Bullish gold exposure drops to 2-year low



Asian futures:

European Friday closing:

  • UK FTSE 100 index rose 26.1 points (0.37%) to close at 7,136.07
  • The European Euro STOXX 50 index lost -1.77 point (-0.04%) to close at 4120.66
  • The German DAX index rose 18.74 points (0.12%) to close at 15,607.97
  • The French CAC 40 index lost -8.28 points (-0.13%) to close at 6,622.87

Friday closing in the United States:

  • The Dow Jones gained 237.04 points (0.36%) to close at 34,433.84
  • The S&P 500 gained 14.21 points (0.34%) to close at 4,280.70
  • The Nasdaq 100 lost -20.777 points (-0.14%) to close at 14,345.18

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Global equities close to record

US consumer confidence rose in June according to the Michigan survey’s final reading, although it was revised down slightly from the preliminary report. Inflation expectations also increased with the 1-year expectation now at 4.2% (vs. 4% previously), while the 5-year index remained stable at 2.8%.

Core PCE inflation rose to 3.4% year-on-year from 3.1% previously, although slightly below the expected 3.5%. This is unlikely to deter the Fed from sticking to its transitory weapons on inflation, but the dollar’s failure to sell also suggests the jury is still out on it.

Global stocks closed at a record high on Friday according to MSCI World Price Index. The Nasdaq Biotech and Bank indices were once again the best performers, advancing around 0.78% on the day and 2.8% and 5.8% respectively last week. the Nasdaq closed down -0.14% after hitting a record high on Thursday, warning of overstretching with a bearish pinbar that failed to hold above its upper Keltner Band. A bearish divergence has also formed on its RSI (2), so maybe the Nasdaq could move lower. the S&P 500 closed at a record low and rose 2.75% last week, with all but the tech sector rising on Friday, with the financial and utilities sector leading the way.

the ASX 200 remained above its 20-day EMA on Friday and moved higher since the open, but only created a new marginal high above 7300. If it can exceed the high of Friday today we would be keen to explore any uptrend on a retracement at 7322 or 7311.50.

Internal ASX 200 market:

ASX 200: 7308 (0.45%), June 25, 2021

  • Materials (1%) was the strongest sector and consumer staples (-0.93%) was the weakest
  • 8 of 11 sectors closed higher
  • 5 of 11 sectors outperformed the index
  • 148 (74.37%) shares rose, 44 (22.11%) shares fell
  • 74.87% of stocks closed above their 200-day average
  • 74.87% of stocks closed above their 50 day average
  • 64.32% of stocks closed above their 20 day average

Outperformers:

  • + 6.38% – Boral Ltée (BLD.AX)
  • + 6.09% – Kogan.com Ltd (KGN.AX)
  • + 4.88% – Adbri SA (ABC.AX)

Underperformers:

  • -3.91% – Nuix Ltd (NXL.AX)
  • -3.88% – Pilbara Minerals Ltd (PLS.AX)
  • -3.06% – Zip Co Ltd (Z1P.AX)

Extract from the weekly COT report (Merchant engagement)

From Tuesday 22sd July 2021:

  • Short exposure to US dollar reduced by – $ 4.5 billion, according to data compiled by IMM
  • Big speculators turned to net short exposure to 10-year US Treasuries
  • Long net exposure to euro futures contracts decreased by 29.1,000 contracts
  • Net long exposure to the Swiss franc is at its highest level in three months
  • Traders have been the least bullish on gold futures for two years
  • Net short exposure to yen futures fell to weekly low
  • Long exposure to copper futures continued to decline and is now at its lowest level since returning to net long exposure in June 2020

Raw long exposure (75% and more):

  • S&P 500 Futures: 84.4%
  • WTI Futures: 82.3%

Commodities: soy bulls make it a meal

The number of US oil rigs increased by 10e consecutive month, the rise in prices being supported by solid fundamentals. Oil prices hit their highest level since October 2018, WTI futures contracts reached $ 74 and brent futures contracts reached $ 76.16. Brent formed a bullish engulfing candle on the four hour chart to show support is confirmed at 74.95. OPEC meets on Thursday and expectations are an increase in production.

Gold remains in a corrective phase and produced another bearish hammer which failed to retest 1800. With Core PCE roughly in line with expectations, it allayed fears that the Fed would shrink sooner. So we might have expected a firmer close for gold, but here we are. We remain bearish below 1800 and favor selling on minor rallies, for a possible break below 1756.

Lumber futures fell to a 5-month low and virtually wiped out this year’s 173% rally. A break below 775 highlights the lows around 600. Bearish timber prices certainly play into “transient” inflation, such as soybean term passing under the support of 1289.

We can see from the daily chart that prices broke through trendline support in mid-June and then produced a bearish breakout gap. As prices attempted to form a base above 1289, the minor rebound was seen on low volumes and momentum slowed down again. A break below 1289 highlights the highs around 1200, then the low of 1124.4.

Forex: DXY remains below its 200-day EMA

The US Dollar Index (DXY) remained below its 50-week EMA for a second week and prices are now resting below its 200-day EMA. And, after all the hype, the Dollar failed to make a decisive move on Friday after Core PCE fell slightly below expectations at 3.4%. Closing the day with a bullish pinbar, DXY’s close has been effectively stable since Wednesday despite its intraday highs and lows. That said, we favor a bullish breakout as its recent downward movement appears corrective.

Incidentally, we didn’t have the squeeze breakout on USD / CHF but it continues to favor a breakout bullish, given the low retracement on the daily chart against an impulsive move up, and now a bullish pinbar on Friday. We are now looking for a breakout (or hourly close) above trend resistance to suggest that its uptrend is ready to resume.

AUD / USD and NZD / USD appear to be other majors who are about to complete their retracements. Both pairs rose daily over the past week as part of a countertrend, but printed bearish pinbars on Friday. We suspect the rise from here may be limited. Our AUD bias remains bearish below 0.7650 (leaving plenty of room for upside) but will be lower if bearish momentum returns.

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To come (hours in AEST)

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