Market Quick Take - July 29, 2020

Macro 5 minutes to read

John Hardy

Head of FX Strategy

Summary:  Yesterday saw a massive dose of volatility in precious metals markets and a weak session for equities that carried over into Japan and its equity market overnight, where traders mulled a stronger Japanese yen and a Fitch downgrade of Japanese sovereign debt. Today the market looks forward to an FOMC meeting and testimony before a House committee from US tech giant CEOs.


What is our trading focus?

US500.I (S&P 500 Index)and USNAS100.I (NASDAQ 100 Index) – the bears have their hopes intact for the moment as the Nasdaq 100 comeback attempt yesterday peaked out just ahead of a keFibo retracement at 10,768.As well, the index registered its second close below its 21-day moving average, with the next focus area lower the lows last week near 10,300.The S&P 500 tactical situation is somewhat similar, with the 61.8% retracement of 3,248 likewise holding yesterday, though the index has yet to close below its 21-day moving average over the last week – currently around 3,187 and rising toward a local pivot zone of note around 3,190.

DAX.I (German DAX Index) - the German DAX index tried a modest comeback from new local lows yesterday, but the bearish case remains intact after the index failed to maintain the price action above the big 13,000 level last week. Yesterday’s low was a precise test of the 21-day moving average at 12,754 and the bigger focus lower is perhaps the 200-day moving average, currently at 12,205

AMD:xnas (Advanced Micro Devices, Inc.) AMD reported strong earnings and a strong outlook for next quarter, especially for profitable server chips. Shares were 11% higher in after-hours trading on the report after the close. Shares leaped higher last week after chief- and normally dominant rival Intel announced a delay in its 7-nanometer manufacturing process, which AMD already has with its outsourced production in Taiwan.

V:xnys (Visa) - in its earnings report after the close, the world’s largest payments network reported an improvement of 10% in recent weeks, but refused to offer guidance as spending on tourism-related activities remains very uncertain. Shares were more than 2% lower after the close. Revenue was down 17.2% from the same quarter of last year.

XAUUSD (Spot Gold) and XAGUSD (Spot Silver) - the price action for precious metals was vicious and churning yesterday, with powerful new highs for the cycle erased and then some intraday, only to see a quick bounce that took prices back to about unchanged on the day or slightly better in the case of gold. This created a “spinning top candlestick for both gold and silver, where the closing price was near the open price and with significantly higher and lower intraday prices. The strength of the comeback from the lows is a relief for bulls, but the massive swings in the price action are a powerful concern for traders trying to establish stop levels, and some reduction in leverage may be a result.

EURUSD – bulls maintain control yesterday after the consolidation merely tested the 1.1700 area without that level breaking, so tactical bulls could look to use that support for a test of the 1.1822 area major 61.8% Fibonacci level (for sell-off from early 2018 highs to COVID-19 crisis lows), but the real targets for EURUSD are inevitably round numbers – in this case the 1.2000 area to start and note that the major 2017 high was just above 1.2500. Key for USD traders today is the FOMC meeting this evening.

USDJPY – the pressure on the US dollar has broadened significantly since Friday as the USDJPY broke down through the big 106.00 level, leaving only the very pivotal 104.50 area – tested four times since 2018 – as the last support ahead of perhaps 100.00. USDJPY could get more focus than other USD pairs if risk appetite shifts from a wobble to a stronger deleveraging impulse and the USD remains on its backfoot. Strength in the longest US treasuries is another support for the JPY in recent sessions.

What is going on?

Moderna, Inc. (MRNA:xnas) COVID-19 vaccine successful in trial with monkeys, In a trial with 16 monkeys, the vaccine was successful in protecting them from two different dosages of exposure to the virus, with no signs of viral replication in nose swabs after two days and 7 of 8 showing no signs of replication in lung fluid. A human trial with 30,000 subjects is ongoing, but won’t produce data until November or December.

Fitch downgraded Japan sovereign debt outlook to negative,citing the fragile public debt dynamics and weak financial system and despite forecasts for a rebound next year. These sovereign ratings for a country like Japan aren’t terribly relevant, given the Bank of Japan’s asset purchase – the more relevant development would be a focus on the currency due to longer term shifts in Japan’s current account or policies that encourage or discourage capital flows in and out of Japan as the country’s huge savings are shifted about – an important driver of the yen.

What we are watching next?

The Fed is set to meet tonight, and after the recent run lower in the US dollar, this could provide an interesting sentiment test for the greenback, as well as providing further input during the Powell press conference on how the Fed views its lack of balance sheet growth (mostly due to the reduction in repos, not necessarily Fed asset purchases) and what it thinks of the economic outlook after the resurgence in COVID-19 in the US. In general, we could also see the market largely shrugging off anything Powell says tonight as fiscal policy has gained ascendancy and much of Powell’s efforts may amount to begging the Trump administration to continue its support for unemployment benefits and add further stimulus.

Major Q2 earnings reports are up this weekSome of the largest of the megacap US companies are reporting earnings this weekone of the heaviest of earnings weeks, with Thursday after the close bringing the enormous haul of reports from FacebookApple, Google and Amazon and setting the tone for the final trading day of the week and month on FridayUS aircraft giant Boeing is reporting today ahead of the market open amidst concerns that the world’s inability to get ahead of the coronavirus will continue to reduce demand for aircraft deliveries. GM reports earnings at noon NY time (16:00 GMT) and Qualcomm, Inc. Reports after the close.

US tech giant CEO’s to testify in US House antitrust hearing– The CEO's of Apple, Amazon, Google and Facebook will all testify today by video before the House Antitrust Subcommittee investigating their dominance of online platforms. There may be little at stake for these companies at the moment, but if Biden wins the presidency and the Democrats take both houses of Congress at the November 3 election, concerns for a heavier regulatory hand, or even a breakup, of these giant companies will rise rapidly.

Economic Calendar Highlights for today (times GMT)

  • 08:30 – UK Jun. Mortgage Approvals / Consumer Credit
  • 12:30 – US Jun. Advance Goods Trade Balance
  • 14:30 – US DoE Weekly Crude Oil and Product Inventories
  • 18:00 – US FOMC Rate Decision / Statement Release
  • 18:30 – US Fed Chair Powell Press Conference

 

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