Daily Analysis : August 03, 2016

The dollar struggled near 6-week lows against a basket of currencies on Tuesday, due expectations that the U.S. Federal Reserve will raise interest rates later rather than sooner.

The greenback's softness followed a weak showing by Wall Street overnight, with indexes suffering their worst day in roughly a month, in the wake of unconvincing economic data and falling oil prices.

U.S. consumer spending rose but the markets focused more on Tuesday's lackluster inflation numbers. Economists say this, together with weak business investment and the second quarter's anemic economic growth rate, could encourage the Fed to keep interest rates at current low levels for a while.

Today the U.K. is to release data on service sector activity, while the U.S. is to release the monthly ADP nonfarm payrolls report and the ISM will publish its non-manufacturing index.

USD/JPY

The yen fell sharply on Tuesday, sliding to near one-year lows, as Japan prime minister Shinzo Abe's cabinet approved a massive stimulus package in an apparent last-ditch effort to boost persistently low inflation.

The Japanese government passed a ¥28 trillion stimulus package proposed by Abe earlier last month. The $274 billion stimulus is one of the Japanese government's largest since the Financial Crisis and comes amid growing sentiment that Japan's economy will need to rely upon fiscal, not monetary policy in order to stave off deflation. As part of the plan, the government will provide cash subsidies to as many as 22 million low-income residents, while providing support to communities in the southern region of the nation, which was hit by a devastating earthquake in the spring.

USD/JPY Chart

Pivot: 102Support: 100.65 100 98.95Resistance: 102 102.85 103.95Scenario 1: short positions below 102.00 with targets @ 100.65 & 100.00 in extension.Scenario 2: above 102.00 look for further upside with 102.85 & 103.95 as targets.Comment: even though a continuation of the technical rebound cannot be ruled out, its extent should be limited.

Gold

Gold surged on Tuesday, soaring more than $10 an ounce to test 28-month highs, as the dollar slumped to its lowest level since late-June and inflation remained relatively weak, potentially delaying the timing of the Federal Reserve's latest interest rate hike.

On Tuesday morning, the U.S. Bureau of Economic Analysis said Personal consumption expenditures rose by 0.1% in June, slightly below consensus estimates of a 0.2% increase, following a gain of 0.2% over the previous month. The gains are reflected by an uptick in spending for gas, electricity and healthcare services, which were partially offset by a reduction in spending in new vehicles. The Core PCE Index, which strips out volatile food and energy prices, inched up by 0.1% in June, in line with consensus estimates and below May's 0.2% monthly increase.

Today investors will focus on U.S. monthly ADP nonfarm payrolls report and on ISM non-manufacturing index.

Gold Chart

Pivot: 1354Support: 1354 1346 1335Resistance: 1372 1378 1385Scenario 1: long positions above 1354.00 with targets @ 1372.00 & 1378.00 in extension.Scenario 2: below 1354.00 look for further downside with 1346.00 & 1335.00 as targets.Comment: the RSI is mixed to bullish.

WTI Oil

Crude futures fell considerably on Tuesday, dropping to fresh 14-week lows, as investors awaited further signs of potential volatility on global energy markets, ahead of the American Petroleum Institute's weekly crude inventory report on Tuesday evening.

But crude prices rebounded in Asia on Wednesday after U.S. industry estimates showed a drop in stockpiles. Infact, the American Petroleum Institute said Tuesday that U.S. crude oil inventories fell by 1.3 million barrels in the latest week.

The drop comes ahead of Wednesday's government report, that could show that crude inventories nationwide fell by 1.9 million barrels for the week ending on July 29.

WTI Oil Chart

Pivot: 46.8Support: 37.55 34.4 29.5Resistance: 46.8 51.6 54Scenario 1: short positions below 46.80 with targets @ 37.55 & 34.40 in extension.Scenario 2: above 46.80 look for further upside with 51.60 & 54.00 as targets.Comment: the RSI shows downside momentum. The declining 20-day moving average crossed below the 50-day one, which is negative.

US 500

U.S. stocks fell sharply on Tuesday, suffering their worst one-day session in a month, as crude futures tumbled to fresh 14-month lows and investors largely shrugged off a major stimulus package approved hours earlier by the Japanese government, placing downward pressure on equities on Wall Street.

The Dow Jones Industrial Average lost 0.49%, closing lower for the seventh consecutive session; the NASDAQ Composite index fell by 0.90%, snapping a five-day winning streak; while the S&P 500Composite index dropped by 0.64% as all his 10 sectors closed in the red, because stocks in the Consumer Services, Financials and Technology industries lagged.

Today investors will focus on U.S. monthly ADP nonfarm payrolls report and on ISM non-manufacturing index, to gain more information on the strength of the American economy.

US 500 Chart

Pivot: 2072 Support: 2072 1992 1950 Resistance: 2190 2220 2250 Scenario 1: long positions above 2072.00 with targets @ 2190.00 & 2220.00 in extension. Scenario 2: below 2072.00 look for further downside with 1992.00 & 1950.00 as targets. Comment: the RSI is bullish and calls for further advance.