Midweek trading ideas: Could GBP/USD drop back to $1.33?

Hi there, this is Michael Kramer of Mott Capital. Today is Tuesday, September 1st, and it's around 4:15 p.m. New York time. On Wednesday, September 2nd, we'll be getting ADP National Employment. We're looking for 48,000 jobs to have been created in the month of August, up from 44,000 in July. Then on Thursday, September 3rd, we're looking for ISM Services report to come in and show a reading of 54.2 versus last month's reading of 54.1. And then on Friday, September 4th, we'll be looking for nonfarm payroll report. 56,000 jobs expected to have been created versus a decline of 23,000 in July. Unemployment rate expected to remain unchanged at 4.1%. Average earnings expected to rise by 0.3% month-over-month from 0.1% while year-over-year is expected to decline to 3.0% from 3.2%. Uh the economic data this week's going to have a huge say in what the Fed is likely to do at the September meeting. Anything that comes in line probably leaves the market convinced that a Fed rate hike before the year is over is likely coming. While if we were to get hotter data, I think it uh probably means uh a rate hike as soon as September. While a miss on the data certainly could at least buy us buy the Fed some more time to look at the data that comes in in the months ahead, potentially delaying a rate hike. But for right now, the market's been really pricing in stronger dollar, which is really a sign that the market is increasingly starting to think a Fed rate hike is coming because the euro is weakening versus the dollar despite you know, the odds of a rate hike from the ECB in September increasing. So, what we've seen currently is the the uh versus the dollar fall below the 10-day exponential moving average around 116. We're currently below a support level also around 116. This sets up a possible return to around 115 and a quarter, which would be a next area of support for the euro, which also coincides roughly with the 50-day moving average, which resides around 115. Uh really though, a break up below this area of support, the support region between 115 and 115 and a quarter really opens the door for the euro to return to around 113 and a half, which has been the lower end of the range now uh going back to June and July. The pound has also been weakening versus the dollar, moving back below the 10-day exponential moving average, moving below support at the 135 and a half area. Uh it looks like at this point data that comes in as expected probably enough to continue to weaken the pound versus the dollar, potentially pushing it down towards the 13440 area, which also coincides with the 50-day moving average. Uh anything below that area of support potentially sets up a decline back towards 130 three. It's going to take pretty weak data, I think, to get the pound to really strengthen versus the dollar, and if it does, it has some pretty strong resistance in this 136 to 136 and a half area, which has been a region it hasn't really been able to get through since uh early May. The yen has been weakening versus the dollar as well. We can see that the yen is now decisively moved above the 10-day exponential moving average, has been consolidating just below the 16040 region. There is a 50-day moving average hanging around the 161 area. All likelihood, if the dollar is going to continue to strengthen versus the pound and the euro, there's a good chance it's going to probably continue to strengthen versus the yen, which I think thinks sets up a return to the 161 uh 60 to 162 area of resistance with the potential even to return all the way back to the intervention range around 16380. Uh meanwhile, if we were to see you again weaker data, we need to break through support around 159. Uh that's been a really tough area, and it looks like downside is only to around 158 at this point. Maybe 157 and a quarter, which has been the low end of the range since intervention. Otherwise, the yen's been pretty contained. Uh Brent oil has now appeared to break out of a consolidation phase. It looks like a fairly clean breakout as well, moving above the 10-day. You could see the 50-day moving average actually beginning to turn higher here. The only thing we have to think about again is here's your upper Bollinger band. RSI's those only around only around 61, which suggests we really could continue to see oil prices rise from here. The question, of course, is what kind of breakout is this and what kind of formation is it breaking out from? Because if this is some sort of consolidation pennant type pattern, we could be looking at a price of Brent going back to around 116 or so. Uh certainly, the breakout on September 1st looks pretty powerful, uh and it could see some follow-through with the next area of resistance around 102. Uh gold prices have also been in decline uh as the dollar has uh strengthened. Uh the dollar continues to strengthen, gold probably continues to decline along with rising rates won't be good for gold. Uh a breakdown below 43 and a quarter probably sets up a drop back towards around 4,000 on gold prices. That may come as a surprise to some, but uh but again, the dollar has really been the driving force here for gold. All you have to do is type in the DXY, and you can see that it's basically been an inverse trade now for some time, and uh that's likely to continue. So, the dollar strengthening here is the gold's biggest challenge. Uh we've seen the DAX really get hit the last 2 days. What we did notice last week was that this uptrend was broken. We looked like we were coming back around. We did test that area of uh resistance. We're now back below the 10-day exponential moving average. It looks like we've also broken what could be the neckline of a double top pattern that's maybe formed in here. Again, something to watch. If we do see that if this is a the breaking of a neckline, it probably means that the DAX finds support around 25,540, um which also is near the 50-day moving average. But really, there's a chance here that the DAX could move all the way back down into this 24,750 region if this area of support breaks. If today um if the move on September 1st uh is just a fake out, and we manage to hold support at this neckline area around 25,900, then we could see a pretty meaningful rebound back towards the highs. But right now, with oil prices surging and the potential to surge further, uh the DAX may start to feel some of the pressure. Uh the FTSE's also struggled more recently now that commodity prices are starting to come down with gold and silver. Uh more recently though, we've seen the FTSE fall below the 10-day exponential moving average, but it's finding support at the 50-day moving average, while also finding support at 10,700, which is marked highs and resistance now uh on a couple of different occasions. If we see the FTSE break below the 10,700 area, I think it opens a pathway back towards 10,425. If this area of support holds, which may be challenging if gold prices continue to decay, uh if this holds, then I think there's a chance we rebound back to 10,875. But again, those odds seem to be The NASDAQ 100 has uh had fallen on September 1st by around 1 and a quarter percent. You can see that we got just about to the 78.6% retracement area on the NASDAQ just maybe barely above it which could signal that the rally that we saw on the NASDAQ may have now run its course. We are seeing here that there's an area of support around 29,070 which marks the low area that we saw back on August 24th. We're also now consolidating and hitting up against the 50-day moving average. A break below 29,000 probably sets up a decline all the way back to 28,150 maybe all the way back to 27,000 which would erase that little rally that we had following some mega cap earnings. If for some reason we're able to maintain this support region around 29,000 then I guess we can always go back towards the highs around 30,140. But with the dollar strengthening, interest rates surging globally and oil prices moving higher, it looks like risk off may be starting to take over globally and probably going to be a major headwind to most equity most risk assets. We saw the S&P fall by about 70 basis points on September 1st. Right now it's wedged in between the 10-day exponential moving average which it broke below and the 50-day moving average below it which would be the next area of support. Also coincides with 7575 which is an area of resistance and support that formed back in June. A break below 7575 probably sets up a return to as low as 7300 over time. There is also a decent amount of support built up in the 7485 to 7500 region. You can see that right here with this area potentially serving as a gap fill. Otherwise, if we manage to hold on to support at 7575, I think we'll probably see the highs retested again at 7800. We can see that the that the Dow Jones Industrial today closed below the 50-day moving average. That's really the first time we've closed below it now since the end of July. You can see at the end of the July when we did close below it for the day, we didn't really close below it for more than that day. We managed to bounce back quickly. So, we're going to want to watch to see if the Dow is able to bounce back quickly. If it does, perhaps it signals that maybe the sell-off in the Dow will be short-lived. If we were to see the the Dow continue to extend losses, the next area of support probably comes somewhere around 51,615. That's all we're going to have for this week. Until next time, have a good one.