Review of July 20-24: markets afraid of a strong dollar. Forecast for the week July 27 – July 31

By | July 26, 2015

Stock indices finished the working week in the “red.” In many ways, this was due to the negative dynamics of corporate reporting, and fears that the strength of the dollar will start to have a negative impact on the US economy. In addition, the published macroeconomic statistics proved to be quite strong, which increases the likelihood of an early beginning of the cycle of monetary tightening Fed. As a result, NASDAQ (NQ) lost 1,9%, Dow Jones (YM) fell by 2.61%. German DAX30 (FDAX) fell 3.37%. Hong Kong HSI was under moderate pressure amid falling commodity prices and weak statistics from China, down 1.69%.

EUR / USD received a temporary reprieve on news that the Greek parliament adopted the second package of laws on reforms, paving the way for negotiations with the EU for a third aid package. Against this background, the pair managed to gain a foothold in 1.46%.

Precious metals again came under pressure amid growing expectations of tighter monetary policy the US Federal Reserve. Gold has fallen in price by 3.1%, updating earlier in the week for at least 5.5 years. Silver lost 1.36%. Brent crude oil “closed” week below 55.00, having fallen in price on 4,31%. Black Gold “crippled” data on commercial stocks in the US, the general sentiment in the commodities markets, the weak statistics from China, and data on the number of drilling rigs operating in the US showed an increase according to Baker Hughes.

Chart of the week:

brent crude oil chart
Brent crude oil chart

 

Forecast for the week July 27 – July 31
Stock market
The new work week can be exciting for the American indices. US published data on orders for durable goods, a report on consumer confidence, the preliminary GDP data for the 2nd quarter of 2015, as well as the Fed monetary policy. The market is waiting for changes in interest rates at this meeting, but in the comments of officials, he will look for clues confirming the aggressive attitude, showed recently.
And if the confirmation will be received, and the data in terms of growth of the economy reinforce their good figures, benchmarks may continue to weaken. But what is most surprising, and the weak US GDP report could put pressure on the index, because only confirms the hypothesis that the market is exaggerated in the past week, that a strong dollar puts pressure on the US economy. Thus, we can assume that the Dow Jones and Nasdaq will continue to decline, aiming for a return to 17350 and 4477.16, respectively.
Commodity and raw market
Brent crude oil (BRN) remains under pressure. Several factors have on the “black gold” negative impact. Firstly, the market is still under the impression of lifting the sanctions against Iran, which will allow the country to resume the supply of black gold on the world market. This can strengthen the imbalance of supply and demand. Second, the pressure comes from fear of reduction in demand for hydrocarbons. The latest data on commercial stocks in the United States make it clear that even in the traditional peak season of demand (which, incidentally, is nearing completion) from the refinery consumption growth is not observed.
In addition, signs of cooling of the Chinese economy does not add optimism because the country is the largest importer of oil. Overnight, these factors will not disappear, but they were, for the most part “played out” by the market. But new evidence readiness Fed to start raising rates later this year that the regulator can do at a meeting on Wednesday, as well as the positive statistics from the US, it is able to provide support for the dollar. In this case, Brent can aim to reduce the level of 52.60.   

A large block of American statistics, as well as a meeting of the US Federal Reserve may put additional pressure on precious metals. The main condition – strong evidence and proof of the aggressive attitude of the American regulator. All this will cause a strengthening of the dollar, which adversely affects the value of assets denominated in it. In this case, you can consider selling gold (XAU / USD) and silver (XAG / USD) in the breakdown of levels of 1067.00 and 14.370, respectively.

Currency market
GBP / USD in the coming week could make an attempt to recover the district level of 1.5640. But such dynamics will be possible only when published on Tuesday showed the pace of economic growth in the 2nd quarter will reflect the acceleration of growth at least in line with expectations. 

Such dynamics of the indicator could lead to the fact that the representatives of the MPC will continue to speak out as aggressively relative to the market and inflation, as we did at the last meeting. Moreover, the uncertainty on Greece has exhausted itself, and will not have a deterrent effect on them.

Warning: Profitability in the past does not mean profitability in the future. Any projections are for informational purposes and does not guarantee a result.

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