading bias after staging a powerful price recovery back above the 1.3700 resistance level.

The MACD indicator is starting to trend higher on the four-hour time frame, and the RSI indicator is now bullish and is also starting to cross above 50 on the mentioned time frame.

What the possible outcomes are

In our most likely scenario, the GBPUSD pair will continue to recover, and eventually head back towards the 1.3900 resistance level after recently finding a meaningful price floor around the 1.3570 level.

Alternatively, the GBPUSD pair could correct back towards the 1.3740 area and then start to sell-off back towards the current monthly low, around the 1.3570 support area.

Key levels

Support 1.3660 1.3570

Resistance 1.3740 1.3900

Daily Pivots: (S1) 1.0810; (P) 1.0834; (R1) 1.0847; More....

EUR/CHF is staying in consolidation from 1.0802 and intraday bias remains neutral at this point. Outlook remains bearish as long as 1.0985 resistance intact. On the downside, break of 1.0802 will resume the decline from 1.1149, to 1.0737 cluster support next.

In the bigger picture, current development argues that rebound from 1.0505 (2020 low) might be completed with three waves up to 1.1149 already. Sustained trading below 55 week EMA (now at 1.0882) will affirm this bearish case. Further break of 1.0737 cluster support (61.8% retracement of 1.0505 to 1.1149 at 1.0751) will bring retest of 1.0505 low.

North American markets continue to put Monday’s “delta-dip” behind them, with Wall Street rising once again overnight on strong corporate earnings and despite a slightly weak 20-year bond auction. Asian equity markets are also trending higher in a follow-the-leader play as the data calendar remains ultra-light with a dearth of market-moving news headlines. Japan markets are closed today and tomorrow for national holidays, which will likely reduce volatility until the end of the week.

Other asset classes also unwound their Monday delta-dip overnight as nervousness faded and the buy everything in a zero per cent world equilibrium reasserted itself. The US dollar pared recent gains, gold retreated slightly, and US long-dated bond yields edged higher. Oil rose impressively despite higher official US crude inventories, and my old friend bitcoin staged an impressive rally.

Bitcoin rises after Musk comments

Bitcoin jumped nearly 8.0% from below USD 30,000.00 of fiat US currency, dragging ether and some other digital things higher with it. Our old friend Elon Musk was behind the move, stating he owned a few digital coins and might start accepting bitcoin again soon for Tesla’s. Somehow, in the space of a couple of months, Mr Musk feels that the bitcoin mining industrial complex is well on the way to pivoting to more “green” energy use. That is an impressively fast pivot to green energy, as was the timing of the comments one might observe, coming just as bitcoin was in danger of breaking multi-month lows. Despite the bounce overnight, bitcoin’s technical picture remains as fragile as a blockchain made of glass.

In Asia today, the only data point of note will be the Bank Indonesia policy decision. With inflation benign and growth downgraded by the central bank themselves, BI could potentially reduce policy rates today. However, along with the Malaysian ringgit, Thai baht and Philippine peso, the Indonesian rupiah is part of an unloved ASEAN club of Covid-currencies at the moment. With one eye on USD/IDR, which is trading at 14.500.00 today, Bank Indonesia is most likely to remain unchanged, although they may announce some new liquidity measures at the periphery.

Today’s main event will be the European Central Bank (ECB) policy meeting. This meeting has attracted more attention than is usual as markets await further details around how the ECB will police its new fixed 2.0% inflation strategy/target. With core inflation expected to ease well below 2.0% in 2022, the implication is that the ECB will have to maintain an aggressive easing bias for the foreseeable future to try and meet that 2.0% target. Much of the curo’s weakness this week can be attributed to those expectations, especially given that markets feel the Fed is much closer to tapering than the ECB is. Whatever the details, it should be suitable for some binary volatility in EUR/USD later today. It wouldn’t surprise me in the least to see EUR/USD either at 1.1600 tomorrow or nearer to 1.2000.

Daily Pivots: (S1) 109.93; (P) 110.16; (R1) 110.52; More...

Intraday bias in USD/JPY stays neutral with focus on 110.133 resistance. Sustained break there will argue that the choppy fall from 111.65 has completed, and turn bias back to the upside for retesting this high. Rejection by 110.33 will maintain near term bearishness. Break of 109.05 will target 38.2% retracement of 102.58 to 111.65 at 108.18.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. Sustained trading below 55 day EMA would argue that the pattern from 101.18 is starting another falling leg, that could head back to 102.58 support and below. For now, outlook won't turn bullish as long as 111.71 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 0.9154; (P) 0.9192; (R1) 0.9215; More....

Intraday bias in USD/CHF stays neutral as range trading continues. On the downside, break of 0.9116 support will affirm the case that rebound from 0.8925 has completed at 0.9273. Deeper fall would then be seen back to retest 0.8925 low. On the upside, however, break of 0.9273 and sustained trading above 61.8% retracement of 0.9471 to 0.8925 at 0.9262 will target 0.9471 resistance next.

In the bigger picture, medium term outlook is currently neutral with focus on 0.9471 resistance. Sustained break there will indicate completion of whole decline from 1.0342 (2016 high). Medium term outlook will be turned bullish for a test on 1.0342 high. But, rejection by 0.9471 again will revive bearishness for another fall through 0.8756 low.