Fundamentals to lead the markets

The USD edged higher against its counterparts, amidst low volatility in the FX market yesterday. It should be noted that Fed Chairman Powell yesterday seemed to lean on a more moderated stance as he stated that “Reducing policy restraint too late or too little could unduly weaken economic activity and employment,” which implies that holding rates high for too long may jeopardize economic growth. Yet despite a shift in the tone of the Fed Chairman, it remains to be seen whether the bank is aligning with the market’s expectations for two rate cuts within the year. Should we see Fed Chairman intensifying his message today or even see other Fed Policymakers making statements along that line, we may see the USD start to edge lower, while gold’s price and US stock markets may gain some ground. Given the lack of high impact financial releases from the US we tend to expect fundamentals to lead the USD today.

US 500 Cash continues to edge higher day by day and reaching new record highs after breaking the 5500 (S1) resistance line now turned to support. We maintain our bullish outlook for the index as long as the upward trendline guiding S&P 500 since the 27 of October last year, continues to support its price action. Furthermore, we also note that the RSI indicator is above the reading of 70, implying a strong bullish sentiment yet at the same time may also imply that the index is at ovberbought levels and may be ripe for a correction lower. We get also similar signals by the fact that the price action is flirting with the upper Bollinger band. Should the bulls maintain control over the index, we set as the next possible target for the bulls the 5650 (R1) resistance line, while even higher we set the 5800 (R2) level. Should the bears take over, we may see the index breaking the 5500 (S1) support line and opening the gates for the 5350 (S2) support level.

In the commodities market we note the continuous drop of oil prices over the past four days. It should be noted that the expectations for increased oil demand due to the summer heat which supported oil prices were replaced by easing concerns for the supply side of the oil market due for the situation in Gaza which weighed on oil prices. Yet the possibility of rate cuts in the US economy implying higher future demand and another contraction of US oil inventories as reported by API yesterday which suggested a tight US oil market could provide some support for oil prices. Oil traders today may be more interested in the release of the weekly EIA crude oil inventories figure and should the Agency also report a contraction of US oil inventories practically verifying the tightness of the US oil market we may see oil prices finding some support. It’s also interesting that EIA predicts that the Global oil market will be in a supply deficit next year.

WTI’s price is dropping for the past three days and during today late Asian session was testing the 80.25 (S1) support line we note that the price action of the commodity, last Friday, broke the upward trendline guiding it since the 5 of June highlighting the end of the upward movement. At the same time, the RSI indicator has dropped and reached the reading of 50 implying that the bullish sentiment has been erased and the market tends to turn bearish yet currently is still uncertain. Should WTI’s price break clearly the 80.25 (S1) line we would switch our outlook in favour of a bearish one and set as the next possible target for the bears the 76.70 (S2) line. Should the bulls regain control over the commodity’s price, we may see it reversing the losses of the past few days, breaking the 84.10 (R1) resistance line and thus pave the way for the 86.80 (R2) base.

Other highlights for the day

Today we get in the European session Norway’s and the Czech Republic’s CPI rates for June. On the monetary front, besides Fed Chairman Powell’s second testimony before the US Congress, we also note that BoE’s Chief Economist Pill and MPC member Mann as well as Chicago Fed President Goolsbee are scheduled to speak. During tomorrow’s Asian session, we get Japan’s machinery orders for May, while Fed Board Governor Cook is scheduled to make statements.