Opportunity or Trap?

Every trend will have retracements and consolidations. Before reacting to short term price movements, ask yourself if it is an opportunity or a trap.

Day started out great with precious metals again leading the charge higher but faltered during the New York trading session as weakness in the big tech stocks tempered the positive risk sentiment. For now, market seems to be in consolidation, but the overall long-term trends are intact. Every trend will have retracements and consolidations. Before reacting to short term price movements, ask yourself if it is an opportunity or a trap.

Be vigilant but stay the course!

WHAT HAPPENED YESTERDAY

As of New York Close 23 Jul 2020,

MARKET MOVEMENTS

The EUR/USD broke higher to an almost two year high and gold rose further on Thursday as USD weakened further. AUD was traded a little softer as the market seems to have gotten a little oversubscribed. Weak longs bailed as equities faltered but .7080–90 remain supported for now.
Nasdaq retreated on concerns about a potential probe of Apple Inc, which knocked the wind out of the high-flying tech sector. Multiple U.S. states are investigating Apple for potentially deceiving consumers, according to a March document obtained by a tech watchdog group. Apple shares fell 4.55% and pulled the Dow, Nasdaq and S&P 500 lower. Though an ongoing matter, antitrust probe news on FAANG (“Big Tech”) weighed on market risk sentiment (more details below).
Antitrust Probes: Microsoft may find itself in EU antitrust regulators’ crosshairs yet again after U.S. workspace messaging app Slack Technologies Inc complained about the company embedding its workplace chat and video app Teams in its Office product. Apple and Amazon are also coming under the microscope of Italy’s antitrust authority in connection with their alleged pattern of preventing unauthorised parties from reselling products on Amazon’s sweeping online marketplace.
In other developments, weekly initial jobless claims increased by 109,000 to 1.416 million (consensus 1.285 million), China’s Global Times editor tweeted that China will likely announce countermeasures on Friday if they are forced to close the consulate in Houston, and Treasury Secretary Mnuchin said the GOP unemployment benefit plan will be based on 70% wage replacement.
Microsoft (MSFT 202.54, -9.21, -4.4%) and Tesla (TSLA 1513.07, -79.26, -5.0%) both reported better-than-expected earnings results, but the disappointing price action appeared to cause concern about similar reactions in Apple (AAPL 371.38, -17.71, -4.6%), Amazon (AMZN 2986.55, -113.36, -3.7%), Alphabet (GOOG 1515.68, -52.81, -3.4%), and Facebook (FB 232.60, -7.27, -3.0%) when they report.
The U.S. Federal Reserve facilitated another $2 million in emergency loans this week to U.S. businesses struggling to survive the virus fuelled recession, while its overall asset portfolio showed modest growth for a second week to hold above $7 trillion.

HEADLINES:

BIG TECH CEOs READY DEFENCES FOR U.S. CONGRESS HEARING

The chief executives of four of the largest U.S. tech companies plan to deflect criticism next week in a Congressional hearing into their use of market power to hurt rivals by saying they themselves face competition and by debunking claims they are so dominant.

The CEOs of Facebook, Amazon.com Inc, Alphabet’s Google and Apple, are set to speak before the House Judiciary Committee’s antitrust panel on July 27. They will present their testimonies virtually, according to sources familiar with their plans.

The panel is questioning the companies as part of its probe into whether they actively work to harm and eliminate smaller rivals, while not always making the best choices for their customers.

POMPEO URGES MORE ASSERTIVE APPROACH TO ‘FRANKENSTEIN’ CHINA

U.S. Secretary of State Mike Pompeo took fresh aim at China on Thursday and said the United States and its allies must use “more creative and assertive ways” to press the Chinese Communist Party to change its ways, calling it the “mission of our time.”

He said China’s military had become “stronger and more menacing” and the approach to China should be “distrust and verify,” adapting President Ronald Reagan’s “trust but verify” mantra about the Soviet Union in the 1980s. Pompeo said “securing our freedoms from the Chinese Communist Party is the mission of our time,” and said America was perfectly positioned to lead it.

Thematic Context: “U.S.-China ties have worsened sharply this year over issues ranging from the virus and telecoms-gear maker Huawei to China’s territorial claims in the South China Sea and clampdown on Hong Kong. Jonathan Pollack, an East Asia expert with the Brookings Institution, said he could not think of anything “remotely equivalent” to the move against the Houston consulate since the U.S. and China opened full diplomatic relations in 1979. Note though that this move creates maximum media coverage with minimal damage to trade relations. Contrast this with threats of sanctions which will have a more lasting impact on markets. With the fast approaching Presidential elections, expect more of such news.

China’s pursuit of dual-hegemony is well underway, and these actions will fuel their fervor. We believe that RMB will continue to strengthen against the Dollar and this is positive for SGD and AUD as well.” — 23rd July 2020

AS PANDEMIC ACCELERATES, U.S. SURPASSES 4 MILLION CASES

The United States took 98 days to reach one million confirmed cases of COVID-19 but just 16 days to increase from 3 million to 4 million. The total suggests at least one in 82 Americans have been infected at some point in the pandemic.

The average number of new cases is now rising by more than 2,600 per hour nationwide, the highest rate in the world. Trump, a Republican who has rejected a nationwide mask rule and been reluctant to wear one himself, this week reversed course and encouraged Americans to do so.

DAY AHEAD

Eurozone PMIs

With the EU recovery fund deal now in the rear-view mirror, EUR traders will turn their sights to the Eurozone’s preliminary PMIs for July, due today. Forecasts point to an uptick in all indices, reflecting the smooth re-opening process in Europe. If so, this would be another piece of good news for the high-flying EUR, whose rally may still have room to run, especially if the Fed hurts the dollar next week.

2. AUD retraced from the highs, but as long as support at .7080–90 holds, the trend should resume when equities and risk sentiment stabilises.

3. Silver took a breather from its recent torrid pace of rallying, but remains supported on dips. Gold made an attempt to break above the psychological level of 1900 but it held for now. As long as risk sentiment stabilises, the trend should resume in earnest.