We welcome you to another edition of “Saturday Sit Down”, provided by Overbit.com.
In Saturday Sit Down, we try to take a step back from some of the noisier price action and instead focus on a macro overview of the global financial world. Going into the weekend, we can see the dominant force in the market is still the US Dollar, tracked by the DXY index. The DXY has formed a double bottom around 92 and is still rising, with the index being the most oversold since February 2018. It is still moving within a range, so it’s important to note this could just be another consolidation before downward continuation. Regardless, the DXY’s recent movement has impacted assets across the board. Stocks, forex, gold and even Bitcoin and Ethereum seem to be facing much more resistance without the benefit of a downward-spiraling base pair.
Taking a look at the Euro, we can see that EURUSD topped out last week just above the 1.19 level. The pair is currently in a bullish consolidation pattern right below the significant 1.2 resistance. However, a simple breakout from this bullflag might not be as easy to come by with the changing narrative. Coronavirus cases are surging in European countries as the EU looks to impose more restrictions. Meanwhile, the US has been on a roll of releasing positive figures, such as the recent non-farm payroll numbers as well as the unemployment numbers. Without much catalysts on the European side, it seems this pair will be driven by DXY, as is most of the market.
Moving to the GBPUSD, we start with news that is minutes off the press at the time of writing. Britain’s Office of National Statistics released official figures on Wednesday, and the picture is grim. GDP fell 20.4% in the Q1, after falling 2.2% in the Q2. With two consecutive quarters of GDP downturn, Britain is officially in its first recession since 2008. This recession was largely driven by the UK’s struggle to contain covid-19 and the resulting lockdowns. On the bright side, the bulk of the downside was contained in April and May, with figures much more promising in June. This means Q3 will be the most significant on the macro level, as it will provide investors with insight on whether or not these promising figures will continue to improve. In the short-term, traders should be wary of increased profit-taking on GBP/USD, especially with DXY approaching a potential apex.
As for the final forex pair we will cover, USDJPY appears to be at a bit of a crossroads. Last week, we saw the USDJPY sliding to monthly lows. The theme of this downturn was broad USD weakness across the board. However, as we have mentioned above, dollar bulls seem to be slowly coming back out, which has resulted in a reversal for USDJPY, now trading above 106 again. Per the usual with USDJPY, there is a strong argument for either direction, which could result in a continuation of the downward chop until a significant catalyst is introduced.
Finally, we close out with a section on cryptocurrency. Taking a look at BTCUSD and ETHUSD, we can see that both pairs faced harsh rejection at significant resistances ($12,000 and $400, respectively). However, both are still consolidating slightly below resistance, which is typically a bullish sign, especially given the recent trend. Although some traders may not typically associate cryptocurrency with traditional markets, it appears clear that the DXY is weighing on both Bitcoin and Ethereum. Both pairs’ rejections came as DXY was bouncing off its recently-formed double bottom. It’s obvious Bitcoin and Ethereum are both benefiting from the altcoin boom in the last few months, but we believe the more important narrative to watch will be the correlation between USD and cryptocurrency. The best place to trade this narrative is, as always, at www.overbit.com
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