Market Insight for the Week Ending 7 July

An eventful economic calendar awaits as we venture into the first full week of July.

The Reserve Bank of Australia (RBA) rate decision takes the stage on Tuesday at 5:30 am GMT+1, and it will be another close call on whether the central bank increases its Official Cash Rate (OCR) by 25bp to 4.35% or presses the pause button. You may recall that in the two previous RBA meetings, markets were caught somewhat off guard as the RBA consecutively hiked rates by 25bps. Last week saw the monthly CPI indicator rise 5.6% in the twelve months to May, down from 6.8% in April and comfortably south of market forecasts of 6.1%. This, coupled with robust employment data and China’s economic recovery hanging in the balance, has seen markets price a 63% probability that the RBA will hold this week (at the time of writing).

Over in the US this week, ISM manufacturing and services PMIs will steal some of the spotlight. The latter has remained in contractionary territory for several consecutive months, with Monday’s release at 3:00 pm GMT+1 unlikely to be any different as the forecast range is set between a high of 48.3 and a low of 46.7. Regarding the ISM services PMI, scheduled for Thursday at 3 pm GMT+1, the indicator remains expansionary, just. May’s release printed 50.3, down from April’s print of 51.9. Median expectations heading into June’s print, however, call for 51.0. Note that the previous three months have ranged between 52.0 and 50.0.

FOMC meeting minutes are also out on Wednesday at 7:00 pm GMT+1.

US labour data will garner the most attention this week. Markets welcome ADP non-farm employment change and JOLTS job openings (Job Openings and Labour Turnover Survey) data a day before Friday’s headline non-farm payroll’s release for June at 1:30 pm GMT+1. The median consensus is for 225,000 new payrolls to have been added to the economy in June, down from the bumper month in May (339,000). Unemployment is expected to remain unchanged at 3.7% (note that we have ranged between 3.4% and 3.7% since April 2022), with average hourly earnings for the month also set to match the previous month’s value at 0.3%. A strong jobs report for June would likely increase the odds of a rate hike this month. You may remember that the Federal Open Market Committee (FOMC) left the Federal Funds target rate unchanged at 5.00%-5.25% on 14 June, following ten successive rate hikes. The key observation, though, is that despite a pause being observed, this was a hawkish hold. According to the FOMC’s dot plot for May, Fed officials foresee two additional rate increases by the end of 2023, projecting a median rate at 5.6% versus 5.1% in March (to a target range of 5.50%-5.75%). Markets, nevertheless, are currently pricing an 80% probability of a 25bp hike at the next meeting on 26 July, followed by a potential pause and subsequent cuts heading into 2024.

Technical View: Markets to Watch for the Week Ahead

Currencies:

GBP/USD to Seek Higher Ground?

Sterling finished the week largely unmoved against its US counterpart.

Technically, out of the weekly timeframe, GBP/USD recently faded a key resistance level from $1.2767, following the break of trendline resistance taken from the high of $1.4250 earlier in June. It should not surprise to have seen the unit reject the said horizontal resistance given the number of longer-term buy-stops likely filled north of the aforementioned trendline. The question going forward, however, is whether there is sufficient selling pressure to contain breakout buyers, particularly as the currency pair has been entrenched within an uptrend since September 2022. A retest of the breached trendline may be seen this week, and assuming buyers remain in the driving seat, as suggested by the longer-term trend, $1.2767 might eventually be cleared, and the door opened for resistance at $1.3042.

Meanwhile, on the daily chart, we have seen the GBP pullback to within a stone’s throw of support at $1.2584 (and the nearby 50-day simple moving average at $1.2547). Considering Friday’s rebound just north of the noted support level, this emphasises bullish intent and implies that a retest of the weekly trendline may not occur this week. Instead, we might observe price action attempt to overthrow the weekly resistance level mentioned above at $1.2767 to eventually approach daily resistance from $1.3001, closely followed by weekly resistance at $1.3042, also highlighted above.

Lower on the curve, the H1 timeframe reveals price cleared offers around trendline resistance on Friday (drawn from the high of $1.2841) and whipsawed above the $1.27 handle. The trendline resistance-turned-support level could be enough to deliver short-term support to this market in early trading this week and draw in buying, in line with the bigger picture suggesting a nudge higher could be seen. Should support emerge, the $1.2755 region (blue oval) is vulnerable and unlikely to welcome much selling; cleaner resistance (upside target) resides around $1.2785, sheltered under $1.28.

Commodities:

Spot Gold (XAU/USD) at Higher TimeframResistance

e Against the US dollar, the price of gold settled the week marginally lower (-0.1%), booking a third consecutive weekly loss for the precious metal. Any longs from $1,928-$1,960 on the weekly chart have likely been taken out, with breakout sellers perhaps showing more interest over the next few weeks. On top of the weekly chart displaying scope to press as far south as support at $1,807, the Relative Strength Index (RSI) is poised to explore under the 50.00 centreline (negative momentum).

What is interesting from the daily chart, aside from the series of lower lows and lower highs since the beginning of May: a downtrend, is where we ended the week: the underside of support-turned-potential resistance at $1,919. With weekly price retesting the underside of its support zone at $1,928-$1,960, forging resistance from $1,919 is possible this week. Unwinding from here, therefore, could have sellers occupy control and take aim at support from $1,866, which happens to share chart space closely with the 200-day simple moving average at $1,858.

Shorter term on the H1 timeframe, the yellow metal discovered support from $1,900 and formed a complex inverted head and shoulders pattern ($1,902, $1,893, $1,900) that completed on Friday (breached the neckline taken from the high of $1,913). While resistance is in play at $1,921, a break unearths the possibility of a run to the inverted head and shoulders pattern profit objective at $1,933.

Longer-term resistance from the weekly timeframe at $1,928-$1,960 and $1,919 on the daily timeframe informs traders/investors that any upside movement could be short-lived. While this does not mean that the H1 timeframe will not reach the inverted head and shoulders pattern profit objective this week at $1,933, it does mean that any longs taken based on this pattern, or any breakout longs above H1 resistance at $1,921, may lack energy and therefore strict trade management would be needed.

Equities:

Tesla Closing in on Bat Pattern’s PRZ

Weekly Timeframe –

Tesla (TSLA) finished June strongly, adding an eye-popping +28.4%. This upside momentum, however, has unmasked a possible ceiling on the weekly chart: a harmonic bat pattern Potential Reversal Zone (PRZ) between $300.79 and $283.88. The aforementioned area is made up of a deep 88.6% Fibonacci retracement, an ‘alternate’ AB=CD formation (1.272% Fibonacci projection), a 200% extension of legs B-C, a 61.8% Fibonacci retracement drawn from the high of $414.50, a trendline resistance taken from the same peak and a horizontal resistance level. In addition to the Relative Strength Index (RSI) nearing overbought space, the PRZ offers substantial confluence and is thus a technical resistance worth adding to the watchlist this week/month.

S&P 500 Updated

In the shape of a near-full-bodied monthly bullish candle, the S&P 500 finished the month +6.5% higher, its largest one-month gain this year, which refreshed YTD highs and helped reaffirm the decade-long uptrend. I noted the following in last week’s Market Insight regarding the monthly chart’s technical position (italics):

Aided by the Relative Strength Index (RSI) rebounding from support between 40.00 and 50.00 (common in strong uptrends), monthly price is fast approaching the all-time high at 4,818 set at the beginning of 2022.

Assessing the weekly chart, the index came within a whisker of retesting support from 4,325 before printing a muscular bullish candle last week, adding +2.4% and negating the harami candlestick pattern formed the week prior. Last week’s bullish assault led the index to within close proximity of channel resistance drawn from the high of 4,100, an ascending line drawn within reach of resistance at 4,595. Also, do note that the RSI is closing in on overbought space.

With both monthly, weekly and daily charts exhibiting clear uptrends, buyers remain in the driving seat as we step into July.

Price action on the daily chart, as you can see, left the decision point at 4,260-4,299 unchallenged last week. Resistance now warrants attention at 4,473, with a break perhaps unlocking the door to a Fibonacci cluster (resistance) at around 4,537.

4,473 resistance on the daily timeframe, therefore, is a key watch this week. A breakout north of the level is expected, according to the monthly and weekly charts. Should a move higher materialise, breakout buyers will likely make a show, targeting the daily Fibonacci cluster at 4,537, which converges closely with weekly channel resistance highlighted above.

Cryptocurrencies:

ETH/USD Inverted Head and Shoulders Pattern to Complete?

Helped by the Relative Strength Index (RSI) rebounding from the 50.00 centreline, longer-term price action on the weekly timeframe reveals ETH/USD ruptured the upper boundary of a pennant formation ($2,140, $1,737) in June. Taking the value of the pole that preceded the pennant pattern and extending this value from the breakout level, the pattern’s profit objective can be found at $2,634.

Consequently, assuming buyers continue to navigate higher levels over the coming weeks, and the unit consumes the $2,140 peak, we could see the price head for $2,634.

Across the page on the daily chart, following the correction from the $2,140 peak, an inverted head and shoulders pattern has since formed. The head, as you can probably see, gathered support from trendline support taken from the low of $1,074. With Friday ending the week testing the underside of the pattern’s neckline (drawn from the high of $1,927), a close above this line will complete the pattern and prompt chart pattern enthusiasts to plot the pattern’s profit objective (value between head and neckline charted from the breakout level) which is expected to fall in close by resistance from $2,146. However, conservative buyers will likely seek a daily close north of nearby resistance at $1,962 before committing.

Charts: TradingView

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