This article is originally referred from IronFX Research and Analysis.
• UK July PMI data signal sharp economic slowdown The British pound came under renewed selling interest on Friday, following Markit’s one-off release of Britain’s preliminary manufacturing and services PMIs for July. Both indices plunged by much more than expected, falling below the critical 50 mark that separates expansion from contraction. The surveys suggested that the UK economy likely contracted in the direct aftermath of the referendum, as businesses experienced a very sharp drop in new orders. We believe that the softness in the UK economy is likely to be reflected by official post-referendum data as well over the coming weeks, something that could heighten speculation of a potential UK recession being on the horizon. We therefore expect the combination of weak economic data and expectations for aggressive easing by the BoE in August to keep the pound under selling interest in the near-term.
• G20 pledge to encourage growth in “Brexit” aftermath Over the weekend, the finance ministers and central bank governors of the G20 economies pledged to use all available instruments in order to promote global growth and to offset any potential consequences arising from the UK referendum. The overall message from the officials was the need to reduce global uncertainty and to place more emphasis on fiscal and structural policies to support growth. The discussion on monetary policy was limited and most of the comments from the G20 officials were largely reiterations from previous G20 gatherings, something that kept the impact in FX markets limited.
• Today’s highlights: During the European day, we get the German Ifo survey for July. Both the current conditions and the expectations indices are expected to have declined. We believe that the outcome of the UK referendum is likely to have weighed on German business sentiment, as the future of the EU-UK trading partnership remains uncertain. The forecast is also supported by the German ZEW survey which showed that optimism among German economists deteriorated notably during the month. The ZEW expectations index plunged, pointing that most economists and analysts expect economic conditions to worsen over the next six months. We expect the Ifo expectations print to show a similar view by German businesses, something that could bring the euro under selling interest.
• As for the rest of the week, on Tuesday, we have no major events or indicators scheduled.
• On Wednesday, the highlight will be the FOMC policy meeting. The Committee is almost certain to keep Fed fund rates unchanged at this meeting, but we expect the statement to reflect a more hawkish bias than the one in June. From Australia, we get CPI data for Q2. In our view, these data are likely to be the biggest determinant of whether the RBA will ease its policy further in coming months. In the UK, the 1st estimate of Q2 GDP is coming out.
• On Thursday, Germany’s preliminary CPI for July is coming out one day ahead of Eurozone’s preliminary inflation rate.
• On Friday, during the Asian morning, we get the usual end-of-month data dump from Japan, but investors gaze will be fixed on the BoJ monetary policy meeting. We believe that Japanese policymakers are very likely to ease policy at this meeting, especially after the success of Prime Minister Abe’s coalition in the nation’s upper house elections and the further slide of Japan’s inflation rate into the negative territory. Eurozone’s preliminary CPI for July is also due out. From the US, we have the 1st estimate of Q2 GDP. Finally, the European Banking Authority will release the results of its latest stress test.
EUR/USD tumbles and hits support at 1.0950
• EUR/USD fell back below 1.1020 (R2) on Friday to hit support at 1.0950 (S1). In my view, Friday’s tumble has turned the short-term outlook back to the downside and as a result, I would expect a decisive dip below 1.0950 (S1) to prompt extensions towards our next support obstacle of 1.0900 (S2). Today, we get the German Ifo survey for July and expectations are for both the current conditions and expectations indices to have declined. If the actual prints come in below estimates, this could be the catalyst for the aforementioned negative move. Nevertheless, for now our short-term oscillators give evidence that a corrective bounce could be on the cards before the next negative leg. The RSI hit support slightly above its 30 line and turned up, while the MACD, although negative, shows signs that it could start bottoming as well. As for the bigger picture, as long as the pair is trading within the sideways range between 1.0800 and 1.1500, I would maintain my flat stance as far as the longer-term trend is concerned.
• Support: 1.0950 (S1), 1.0900 (S2), 1.0830 (S3)
• Resistance: 1.0980 (R1), 1.1020 (R2), 1.1090 (R3)
GBP/USD slides on the disappointing UK PMIs for July
• GBP/USD tumbled on Friday following the worse-than-expected UK PMIs for July. The pair slid after it hit resistance near the 1.3270 (R1) barrier, but the decline was stopped near the 1.3070 (S1) support line. Given that the rate has been oscillating between these two obstacles since the 15th of July, I would maintain my “wait and see” stance with regards to the short-term outlook. I believe that a decisive dip below 1.3070 (S1) is the move that would turn the near-term picture back negative, something that may set the stage for extensions towards our next support zone of 1.2875 (S2). Looking at our oscillators, I see that the RSI fell below its 50 line, while the MACD stands below both its zero and trigger lines. These indicators support somewhat that Cable may trade lower, at least for a while. Switching to the daily chart, I still see a long-term downtrend. Therefore, I would treat the 6th -15th of July recovery as a corrective phase and I would expect the bears to regain momentum at some point.
• Support: 1. 3070 (S1), 1.2875 (S2), 1.2800 (S3)
• Resistance: 1.3270 (R1), 1.3350 (R2), 1.3500 (R3)
USD/JPY rebounds and hits resistance slightly above 106.60
• USD/JPY traded higher on Friday, but during the Asian morning Monday, it hit resistance slightly above 106.60 (R1) and retreated. In my view, a break below 105.65 (S1) would confirm a forthcoming lower low on the 4-hour chart and may signal a short-term trend reversal. I would expect such a break to open the way for the next support zone of 104.65 (S2). Looking at our short-term oscillators, I see that the RSI turned down again and could fall back below 50, while the MACD, although positive, stands below its trigger. What is more, there is negative divergence between both our short-term oscillators and the price action. These signs support that the prevailing short-term uptrend is running out of fuel and that a trend reversal may be in the works. As for the bigger picture, the longer-term trend still looks negative. As a result, I would treat the aforementioned short-term uptrend as a corrective phase of that broader negative path.
• Support: 105.65 (S1), 104.65 (S2), 103.85 (S3)
• Resistance: 106.60 (R1), 107.30 (R2), 108.00 (R3)
Gold falls back below 1323
• Gold traded lower on Friday, falling back below 1323 (R1). Nevertheless the decline was stopped once again at the 1313 (S1) support hurdle, near the upside support line taken from the low of the 30th of May. A break below that support would confirm a forthcoming lower low on the 4-hour chart and perhaps signal the resumption of the prevailing short-term downtrend. I would expect such a move to initially aim for the 1305 (S2) support zone. Nevertheless, I still see positive divergence between our short-term oscillators and the price action, something that reveals slowing downside speed and raises concerns with regards to the continuation of the short-term downtrend. Switching to the daily chart, I see that the metal is trading above the uptrend line taken from back at the low of the 17th of December. In my view, this keeps the longer-term picture cautiously positive. I would treat the shot-term downtrend, or any future extensions that stay limited above that line, as a corrective phase of that longer-term uptrend.
• Support: 1313 (S1), 1305 (S2), 1300 (S3)
• Resistance: 1323 (R1), 1340 (R2), 1348 (R3)
WTI slides and breaks below 44.50
• WTI continued sliding on Friday, falling below the support (now turned into resistance) barrier of 44.50 (R1) and the prior downside support line drawn from the low of the 17th of June. The decline was stopped slightly above the 43.60 (S1) support barrier. The fact that the price is trading below the uptrend line taken from the low of the 11th of February, and also below the downtrend line drawn from the peak of the 9th of June, keeps the short-term outlook negative in my view. I would expect a clear break below 43.60 (S1) to open the way for the next support area of 42.50 (S2). However, our short-term oscillators give evidence that a corrective rebound may be looming before the next bearish leg, perhaps even back above 44.50 (R1). The RSI rebounded from its 30 line, while the MACD, although below both its zero and trigger lines, shows signs of bottoming. As for the broader trend, the break below the uptrend line taken from the low of the 11th of February brings into question the uptrend started back in January. The fact that the price closed below 46.00 on the 7th of July may have brought a medium-term trend reversal.
• Support: 43.60 (S1), 42.50 (S2), 41.30 (S3)
• Resistance: 44.50 (R1), 45.20 (R2), 46.00 (R3)
Original Source: IronFX Research and Analysis