• Fed officials offer mixed signals int the blackout period and sends the dollar higher.
  • Gold drops below the 1430 downside key support level again.

Gold prices on Friday gave back earned ground from the prior session following a dialled back in the markets with respect to Federal Reserve rate cut expectations. Spot prices fell from a high of $1,452.95 to a low of $1,420.35, ending the New York session at $1,425.35 and -1.49%.

The greenback stablised following The Wall Street Journal's report that Fed officials, based on recent public statements and interviews, were actually signalled they were ready to cut rates by a just a quarter-percentage point and not by 50 basis points. The Dollar was 0.3% higher at 97.104 in the DXY by the precious metal's close and was closing the New York session back on he 97 handle, + 0.41%. The 10-year Treasury note was yielding 2.0494%.

Meanwhile, gold futures were also ending lower for the session as the dollar strengthened, although they ended higher of the week after logging their first intraday climb above $1,450 an ounce in six years. August gold trading dropped by $1.40, or 0.1%, to settle at $1,426.70 an ounce, after touching an intraday high of $1,454.40.

From here, markets will be watching economic data next week as Fed speakers go into the blackout ahead of the July 31st FOMC meeting. Meanwhile, the Dollar is also subject to the trade wars with President Trump trying to jawbone the USD lower since day one. "Yet the combination of late-cycle stimulus and a global trade wars blunted his efforts. Now, with those economic diminishing the mere threat of intervention is enough to knee-cap the USD. In turn, intervention seems unlikely, especially if f natural forces already want to pull the USD lower," analysts at TD Securities explained.

Gold levels

Technically, a symmetrical triangle has been taking shape and today's drop has sent the price back into the ranges and below the 1430 downside key support level again. If the price break below 1420/25, bears will look for a run below the 1400 psychological level. The 23.6% Fibo of the latest swing lows and highs are located at 1398. Below here, we are looking down the barrel at $1,373/76 zone which meets the 19th June spike correction lows and the 38.2% Fibo of the same swing ranges.

  • The Nasdaq Composite Index dropped 60 points to 8,146.
  • The DJIA index ended down 68 points 27,154.
  • The S&P 500 index lost 18 points at 2,976.

Wall Street's benchmarks were ending the session on Friday lower as counter reports to the prior day's hype with respect of a 50 basis point rate cut from the Federal Reserve suggest that there will only be a 25 basis point rate cut. There were also headlines that Iran had seized a British-flagged oil tanker in the Strait of Hormuz which was not risk-friendly. Consequently, the Dow Jones Industrial Average, DJIA, ended down 68 points 27,154 and the S&P 500 index lost 18 points at 2,976. The Nasdaq Composite Index dropped 60 points to 8,146.

  • Trump: Iran is in big trouble now, the economy is crashing

The Wall Street Journal dialled back expectations of a 50 basis point cut at the end of this month's Federal Open Market Committee's meeting as it reported that the Fed officials, based on recent public statements and interviews, signalled they were ready to cut rates by a quarter-percentage point. This sent the Fed-funds futures pricing in just a 22.5% chance of a half-point move, much lower than the 40% probability earlier in the day. US rates bear-flattened as a result with the front-end giving up most of its 5bp rally on the back of the William's noise the prior day. Elsewhere, corporate earnings showed a better-than-expected result from Microsoft Corp with solid growth in Azure and LinkedIn.

"Markets will be watching economic data next week as Fed speakers go into the blackout ahead of the July FOMC meeting. Geopolitics will also be closely watched over the weekend as tensions with Iran appear to be escalating," analysts at TD Securities explained.

DJIA levels

On a technical basis, the DJIA continues to consolidate, capped at recent record highs. Below the 20-Day moving average at 26888, the 23.6% retracement of the 3rd June low to 12th July recently printed high falls in at 26706 which meets April 23rd and 1st May double-top highs. Below there, we have the 23.6% retracement of the Dec 2018 to recent highs at 26056. the 38.2% fibo at 25226, below the 200-day moving average, comes in should the air b let out of the bubble on a disappointment from the Fed.

  • EUR/USD spent the week near monthly lows trading between 1.1200 and 1.1290.
  • The 1.1200 figure is an important level to break for bears.

EUR/USD daily chart

EUR/USD is trading in a bear trend below the main daily simple moving averages (DSMAs). The market is about to end the trading week near monthly lows.

EUR/USD 4-hour chart

EUR/USD is testing one more time the 1.1220 support while trading below the main SMAs. Bears want to break below this importnat level to reach 1.1200 and 1.1160, according to the Technical Confluences Indicator.

EUR/USD 30-minute chart

EUR/USD is trading below its main SMAs suggesting bearish momentum in the near term. Immediate resistance can be seen at 1.1255 and 1.1290, according to the Technical Confluences Indicator.

Additional key levels

  • The S&P500 broke below the 2,985.00 support
  • The correction can continue towards 2,965 and the 2,950 level.

S&P500 daily chart

The S&P 500 Index is trading in a bull trend above its main daily simple moving averages (DSMAs). The market. Bulls objective is to keep the trend intact and break above the 3,010.00 level and potentially reach 3,045.00 on the way up.

sp500 daily chart
S&P500 4-hour chart

Bears broke below the 2,985.00 support and the 100 SMA. The correction down can extend towards 2,965.00 and 2,950.00.

sp500 4-hour chart
Additional key levels

While there have been warning signs on the UK economy, political outcomes regarding Brexit dominate the outlook for the pound, explained analyst at Rabobank. They noted GBP has been testing key technical levels.

Key Quotes:

“In recent sessions, cable traded below the December 2018 low of 1.2478, reaching levels last seen more than two years ago before bouncing back. If a break below this level is sustained, from a chartist’s perspective, this would put the GBP/USD 1.2351 level in view.”

“If Johnson is confirmed as UK PM next week, GBP would be at risk of weakening. His rival, Hunt, is likely to be greeted a little more favourably by UK investors due to his more pragmatic view on the October 31 Brexit deadline. Even on the scenario of a cliff edge Brexit being avoided this year, UK investors will have to cope with the legacy of Brexit on the political system. A delay to Brexit could result in the Tories limping into the next election.”

“Our central view that Brexit will be delayed beyond October this year suggests that GBP will likely retain some poise in the months ahead. That said, kicking the can down the road is clearly not a solution and will serve to prolong uncertainty and act at a continued drag on investment. This means the permanent costs to the economy could become more marked. We forecast EUR/GBP at 0.87 and GBP/USD at 1.30 on this scenario on a 6 month view.”

“If a deal is done in the next year or so, we see scope for EUR/GBP to return to the 0.83/0.83 region and for cable to trade around 1.39. This assumes no general election. On a no deal Brexit, we see risk of EUR/GBP rising to parity and cable dropping to the 1.12 area.”

Analysts at CIBC, point out the USD/JPY appears to be pricing in a scenario more like the bond market, so if the Federal Reserve cuts rates less aggressive as expected, the yen could underperform.

Key Quotes:

“Bond markets are pricing in about 100bps worth of cuts from the Fed, suggesting possibly a mild recession scenario. Equity markets clearly aren’t anticipating anything that bad. Where does the risk-off yen fit in?”

“Given where USDJPY is compared to the end of last year, it appears to be pricing in a scenario more like the bond market. As such, if the 50bps worth of cuts from the Fed (plus other policy easing globally) is enough to shore up growth that could have the yen underperforming other currencies such as the euro and sterling against the US$ next year.”

Analysts at TDS, expect the Central Bank of Russia (CBR) to continue its easing cycle and to cut by 25bps at the board meeting next Friday.

Key Quotes:

“The market has pretty much fully priced in a 25bps cut so we expect little response from USDRUB. If the CBR surprises the market with a 50bps cut we could see some move up in USDRUB of about 0.3-0.5%.”

“We think the CBR will stick with its recent cautious stance and cut the Key Rate by 25bps to 7.25%. This is a revision to our previous forecast where we expected the next cut to come in September. Our revised forecast is in line with the almost unanimous consensus.”

“After next Friday's cut we expect two more cuts: at the September and December meetings. We expect only one cut next year, in March, bringing the Key Rate down to 6.5%. Given that the 4% target should have been more or less reached by then, this would put the real policy rate in the middle of the 2-3% range which the CBR deems to be neutral.”

Analysts from Rabobank, see recent moves in crude oil prices as a knee-jerk reaction to a misleading headline which will ultimately reverse itself.

Key Quotes:

“Oil markets moved sharply lower this week on the back of statements from US Secretary of State Pompeo indicating that Iran was ready to come back to the negotiating table”.

“The forward curves for both WTI and Brent remain strongly inverted which is good evidence of a tightening market”.

“Looking forward we remain biased to the upside for oil prices in the second half of this year. We view this week’s price selloff as headline driven and likely to reverse itself overtime as fundamental tightness becomes more apparent to the market. Our base case is for Brent to stabilize around the $75/bbl mark in the 3rd quarter and for WTI to stabilize around $70/bbl.”

  • Oil advances on Friday but closes the week with a 7% loss.
  • Diminishing escalations in the Middle East put pressure on crude prices.

West Texas Intermediate (WTI) crude oil finished Friday with small gains, following five consecutive daily losses. Oil recovered from a monthly low of $54.72 a barrel scored on Thursday and it is poised to end the week just below $56.00/bbl.

WTI losses 7% for the week amid easing geopolitical tensions

Oil recovered from one-month lows scored on Thursday and moved back to $56.00/bbl amid reports that Iran seized a UK ship in the Gulf of Oman. However, sweet light crude oil has faced strong pressure this week, losing more than 7%, amid rumours that Iran and the US could go back to the negotiation table, diminishing geopolitical tensions.

WTI significant levels

At the moment the barrel of WTI is gaining 0.41% on Friday at $55.93. On the upside, next resistances could be found at $57.37 (200-day SMA), $57.97 (20-day SMA) and $59.10 (100-day SMA). On the downside, immediate support is seen at $54.72 (monthly low, Jul 18) followed by $54.10 (Jun 20 low) and finally $53.10 (200-week SMA).

Next week data to be released in the US includes the 2Q GDP report. Analysts at the National Bank of Canada expect growth of around 1.5% annualized.

Key Quotes:

“The Bureau of Economic Analysis will publish its advance estimate of Q2 GDP growth on Friday. A moderation in growth from the prior quarter – recall the +3.1% growth print in the first quarter ─ is in the cards. That’s because of a likely drag from destocking after three consecutive quarters of inventory accumulation. Trade also probably weigh on growth, as export volumes fell at a faster pace than import volumes did in the quarter. Domestic demand, meanwhile, should remain strong judging from a healthy rebound in retail sales in the quarter. If shipments of non-defense capital goods excluding aircraft are any guide, business investment spending should provide a modest lift to growth as well. Overall, we expect GDP growth of around 1.5% annualized.

“Durable goods orders may have bounced back in June following two consecutive negative prints. That said, the size of the rebound may be limited by still-depressed demand in the civilian airplane segment.”

“The week will provide important information about the housing market in June with the release of data on existing and new home sales. Increases are expected for both indicators on account of lower mortgages rates. Some clues on the state of U.S. factories in July will also be available with the publication of Markit’s flash manufacturing PMI.”