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Today’s Analysis
- EUR/USD struggles to regain 1.1800, remains sidelined of late.
- MACD eases bullish bias, sustained trading below the key SMA, trend line resistance also keeps sellers hopeful.
- Bulls need to cross July’s top for conviction.
EUR/USD portrays a lackluster start to Tuesday’s Asian session, after marking a corrective pullback the previous day. That said, the quote seesaws around 1.1775-80 by the press time.
The major currency pair’s failures to extend the bounce off 1.1767 join the recently easing bullish bias of the MACD histogram to favor the EUR/USD pairsellers. On the same line is the quote’s sustained trading below 100 and 200-SMA, as well as a downward sloping trend line from June 25.
It’s worth noting, however, that a confluence of the one-week-old ascending trend line and monthly horizontal area, around 1.1750, offers a tough challenge to the pair bears ahead of directing them to the yearly low surrounding the 1.1700 threshold.
In a case where the EUR/USD prices drop below the 1.1700 psychological magnet, also the key support, the pair becomes vulnerable to print a 100-pip south-run towards late 2020 levels surrounding the 1.1600 mark.
Alternatively, 100-SMA and 200-SMA, respectively around 1.1805 and 1.1815, guard the quote’s short-term recovery moves ahead of a downward sloping trend line from late June near 1.1875.
Even if the EUR/USD bulls cross the stated resistance line, July’s high near 1.1910 will challenge the further upside.
USD/JPY
- Japanese data surprised on the upside, the June Tertiary Industry Index rose to 2.3% MoM.
- US Retail Sales are foreseen down 0.2% MoM in July, down from the previous 0.6%.
- USD/JPY is extremely oversold but can extend its slide in the near term.
The USD/JPY pair consolidates losses in the 109.30 price zone, as market players await US Retail Sales and words from the Federal Reserve chief Jerome Powell. The market’s sentiment is still sour, with Asian and European indexes trading in the red and US Treasury yields hovering around Monday’s lows.
Meanwhile, Japanese data continues to surprise on the upside. The June Tertiary Industry Index printed at 2.3% MoM, improving from the previous -2.7%. US Retail Sales are foreseen at -0.2% MoM in July, down from the previous 0.6%. The Control Group reading is foreseen at 0% from 1.1% in the previous month. After Wall Street’s opening, Fed’s chief Powell is due to speak at an online event not related to monetary policy.
USD/JPY short-term technical outlook
The USD/JPY pair is bearish and could extend its decline despite extreme conditions in the near term. The 4-hour chart shows that the 20 SMA maintains its strong bearish slope well above the current level and after crossing below the longer ones. In the meantime, technical indicators consolidate in oversold territory. The slide will likely accelerate on a break below 109.05, the immediate support level, while selling interest may appear on a spike to 109.50.
Support levels: 109.05 108.60 108.25
Resistance levels: 109.50 109.90 110.35
USD/CAD
USD/CAD holding first resistance at 1.2525/35 targets 1.2500/1.2490. A break below here is a sell signal targeting 1.2450/40 and 1.2420/10. First resistance at 1.2525/35. Bulls need a break above 1.2560 for a buy signal targeting 1.2600, perhaps as far as 1.2650/60.
GBP/CAD sees strong resistance at 1.7360/80. A break above 1.7400 meets minor resistance at the August high of 1.7495/1.7505. A break above 1.7510 targets the July high at 1.7557/67. Minor support at 1.7210/00. A break lower targets 1.7265/55, perhaps as far as 1.7230/20.
General Market
U.S. retail sales and industrial production data for July are due, while Walmart (NYSE:WMT) and Home Depot (NYSE:HD) earnings may provide some more granular details on the activities of the U.S. consumer. China’s competition authorities take another swipe at Internet platform companies, sending Alibaba (NYSE:BABA), Tencent and JD (NASDAQ:JD).com stock all sharply lower. U.S. stocks are set to retreat from Monday’s record highs at the open, and a single case of Covid-19 puts New Zealand into lockdown and wrecks economists’ forecasts for Wednesday’s central bank meeting. Here’s what you need to know in financial markets on Tuesday, 17th August.
1. Retail sales will be anyone’s guess
Retail sales data for July may or may not show whether the U.S. consumer has grown more cautious in response to the latest surge in Covid-19 cases.
The data are due at 8:30 AM ET (1230) but will pose a number of challenges as regards their interpretation, given that past data have showed that pandemic-driven changes in spending patterns have been much stronger than, and completely uncorrelated to, the usual process of seasonal adjustment. Details from individual sectors may therefore be more important than the headline figure. Walmart and Home Depot earnings, due before the market open, may also be a more reliable gauge of U.S. consumer activity.
Also due are industrial production data for July at 9:15 AM ET and the National Association of Home Builders housing market index, which has been trending gently down since November.
2. China goes Tech-bashing again
Chinese stock markets sold off heavily again after the country’s regulators issued a new draft of rules designed to stop unfair competition on the Internet.
The State Administration for Market Regulation’s new draft appears aimed at stopping the likes of Alibaba, Tencent and JD.com from establishing self-contained ecosystems that make interaction with other ecosystems difficult. That would outlaw the kind of vertical integration that has been central to the investment case of the big Chinese Internet platforms.
Under the new rules, groups would be unable to use customer data to learn how people behave and divert them away from competing products and services. Fake reviews would also be banned, as would the practice of not running hyperlinks to competing sites.
Elsewhere, media reported that China had taken a token 1% and a board seat at the main Chinese entity of TikTok owner Bytedance.
3. Stocks set to open lower; retail and vaccine stocks in spotlight
U.S. stocks are set to open lower later, after a now-familiar surge to record highs in late trading the previous day.
By 6:15 AM ET, Dow Jones futures were down 201 points, or 0.6%, while S&P 500 futures were down 0.4% and Nasdaq 100 futures were down 0.3%. The first two had both closed at record highs on Monday.
Walmart and Home Depot earnings will dominate the early headlines, while vaccine makers will also be in focus after reports suggesting that the Biden administration is set to endorse ‘booster shots’ against Covid-19.
4. A single Covid-19 case derails a rate hike
The New Zealand Dollar fell over 1% after Prime Minister Jacinda Ardern declared a national lockdown after finding a single case of Covid-19, the first that had spread within the community in over six months.
The move represents a determination to stick to the “Zero Covid” strategy that the country has had since the start of the pandemic, at a time when more and more governments are working on strategies to cope with the disease becoming a part of normal life.
The news was enough to change analysts’ predictions for Wednesday’s central bank meeting. The Reserve Bank of New Zealand was expected to raise interest rates for the first time since 2014, by 50 basis points. Analysts now expect either no change to rates or just a 25 basis point hike.
5 Oil struggles ahead of API inventory numbers
Crude oil prices struggled again overnight, amid ongoing fears for the strength of Chinese demand, despite data showing a fourth straight month of draws on national inventories. Confirmation of a slight pickup in U.S. shale output is also weighing on prices.
By 6:25 AM ET, U.S. crude futures were down 0.3% at $66.84 a barrel, while Brent futures were down 0.2% at $69.34 a barrel.
The American Petroleum Institute will release its weekly estimate of U.S. crude stockpiles at 4:30 PM as usual. Analysts expect a modest draw of just over 1.2 million barrels.
