July 12, 2021

Daily Market Analysis

Market Focus

Stocks gained on Friday to set new all-time highs, shaking off declines from a day earlier as concerns over the pace of the economic recovery flared. S&P 500 added more than 1% led by the financials, energy and materials sectors that had been some of Thursday’s biggest laggards. Dow Jones (+1.3%, or +448.23) and Nasdaq (+0.98%, or 142.13) also set fresh record closing highs by the end of the session, taking out previous highs from earlier this week.

European Central Bank President Christine Lagarde told investors to prepare for new guidance on monetary stimulus in 10 days, and signaled that fresh measures might be brought in next year to support the euro-area economy after the current emergency bond program ends.

Speaking to Bloomberg Television days after the ECB raised its inflation goal to 2% and acknowledged it may overshoot the target, Lagarde said the July 22 Governing Council session — previously expected to be relatively uneventful — will now have “some interesting variations and changes.”

Lagarde said she expects the ECB’s current 1.85 trillion-euro ($2.2 trillion) bond-buying plan to run “at least” until March 2022. That could then be followed by a “transition into a new format,” she said, without elaborating.

Still, she dismissed the need to discuss when emergency stimulus might be wound down, saying she’s only “guardedly optimistic” about the recovery because the delta variant of the coronavirus poses a threat to efforts to resume normal life. While inflation will pick up this year, the central bank expects that to be temporary.

“We need to be very flexible and not start creating the anticipation that the exit is in the next few weeks, or months,” Lagarde said.

The approach sets the ECB apart from some of the world’s biggest central banks. U.S. Federal Reserve officials are already discussing when to start tapering their stimulus program as growth and inflation accelerate.

Main Pairs Movement:

Market sentiments turned positive ahead the end of the week, with the dollar weakened against most of its major rivals.

Cable gained 0.88% intraday and is hovering around the 1.3900 level as of writing. The euro pair claimed a mild gain, settling at 1.1875. Commodity-linked currencies advanced, with the CAD getting boosted by Canadian employment figures, as the country added 230.7K new jobs in June, largely surpassing expectations. The unemployment rate decreased from 8.2% to 7.8% while the Participation Rate increased to 65.2%. The antipodean pairs as well benefitted from the weak greenback. Kiwi bounced off the 0.7000 level, while Aussie climbed 0.91% to 0.7490.

Over the weekend, Japan´s top government spokesman said that the country is ready to pump more money into the economy to ease the pain of a prolonged pandemic and after announcing yet another state of emergency for Tokyo. JPY was the worst performer among the majors, dropping 0.33% against its American opponent.

US 10-year Treasury yields rebounded from Thursday’s low, settling at 1.36% after plummeting to 1.25%. Gold finished the week with modest gains at $1,808 a troy ounce. Crude oil prices also increased a bit, with WTI trading at $74.60 a barrel, and Brent at $75.50.

Technical Analysis:

XAUUSD (Daily Chart)

Gold battles 1810 level, having caught a fresh buying interest on the London fix and Fed’s semi- annual Monetary Policy Report. From the technical perspective, the near- term momentum has finally turned bullish since late May as gold has officially traded above the 20 simple moving average. If keeping up the momentum, gold is expected to head toward the resistance at 1829; however, if failing to stand steadily above the 20 SMA, then gold will head toward its support at 1770. On the daily chart, bulls are in control as the MACD has turned positve and the RSI has not reached the overbought territory, giving gold spacious rooms to move further north.

Resistance: 1829, 1876

Support: 1770, 1676

EURUSD (4- Hour Chart)

EURUSD climbs above 1.1850 as the greenback weakens and ECB President Lagarde does not specify the monetary policy. From the technical aspect, EURUSD has traded above the 20 and 50 simple moving averages during the American session, suggesting a reverse from bearish to bullish in the near- term. Additionally, the bulls are also supported by a positive MACD and the RSI of 60, signaling that the pair is on the way toward north. A break of the descending trend line also gives the pair an accelerating path to move upward. If the bullish momentum is kept, the pair is expected to trade toward the next resistance level at 1.1919. If the pair fails to hold above its current support at 1.1837, then the bearish momentum will be re- confirmed.

Resistance: 1.1919, 1.1985

Support: 1.1837, 1.1704

GBPUSD (4- Hour Chart)

GBPUSD marches toward 1.3900 level, shrugging off weak UK GDP report. From the technical perspective, the momentum has turned bullish in the near- term on the 4- hour chart as GBPUSD has breached the decending wedge, giving some hope for the bulls. The pair is expected to extend its bullish momentum toward 1.3926 as the MACD is positive and the RSI has not reached the overbought condition; however, the upside momentum might slow down or face an adjustment as the RSI of 64 is near the overbought territory.

Resistance: 1.3926, 1.4007

Support: 1.38, 1.3675

Economic Data