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Morning Brief
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A slight walk back in the Hawkish tones from Fed Chair Powell’s prepared testimony to congress yesterday has taken the steam out of the US dollar rally. Once again the daily 200 exponential moving average has been the indicator to act as first a magnet and then as a roadblock. Last April the US dollar index closed above the 200 ema but swiftly returned lower for a month, and with the recent price action we could be in for the next leg down towards the bottom of the range and $89 again. The one chart that makes me feel less bearish the US dollar currently is the long bond ETF.
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TLT also appreciated up towards its daily 200 period moving average which proved to be a solid ceiling. The pullback to structure at 142.50 was support yesterday and if we close this week at the highs, bonds could be truly starting out on a bull run. The US dollar index also shows that the stochastic indicator is overbought and in the past that has also signalled a turn in the markets when confluent with the higher timeframe moving averages.
Today we receive the earliest indications of the PMI data. Flash PMIs will show whether activity in the manufacturing sector has peaked, whether the services sector continues to recover, and how much inflationary pressures are still present.
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Canadian retail sales data out this afternoon plus US new home sales data may cause some market fluctuations is the USDCAD but that is being dominated by a softening US dollar index and the rising prices in energy. The USDCAD weekly has so far found resistance at the previous balance area and the 20-period moving average. This could be the start of the Breakout-Retest-Continuation trade I highlighted last week.
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WTI crude is advancing at an accelerated pace on the 2018 highs. Central bankers are still speaking this week and headline traders will be monitoring newswires and twitter for new info around their conviction on dot plots and inflation expectations.
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The EURUSD found support as Chair Powell’s more cautious remarks yesterday softened the US dollars rise. The annual Jackson Hole summit in August is the next time the markets will likely start pricing in rate hike expectations and with the current feeling that the Fed is still quite a way off from tightening policy we could be in for sideways range bound markets.
Good news out of Germany this morning will give the EURUSD a boost. Data from the IHS Markit Germany Services PMI, showed an increase above expectations to 58.1 in June from 52.8 in May. If the Final PMI were to come in this high, it would be the strongest growth in the service sector since March 2011 and all down to the vaccination rollout working to flatten the curve allowing the German economy to get back up and running.
