Midweek trading ideas: Will USD/JPY see heightened volatility?

Hi everyone, this is Michael Kramer of Mach Capital. Today is Tuesday, July 28th and it's around 400 p.m. New York time. So this week, uh, the news flow will be picking up significantly. Starting on Wednesday, July 29th at 2:00 p.m. Eastern, we'll be getting the Fed funds uh rate decision. Uh the FOMC is not expected to change rates at this week's meeting. We're looking for the range to stay within 3 1/2 to 3.75%. That of course will be followed by the press conference 30 minutes after the announcement. Then on Thursday, July 30th, we'll be getting the June PCE report. Uh for the month of June, we're looking for core PCE to rise by 0.2% down from 0.3. Core PCE overear expected to decline to 3.3% from 3.4. Headline PCE expected to fall by 0.1% down from 0.4%. The year-over-year index is expected to drop to 3.7% from 4.1%. Additionally, the same morning, we'll be getting the second quarter GDP advanced reading. Estimates are for it to come in at 2.1%. Uh GDP deflator expected to come in 3.9%. And core PCE, this is a different number than the monthly number. This is the quarterly number that's expected to be at 3.5%. And that's basically going to round out the economic data and the uh Fed meeting on the 29th. It's also important to remember that there'll be lots of earnings data. On Wednesday the 29th, we'll be getting earnings from Meta and Microsoft. And then on Thursday, uh July 30th, we'll be getting earnings from Amazon and Apple. So, uh there'll be lots of big news events over the next 24 to 48 hours here in the US and that's going to make markets volatile. Uh and it could create pretty big swings in FX as well. Um, we can see that the euro has uh really traded a little bit lower since last week. We haven't really gotten to a point where we can say that the euro has really broken down, but it is making signs that that may happen. You can clearly see again the bare flag pattern that we had drawn in last week. Now, we clearly uh did break below that pattern and we've managed to come up and retest it. Uh to this point, it has failed. the ECB had a little bit more of a dovish tone. So, it's going to really be important to listen to how the Fed positions itself. Expectations are that they will be raising rates at some point this year. And so, if that's the case, we could expect to see the euro continue to weaken versus the dollar. A projection of this bare flag, if it plays out, would suggest we might see the euro trade all the way down to around 111. However, there is some pretty solid support around 10 around 112 and a half uh before we get there. When we look at the British pound, that's also weakening versus the dollar. Although today it didn't. Uh you can see here's your big uptrend. That's obviously been broken. We're now seeing uh the pound really begin to weaken versus the dollar. It's now failed on a couple of attempts to really get through this 135 area unsuccessfully. our 10day moving average. We're now trading below that for a couple of days. So, the trend appears to have shifted. Our lower Ballinger band is the next opportunity for support around 132. But really, this 132 area is probably a more important level of support. Uh because again, if this level breaks, we're looking at potentially trading back towards 130 or so. Again, this is a level that's held though on the last two attempts. So, this will be something that we need to watch closely. Clearly, a breakout above the 10day exponential moving average could push the pound back on an upward trajectory, but as of right now, it's probably more likely to be resistance. The Japanese yen finally did break out of that wedge pattern we had identified. You can see that the Japanese yen has generally been uh continuing to weaken. We did find a little bit of resistance around this 130 around this 16383 area. Um that is around where the upper Ballinger band is. Again, not really surprising. We are getting some consolidation. RSI went above 70. We did go above the upper Ballinger band uh for the most part. 10day exponential moving average send working as uh support. So, as long as this continues to rise and the Ballinger bands continue to expand, it's more likely than not that the pound that the uh yen can continue to weaken versus the dollar. At this point, the only thing that maybe changes that later this week is the BOJ meeting. Uh again, they're not expected to raise rates, but they could take a more hawkish tone, which could get the market a little bit nervous about future rate hikes, potentially leading uh the end to strengthen. But as of right now, it's been uh a little bit of a hit and miss when it comes to what they're going to be doing. So again, right now, the trend looks fairly favorable. And there's probably still room for this to move up towards the 165 area. Certainly if you just take a a measure a measurement from here to here you can see that we could get up to around 164 and a half uh just based on this move alone. Oil prices have continued to be very volatile and the the the everything going on in the Middle East is making that very challenging even from a technical perspective. We did reach the 61.8% retracement level. We did reach overbought conditions on the RSI and the Ballinger bands. So a pullback seemed fairly natural to take place after climbing all the way over 100 on Brent. But uh again right now you can see we are trading below the uh 10day exponential moving average uh with the 20-day moving average likely to be the next area of support. There's also appears to be some support in this $82 uh a barrel region as well. As long as oil continues to hold above the 20-day, I think you still have a a trend change working and you can maybe see oil continue to move higher. Uh again, there's lots of different things going on. It makes it very challenging, but as of right now, support and oil at 71 is held. So, as long as uh oil can start keep making slowly a series of lower highs, it kind of points higher. As of right now, that's what's been happening. Obviously, a break below 71 would suggest something has changed materially, but at this point, I would expect that we probably find some level of support between 82 and 84 and that the trend continues higher for now. Gold prices uh attempted to break out last week, but that kind of failed. uh we ended up seeing gold coming back down. It wasn't really able to establish a trend above the 10day or 20-day moving averages. Um we can see we're now trading back below it. So, at this point, there's possibly a risk that this is going to be a failed breakout. We won't really know whether or not that is the case until we see it break below the 3980 floor. That's been the area that's been very important to gold and that's the area that really needs to break to give you confidence that there's going to be potential for further downside. I mean right now I guess if you draw a if you drew a trend line you can make another argument that there is a little bit of a still a downward trend in gold but this is kind of I think a weak trend line at this point. Um, again, I I think basically gold will need to break above 4,200 before you can really maybe start to think that there's going to be some upside. However, I think that's going to be challenging only because you can see the upper Ballinger band is solidified at here at this level. It's going to need to start to rise to give it room to go up and you also have uh a pretty solid area of resistance built up around that 4200 region. Uh when we look at the DAX that actually managed to rebound the last couple of days with oil prices coming back down again. The DAX has been fairly tied to oil. I think at this point again we're talking about the upper end of the trading range somewhere around 25,800. That coincides with the Ballinger band. It coincides with the prior highs. Again, you haven't really seen the DAX do very much now going back really to the summer of last year. In fact, 24,500 was the level in June of 25. And all we've managed to really do over that time is see the DAX uh rise by about 4% and just have a lot of volatility in the process. So, there's not much to really make us think at this point that we're going to see the DAX uh materially break higher. At the same time, I think there's probably pretty strong support in the 24,900 region, uh, with maybe room to go down to around 24,400. The Footsie uh, 100 has finally broken out to the upside. You can see it's even put in a a new high at this point. Um, again, what we're seeing here uh is an uptrend in in the Footsie. You clearly have bullish momentum forming on the on the moving averages turning higher. The only thing the only um issue we have here on on the Footsie is that you can see we've stopped right above the prior highs. Uh additionally, you can see we're trading above the upper Ballinger band. Um the RSI isn't quite overbought yet, but I'd imagine if you got another one or two days of moving higher that that would happen. And so I think there's probably a good chance in here that we actually see um the Footsie perhaps begin to consolidate a little bit uh sideways uh before potentially making its next move higher. Likewise, if if this fails, I would look for the Footsie to come back towards 10,675, which coincides with these moving averages and this uh area of support that dates back to uh the spring. The NASDAQ 100 has been drifting lower the last uh few trading sessions. Uh and right now it's kind of in an interesting area where it managed to find some support today around 27,700. It's also worth pointing out that you can see we're now trading below the lower Ballinger band. The RSI is only around 36, which suggests, like the Footsie, only in reverse, that perhaps you could continue to see the NASDAQ decline along the lower Ballinger band for a couple of more trading sessions before you see the RSI put in uh an oversold condition. Uh so clearly right now a break of 27,675 would likely lead to the NASDAQ falling back on the NASDAQ 100 falling back to 26,950. Likewise resistance probably pretty firm around 28,550. That's where you have the 10day exponential moving average. That's where you have some overhead resistance from some of these uh from this period in June and from this area in May. Um, additionally, right above that, we have the 20-day moving average. So, there's a lot of work here that needs to be done for the NASDAQ to break out. Additionally, you can see a symmetrical triangle pattern formed and we clearly broke down from that. And that would also suggest maybe we come down towards this 26,950 area. When we look at the S&P 500, it's a little bit of a different picture. We've been getting some consolidation sideways as opposed to a move lower like the NASDAQ. We have seen these types of divergences before and it's mostly because the NASDAQ is more technology weighted and the S&P obviously even though it's very heavily technology weighted does have other components in other parts of the market in it. But right now you can see that the um 10day exponential moving average again acting as resistance. Lower Ballinger band acting as support. clearly not nearly as oversold at this point on the RSI as you are in the NASDAQ. So, right now, uh I think it's a very tough call. I mean, you need to see the NAS the S&P really break the 7350 area, 7,300 even call it to really see further downside develop. Until that happens, I think you just have to work with the potential trading range we're in, which is basically between 7350 and maybe the upper end of the range around 7560 or so. Uh, and until one of those ranges break, it looks like we're just going to continue to pingpong back and forth. Finally, look at the Dow. You can see very clearly a different picture. Again, not nearly as uh technology weight heavy. Uh and so you have seen the Dow actually do much better during this period of time. Um in fact, you can make a case that the Dow even broke out of its recent downtrend. And whether or not there's enough here to push it higher, hard to say at this point. You can clearly see Ballinger B um uh moving averages all cleared. We have to again see one or two days or three days of a sustained move above those moving averages. We also obviously see that the that the Ballinger band has kind of flatlined around the 53,120 area. We also can see that there is some uh resistance from the prior highs in early July at that area. So again, that's kind of the region where if you can see us break above the 53 120 to 53 150 area, there's a chance that we have much further to go to the upside. If that continues to be a area of resistance, then it looks like for now the downside is fairly limited at around 51,700. But clearly, if that was to break, that would open the door to something steeper because you can see that this area has held on a couple of prior occasions. And a break of this region probably results in us moving back towards 50,500, maybe even below 50,000 at 49700. Anyway, I hope you have a great rest of your week and we'll see you next.