July 14, 2021

Daily Market Analysis

Market Focus

U.S. stocks fell to reverse course on Tuesday, with the S&P 500 pulling back from a record high as investors monitored an early batch of corporate earnings results. Inflation was also back in focus as new data showed consumer prices surged by the most since 2008 in June. Dow Jones retreated 0.31%, or 106.93, to 34889, and Nasdaq declined 0.38%, or 55.59, to 14677.65.

Six months into his presidency, Joe Biden is revealing a hard-edged China policy that suggests relations between the world’s two biggest economies are only going to get worse.

A spate of U.S. actions in recent days — including a warning to American businesses in Hong Kong, new import controls for the Xinjiang region and talks about a digital trade agreement that would exclude Beijing — underscore that Biden plans to extend and deepen President Donald Trump’s more confrontational approach.

Biden administration officials say the U.S. strategy is a reaction to China’s own aggressive behavior. That stance will force tough choices for investors and companies caught in the middle of what Biden himself has defined as a defining battle of the 21st century, and may come as a surprise to those who expected a softer touch under the Democratic president.

“It’s very clear that the U.S. under the Biden administration is going to continue with the trend that we saw during the Trump administration and before,” said David Loevinger, managing director of emerging markets at TCW Group Inc. “There’s some disappointment — investors had expected a different approach.”

Beijing officials may have expected a difference, too, after the tumult of the Trump years. But in Washington, Biden administration officials point to a series of hostile actions by President Xi Jinping’s government that they say forced the U.S. hand, adding that the challenge now is to keep the relationship in the realm of competition, not conflict. Recent actions on both sides show how hard that will be to achieve.

Main Pairs Movement:

The dollar approaches its monthly high against most major rivals, boosted by climbing US inflation. The US Consumer Price Index was upwardly revised in June to 5.4% YoY, much higher than the expected 4.9%. The core reading also rose from 3.8% to 4.5%. The figures revived speculation about a tighter monetary policy, despite policymakers work hard on cooling down such expectations.

The euro pair reached a fresh multi-month low of 1.1780, holding nearby ahead of the Asian opening. Cable hovers around 1.3820, while the antipodean pairs near their yearly low, with Aussie at 0.7440 level and Kiwi below 0.7000.

Loonie extended further north regardless of higher oil prices. WTI moved above $75.00 a barrel amid expectations of a further draw in US inventories. Brent also climbed to $76.50 a barrel as speculation of tighter supply due to the OPEC+’s disagreement on higher output.

Gold prices were quite volatile after the release of US inflation figures, but the yellow metal is ending the day pretty much unchanged at around $1,808 a troy ounce.

The focus shifts to Semi-Annual US Fed chair Jerome Powell testifies, as well as RBNZ and Bank of Canada’s Interest rate decisions, and British inflation figures.

On the other hand, the coronavirus Delta variant is dominant in the Northern Hemisphere and the number of new cases is on the rise in the US and Europe. Fears about it delaying the economic comeback weigh on investors’ mood.

Cryptocurrencies act dully in recent days ahead the largest unlocking of Grayscale Bitcoin Trust share. On July 17, 16,240 bitcoin worth of GBTC becoming available to trade, and fears of a potential sell-off looms as Bitcoin has declined 4.35%, and Ethereum has fallen 9.3% since the start of the week.

Technical Analysis:

XAUUSD (Daily Chart)

From the technical aspect, the dominant trend remains bullish on the daily chart as it continues trading within the upper region of the bollinger band, even though it seems to enter into a consolidated phase recently. The upside momentum is favored by the positive MACD and the neutral RSI of 50, giving gold some potential to move further north. If the upside momentum is sustained, then gold is expected to move toward 1829; afterward, the momentum might confront pressures as it will reach the upper bound of the bollinger band. To the downside, if gold trades below the midline of the bollinger band, it will head toward 1770.

Resistance: 1829, 1876

Support: 1770, 1676

EURUSD (4- Hour Chart)

EURUSD heads toward 1.1800 region as the US dollar gains strength after the Core CPI data. On the 4- hour chart, intraday bias has turned to the downside as the price action is below the 20 and the 50 SMAs, indicating that the bulls vanish at the moment. Additionally, the double top pattern also confirms the bearish mode of the pair. From the technical indicator, current MACD is negative, which lends supports to bears; however, the bearish momentum looks to weaken at the moment as the RSI is near oversold condition, signaling that the bears might need a break before heading to the next immediate support at 1.1704.

Resistance: 1.1919, 1.1985

Support: 1.1837, 1.1704

GBPUSD (4- Hour Chart)

GBPUSD stablizes above 1.38 amid the US upbeat Core CPI and the UK’s reopening. From the technical perspective, the dominant trend for GBPUSD has turned into the downside as the double top pattern has been formed on the 4- hour chart. During the second peak, the RSI was not in the overbought territory; by this, it confirms a start of the bearish momentum for the pair. Moreover, the bearish momentum is also supported by a negative MACD while the pair is trading in the lower area of the bollinger band. All in all, GBPUSD is expected to head toward the next support level at 1.38; if a break of 1.38 is successful, then the pair has some potential to continue trade toward 1.3744.

Resistance: 1.3926, 1.4000

Support: 1.38, 1.3744, 1.3675

Economic Data