Weekly Market Analysis — Aug 23: Has the USD Correction Started?
The USD is offering renewed signs of life after several weeks of sustained decline. This week, we take a look at how the USD might affect all global financial markets.
Market Highlights:
- The U.S. dollar strikes back but is there a case for recovery?
- Have stocks gone too high and too fast?
- Gold losing lustre; 1,920 defends the uptrend.
- Potential COVID-19 vaccine to dictate market sentiment.
- Bitcoin and Ethereum consolidation to lead altcoin uptrend.
- What is GDP & COVID impact in DE, CA & US?
With its first positive weekly close in two months, the US dollar finally showed signals that the Greenback is not ready to give up. Markets are now weighting between a dollar return or is it just a correction?
Last week, the market showed disappointment of the Federal Reserve amid a lack of clarification about further measures to sustain the United States economy against the impact sustained by COVID-19. Minutes from the Fed gave investors no reason to trade potentially risky assets and allowed a pause in dollar declines.
Within that framework, the US Dollar Index (DXY) closed the week 0.11 per cent positive at 93.20, its first positive close since mid-June. The EUR/USD posted its first weekly decline in nine periods, gold (XAU) confirmed a consolidation just below the 2,000 area, and Bitcoin (BTC) showed that it couldn’t sustain gains above 12,000 as it posted its first week, within the last five weeks, with numbers in the red.
The Week Ahead: The GDP in Europe and the US
The market’s focus in the week ahead will be on potential recoveries in the US dollar, stimulus talks in the United States Congress, and the gross domestic product (GDP) numbers that will be released in Germany, Canada, and the American Union.
- Monday, Aug 24 — NZ releases its retail sales report for Q2 of 2020.
- Tuesday, Aug 25 — Germany will release its GDP for the second quarter. Traders will be paying attention to see how the most significant European economy is doing alongside the COVID-19 pandemic.
- Midweek — the US will publish its durable good orders for July.
- Thursday, Aug 27 —will be the most important day for the market as the US will publish its GDP for Q2 along with jobless claims for the week of August 21.
- Finally, Germany will also release its Consumer Price Index for August, Canada will report its GDP, and the US University of Michigan will inform the overall American consumer sentiment.
In summary, check United States data as analysts expect signs of recovery that would allow the USD to go upside.
Forex: The Return of King Dollar
Although it’s still too early to say that the dollar has returned, the past week’s signals have provided bulls with enough reason to believe that this might be the case.
Until now, the market considered the European Union in an advantageous position versus the US amid a post-COVID-19 pandemic recovery, however disappointing PMI data in Europe and positive numbers in the US have changed the odds. Expect more gains for the USD in the short term.
The EUR/USD chart looks ready for a period of consolidation between 1.1700 and 1.1900. GBP/USD still has to deal with strong resistance at 1.3200, but it is consolidating well above 1.3000.
In the Australian dollar (AUD) front, bulls are still defending the 0.7100 area; however, it is becoming more and more difficult as the USD gains traction.
Stocks indices: A Crucial Week Ahead
With major indices closing at record highs, it’s difficult to see when correction patterns may begin, however according to experts, they may begin soon.
As Tony Rodriguez, Chief Fixed Income Strategist at Nuveen, said in a recent note to clients, “the stock market is telling you there is asset price inflation occurring when there is still a lot of underlying weakness in the economy.” He is not alone in this outlook.
Expect some type of correction this week as overall sentiment believes the market may have gone too high and too fast the previous week.
With the S&P 500 (SPX) testing highs around 3,400, it looks like it may be the right time for a healthy consolidation in US major indices European and Asian shares. GDP data in the United States may be the catalyst. Also, the Jackson Hole Symposium and central bankers’ speeches.
Commodities: Gold to Fight Back
Gold closed the week with its second decline in a row, however, the past week’s drop can be seen as a consolidative move. XAU/USD has strong support at the 1,920, which is sustaining a short term upside move.
Minutes from the Fed’s latest meeting provided support to the US dollar, and therefore, the XAU/USD came under pressure. More dollar upside would mean that gold will be under further pressure, and a break of the 1.920 is possible this week.
Cryptocurrency: Consolidation Suggests Token Gains
After reaching highs on Aug 17 at $12,473, Bitcoin spent most of the last week trading in consolidation until it found a floor at the $11,500 area.
Ethereum performed similarly as ETH/USD reached highs of $440 and then retraced to the range traded at the beginning of August. Both consolidation phases are now helping tokens and altcoins to extend their gains.
Ripple, for example, is confirming a double top at the 0.3255 area with a floor above 0.27. BTC and ETH bounce is signalling a retest of the 0.2900 level. However, be aware of the 0.2700 support, a break could lead some stop losses triggering.
Our weekly market analysis is a community contribution and is provided for information and educational purposes only. This content should not be considered a recommendation of investment or trading advice and past performance is not indicative of future outcomes. Know the risks involved when trading.
