Dollar Falls in Payrolls Wake; Fed Minutes Seen Key

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Daily Market Outlook, July 6, 2021

Daily Market Outlook, July 6, 2021 Overnight Headlines Australia's RBA to taper bond buying, leaves OCR at record low 0.10%, still dovish • Sydney COVID lockdown call looms as new case numbers drop • NZ business outlook rebounds sharply, triggering rate hike speculation • NZ Q2 NZIER Confidence, 7% -13% prev; Capacity Utilization 94.9, prev 93.3% • BOJ cautiously upbeat on regional Japan as divergence widens • Japan's May household spending -2.1% n/n, +11.6% y/y, -3.7%, +10.9% eyed prev +0.1%, +13.0% • Japan's May real wages +2.0% y/y, largest monthly gain since June 2018, total cash earnings +1.9% • Japan's ruling party eyes cash payouts for low-income citizens – NHK • Japan to extend COVID restrictions for 30m people until after Olympics – Nikkei • Japan DepPM Aso – Peaceful solution desirable for any Taiwan contingency • Return to normal? UK PM Johnson outlines end to England's virus restrictions • Bank of Canada survey: Q2 business sentiment improves, economic recovery seen broadening • OPEC+ abandons oil policy meeting after Saudi-UAE clash • Asset owners managing $6 trln call for global carbon price Looking Ahead – Economic Data (GMT) • 09:00 DE Jul ZEW Economic Sentiment, 75.2 f’cast, 79.8 prev; Current Conditions, 5.0 f’cast, -9.1 prev • 09:00 EZ May Retail Sales MM, 4.4% f’cast, -3.1% prev; YY 8.2% f’cast, 23.9% prev Looking Ahead – Events, Auctions, Other Releases (GMT) • 08:10 ECB De Guindos speaks at University of Madrid event • 12:00 ECB Enria exchanges views with Italian Senate Finance CommissionG10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby)EUR/USD 1.1840 (494M), 1.1865-70 (1.1BLN), 1.1875-80 (945M), 1.1895-1.1905 (1.7BLN)USD/JPY 109.60-70 (3.1BLN), 110.70-75 (605M), 111.00 (1.8BLN), 111.20 (715M), 111.50 (300M), 112.00 (573M)GBP/USD 1.3900 (265M)EUR/GBP 0.8475 (360M), 0.8600(250M), 0.8650 (426M)USD/CHF 0.9240 (230M), 0.9290 (230M)USD/CAD 1.2400 (416M), 1.2445 (230M)AUD/USD 0.7500 (298M), 0.7620 (510M), 0.7640 (344M), 0.7650-70 (900M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.20 Bullish aboveEdges higher as risk currencies lead USD lower • EUR/USD opened little changed at 1.1866 and traded in a 1.1859/75 range • AUD and NZD surged higher in Asia and gave the USD a broadly offered tone • EUR/USD resistance is at 10-day MA at 1.1892 and break would ease pressure • EUR/USD still in downtrend with 5, 10 and 21-day MAs in bearish alignment • Buyers are tipped ahead of 1.1850 with support at Friday's 1.1807 lowGBPUSD Bias: Bearish below 1.4080 Bullish above.Major resistance broken, but close is key • +0.25% at top of a 1.3849-1.3888 range after late morning flurry of interest • Respect financial watchdog independence, lawmakers tell Gov't • Charts; recent bounce leaves, falling 10 & 21 DMAs, 21 day Bolli contract • Strong bearish trending signals have dissipated, but remain net negative • 1.3863 10 DMA, that capped this fall broken – stops tripped, close above key • Strong close would end downside bias and suggest a period of consolidation • 1.3930-50 next resistance, 38.2% June/July fall and 21 DMA – break bullish • Cable clears key resistance as positives build – close key Key resistance caps sterling but positives build Sterling's downtrend has stalled with the U.S. dollar under pressure since Friday's robust U.S. payrolls data, and positive news from the UK now leaves GBP/USD poised below key resistanceUSDJPY Bias: Bullish above 108 targeting 112Soggy with US yields, some crosses fare better • USD/JPY 110.79-99 in Asia, heavy with US yields, Tsy 10s @1.445% • Volume low with flows few and far between ahead of US market re-open • Option expiries help contain action – 110.70-75 $609 mln, 111.00 $2.1 bln • Offers eyed 111.00+, bids from 110.70-75, towards 110.50 • Some JPY crosses fare better, AUD/JPY and GBP better bid, summer carries? • AUD/JPY 83.47 to 83.82, GBP/JPY 153.50 to 153.92, EUR/JPY heavy, 134.45-60 • Tokyo risk more on, Nikkei +0.3% @28,690, AXJ mixedAUDUSD Bias: Bearish below .7790 bullish aboveAUD/USD opened at 0.7525 and started tracking higher on back of NZD/USD • Strong NZ business confidence send NZD/USD soaring, as RBNZ expectations became more hawkish • The AUD/USD moved up despite AUD/NZD selling to slow the pace somewhat • The AUD/USD traded as high as 0.7571 before the RBA decision • Buying likely due to prospect of a hawkish surprise from the RBA • AUD/USD was around 0.7560/65 when the RBA announced its decision • As expected the RBA tweaked the bond buying program and didn't extend to the Nov 2024 maturity • RBA retained dovish bias by repeating rate hike "unlikely to 2024", but left out "at the earliest" • AUD/USD slipped below 0.7550 before steadying around 0.7550/55 • The market will now wait for RBA Governor Lowe press conference • AUD/USD resistance is at 200-day MA at 0.7573 • A break above 0.7575 targets 38.2 fibo at 0.7615 • AUD/USD support at 10-day MA at 0.7540 and break would ease upward pressure

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Market Update – July 6 – A weaker USD; RBA, OPEC & Kiwi hog the headlines

Market News Today – The Dollar continued to weaken,  strong EZ & UK data lifted European markets, England to lift most restrictions by July 19. OPEC meeting abandoned OIL prices hit 3-year high (Brent $77+) – Overnight RBA – no change but bond purchases were extended for 6 months but at lower rate, “conditions will not be met before 2024.” NZD rallied (1.14%) on strong data and 2021 intertest rate rise expectations, dragging AUD higher (0.98%). Asian equities firmer. USDIndex under  92.00,  EUR 1.1890, JPY under 111.00 at 110.75 & Cable tests up to 1.3900 zone. Gold breaches $1800, USOil over $75.00 at $75.75. German manufacturing orders missed significantly (-3.7%) but previous  reading was revised sharply higher (+1.2%).

Week Ahead – FOMC Minutes, RBA Rate Decision, ECB Growth Forecasts & Special Strategy Meeting.  

European Open  – The September 10-year Bund future is slightly lower, as are US futures, while in cash markets the U.S. 10-year rate has lifted 2.0 bp to 1.444%. Dax &  FTSE100 FUTs are weaker on stronger GBP 7 EUR with German data weighing.

Today – EZ & UK Construction PMI, German ZEW, US Final Services & Composite PMI, ISM Services PMI, ECB’s de Cos, de Guindos. Day 1 of the ECB  Strategy Review meeting.

Biggest FX Mover @ (06:30 GMT) NZDUSD (+1.06%) Rallied from 0.7020 zone yesterday, which was up from Fridays NFP low of 0.6945, to breach 0.7100 on very strong reversal in business confidence today. Faster MAs aligned higher, RSI 82.38 and significantly OB but cooling, MACD signal line and histogram rising remain significantly above 0 line. Stochs. also in OB zone, but also cooling.  H1 ATR 0.0015 Daily ATR 0.0065.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

from HF Analysis /250540/
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Dollar Down, but NZ Dollar Rises as Chance of Earlier Interest Rate Hike Grows

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USDJPY facing bearish pressure, possible further drop

USDJPY is facing bearish pressure as it continues to hold below the moving average resistance. We could see a reversal at Pivot, in line with 61.8% Fibonacci retracement, 61.8% Fibonacci extension and moving average resistance, and further drop towards 1st Support, in line with 127.2% Fibonacci extension and horizontal swing low support.

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Dollar awaits Fed minutes, kiwi aloft on rate expectations

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BTCUSD approaching pullback support, potential for bounce

Prices are appraoching horizontal pullback support in line with 50% Fibonacci extension and 61.8% Fibonacci retracement. Prices might push up towards horizontal pullback resistance in line with 61.8% Fibonacci retracement and 78.6% Fibonacci extension. Stochastics is also approaching support, potential for bounce. If prices push down, prices might take support on horizontal swing low support in line with 78.6% Fibonacci extension.

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EURUSD H1 is approaching pivot, potential for bounce

EURUSD H1 is approaching pivot, in-line with 38.2% Fibonacci retracement and descending trendline resistance-turned-support where we may potentially see a bounce towards the 1st Swing High Resistance Level, in-line with -27.2% Fibonacci Retracement And 100% Fibonacci Extension. If price break from the pivot, we may see it swing towards 1st Support, in-line with 61.8% Fibonacci Retracement and 61.8% Fibonacci Extension

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Dax H4 is below pivot, potential for further drop

DAX H4 is below pivot where we may continue to see the price drop towards the 1st support level, in-line with 50% Fibonacci retracement and 127.2% Fibonacci extension. If price bounce from the pivot, we may see it swing towards 1st resistance, in line with 100% and 127.2% Fibonacci extension

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NIKKEI approaching key graphical swing low, possible chance for a bounce

Nikkei dipped lower at the start of the trading session, testing key graphical swing low and long term 38.2% Fibonacci retracement. A short term intraday bounce above our Pivot towards recent graphical swing high zone and 100% Fibonacci extension at our 1st resistance could be possible. Stochastic approaching support where price bounced in the past.

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If a company is cheap enough for private equity, why isn’t it cheap enough for everyone else?

Why weren’t all UK fund managers invested in Wm Morrison when the recent bid for the supermarket chain came in? If it was cheap enough for private equity firm CDR to want it, why was it not cheap enough for traditional fund managers to be holding?

I wrote about this last week – suggesting fund managers have little grounds for complaint about losing out on the initial price rise or on any further increases should a buyout go ahead at some point. But there is another way to look at it: you could argue that companies are worth more to private equity companies than public shareholders.

There are a couple of reasons for this. One is volatility – publicly listed shares are volatile; private equity holdings, which aren’t priced very often, are not. Another is the one-owner effect – disparate groups of shareholders find it hard to force management to do their bidding; private equity owners (holding 100 % of a company and speaking with one voice) do not.

Then there is financial engineering – private equity is less wary of debt than perhaps it should be. As its managers tend to encourage higher levels of debt, they put a higher value on steady cash flow (required to pay the interest on that debt) than perhaps the public market does.

Private equity managers will also tell you they are not just lucky accountants with easy access to cheap money, but better managers than anyone else. More cynically, you might just say that companies have more value to private equity than traditional managers because they get to charge higher fees for holding them.

Mix all this up and even with some very large pinches of salt, it feels like there is some sense in the idea that a private equity manager should pay more to take a firm private than a traditional manager will pay to keep it public.

Private equity valuations aren’t a secret

I don’t buy all of it of course. I am, for example, buried under missives from fund managers telling me about their active ESG policies at the moment. Believe the PR and you must believe they all spend most waking hours haranguing company managers about various bits of do-goodery – and that they do this with significant success.

But if their voice works so well with this, why doesn’t haranguing companies about their balance sheet structure and business practices work? We will have to leave that as one of the great mysteries of finance – it’s a long list – and accept it as just the way it is. If it were not, no public companies would ever be taken private by private equity.

However, as Pelham Smithers of Pelham Smithers Associates points out, there is another complication here: the criteria on which private equity target companies are valued in the market is not exactly a secret. The “knowledge is distributed around the market”. Everyone knows the current price of a listed company, the price they themselves would pay, and the price a private equity firm could pay.

The challenge then is to figure out if the private equity investor will end up paying that price: it’s about assigning a value to the likelihood of a bid. That means thinking about pricing probabilities.

Back to Morrisons. “The chances of it being bid for are now 100%,” points out Smithers. What was it before? Obviously very much lower. The company had a low-grade Covid experience – profits fell by 50% last year, which meant it didn’t look particularly cheap on conventional valuation measures.

If fund managers figured the probability of a bid was therefore quite low they put a lower value on the shares than they would otherwise – something that, of course, then made it more attractive to private equity. So the managers who weren’t holding Morrisons last week were guilty – guilty of getting their probability calculations wrong.

Fund managers leave value on the table

Nonetheless, the key point is that any fund managers interested in value have a problem. Buying what look like cheap stocks and waiting for them to go up without correctly calculating the odds of the arrival of a catalyst can present what we might call material career risk.

As several readers have pointed out – and I suspect there are ex-fund managers or even frustrated current fund managers among them – to survive you have to deliver performance year in year out.

If you don’t, money will head for the doors – the same exit you will also eventually be pointed towards. If you are going to go for value then you have to be able to identify some kind of catalyst for that value to be released – or at least made obvious to the rest of the market.

You have to know that private equity is on the way or that an activist investor is about to kick up a stink within a year or so. Without that certainty about both value and change you have to leave the value on the table – and stick with buying shares in companies that are showing obvious growth (just like everyone else).

So mostly you leave the value on the table. Even the most determined of value investors have to recognise this. Look to the Scottish Investment Trust (which I hold) and its high conviction, contrarian value approach for example.

We never buy a stock just because it is cheap, says the trust’s manager, Alasdair McKinnon. “The quantitative appeal of the valuation must be mirrored by qualitative attractions such as strong leadership or enduring competitive advantage. Crucially, there must be clear catalysts for improvement; we want the company to positively surprise.”

Even that isn’t always enough of course: McKinnon’s trust has done well in the last six months but underperformed over three and five years. The board – while not necessarily planning to change manager – are inviting alternative management proposals. See why most managers end up leaving value on the table?

Private investors have the advantage over fund managers

That’s bad news for most fund investors, but it is really good news for the kind of investors who are happy buying individual shares. You can wait three years, five years or even more for the catalyst – particularly if you are collecting dividends along the way.

You need some certainty about value – but very little about change. No time-sensitive probability calculations are required. In some sense then, your calculations of value are closer to those of a private equity investor than a fund manager – you can pay a little more than they can.

How do you capitalise on this? The UK market is particularly vulnerable to private equity at the moment as it’s one of the cheapest global markets. So a FTSE 100 ETF isn’t a bad way to start (you’ll get a bit of all uplifts).

The brave and patient can go a step further, recognise that they don’t need “clear catalysts” and make their own portfolio of cheap stocks. Choose your long-term target – McKinnon suggests engineering group Babcock (LSE:BAB).

The shares are down by 70% in the last five years and no one has much good to say about the firm or its accounting, but it has a perfectly good new management team. That team might improve matters –or a private equity buyer might. Buy and wait.

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EURUSD overview 05-09 July 2021

EURUSD

Last week the US Dollar had a strong overall performance, although after a solid non-farm payroll jobs report, the US dollar rally lost ground as the market corrected into the close on Friday. It’s too early to judge whether there is a bearish reversal for the Greenback, however, a strong risk-on sentiment could limit the dollar’s upside efforts going forward.

This week’s news from the Eurozone generally favors the economic outlook for the region. Eurozone economic confidence came to 117.9 in June, above forecasts and the highest level in more than two decades, after 114.5 in May. This success from the reopening of the economy was evident in the services confidence component, which jumped to 17.9 in June from 11.3 in May. In addition, other important activity data also show encouraging evidence of the impact of the opening of the economy. German retail sales in May rose 4.2% m/m, reversing most of the April sales decline, while French household consumption rose 10.4% m/m, reversing all of April’s declines.

In June the headline CPI fell to 1.9% year-on-year, while the core CPI also fell to 0.9% year-on-year. Inflation trends are likely to pick up in the coming months due to the underlying effect of some shortages and supply bottlenecks. On Thursday, ECB policymakers will meet in Frankfurt in a bid to finalize a review of the institution’s strategy.

 

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Technical Levels

EURUSD closed the week above the 1.1846 support (previous week’s low) at 1.1865, slightly up +0.14% on Friday. The total decline last week was 0.53%. The intraday bias remains inclined to the downside for the next wave of declines which is limited by the temporary low of 1.1806. If there is a break of this low, the asset will test the next low at 1.1703. This condition is supported by the average price movement below Kumo and AO which are still in the selling area despite the apparent unconfirmed temporary divergence of the AO and the low price descending from the chart.

EURUSD, H4

Friday’s candle, although pin bar in shape, has not surpassed the previous Thursday’s high; this at least indicates limited interest from the bulls. A price move above the 1.1830 minor resistance will target 1.1974, but as long as the price remains below the 1.2000 psychological level the bearish pressure will remain real for some time to come.

EURUSD, D1

In the larger period, the overall trend is still supported by the support level 1.1600. Sustained downside movement from current positions will target 1.1703 and if strong will equalize 1.1601. A move below 1.1601 would strengthen the retracement to 50.0% (1.1500) levels first and then 61.8% (1.1287). As long as the 1.1600 level holds, consolidation on the upside will continue for the trading space to narrow further in a triangle pattern. A move above 1.2000 would be a continuation of the March 2020 rebound but will face resistances at 1.2265 and 1.2349.

Click here to access our Economic Calendar

Ady Phangestu

Analyst – HF Indonesia

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Market Spotlight: OPEC+ Meetings In Focus

OPEC Meetings Continue TodayThe OPEC+ meetings continue today following last week’s failure to find strike a deal which resulted in the talks being postponed. The group of OPEC producers, along with group of non-OPEC producer-nations led by Russia, is meeting to determine whether to ease production restrictions further, and by how much. The market is currently forecasts restrictions to be eased by a further 550k barrels per day. However, the dispute so far has been over the fact that UAE producer nations are calling for a steeper level of easing given that they have increased their production capacity over the course of the pandemic.What To Watch ForIf the group is able to strike a deal today, it will likely have limited impact on markets unless the restrictions are eased at a higher level than expected. If the group gives in to demand from the UAE and steps up the level of production significantly, this will likely fuel some downside in oil. However, if the group fails to find a compromise today and is unable to strike a deal, that will mean the current production levels remain in place, which will likely keep oil prices supported in the near term.Technical ViewsCrude OilThe rally in crude oil prices over the last week has seen price breaking out above the 74.46 level. With MACD and RSI both bullish, the focus is on further upside here with 76.78 the next upside objective for bulls. Should we see any dip below the 74.46 level, 69.53 is the next downside support to note.

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Precious Metals Monday 05-07-2021

GoldGold prices have started the week on a firmer footing with the safe haven asset finding a bid over the European morning on Monday. The rally comes amidst some softening in USD following the June employment reports released on Friday. While the headline jobs figure was well above consensus at 850k vs 725k expected, the unemployment rate was seen unexpectedly ticking higher to 5.9% from the prior month’s 5.8% reading, despite forecasts for a further reduction to 5.6%. Similarly, average hourly earnings weakened to 0.3% from 0.4% prior, further taking the shine off the headline release.In all, while the NFP reading was strong, the weakness in other areas prevented USD from taking lift off and provided further evidence of the Fed’s message that the recovery is on going and there is still a way to go. Looking ahead this week, the main focus will be on the FOMC meeting minutes mid week. Following the upward revision to the Fed’s dot plot forecasts, as well as the improved growth and economic forecasts, the details form the meeting are likely to be hawkish, offering upside risks for USD into the middle of the week, which should create headwinds for gold.SilverSilver prices are on the climb this week also, tracking the moves in gold. The fall back in USD is creating better condition at the start of the week though, again, upside USD risks in to the FOMC minutes this week could see the silver rally stall. Silver prices had been heavily lower over the last few weeks as a result of the rebound in USD though ongoing strength in equities markets ahs helped offset some of this downside.Technical ViewsGoldGold prices briefly pierced below the 1763.88 level last week before reversing to trade back above the level. With the MACD rapidly approaching neutral and the RSI turning higher, the market now looks on course to test the 1826.71 level next. This week be a key pivot for the market with a failure here likely marking the return to downside while a break above will open the way for a move up to the 1919.92 level next.SilverThe rally in silver prices this week has seen price trading back up to test the 26.5711. With MACD turning bullish here and the RSI moving higher, while above the level, there is room for a test of the 27.4502 level next. To the downside, 25.5384 remains the key level to monitor as support.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/precious-metals-monday-05-07-2021"
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