Our predictions from last month were correct, EUR/USD is trading today at 1,1375.
The Euro endured a torrid time last week with the currency trading below key support at 1.15 for the first time since July 2017. As such, the break through the range base that has been in place since May does not provide much hope for Euro longs who will continue to head for the exit as the near-term prospects for the Euro have soften.
Persistent weakness below 1.15 would imply that the outlook for the Euro has grown more negative in the near-term. Alongside this, a firm break through the 50% Fib level of the 1.0340-1.2560 rise at 1.1450 and more importantly a close below could suggest that declines will gather pace with paving the way for a making a move towards 1.1350. As such, failure for 1.1350 to hold leaves the pair vulnerable to deeper declines, with little in the way of notable support before 1.1188, which represents the 61.8% Fib.
Given the sizeable declines in Friday’s session, which is the largest since June 14th, opportunities may present itself for some respite, as was the case after the price action seen on June 14th. Consequently, a bounce back towards 1.15 would be confirmed provided that the pair is able to consolidate and hold above 1.1450.
USD/JPY gapped lower at 104.45 today, having closed below the all-important 50-day moving average (MA) on Friday for the first time since April 11.
The key moving average support was the level to beat for the bears as it had reversed pullbacks seen in the previous three months. So, it seems safe to say that Friday’s close below the 50-day MA has turned the tide in favor the bulls, that is, the rally from the March low of 104.29 has ended.
The 5-day and 10-day moving averages (MAs) are trending south, indicating a short-term bearish setup. The relative strength index (RSI) is also biased toward the bears.
The bearish technical bias gels well with the negative macro environment.
Turkish Lira’s free fall triggered panic sellingin euro and emerging market currencies on Friday. Deutsche Bank came under fire after Morgan Stanley analysts downgraded the German lender to underweight. The negative story does not end here.
Spanish, French and Italian banks are heavily exposed to Turkey, according to the European Central Bank (ECB) and more importantly, Turkey crisis could deepen in coming days as the country’s President Recep Tayyip Erdogan has reportedly ruled out an IMF bailout and opposes central bank rate hikes.
As a result, the financial markets could trade risk averse this week, keeping the anti-risk JPY better bid across the board.
The dollar funding cost continues to rise, with the three-month Libor now printing 2.3 percent. Many expect it to rise to 3.5 percent to 4 percent in the next 12 months, courtesy of the Fed rate hikes and balance sheet normalization.
The rising Libor, though USD positive, could actually weigh over the USD/JPY pair as the sharp rise in the dollar funding cost could prove costly for indebted nations. The resulting risk aversion could only boost demand for the haven currencies like JPY and CHF.
The Australian dollar fell through key technical supports on Friday, breaking 12-month lows and crashing through 0.73 US cents. The AUD tumbled lower following the collapse of the Turkish Lira that prompted a broad-based flight to safety. Turkey’s deteriorating macroeconomic position escalated into an all-out currency crisis as the embattled unit plunged as much as 24%. The contagion spread to other emerging market counterparts, hampered the Euro for fears of exposure to Turkish banks and hammered demand for risk forcing a sell off in commodity led currencies and a push for haven plays and the USD.
The break below 0.7330/0.73 is significant. After a period of consolidation, the AUD appeared well bid on moves toward 12-month lows, comfortable amid ranges between 0.7300 and 0.7480, however the latest hit to risk appetite has opened the door to another downward correction and suggest there is still legs in the USD yet. Having touched 0.7270 a break toward 0.7230 and 0.7170 is open as attentions remain squarely focused on global risk appetite and trade tensions for direction into the week ahead.
The British Pound continues to depreciate against the US dollar despite an upward revision in the U.K. Gross Domestic Product (GDP) report, and recent price action keeps the near-term outlook tilted to the downside as the Relative Strength Index (RSI) pushes into oversold territory.
The limited reaction to the 1.3% expansion in the U.K. growth rate keeps GBP/USD vulnerable to further losses as the exchange rate continues to carve a series of lower highs & lows, and the ongoing uncertainty surrounding Brexit may continue to produce headwinds for the British Pound as the Bank of England (BoE) responds to the growth threat of a no-deal.
Recent comments from BoE Governor Mark Carney suggests an unfavorable outcome may derail the central bank from its hiking-cycle as it would have a negative impact on the U.K. economy, and the Monetary Policy Committee (MPC) may sound more cautious at the next meeting on September 13 as ‘the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.’
Although negative sentiment in the gold market is at historic highs, some analysts suggest that prices could continue to push lower and possibly below $1,200 an ounce in the near term as the market lacks a catalyst to reverse the current trend.
While gold is off its recent one-year low, the market is still preparing to end its fourth straight week in negative territory. Gold has closed lower seven out of the last eight weeks. December Gold Futures last traded at $1,224.40 an ounce, down 0.67% for the week.
“The rate at which gold is falling is slowing but the market is still in a classic downtrend,” said David Madden, market analyst at CMC Markets.
Next importan support level is at 1.180 USD per ounce. Gold price is far away from it's top at 1.921 USD in September 2011.
BITCOIN PRICE ANLYSIS – BULLISH AWAKENING
Bitcoin is currently trading between 6.000 and 7.000 USD per Bitcoin.
Technicals suggest a test of the US$10,000 level within the next few weeks, followed by an extended consolidation period before the next bullish markup. Trend indicators on the daily timeframe have flipped from bearish to neutral, while momentum oscillators on the weekly timeframe have begun to flip from bearish to bullish. A BTC ETF decision by the SEC in the month of August could be the catalyst needed to immediately spark price action to the US$10,000 level.