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July 19th-23rd Quick Review/Preview: Stocks, Commodities, Forex - Abridged



The following is an abridged version. For full details see The Coming Week: Stocks, Commodities, Forex - 3 Key Market Drivers July 19th -23rd

Likely Market Movers To Watch This Week

For details on these see: The Coming Week: Stocks, Commodities, Forex - 3 Key Market Drivers July 19th -23rd

  1. EU Bank Stress Tests – The Main Event This Week
  2. EU Bond Sales
  3. US Corporate Earnings Week II

 

Conclusion-Downside Risk Greater, EU Banks Stress Tests Likely To Decide Near Term Market Direction

STOCKS

 

Index Started Week Ended Week Change % Change YTD %
DJIA 10198.03 10097.90 -100.13 -1.0 -3.2
Nasdaq 2196.45 2179.05 -17.40 -0.8 -4.0
S&P 500 1077.96 1064.88 -13.08 -1.2 -4.5

 

COMMODITIES

 

Most commodities down for the week, moving mostly with the stocks. See The Coming Week: Stocks, Commodities, Forex - 3 Key Market Drivers July 19th -23rd  for major market movers that will move commodities too.

Price Summaries – Courtesy of oilngold.com

 

01jul18

CURRENCIES

 

US Dollar Weekly Outlook: Pulled Up By Risk Aversion, Down By Poor US Data

 

US Dollar Bias: Bullish

  • USD safe-haven appeal likely to reassert itself as unwinding EUR, GBP shorts concludes, stocks and other risk assets appear poised for more downside that favors the safe-haven USD
  • Continued poor fundamental data to limit USD gains unless EU, Japan, UK and others show similar struggles
  • EU stress tests and related speculation leading up to the Friday announcement the likely prime mover of the USD.
  • Unclear how the USD will move with US earnings.  Could be a lose-lose situation, in which good earnings raises risk appetite, thus hurting the USD, and that disappointments also hurt the USD as a poor reflection on the underlying economy’s fundamentals.
  • USD fundamental, technical advantages over the EUR remain in place, thus our bias to more upside for the USD as the EUR continues to struggle. Morgan Stanley researchers see EUR rally over, suggesting USD gains likely
  • However, growing numbers of unemployed with expired unemployment insurance to be a growing drag on spending, which is 70% of US GDP, thus posing a dire fundamental threat to US recovery
  • USD benefitted from Friday stock plunge, suggesting it will revert to safe haven role as risk aversion grows, EUR and GBP shorts unwinding concludes

 

Euro Weekly Outlook: EU Bank Stress Tests, Risk Appetite Likely To Set EUR Direction

 

Euro Bias: Bearish

  • Ending of EUR shorts unwinding to pressure EUR upside unless positive EUR data
  • EU bank stress tests likely to be THE key event this week, could set direction for the EUR over the coming weeks IF it either decisively succeeds or fails to ease uncertainty about EU banks. If not, EUR to move on EU bond sales, overall market sentiment as driven by US earnings reports
  • Greek bond sale this week will test if continued demand for PIIGS bonds
  • USD fundamental, technical advantages over the EUR remain in place, thus our bias to more downside for the EUR as it continues to struggle.
  • Morgan Stanley researchers see EUR rally over, suggesting USD gains likely

 

Japanese Yen Weekly Outlook: Benefitting From Risk Aversion, USD’s Weakening Fundamentals, EU Calm

Japanese Yen Bias: Bullish near term as long as the Bank of Japan does not intervene- a possibility. Long term severe fundamental JPY problems to challenge its role as prime safe haven currency.

  • As long as US economic data remains weak, and the EZ is able to suppress sovereign default concern, the Japanese yen shall continue to be the prime beneficiary of risk-aversion flows away from the USD in the short term.
  • DJP loses majority in Upper House, raising political uncertainty

 

British Pound Weekly Outlook: Further Rally Requires Improved Outlook On Rates, Growth, Debt

 

British Pound Bias: Neutral

  • Inflation slowing, pushes off rate increase pressure while economy struggles
  • GDP figure key for the GBP this week
  • Jobs data shows improvement
  • Inflation data above BoE 3% limit, adds pressure for rate increase
  • Release of BoE minutes could reveal if there is support for rate hike
  • Support from unwinding GBP shorts ending, GBP needs to show improving fundamentals

 

Swiss Franc Weekly Outlook: Benefitting From Risk Aversion, US Fundamental Weakness

 

CHF Bias: Bullish

  • Combination of US fundamental weakness AND demand for safe haven currency that isn’t the USD helps both JPY, CHF
  • Longer term could suffer from weakness in its chief export market, the EU
  • USDCHF could give up gains on further EUR weakness, which would boost USD, hurt CHF fundamentals as EU weakness hurts CHF exports

 

Canadian Dollar Weekly Outlook:  BoC Rate Decision Looms Large

 

Canadian Dollar Bias: Neutral

  • Markets price in 100% chance the BoC will raise rates to 0.75%
  • Economic activity in the first quarter advanced at the fastest pace quarterly pace in more than a decade
  • Employment figures posted a third consecutive monthly advance
    Manufacturing sales extend an eight month advance

 

 Australian Dollar Weekly Outlook: Threatened By Risk Aversion

 

Australian Dollar Bias: Bearish

  • Solid fundamental data, but as usual, the AUD moves with risk appetite, and is thus struggling to hold gains
  • Trading in tight range of $0.8700 – $0.8850
  • Slowing of China growth weighs on the AUD

 

New Zealand Dollar Weekly Outlook: Same as for AUD

 

NZD Bias: Bearish

  • Same as AUD but with struggling economic fundamentals as consumer prices drop, retail sales miss expectations, core retail sales declining
  • As the #2 risk currency, suffering from waning risk appetite

 

Conclusion: Consensus for More Downside To Risk Assets

For details on these see: The Coming Week: Stocks, Commodities, Forex - 3 Key Market Drivers July 19th -23rd

How To Profit

Sell the EUR/USD on rallies at resistance around 1.3000-1.3150 and the GBP/USD around 1.5400 – 1.5530. Or, sell JPY-crosses on risk rallies, especially NZD/JPY, CAD/JPY, and  AUD/JPY.

See the conclusion section of The Coming Week: Stocks, Commodities, Forex - 3 Key Market Drivers July 19th -23rd  for further details

Disclosure: No Positions