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Daily Brief
The forex heatmap at today’s London open suggests that Tuesday will be much like the trading conditions we saw yesterday. Safe haven currencies will be bid, and commodity pairs will struggle, with the British pound and New Zealand dollar battling it out for one of the weakest currencies of the day.
The UK’s COVID-19 positive tests are closing in on an extra 100k cases a day and the patients admitted to hospital in the last 7 days is rising. Thankfully, deaths are still flatlining.
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The British pound is now firmly trading below the daily 200 exponential moving average, so we need to look left for extremes of previous candles highs and lows for possible targets to the downside. The run up was choppy, so no real market structure stands out currently as being a great target. The recent break of the double bottom support and the 200 ema will be a good place to look for resistance to hold. Prime Minister Johnson is being attacked again by his former chief aide Dominic Cummings. It appears that Mr Johnson was keen not to put the economy through another lockdown last year but succumbed to pressure from within his close circle. Downing Street rejected any allegations made.
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The Financial Times reported that the rising US dollar is putting pressure on the emerging markets that have their debt denominated in dollars, meaning we should all be watching the sovereign and corporate Eurobonds which are likely to suffer. Commodity prices like Lumber, Copper and now Oil are starting to show the peak is in which will somewhat please the Fed who said that the supply shocks were causing the transitory higher inflation.
$93 is currently acting as resistance on the US dollar index, but price action, momentum and sentiment are all indicating that the US dollar rises within this channel for longer.
Energy prices and durable goods have meant that German producer prices rose by 8.5% for June 2021.
Germany’s producer prices have risen for 12 consecutive months and this latest reading was the largest increase in producer costs since second oil crises in January 1982.
Reserve Bank of Australia (RBA) said in its monetary policy meeting minutes that it will not raise its interest rates until 2024 at the earliest. Committee members agreed the central bank should maintain the 3-year bond yield target until progress is made towards its employment and inflation goals. “The Board remained committed to maintaining highly supportive monetary conditions for a return to full employment in Australia and inflation consistent with the 2 to 3 per cent target. It will not increase the cash rate until actual inflation is sustainably within the target range”.
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The AUDUSD is accelerating to the downside with the next 100 pips to 0.7200 looking very possible, as does the November 2020 lows around the 0.7000 big figure level. A change in sentiment around the US dollar is needed to get these commodity pairs to find support. A good GDP number out of China was needed last week but that unfortunately was not forthcoming.
