New orders for manufactured goods, Factory Orders, in the US rose by $25.5 billion, or 6.2%, to $437.2 billion in June, the data published by the US Census Bureau showed on Thursday.
This reading followed May's increase of 7.7% (revised from 8%) and came in better than the market expectation of 5%.
"New orders for manufactured durable goods in June, up two consecutive months, increased $14.6 billion or 7.6% to $207.2 billion, up from the previously published 7.3% increase," the publication further read.
Business Conditions Index for the New York area jumped from 39.5 in June to 53.5 in July, the Institue for Supply Management (ISM) New York reported on Tuesday. This reading beat the market expectation of 15.8 by a wide margin.
Major equity indexes in the US opened the day near Monday's closing levels on Tuesday as investors are waiting for negotiations on the next coronavirus relief bill to conclude. As of writing, the S&P 500 Index was down 0.05% on a daily basis at 3,292, the Dow Jones Industrial Average was losing 0.08% at 26,642 and the Nasdaq Composite was virtually unchanged on the day at 10,906.
According to the latest market chatter, despite a broad agreement on the extension of the Paycheck Protection Program (PPP), US lawmakers are still far apart on many aspects of the relief bill.
Among the 11 major S&P 500 sectors, the Financials Index is down 0.6% on Tuesday pressured by a 5.5% drop witnessed in the 10-year US Treasury bond yield. On the other hand, defensive sectors, Real Estate, Utilities and Consumer Discretionary, trade in the positive territory to start the day.
Gold has been edging higher but seems shy of staging a major breakout. The precious metal is pushed higher by the failure of American politicians to reach an agreement on extending federal unemployment benefits and other emergency programs. That implies a bigger package down the road – and more importantly for XAU/USD more monetary stimulus.
On the other hand, hopes for a coronavirus vaccine remain robust as Novavax and other companies are moving forward to provide immunization. Stocks, bonds, and precious metals are looking for a new direction.
How is gold positioned on the charts? Significant hurdles loom over XAU/USD, implying another attempt to push the precious metal to the upside seems futile. However, after extending the downward correction, gold may be ready for the next bullish move – as fundamentals continue pointing higher.
The Technical Confluences...
EUR/USD is now receding for the third consecutive session on turnaround Tuesday, always on the back of the moderate pick-up in the sentiment for the buck while at. The same time extending the leg lower from the overbought territory.
Other than developments from the unremitting pandemic and the performance of fundamentals in the region, investors keep closely watching headlines from the US political scenario, where another stimulus package aimed at helping Americans counteract the impact of the coronavirus remains the centre of the debate between Republicans and Democrats.
Later in the US calendar, Factory Orders for the month of June will be in the limelight seconded by the IBD/TIPP index and the weekly report on US crude oil supplies by the API.
The generally received wisdom is that summer is a quiet month for trading. Traders are on holiday and markets quieten down. That’s the expectation among many. However, the reality is that August can be one of the most volatile trading months of the year. According to Bloomberg’s Market’s Live blog, the Cboe volatility index has risen an average of+11% in August over the past 15 years. So, August is time of volatility. Given the unusual nature of 2020, this could be a very volatile year!
The economic activity in Canada's manufacturing sector expanded at a modest pace in July with the IHS Markit's Manufacturing PMI arriving at 52.9. This reading followed June's print of 47.8 and beat the market expectation of 44.1 by a wide margin.
Commenting on the data, July data highlights a partial rebound in the Canadian manufacturing sector after the steep downturn seen during the second quarter of 2020," said Tim Moore, Economics Director at the IHS Markit. "Production volumes expanded at the fastest pace for nearly two years, helped by a tentative recovery in manufacturing sales as customers restarted spending amid an easing of COVID-19 restrictions."
- AUD/USD turned south after advancing to 0.7150 area. RBA left its policy rate unchanged at 0.25% as expected. Eyes on Factory Orders and ISM-NY Business Conditions Index data from the US.
The prices of silver has been on the rise, as fears of a worsening economic crisis in the US implies more fiscal and monetary support. In turn, these funds could go into precious metals, with gold prices edging toward the highs once again.
While gold-bugs await XAU/USD to hit $2,000, silver prices may prove no less interesting. The metal, used for environmental projects as well as for consumer products, has surpassed a substantial technical hurdle and could extend its gains.
The Technical Confluences Indicator is showing that XAG/USD is trading above 24.21, which is the convergence of the Fibonacci 23.6% one-month and the Simple Moving Average 5-one-day.
Further down, another noteworthy cushion awaits at 24.08, which is the meeting point of the SMA 1001-h, the Bollinger Band 4h-Middle, and the previous day's low.
Looking up, some resistance awaits at 24.35,...
- EUR/GBP moves higher to 2-day highs near 0.9040 on Tuesday. The sterling loses ground on the back of further USD-buying. UK’s Services PMI, BoE meeting next of relevance in the docket.
- Concerns related to the next US aid package and the spread of coronavirus weigh on mood. A scarce macroeconomic calendar leaves major pairs in the hands of sentiment. EUR/USD at risk of falling in the short-term but the wider view still favours the upside.
“USD/MYR grinded lower across July from 4.29 to 4.25, reflecting a broad USD decline and also encouraging signs that activity is picking up locally.”
“Bank Negara Malaysia delivered another 25 bps rate cut in July, bringing the benchmark interest rate to a record low of 1.75% to provide additional policy stimulus to accelerate the pace of economic recovery.”
“With the worst of Malaysia’s economic woes probably over in the 2Q, the steady pace of recovery of its economy and the MYR is likely to solidify in the coming quarters. We update our USD/MYR forecasts to 4.20 in 3Q20, 4.18 in 4Q20, and 4.15 in 1Q21 and 2Q21.”
- GBP/USD met resistance near 1.3100 and lost its traction. Concerns over rising coronavirus cases in the UK weigh on the GBP. US Dollar Index stays relatively calm near mid-93.00s on Tuesday.
- EUR/JPY looks firm and test the 125.00 level, or daily peaks. The dollar now reverses the initial drop and weighs on the euro. EMU Producer Prices rose 0.7% MoM and dropped 3.7% YoY in June.
“We would allow for a corrective set back to the 23.6% retracement at 22.80 and the 38.2% retracement at 20.67 (of the move from March). We also have the 21.17 September 2019 high in this vicinity. Provided dips lower hold over the four-month uptrend at 19.26, an upside bias will be reserved.”
“Above 26.14 will target initially 27.42, the 38.2% retracement of the move from the 2011 peak. And then the 50% retracement at 31.71 of the same move.”
The USD/CAD pair registered small losses and closed at 1.3390 on Monday. Although the pair continued to edge lower during the first half of the day on Tuesday, it reversed its direction in the last hour and was last seen gaining 0.15% on a daily basis at 1.3408.
“News that the US Congress has been unable to reach a deal over the next aid-package is hurting the American currency. Meanwhile, coronavirus concerns remain the same. The number of new cases in the US has been receding, but remains around 50K per day.”
“Japan published July Tokyo inflation, which came in better than expected, up by 0.6% YoY, while the core reading surged 0.4%, both better than anticipated. The US session will bring minor figures, June Factory Orders and the August IBD/TIPP Economic Optimism.”
“The 4-hour chart shows that the USD/JPY pair continues to develop above a firmly bullish 20 SMA, while technical indicators resumed their advances within positive levels. Still, the pair remains below a bearish 100 SMA which capped the upside on Monday.”
“Further gains are to be expected only once beyond the 106.45 area, with scope then to advance to the 107.00/10 area.”
As tensions mount between China and the US and as fears of a second wave increase in parts of Asia and Europe, economists at Rabobank are of the view that the rush to sell USD is overdone. They expect a EUR/USD pullback to the 1.16 zone in the coming weeks.
The S&P 500 Index has cleared the price resistance at 3279/81 to bring the high-level consolidation phase to an end. Economists at Credit Suisse look for a test on the top of the key February price gap at 3328/38.
This bull market can be more positive than the previous one both for gold and the mining stocks.
In the last edition of the Fundamental Gold Report, I analyzed various WGC’s reports on the gold market. Today, I will focus on the issues of Alchemist – the flagship publication of the London Bullion Market Associations – I was unable to discuss during the most acute phase of the pandemic and the following economic crisis.
I’ll start with the article “Is there a place of Gold Equities in a Gold Allocation?” by James Luke from issue no. 96. The Author poses title question because gold equities performed poorly relative to the gold prices over the last 10 or even 20 years, and “investors would have been better served staying well away.” Indeed, while the gold price is up more than 250 percent since 2005, the HUI Gold Index is just about 20 percent higher.
Wow, it was a harsh criticism! But...
Gold has reached Commerzbank’s target of $1983. Strategists at the bank expect the yellow metal to experience some profit taking as forays above are seen short-lived. On the flip side, the 55-day ma at $1838 is a solid support.
“Since last year, we have maintained a positive outlook for gold due to expectations of “lower for longer” interest rates.”
“Gold has since staged a strong rally over the past month, pushing its way above our quarterly longer term forecast of USD 1,850 / oz by 2Q21. With this latest rally, gold has broken above the previous peak of USD 1,920 in Sep 2011. In terms of technical outlook, we note that “the upward momentum is strong and the focus is at USD 2,000. Next resistance of note above USD 2,000 is around USD 2,040 followed by USD 2,100”.
“Fundamentally, the various positive drivers for gold price, particularly that of the massive central bank easing remain as strong as ever. However, we note that long positioning in gold has become extremely crowded with ETF tonnage rising to yet a new record high. As such, there is now an increasingly speculative element in gold’s price action with larger intra-day swings as traders are positioned for gold to trade above USD...
- NZD/USD is fluctuating in a tight range on Tuesday. US Dollar Index posts small daily losses below 93.50. Unemployment Rate in New Zealand is expected to rise to 5.8% in Q2.
Following an ephemeral test of the sub-1.17 area on Monday, EUR/USD has now regained buying interest and clinched tops in the 1.18 neighbourhood, although losing some impetus soon afterwards.
The pair looks firmer and there is now room for another visit to the YTD peaks just above 1.19 mark ahead of the psychological yardstick at 1.2000.
Looking at the broader picture, as long as the 200-day SMA, today at 1.1093, holds the downside, further gains in EUR/USD remains well on the table.
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