New All-Time High For S&P 500, UK, EU and CAN CPIs, FOMC Meeting Minutes
Yesterday, the US equity market showed a good run to the upside, as big tech stocks, such as Amazon.com Inc (NASDAQ: AMZN), which gave a boost to Nasdaq 100 and the S&P 500. European indices were showing a good fight prior to US opening bell, but then gave away all the gains before the close of their trading sessions. Eurozone and Canadian inflation numbers are the ones to watch today.
S&P 500 Hit A New All-Time High, But Closed Below The Previous One
Yesterday, the US equity market showed a good run to the upside, as big tech stocks, such as Amazon.com Inc (NASDAQ: AMZN), which gave a boost to Nasdaq 100 and the S&P 500. Both of those indices managed to hit new all-time highs, however, the later one failed to close above the previous all-time high, at 3393.5, reached in February this year. Once again, the Dow Jones Industrial Average index ended its trading session slightly in the red. The July US housing starts and building permits released yesterday, also contributed to S&P’s and Nasdaq’s good run to the upside, as both numbers came out on a much higher side of what was initially expected. Housing starts showed up at 1496m against the 1240m expectation and the building permits came out at 1495m versus 1320 initially forecasted.
European indices were showing a good fight prior to US opening bell, but then gave away all the gains before the close of their trading sessions. The new quarantine measures across individual EU member states continued to weigh in on the European market. These measures taken are having a strong negative effect on the EU consumers, as they choose to spend less, as the fear of “worse times” gets stronger. The EU indices might stay undecided, for now, with the next directional move, because on one hand, we have the US equities, which continue to rally, and on the other hand, the travel industry is weighing in heavily on the European economy.
DAX — Technical Outlook
Yesterday, the German DAX tried to make its way higher, but got halted near its short-term tentative downside resistance line taken from the high of July 21 st. The index then reversed sharply lower and came closer to its key support area between the 12792 and 12805 levels. For now, we will take a neutral stance and wait for a violation of one of our levels, before examining the next short-term directional move.
If DAX ends ups moving below the aforementioned support area between the 12792 and 12805 levels, marked by the lows of August 14 thand 18 threspectively, that may open the way for further declines, as such a move would confirm a forthcoming lower low. The German index might then drift to the 12645 obstacle, a break of which may set the stage for a test of the 12515 zone. That zone marks the lows of August 6 thand 7 th.
On the upside, if the previously-discussed downside line breaks and the price climbs above the 13056 hurdle, or even the 13103 barrier, marked by the current highest point of August, that could invite more buyers into the arena. Such a move would confirm a forthcoming higher high, possibly clearing the path to the 13218 area, which is the high of July 23 rd. If the index stalls there for a bit, we might even see a small correction back down. That said, if 13103 zone provides good support, the bulls could take advantage of the lower price and lift it up again. A break of the 13218 barrier would confirm another forthcoming higher high and may send DAX to the 13315 level, marked by the highest point of July.
UK, EU and CAN Inflation Numbers
In terms economic data today, it will be an inflation report day, where several nations will deliver their CPI figures for the month of July. UK had already kicked off the day with those data sets, which came out better than expected. Both MoM and YoY core readings, which exclude food and energy, came out at +0.4% and +1.8% respectively, whereas the initial expectations were for a -0.1% and +1.3%. The headline numbers were slightly on a more modest side. The MoM July reading showed up at +0.4%, same as core, but the YoY figure was only at +1.0%. Still, that is better than the initial forecast of +0.6%, but if compare to the core, it is way too far. The Bank of England inflation target sits at 2%. Although today’s core YoY figure showed up closer to the target, the headline number is still lagging. The British pound barely moved after the news release. Most likely, investors are worried more about the overall state of the UK’s economy, which is suffering from the effects of the pandemic.
Next in-line will be the Eurozone with their inflation readings for July. The ECB has also set its inflation target at close but below 2%. The expectations for now are sat at +0.4% and -0.3% for the YoY and MoM figures respectively. If the forecasts are correct, then that would mean that the YoY number remained the same as previous and the MoM figure had declined, as the last reading was at +0.3%.
Canada will also be the one, which will release its inflation numbers. It is believed that in July, the Canadian headline MoM and YoY figures have fallen twice from its previous +0.8% and +0.7%. The forecast currently stands at +0.4% for MoM and +0.3% for YoY. Unfortunately, there are no estimates for Canada’s core CPI readings at the moment.
GBP/CAD — Technical Outlook
GBP/CAD had a good run to the upside yesterday, breaking above its short-term tentative downside resistance line drawn from the high of July 31 st. The pair pushed higher, but found strong resistance near the 1.7455 barrier. There is a possibility to see a small correction lower, however if the rate continues to balance above all of its EMAs, the bulls may take charge again, hence why we will stay somewhat positive, for now.
As mentioned above, a small decline could be seen as a temporary correction, especially if the rate remains above all of its EMAs. If so, the buyers might push GBP/CAD up again and if this time they manage to lift the pair above the 1.7455 barrier, this would confirm a forthcoming higher high, potentially inviting more bulls into the field. The rate could rise to the 1.7530 hurdle, a break of which may set the stage for a move to the 1.7590 level, marked by the current highest point of August.
Alternatively, if the pair slides back below the aforementioned downside line and falls below the low of August 17 th, at 1.7280, that might open the way for further declines, as the bulls may get spooked from the field temporarily. GBP/CAD could then travel to the current lowest point of August, at 1.7235, a break of which may open the door to the 1.7155 level. That level marks the low of July 27 th.
FOMC Meeting Minutes
Another important piece of information on Wednesday will be from the FOMC’s, which will release its Meeting Minutes. In the end of July, the FOMC kept their interest the range of 0% and +0.25%. According to the CME’s FedWatch Tool, there currently no expectations for the target range to change all the way till March 2021. The FOMC had noted in their last statement, quote: “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” The main concern for the FOMC right now is the coronavirus and its effects on the US and global economies. Also, tensions with China are also monitored, as that may force the Fed to adjust their policy accordingly, if there won’t be any progress in the US-China talks.
As For The Rest Of Today’s Events
We will get the US weekly crude oil inventories, which are expected to have increased slightly. If the actual reading comes out as expected, this may prove to be negative for the price of oil. However, let’s not forget that last week, the initial forecast was also on the lower end, comparing to the previous reading, but the actual figure showed a -4512m barrels. That said, the data did not have a significant effect on the price of oil, as it continues to move sideways.
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Originally published at https://www.jfdbank.com on August 19, 2020.