• The S&P 500 finished at 2,918, 19 points or 0.66% lower.
  • DJIA, ended down 90 points, or 0.34%, at about 26,290.
  • The Nasdaq lost 80 points or 1%, closing at 7,959.

Wall Street was a mixed bag to the end the week with a rally from the lows mid-day as traders juggled with mixed reports with respect to trade war headlines. Yesterday, there was a scare in the news that circulated which implied the US was pondering on whether to continue with trade talks and that the Trump administration wasn’t ready to let U.S. companies resume doing business with Huawei Technologies Co. On Friday, President Trump's suggested that September talks with China might be postponed, however, he also told reporters on Friday that things are going “very well with China”, but said he’s not ready to make a deal.

U.S. stocks ended mixed Friday, staging a big comeback after early losses driven by President Trump's suggestion that September talks with China might be postponed. The Dow Jones Industrial Average, DJIA, ended down 90 points, or 0.34%, at about 26,290. The S&P 500 finished at 2,918, 19 points or 0.66% lower while the Nasdaq lost 80 points or 1%, closing at 7,959.

US trade may be a market mover next week

"US-China trade rhetoric may be a market mover and push further CNY depreciation, while the July data dump will be closely watched for signs of economic stabilization, including the PMIs. Net FX settlements will be interesting after the June spot outflow, and in the context of the rapid July CNY depreciation," analysts at TD Securities explained.

DJIA levels

The DJIA index found support on the 200-DMA on Wednesday but has struggled to gain momentum beyond yesterday's highs making for a daily Doji on the charts. A run back to the moving averages will bring the 20-day and 50-day moving average into focus up in the low 26600s. On a break to the downside, however, bears can look to the June swing lows down at 24680 on further declines.

  • Italian political uncertainties can negatively affect the EUR in the coming days.
  • The level to beat for bears is the critical 1.1174 support.

EUR/USD daily chart

EUR/USD has been consolidating for the fourth consecutive day. Fiber is currently capped by the 1.1253 resistance and the 50/100-day simple moving averages (DSMAs). The greenback is flat as the 10-year bond yields and US equities are both recovering. On the other hand, the sentiment on the EUR is set to remain negative, in part, to political uncertainties in Italy.

EUR/USD 4-hour chart

The Euro is currently trading in a range between the 1.1253 resistance and the 1.1174 level while capped below the 200 SMA. Bears would need a clear break below the 1.1174 key support which could lead to a retracement down towards 1.1138 and 1.1105, according to the Technical Confluences Indicator.

EUR/USD 30-minute chart

The market tried to break above 1.1220 resistance but the price was rejected. If buyers have a daily close above 1.1220 and 1.1253 it would likely invalidate the bearish scenario, according to the Technical Confluences Indicator.

Additional key levels

  • After the recent drop at the start of August, DXY is stabilizing near the 97.55 level.
  • The level to beat for buyers are at the 97.80 level, followed by 98.10 and 98.38 resistances.

DXY daily chart

DXY (US Dollar Index) is trading in a bull trend above its main daily simple moving averages (DSMAs). DXY is attempting to find some support as the 10-year US bond yields are rebounding after falling sharply.

DXY 4-hour chart

DXY found support near the 96.55 level above the 200 SMA. The bulls need a clear break above the 97.80 resistance to reclaim the 98.10 level and the 50 SMA. Further up, buyers will look at the 98.36 resistance.

DXY 30-minute chart

The greenback has been consolidating its recent losses for the fourth consecutive day. However, a daily close below 97.15 could be seen as a potential bearish continuation towards the 97.00 figure.

Additional key levels

  • IMF offers some peace of mind but EUR could benefit on possible additional fiscal stimulus by China on carry unwind.
  • US Commerce Department is continuing to look at special licenses for US companies to sell equipment to Huawei.

We have recent headlines giving some peace of mind with respect to trade war angst whereby, the Internation Monetary Fund has stated that China's announced policy stimulus measures should stabilize 2019 growth provided there are no further increases in tariffs and the US Commerce Department is continuing to look at special licenses for US companies to sell equipment to Huawei – RTRS citing White House Commerce Dept' Officials.

Key IMF headlines notes:

  • Further trade tensions could put China's economic, financial stability at risk.
  • Additional fiscal stimulus by China would be warranted in the event of worsening trade tensions.
  • Agrees with staff assessment china's external position in 2018 was broadly in line with fundamentals.
  • Durable external balance requires addressing economic distortions that encourage excessive household savings; social safety net.
  • Some directors call for greater exchange rate flexibility, disclosures of forex interventions.

FX implications

The fact that the US Commerce Department is continuing to look at special licenses for US companies to sell equipment to Huawei is positive for risk and it accompanies earlier headlines of the same, to the contrary of those that were floated yesterday making for some cause for alarm. The Yen was the strongest coming into the sessions today but is off its lows of 105.26 at 105.56. However, there is a long way to go in trade risk and the IMF have noted that 'further trade tensions could put China's economic, financial stability at risk' – a supporting factor for CHF and the Yen. If we see a further unwinding of the carry, the Euro could also benefit.

  • International Energy Agency on Friday lowered its forecast for 2019 demand.
  • Regardless, WTI for September delivery climbed $1.96, or 3.7%, to end at $54.50 a barrel.

Despite the International Energy Agency on Friday lowering its forecast for 2019 demand growth, West Texas Intermediate travelled higher between a range of $52.40 and $54.89, ending on Wall Street 2.92% in the green to around $54.35 on signs that OPEC oil ministers are committing to market balances.

The International Energy Agency on Friday lowered its forecast for 2019 demand growth by 100,000 barrels a day to 1.1 million barrels a day, citing the weaker prospects for the global economy noted which also prompted the agency to lower its 2020 forecast by 50,000 barrels a day to 1.3 million barrels a day as well.

Bulls take back control

Regardless, WTI for September delivery climbed $1.96, or 3.7%, to end at $54.50 a barrel on the New York Mercantile Exchange. The contract ended the week with a 2.1% loss. Earlier in the week, contributing to the lower weekly price, the same contract fell hard by 4.7% to $51.09 for its lowest settlement for the contract since Jan. 14, 2019.

However, there are signals that OPEC oil ministers want to stabilise the price from here, feeling the pain associated with crumbling prices. "With the JMMC scheduled to take place in Abu Dhabi by mid-September, we suspect that OPEC signals will help to ease fears that the US-China trade war will see a market surplus re-emerge," analysts at TD Securities explained.

"In the meantime, however, we note that the crude market has likely continued to tighten as OPEC production has remained constrained in July, and non-OPEC production is growing at a slower pace than many had expected. At the same time, however, momentum indicators continue to fire downside signals on all cylinders in WTI — leading CTAs to add to their shorts. That being said, we estimate that algorithmic trend followers have reached their target short position in Brent crude, suggesting less downside flow in Brent in the immediate future."

WTI levels

Technically, the price is back above the 61.8%% Fibo of the late Dec to 2019 range and has taken on the 50% Fibo of the same range, albeit still drowning below the 50 and 200 daily moving averages. Bears can target below the 50 handle on an escalation of the trade wars – 47.56 comes in as the 78.6% Fibo. Bulls can target the 20-day moving average at 55.50 and then a run towards 56.80 and then 60.50.

  • Gold prices have stalled and running out of buyers on mixed trade talk headlines.
  • The 1430s comes as a deep retracement target once the 23.6% Fibo in the 1450s gives.

Spot gold has travelled between a low of $1494.96 to a high of $1509.40 on Friday, ending Wall Street around 0.50% in the red as the precious metal struggles to maintain the bullish momentum, despite the DXY falling 0.20% on the day. While gold may be sagging into the close, for the week, gold has climbed 3.5% with respect to futures and based on the most-active contract’s finish on August the 2nd.

December gold on Comex lost $1, or less than 0.1%, at $1,508.50 an ounce. Trade wars are at the helm driving prices. The gold and silver ratio ended down -0.63% having travelled between 88.84 down to 88.02 as silver prices continue to hold in there while gold lags. Silver prices ended the day modestly higher by 0.17% within a range of $16.86 and $17.14, ending around $16.98 on Wall Street.

Mixed trade headlines

Initially, gold found a bid on the White House's decision to hold off on granting licenses for US companies to purchase some Huawei equipment following Beijing's halting of US crop purchases. However, risk aversion spiked on reports to the contrary and that U.S. won’t ease Huawei restrictions. Nevertheless, the two and fro of such headlines are another reminder of the recently deteriorating outlook for US-Sino trade negotiations.

"Global assets will have to grow accustomed to the reality that trade uncertainty is likely here to stay, which ultimately has consequences for asset prices and for the growth outlook. At the same time, as the pressure on China's economy weighs on the RMB, which was allowed to weaken below the 7.0 mark, the President is likely to continue urging the Fed to lower rates which in turn could provide some positive tailwinds for gold and silver," the at TD Securities analysts argued.

Gold levels

However, in the absence of further trade war escalation, on a break back below the 1480s, a deeper retracement back to the 1430s could play out once the 23.6% Fibo in the 1450s gives. On the flip side, To the upside, the 1528/30s comes as a prior support area which could come in as the next major upside target where the price would be expected to hold initial tests. Then, bull swill look to the 127.2% Fibo target which is located around 1,560. This guards territory to then the Oct 2012 highs at 1795 come into the picture on the wide. The 1800s come as the 2011 highs and the price has touched the 61.8% Fibo retracement of those highs to the late 2015 swing lows.

Analysts at CIBC, point out that the Canadian Dollar is outperforming other commodity currencies, despite Canadian commodity prices are underperforming. But they warn it could all change in 2020.

Key Quotes:

“Even after this week’s turbulence, the C$ (CAD) is still by far the best performing commodity currency year-to-date and recently hit a multi-decade high against the NOK. That currency outperformance has come despite an (admittedly minor) underperformance of Canada’s tradeweighted commodity index. However, this could change if and when the Bank of Canada follows the global trend of reducing interest rates, and we recently brought forward our expectation of a BoC rate cut to Q1 2020.”

“So while the loonie could rally in the near-term if the Bank doesn’t cut quite as early as markets now think, the C$ could weaken more meaningfully next year when that move finally happens, with USDCAD reaching 1.38 by end-2020.”

The NZD/USD pair year-end target for 2019 at BNZ has been revised down significantly to 0.62. They point out the New Zealand Dollar remains at the whim of US President Trump and warn that one tweet could change the calculus considerably.

Key Quotes:

“We consider President Trump’s tweet at the end of last week, which escalated the US-China trade war, as a game changer for our NZD forecasts. Our prior assumption was that a ceasefire in the trade war, followed by an eventual trade deal later this year or early next year, would help support a mild recovery in the NZD. That no longer looks like a central forecast.”

“With USD/CNY breaking 7 this week, we now see the path eased towards 7.40 by year-end. Since the trade war began in earnest early-2018, the NZD and CNY ave been closely linked, so a weaker yuan suggests a weaker NZD.”

“The RBNZ factored in the risks about the global economic outlook for its rates decision this week and opted for a larger than expected 50bps rate cut. While the NZD fell significantly after the announcement, much of this reflected the market being wrong-footed. At this juncture, the low in the OCR projected by the OIS curve is around 63bps, just over 20bps lower than a week ago.”

“Our new USD/CNY forecasts project the yuan to hit 7.40 late-2019, early-2020. Our ready reckoner suggests that this level is consistent with the NZD anchored around USD0.60-0.63. We have pitched our new year-end forecast around the middle of this range, near USD0.62.”

  • The pound remains under pressure amid fears about the consequences of a no-deal Brexit.
  • US Dollar posts mix results across the board, down versus most G10 currencies.

Late on Friday, the Pound extended losses across the board with EUR/GBP approaching 0.9300 and GBP/USD hitting fresh 2-year lows under 1.2050.

GBP down on Brexit and also data

Cable remains under pressure mainly because of Brexit. On Friday, particularity a weaker-than-expected reading on UK GDP added extra weigh. The economy contracted by 0.2% during the second quarter. It is about to post the fourth weekly decline in-a-row and the lowest close on that chart since 1985. On Friday, it broke a 6-day range, adding another leg lower to the move that started mid-July. The Brexit drama is lately to continue to be the key driver.

Next week in the UK, the labour market report for June is due out on Tuesday and CPI inflation in July is due out Wednesday. While the releases are important, the focus remains on Brexit and how it will develop over the autumn. Right now, the Brexiteers and remainers are discussing whether or not Parliament is able to block a ‘no deal’ Brexit from happening automatically. We still consider another extension or snap election (which would also likely require an extension) as the two most likely outcomes but we cannot rule out a no deal Brexit happening by accident”, wrote Dankse Bank analysts.

The US Dollar is down from the level it had a week ago against majors. The DXY dropped sharply on Monday, mainly affected by the slide in USD/JPY and the rally in EUR/USD, and then trimmed losses. Lower US yields and the escalation in the trade war impact on the DXY that is hovering around 97.50, after opening on Monday above 98.00.

GBP/USD Key levels

Yohay Elam, analyst at FXStreet, considers that 1.2075 is a critical battle line, followed by the round number of 1.2000 “psychologically essential” and below comes the flash crash low from early 2017, 1.1985. “The next line is the lowest ever for cable – 1.1866 seen in late 2016.”

Looking up, the past week's peak of 1.2210 caps the pair. The post-crash recovery high of 1.2250 follows it. The next lines are from late July: 1.2380 and 1.2420, which have both provided support. The round number of 1.2500 is next”, explains Elam.

Analysts at MUFG Bank, point out that with crude oil prices moving around USD60 (WTI), production could continue to slow in the future.

Key Quotes:

“Oil prices (WTI front month) started July at just above USD59 per barrel and subsequently rose to around USD60.5 in the second week of the month owing to an extension of the agreement by OPEC+ to reduce their oil production and the increasing tension between the US and Iran. However, fears about a fall in demand grew again as demand for oil from the US slowed and China’s real GDP growth rate for the April-June quarter was the lowest since the country started to announce its growth in 1992. As a result, oil prices continued to fluctuate between USD55 and USD59 per barrel.”

“The downward pressure on demand for oil from the cyclical deceleration of the global economy and the conflict between the US and China continues. Looking back over the last year or so, demand remains mostly unchanged”.

“The number of working US shale oil rigs continues to decrease as oil prices drop below USD60 – the break-even price for US shale oil- resulting in a deceleration of US shale oil production. There is a strong possibility that production will continue to slow in the future as oil prices fluctuate around USD 60 per barrel”.