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Seasonal trends show that in August, preference will be given to gold, not stocks
US stock markets have been growing in recent months, reaching new record highs, but August may be the beginning of a period of weakness. This may happen against the background of a shift in the interests of investors in favor of safe-haven assets such as gold.According to the data on the average monthly return of the S&P 500 index over the past 25 years, according to the trading analytical company Seasonax, August is the worst month in terms of dynamics, followed by September and February. Market seasonality studies include monitoring price trends throughout the year to establish recurring patterns.If we consider a smaller time interval, 10 years, it is clear that the seasonal trend is changing, and the yield of August is now in the middle range, and September is the only month marked in red."August usually opens up the worst part of the year for risky assets such as stocks and high – yielding currencies," said Chris Vecchio, chief strategist at DailyFX. "Over the past five to ten years, we have seen that this period – August, September, October – creates the most difficult conditions for trade."Fly in the ointmentHowever, according to some analysts, this year may be different against the background of unprecedented monetary and fiscal incentives.According to Vecchio, although the seasonality of the market reveals patterns in the dynamics of asset prices in the past, investors should treat this with distrust, especially in 2021, when monetary incentives have reached an unprecedented level."With growing concerns about the Delta coronavirus strain, this will be an excuse for the US Federal Reserve and the US government to continue to stimulate the economic recovery, and financial markets like incentives," Vecchio said."If we see that the Fed will increase the period of time during which interest rates will remain low, and bond purchases will last until the end of the year, then this will be a cushion for asset prices," he added.Gold may stay strong in AugustGold, on the other hand, shows better results in August, as it is considered as a safe haven or a way to reserve riskier assets."Gold performed well in August, and over the past 15 years we have seen an average yield of 1.6%, which was exceeded only in January (the average yield in this period is 3.9%)," said Chris Weston, head of research at Pepperstone."We see the same now, when gold showed an increase of 10.9% in July with an increase of 2.1% in August," Weston added.According to Vecchio, gold prices may rise as a result of the growth of US government debt, as happened in 2011, when the volume of monetary and fiscal support was also at an exorbitant level."One of the reasons, at least this year, may be that we are entering a period when the US debt limit is no longer limited, and we may face a debt ceiling," Vecchio said."If we do see a rally in stocks during August, then they will rise in September, as we may see a sharp correction as the debt ceiling comes into play," Vecchio added.
EUR/USD forecast for the week: monetary policy is expected to tighten in the US
All attempts of EURUSD to move above 1.1900 last week quickly stopped, and the pair reached lower lows daily, despite the limited demand for the US currency.Last week, the dollar suffered greatly due to the actions of the US Federal Reserve System, as Jerome Powell cooled hopes for an early change in the current exchange rate. Nevertheless, it seems that the central bank is preparing to announce the first stage of the transition to a normal monetary policy. On Wednesday, Fed Vice Chairman Richard Clarida said that the central bank is likely to achieve its economic goals by the end of 2021 and will start raising interest rates again in 2023.Employment signals "significant progress""If, according to the forecast, core inflation does reach 3% this year or exceeds this level, I will consider it much more than a "moderate" excess of our long – term inflation target of 2%," Richard Clarida said.He also touched upon the labor market, noting that it has yet to recover. But an optimistic report on wages in the non-agricultural sector put another tick on the list of Fed goals, talking about "further significant progress" in this sector.In July, 943 thousand new jobs were created in the country, and the unemployment rate fell to 5.4%, which largely exceeded market expectations. The underemployment rate decreased to 9.2%, and the participation rate increased to 61.7%. All the figures remain below the level that preceded the pandemic, but clearly indicate what progress the central bank needs to make.The European data published last week was, to put it mildly, not very strong. Markit has published the final figures for the European Union Business Activity Index (PMI) for July. The volume of production in the manufacturing industry was revised upward, while activity in the service sector, on the contrary, was revised downward. The composite EU PMI from Markit remained at the level of 60.2.Retail sales in Germany were surprised by a 4.2% increase in June. But production orders in the same month increased by 26.2% year-on-year for the same month, which is significantly lower than the figure for May of 54.9%. Industrial production showed a modest growth of 5.1% over the same period, compared with the previous 16.6%.A calmer macroeconomic weekThere will be little important macroeconomic data next week. Nevertheless, a number of important statistics that will tell traders about the economic progress on both sides of the Atlantic should still be published.Germany and the United States will release updated data on the consumer price index on Wednesday. In addition, Germany will also publish the August ZEW survey, which forecasts an improvement in economic sentiment from 61.2 to 72, while the US is scheduled to publish a preliminary estimate of the August consumer sentiment index from the University of Michigan.Technical forecast for the EUR/USD pairThe EUR/USD pair is ready to retest the multi-month low set in March at the level of 1.1703. The weekly chart shows that the pair is trading near the July low of 1.1751, the nearest support level. But on the approaches to 1.1920, the pair again met strong sales. On the weekly chart, the 20-day simple moving average maintains a moderately bearish slope, well above the current level, while the longer moving averages converge around 1.1500. Meanwhile, technical indicators remain within negative levels, the momentum is not directed, and the RSI tends to the south, being around 41.Every day, the risk shifts in the downward direction. The pair accelerated its decline after breaking below the now bearish 20-day simple moving average, while technical indicators crossed their average lines into negative territory, with the RSI currently at 37.The nearest support level of the pair is at 1.1751, followed by 1.1703. A break below will lead to a drop to 1.1600 / 40. The resistance levels are located at 1.1840 and 1.1920, and sellers are likely to continue to defend the latter of them.
Forecast for the week in EUR/USD: ECB disappointed, will the Fed follow its example
The EUR/USD pair fell for the second week in a row, reaching a new three-month low of 1.1751 and ending the week slightly above this level. Attempts to go beyond 1.1800 were quickly canceled by sellers, which is a sign that the bears are in control of the market.Investors were looking for a catalyst, which never appeared.Symmetrical ECB inflationThe macroeconomic calendar last week was boring. There was only one event of the first level, the decision of the European Central Bank on monetary policy, but it did not affect the dynamics of the euro.The central bank, as expected, left monetary policy unchanged. The politicians confirmed that the PEPP program will continue to work faster than at the beginning of the year.As for the long-awaited instructions on further policy, the central bank did not give any specifics, just like ECB President Christine Lagarde in her speech.The central bank has agreed on a new symmetrical inflation target of 2% after the latest revision of the strategy.On a positive note, Christine Lagarde added that the economy is on track for strong growth in the third quarter, but added that the recovery in the services sector may slow down due to the Delta strain, and a number of bottlenecks may affect production in the short term.Reduction of the US Federal Reserve's quantitative easing policyAt the same time, macroeconomic data from the United States did not meet market expectations, which caused rumors that the economic recovery has slowed down. Data on housing construction turned out to be worse than expected, and the number of initial applications for unemployment benefits for the week ended July 16 unexpectedly increased to 419 thousand.The number of new cases of coronavirus in the United States is growing, which threatens the already slow economic progress, and the Fed, which recently began to "think about thinking" about reducing.The US Federal Reserve holds a meeting on monetary policy on Wednesday, July 28. Market participants are waiting for some hints on how officials plan to reduce their easy money policy. It is worth noting that the rate cut is the first step towards normalization, as US politicians have said that they are unlikely to consider raising rates until they finish buying assets. No changes are expected at this meeting, and officials apparently expect news in September.More hints of economic growthOn Friday, IHS Markit published a preliminary estimate of its business activity indices for July. In the European Union, the volume of production and services increased more than expected, as a result of which the EU composite PMI was 60.6, more than the previous 59.5. In the US, the manufacturing index improved to 63.1, but the index of business activity in the services sector unexpectedly fell to 59.8.Next week, the United States will release several important macroeconomic indicators in the United States. Data on June orders for durable goods will be released. It is expected to grow by 2.1% after an increase of 2.3% in the previous month. On Thursday, the country will publish its gross domestic product for the second quarter. It is expected to reach 7.9%, compared to the previous 6.4%. On Friday, the focus will be on the June data on personal spending and income, which includes data on PCE, the Fed's favorite indicator of inflation.In Germany, the IFO business climate survey for July will be released on Monday, and preliminary inflation data for July will be released on Thursday. By the end of the week, the country's GDP for the second quarter will be released, expected at the level of -1.5%. The European Union will also publish data on gross domestic product for the second quarter, which was previously -0.3%.Technical forecast for the EUR/USD pairFrom a technical point of view, the situation for the EUR/USD pair is bearish, and it is ready to complete a 100% pullback from its March-May rally and reach the level of 1.1703. Moreover, the pair is developing within the descending channel from the June 25 maximum of 1.1974.On the weekly chart, technical data shows that there is an opportunity for further decline. The pair reaches lower lows for the fourth week in a row, as well as lower highs. The 20-day simple moving average gains bearish momentum well above the current level, and technical indicators maintain their strong bearish slopes within negative levels.On the daily chart, the bearish 20-day simple moving average converges with the top of the range, while the 100-day SMA crossed below 200 SMA, both much higher than the current level, in the area of 1.2000. The momentum remains without a specific direction below its 100 line, and the RSI indicator consolidates near the oversold values, keeping the risk shifted downwards.The support levels are at the weekly lows of 1.1751 and 1.1703. After reaching the last level, the pair may approach 1.1600, and the closing of the week below 1.1600 should open the level of 1.1470, a long-term support level.Having risen above 1.1840, the pair can recover to 1.1920, a 61.8% pullback from the already mentioned rally, where sellers are waiting. If the pair overcomes this resistance, the level of 1.2000 will be updated.
Bitcoin is losing the interest of speculators
Bitcoin has once again experienced a small crisis on the approach of the price to 30 thousand in recent hours. This level has the potential to launch an even wider sell-off in the cryptocurrency market. A quick rebound indicates that the bulls have the desire and opportunity to protect the key round level.However, not everything is so simple, and one of the main indicators at the moment should be considered trading volume. It is here that the situation is very alarming, since the turnover has significantly decreased in recent months. The average daily trading turnover is now 76% below the levels when the price peaked above $60K. What negative does this mean for the crypto market? Investors and traders prefer to stay away from the market, and attempts to redeem the drawdown are very cautious.A triangle with descending resistance and horizontal support at 31.5 thousand continues to form on the chart. Although the bulls manage to push the price away from the bottom of this figure over and over again, sales start from lower and lower levels. And this has fatal consequences for the price of bitcoin. Cryptocurrencies with their huge share of speculative capital are not characterized by periods of calm at high prices: either rapid growth or a deafening collapse with subsequent consolidation. This dramatically increases the chances that the exit from the consolidation will be down with a potential target of 10 thousand. at some point next year.On Wednesday, we saw that both when the price of the reference cryptocurrency fell and when it rebounded, the trading volume showed almost no changes. This means that the market was moved by small open positions of investors, indicating a deep vulnerability to the sentiment of a small group. It is difficult to see in such a situation the accumulation of bull forces to break through key levels.At the moment, it is still worth focusing on the traditional market. Most large investors in Bitcoin are now completely absorbed by the opportunities of the traditional market after leaving the lockdowns.In addition, despite the local attacks of the authorities of developed economies against cryptocurrencies and exchanges, high-ranking banking officials still confirm that cryptocurrencies are not considered a systemic threat. This is probably why we don't see a tough reaction from regulators around the world. So, the deputy chairman of the Bank of England said that cryptocurrencies “have not yet crossed the border of financial stability risk."It is widely recognized that cryptocurrencies are volatile, but while the monetary authorities of developed economies look at digital currencies through the prism of a “technological casino”, participants in the crypto market still have time to make a profit before the size of the market forces regulators to decisively stop the further development of digital currencies. Probably, this moment will coincide with the entry into the market of national digital currencies. In the meantime, the "casino" is working and always continues to win.