Risk appetite is rising again, and equity markets rose to fresh record highs in the United States and Europe. Concerns over the spread of the Delta coronavirus variant have been pushed into the background - for now. On Wall Street, investors are eagerly awaiting the start of the new earnings season and there are fundamental reasons to be optimistic about it. Many S&P 500 companies are likely to announce a stellar performance in Q2 of this year, as the US economic recovery received a significant boost.
On the other side of the Atlantic, it was comments by European Central Bank President Christine Lagarde that caught the attention of investors. The upcoming ECB meeting on July 22 was supposed to be an uneventful one, but Lagarde announced that market participants should prepare for new guidance.
At the same time, there could be an announcement of fresh measures after the current emergency bond-buying program ends. More importantly, Lagarde and her team don´t see the need for taper talks as of now, preferring to remain cautiously optimistic given the uncertainty surrounding the pandemic. This is great news for investors, as they don´t need to worry about the ECB´s ultra-loose monetary policy ending anytime soon.
The GER30 has been stuck in a relatively tight range for ages, but the index is finally building momentum. A daily close above the 15,800 resistance level would be significant and pave the way for an extension of the rally towards at least 16,000 points.
A dovish ECB could increase the pressure on the Euro in the near-term. One currency pair to keep an eye on is EUR/CAD. The Canadian Dollar is benefiting from a bounce-back in oil prices and a more hawkish tone by the Bank of Canada on its next meeting tomorrow could give the currency another major boost.
EUR/CAD broke below 1.4770 support today, and this could signal the beginning of a deeper correction that may push the currency pair back towards the early July low at 1.46.
Meanwhile, the South African Rand is facing significant headwinds amid rising violence in the country´s major cities and a surge in new COVID-19 cases. USD/ZAR could see further gains in the near-term, and a test of the 200 DMA (currently resting near 15.10) appears increasingly likely. A breakout above this level might trigger a larger short squeeze towards 15.66.
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US inflation and Chinese GDP, plus RBNZ and Bank of Canada rate decisions, highlight the trading week. But which currency pairs should traders focus on?