Weak data a poor driver for stock rally
Financial markets have staged an impressive rally across a broad range of instruments. This is an essential signal that risk appetite improves after about a month of correction. But based on the idea that "the worse, the better", such a rally could be a trap.
Sentiment in the US equity market improved markedly on Tuesday after a cocktail of economic data was released. The Consumer Confidence Index fell from 114 to 106.1 in August, instead of the expected rise to 116. The number of job openings fell to 8.827 million in July, the lowest since April 2021, as demand for remote work cooled and the overall labour market saturated. At the same time, an increase to 9.5 million was expected.
The reports showed the economy slowing under the weight of interest rates at a time when markets are used to stronger-than-expected data. In the wake of the releases, expectations of a quick reversal in Fed policy and that we will see no further tightening were slightly reinforced.
Financial markets have staged an impressive rally across a broad range of instruments. This is an essential signal that risk appetite improves after about a month of correction. But based on the idea that "the worse, the better", such a rally could be a trap.
Sentiment in the US equity market improved markedly on Tuesday after a cocktail of economic data was released. The Consumer Confidence Index fell from 114 to 106.1 in August, instead of the expected rise to 116. The number of job openings fell to 8.827 million in July, the lowest since April 2021, as demand for remote work cooled and the overall labour market saturated. At the same time, an increase to 9.5 million was expected.
The reports showed the economy slowing under the weight of interest rates at a time when markets are used to stronger-than-expected data. In the wake of the releases, expectations of a quick reversal in Fed policy and that we will see no further tightening were slightly reinforced.
This is a bold expectation and contrasts with the overtly hawkish rhetoric of most FOMC members in recent days. A year ago in Jackson Hole, Powell called for pain to be endured to fight inflation. But that moment seems to have arrived only now. The thick layer of stimulus money easily explains the delay that households and businesses have accumulated throughout the pandemic. Government spending has remained high, with the US running a record budget deficit.
This does not look like a solid foundation for economic growth, and the joy of anticipating a soft Fed policy tends to be replaced by a quick realisation of the gravity of falling incomes.
Most surprisingly, the one-and-a-half per cent rally in the S&P500 was triggered by a change in the probability of a November rate hike from 62.2% to 50.7%. This compares with 42.2% a week ago.
This does not look like a solid foundation for economic growth, and the joy of anticipating a soft Fed policy tends to be replaced by a quick realisation of the gravity of falling incomes.
Most surprisingly, the one-and-a-half per cent rally in the S&P500 was triggered by a change in the probability of a November rate hike from 62.2% to 50.7%. This compares with 42.2% a week ago.
In the short term, traders will likely focus on the S&P500's momentum near the 50-day moving average at 4465, which the index crossed yesterday, on its way to the 4500 level. The ability to extend the advance will signal bullish dominance in the markets. A move below 4450 would suggest we saw a false breakout on Tuesday.
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Inflation remains a driver of European financial markets, and the latest estimates point to stubbornly high consumer prices in Germany despite a continued fall in import prices.
The German import price index fell by 0.6 per cent in July, the tenth consecutive month of decline. In the same month a year earlier, the fall was 13.2%. The figure was 0.3 percentage points lower than expected, which could act as an early indicator of a fall in headline inflation and reduce the chances of further tightening by the ECB.
However, preliminary estimates of consumer inflation for August later in the day showed an acceleration in Germany and Spain, setting up a robust CPI for the whole eurozone, which will be released on Thursday.
German consumer prices were around 6.1% higher in August than a year earlier, after three consecutive months of 0.3% increases. Consumer inflation in the eurozone’s largest economy has not fallen since May, although other price indices have moved into negative territory.
The German import price index fell by 0.6 per cent in July, the tenth consecutive month of decline. In the same month a year earlier, the fall was 13.2%. The figure was 0.3 percentage points lower than expected, which could act as an early indicator of a fall in headline inflation and reduce the chances of further tightening by the ECB.
However, preliminary estimates of consumer inflation for August later in the day showed an acceleration in Germany and Spain, setting up a robust CPI for the whole eurozone, which will be released on Thursday.
German consumer prices were around 6.1% higher in August than a year earlier, after three consecutive months of 0.3% increases. Consumer inflation in the eurozone’s largest economy has not fallen since May, although other price indices have moved into negative territory.
Consumer prices in Spain are rising at 2.6% year-on-year, up from 2.3% in July and 1.9% in June, which is unlikely to allow the ECB to loosen its grip next month.
This is good news for the single currency. EURUSD gained over 1.5% to 1.0940 in less than 24 hours on the news, highlighting the cooling of inflationary pressures in the US against positive surprises from the eurozone.
EURUSD started to gain support on the retracement to the 200-day MA and back to the upward channel formed at the end of last year.
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This is good news for the single currency. EURUSD gained over 1.5% to 1.0940 in less than 24 hours on the news, highlighting the cooling of inflationary pressures in the US against positive surprises from the eurozone.
EURUSD started to gain support on the retracement to the 200-day MA and back to the upward channel formed at the end of last year.
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#WaveAnalysis
#USDCAD reversed from key resistance level 1.3645
Likely to fall to support level 1.3500
USDCAD currency pair previously reversed down from the key resistance level 1.3645 (which has been repeatedly reversing the pair from January, as can be seen below).
The downward reversal from the resistance level 1.3645 stopped the previous minor impulse wave 3 of the intermediate impulse wave (C) from the start of August.
Given the strength of the resistance level 1.3645, USDCAD currency pair can be expected to fall further toward the next support level 1.3500 (low of the previous correction 2).
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#USDCAD reversed from key resistance level 1.3645
Likely to fall to support level 1.3500
USDCAD currency pair previously reversed down from the key resistance level 1.3645 (which has been repeatedly reversing the pair from January, as can be seen below).
The downward reversal from the resistance level 1.3645 stopped the previous minor impulse wave 3 of the intermediate impulse wave (C) from the start of August.
Given the strength of the resistance level 1.3645, USDCAD currency pair can be expected to fall further toward the next support level 1.3500 (low of the previous correction 2).
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#WaveAnalysis
#EURUSD broke daily down channel
Likely to rise to resistance level 1.1045
EURUSD currency pair recently broke the resistance trendline of the daily down channel from the middle of July (which enclosed the previous short-term ABC correction ii).
The breakout of this down channel should accelerate the active short-term impulse wave iii of the higher impulse waves 3 and (3).
Given the clear daily uptrend, EURUSD currency pair can be expected to rise further toward the next resistance level 1.1045 (top of the previous correction b).
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#EURUSD broke daily down channel
Likely to rise to resistance level 1.1045
EURUSD currency pair recently broke the resistance trendline of the daily down channel from the middle of July (which enclosed the previous short-term ABC correction ii).
The breakout of this down channel should accelerate the active short-term impulse wave iii of the higher impulse waves 3 and (3).
Given the clear daily uptrend, EURUSD currency pair can be expected to rise further toward the next resistance level 1.1045 (top of the previous correction b).
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Major Market News Events in September!
Keep an eye on the upcoming market events this month, which may significantly affect the markets. (🕒All times are in GMT)
✅ 01/09 - 12:30 - Non-Farm Payrolls
✅ 13/09 - 12:30 - US CPI’s
✅ 14/09 - 12:15 - ECB Rate Statement
✅ 20/09 - 18:00 - FOMC Statement
✅ 21/09 - 07:30 - SNB Policy Rate
✅ 21/09 - 11:00 BoE Rate Statement
📅 Stay up to date with the FxPro Economic Calendar!
Keep an eye on the upcoming market events this month, which may significantly affect the markets. (🕒All times are in GMT)
✅ 01/09 - 12:30 - Non-Farm Payrolls
✅ 13/09 - 12:30 - US CPI’s
✅ 14/09 - 12:15 - ECB Rate Statement
✅ 20/09 - 18:00 - FOMC Statement
✅ 21/09 - 07:30 - SNB Policy Rate
✅ 21/09 - 11:00 BoE Rate Statement
📅 Stay up to date with the FxPro Economic Calendar!
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The crypto market is cooling after a surge in buying on the 29th, losing 0.8% over the past 24 hours to $1.085 trillion, but still almost 4% higher than before the jump.
#Bitcoin briefly dipped to $27K on Wednesday, about half of its initial jump from $26K to $28K and back below its 200-day and 200-week averages. The decisive trend battle won't come until Friday evening at the earliest, with consolidation around current levels all the way through.
#XRP has performed worse than the cryptocurrency market over the past few days, erasing almost all gains of its latest leap. On a weekly timeframe, long-term support appears to have been taken over by the 200-week average (now $0.516). A fortnight ago, the sell-off stopped at the 50-week average ($0.457). Both curves are well above the multi-year uptrend line, which now runs through $0.39. This dynamic could attract more speculators soon, with an upside potential of $0.60 or even $0.80
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#Bitcoin briefly dipped to $27K on Wednesday, about half of its initial jump from $26K to $28K and back below its 200-day and 200-week averages. The decisive trend battle won't come until Friday evening at the earliest, with consolidation around current levels all the way through.
#XRP has performed worse than the cryptocurrency market over the past few days, erasing almost all gains of its latest leap. On a weekly timeframe, long-term support appears to have been taken over by the 200-week average (now $0.516). A fortnight ago, the sell-off stopped at the 50-week average ($0.457). Both curves are well above the multi-year uptrend line, which now runs through $0.39. This dynamic could attract more speculators soon, with an upside potential of $0.60 or even $0.80
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Oil is set to break up the price channel. Lucky this time?
Oil has risen in five of the last six trading sessions, gaining almost 4%. With a lower volatility, Crude may be preparing for a big move higher.
US commercial oil inventories plunged by 10.6M barrels last week and have fallen by almost 34M over the past five weeks. Inventories are now only 1.1% higher than the same week the previous year. This is despite the release of over 100M barrels, or 22%, of the US Strategic Petroleum Reserve during this period.
Oil has risen in five of the last six trading sessions, gaining almost 4%. With a lower volatility, Crude may be preparing for a big move higher.
US commercial oil inventories plunged by 10.6M barrels last week and have fallen by almost 34M over the past five weeks. Inventories are now only 1.1% higher than the same week the previous year. This is despite the release of over 100M barrels, or 22%, of the US Strategic Petroleum Reserve during this period.
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There is an oil shortage in the US market. Oil producers are trying to fill the gap by increasing production to 12.8 million BPD in August, up from 12.2 million a month and 12.1 million a year earlier.
But it is also clear that companies are in no hurry to invest in expanding production, as the number of active rigs has been falling almost every week since last November. Probably, this is the response to a sharp tightening of monetary conditions, pessimistic economic forecasts, and the US government's attempts to suppress prices by selling off its strategic stockpile. Add to this the lukewarm attitude to investment in conventional hydrocarbons as part of an environmental agenda.
It is also likely that the 'interest' of oil producers waned as the price settled into a range consistently below $80, while several attempts to push the price back above met with solid resistance.
August could be an essential turning point for prices in this regard. This is undoubtedly the case on the WTI price chart.
But it is also clear that companies are in no hurry to invest in expanding production, as the number of active rigs has been falling almost every week since last November. Probably, this is the response to a sharp tightening of monetary conditions, pessimistic economic forecasts, and the US government's attempts to suppress prices by selling off its strategic stockpile. Add to this the lukewarm attitude to investment in conventional hydrocarbons as part of an environmental agenda.
It is also likely that the 'interest' of oil producers waned as the price settled into a range consistently below $80, while several attempts to push the price back above met with solid resistance.
August could be an essential turning point for prices in this regard. This is undoubtedly the case on the WTI price chart.
Early last week, buyers supported oil immediately after falling below $78, the 61.8% Fibonacci retracement of the rally from the June lows (at $67) to the August highs (at $84). This correction has cleared the medium-term overbought condition, with the RSI on the daily chart moving back from over 70.
The reversal to the upside also coincided with the formation of a golden cross, where the 50-day moving average crosses the 200-day MA from below, impacting market sentiment.
The actions of OPEC+ to extend existing restrictions and the recent additional cuts are helping to create a bullish picture on the chart. These efforts have been fruitful so far, as Russia and Saudi Arabia have increased gross oil revenues despite lower production, as higher prices have offset lower sales volumes.
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The reversal to the upside also coincided with the formation of a golden cross, where the 50-day moving average crosses the 200-day MA from below, impacting market sentiment.
The actions of OPEC+ to extend existing restrictions and the recent additional cuts are helping to create a bullish picture on the chart. These efforts have been fruitful so far, as Russia and Saudi Arabia have increased gross oil revenues despite lower production, as higher prices have offset lower sales volumes.
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Personal spending by Americans in July points to increased risks of a return to inflation. Consumer spending rose 0.8% in July, following a 0.7% increase a month earlier. Meanwhile, incomes rose 0.2% in July and 0.3% in June. Disposable personal income was unchanged in July after increasing 0.2% a month earlier.
As a result, personal savings fell to 3.5% of income, the lowest since last October, down from 4.7% two months ago.
As a result, personal savings fell to 3.5% of income, the lowest since last October, down from 4.7% two months ago.
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These are signs of inflationary pressures in the US, contrary to the slump in many commodity prices that fuelled inflation last year. The price index accelerated growth from 3.0% to 3.3% in July. The core index accelerated from 4.1% to 4.2%— a turn upward from double the levels of the Fed's 2% target.
The conventional wisdom is that stronger-than-expected spending growth is good news for the dollar and (often) the stock market, demonstrating buyer confidence. For the dollar, that rule of thumb remains valid. But it could be bad news for the stocks, pressing down expectations that the Fed Funds rate has already peaked.
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The conventional wisdom is that stronger-than-expected spending growth is good news for the dollar and (often) the stock market, demonstrating buyer confidence. For the dollar, that rule of thumb remains valid. But it could be bad news for the stocks, pressing down expectations that the Fed Funds rate has already peaked.
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#WaveAnalysis #AMZN
Amazon reversed from support level 132.50
Likely to rise to resistance level 141.30
Amazon previously reversed up from the key support level 132.50 (former resistance from July) intersecting with the support trendline of the narrow up channel from March.
The support level 132.50 was further strengthened by the support trendline of the daily up channel from March and by the 61.8% Fibonacci correction of the upward impulse from July.
Given the clear daily uptrend, Amazon can be expected to rise further toward the next resistance level 141.30 (top of the previous correction 2).
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Amazon reversed from support level 132.50
Likely to rise to resistance level 141.30
Amazon previously reversed up from the key support level 132.50 (former resistance from July) intersecting with the support trendline of the narrow up channel from March.
The support level 132.50 was further strengthened by the support trendline of the daily up channel from March and by the 61.8% Fibonacci correction of the upward impulse from July.
Given the clear daily uptrend, Amazon can be expected to rise further toward the next resistance level 141.30 (top of the previous correction 2).
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#WaveAnalysis
#EURJPY reversed from resistance level 159.50
Likely to fall to support level 156.95
EURJPY currency pair recently reversed down from the key resistance level 159.50 (top of the previous minor impulse wave 1) intersecting with the upper daily Bollinger Band.
The downward reversal from the resistance level 159.50 is likely to form the daily Japanese candlesticks reversal pattern Bearish Engulfing.
Given the clear bearish divergence on the daily Stochastic indicator, EURJPY currency pair can be expected to fall further toward the next support level 156.95 (low of the previous wave 2).
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#EURJPY reversed from resistance level 159.50
Likely to fall to support level 156.95
EURJPY currency pair recently reversed down from the key resistance level 159.50 (top of the previous minor impulse wave 1) intersecting with the upper daily Bollinger Band.
The downward reversal from the resistance level 159.50 is likely to form the daily Japanese candlesticks reversal pattern Bearish Engulfing.
Given the clear bearish divergence on the daily Stochastic indicator, EURJPY currency pair can be expected to fall further toward the next support level 156.95 (low of the previous wave 2).
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#WaveAnalysis
#WTI crude oil rising inside impulse wave (3)
Likely to test resistance level 84.00
WTI crude oil continues to rise inside the intermediate impulse wave (3), which previously broke the daily down channel from the start of August (enclosing the earlier ABC correction (2)).
The breakout of this down channel strengthened the bullish pressure on WTI crude oil.
Given the strength of the active impulse wave (3), WTI crude oil can be expected to rise further toward the next resistance level 84.00 (which stopped the previous impulse wave (1)).
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#WTI crude oil rising inside impulse wave (3)
Likely to test resistance level 84.00
WTI crude oil continues to rise inside the intermediate impulse wave (3), which previously broke the daily down channel from the start of August (enclosing the earlier ABC correction (2)).
The breakout of this down channel strengthened the bullish pressure on WTI crude oil.
Given the strength of the active impulse wave (3), WTI crude oil can be expected to rise further toward the next resistance level 84.00 (which stopped the previous impulse wave (1)).
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The crypto market lost 3.5% in 24 hours, again falling below $1.05 trillion. The formal start of the sell-off was the news that the SEC had delayed its review of bitcoin ETF applications. The decline paused, anticipating further triggers, completely erasing Tuesday's upswing.
Bitcoin ended August down 11% at $26K, its worst performance since last November and the second consecutive month of declines. Technically, the recent pullback has confirmed that BTC's 200-day average is now acting as a resistance. According to the Fibonacci pattern, the potential downside target is the $21.3K area.
However, a drop to $24.7K also looks like an impressive short-term target for the bears.
September is considered the worst month of the year for BTC. Over the past 12 years, Bitcoin has only ended the month up three times and down nine times. The average decline was 13%, and the average gain was 11%.
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Bitcoin ended August down 11% at $26K, its worst performance since last November and the second consecutive month of declines. Technically, the recent pullback has confirmed that BTC's 200-day average is now acting as a resistance. According to the Fibonacci pattern, the potential downside target is the $21.3K area.
However, a drop to $24.7K also looks like an impressive short-term target for the bears.
September is considered the worst month of the year for BTC. Over the past 12 years, Bitcoin has only ended the month up three times and down nine times. The average decline was 13%, and the average gain was 11%.
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🔔Upcoming NFP @12:30 GMT with 169K new jobs expected. How do you expect USD to react?
Anonymous Poll
63%
UP ⬆️
37%
DOWN ⬇️
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