USD Weakens As Attention Turns To The Fed

Jul 27 21, 11:44 GMT

The greenback weakened against a number of its counterparts yesterday, as risk on sentiment seems to flood the markets due to earnings season while investors started to focus on this week’s Fed’s meeting for clues on the monetary policy outlook. US equities markets started the week on the front foot as US indexes closed at record highs yesterday with traders have their sights on the earnings season with special focus being on big cap tech companies and for the time being markets set aside any worries for the US economic rebound.

Its characteristic that Dow Jones Industrial Average was finally able to break the 35100 psychological barrier yesterday. Also, it should be noted that major tech companies such as Apple, Microsoft and Alphabet are due to release their earnings reports today and could create considerable volatility in the US equities markets. The earnings season is to continue to affect the markets, which in turn are expected to start positioning ahead of the Fed’s meeting tomorrow, while financial releases could also affect USD’s direction today.

Dow Jones was on the rise yesterday breaking the 35100 (S1) resistance line, now turned to support. We tend to maintain a bullish outlook for the index, as the RSI indicator below our 1 hour chart, is between the readings of 50 and 70, which tends to imply that the bulls have a slight advantage, while the 100 Moving Average (MA) (green line) is positively diverging from the 200 MA (orange line) reflecting the acceleration of the rise of prices. Should the bulls, continue to dominate the index, we may see it aiming for the 35400 (R1) resistance line. On the other hand, should the bears say enough is enough and take over, we may see Dow jones breaking below the 35100 (S1) support line and aim for the 34700 (S2) support level.

Pound gains as number of Covid cases falls

The pound gained against the USD however also against the EUR,CHF and JPY yesterday and may have enjoyed some support from the comfort that UK’s vaccinations are at high numbers while at the same time the Delta variant is high on a global level. The number of new cases per day has dropped for a sixth consecutive day enhancing hopes that the worst of the fourth wave is over yet officials seem to remain somewhat cautious. On the monetary front, BoE’s Vlieghe stated yesterday that the bank should not scale back its QE program for “several quarters at least and probably longer” which tended to predispose the markets for a possible dovish tone of the bank at its meeting next week. Despite some UK financial releases are due out today, we tend to maintain the view that fundamentals could lead the pound.

GBP/USD seems to be on the rise aiming for the 1.3845 (R1) resistance line, yet the pair seems find some resistance at the prementioned level. We tend to maintain a bullish outlook for the pair, as long as the upward trendline remains below the price action. Also please note that the RSI indicator below the 4-hour chart is reaching the reading of 70 confirming the bullish sentiment of the market so far. Should buyers actually remain in charge of GBP/USD’s direction, we may see the pair breaking the 1.3845 (R1) resistance line and aim for the 1.3990 (R2) resistance level. Should the bears take over, we may see cable breaking the prementioned upward trendline and continue lower aiming, if not breaking the 1.3670 (S1) support line.

Other economic highlights today and the following Asian session:

Today we get during the European session Sweden’s trade balance for June and UK’s CBI distributive trades indicator for July. In the American session we get from the US the durable goods orders growth rates for June and the consumer confidence for July, while just before the Asian session starts, we get the API weekly crude oil inventories figure. On the monetary front we note BoJ Kuroda’s and RBA Deputy Governor Debelle planned speeches. During Wednesday’s Asian session we note the release of Australia’s CPI rates for Q2, while BoJ is to release the summary of opinions for its last meeting.

US 30 Cash H1 Chart