TC Markets

Apple is about to kick off its biggest device upgrade cycle ever and the market hasn't priced this in... yet.

FOMC Meeting Minutes Takeaway.

1. The recent Fed minutes suggest that Powell may adopt a more cautious tone at the Jackson Hole meeting, with the majority of FOMC members leaning towards a dovish stance. This indicates a likely move towards quicker rate cuts, possibly signaling a shift to a neutral policy stance sooner than expected.

2. While an initial 25bps cut remains probable, the Fed now seems closer to considering 50bps cuts, with the possibility of three 25bps cuts over the next meeting. The Fed is reassessing current interest rates, viewing them as potentially too high given ongoing disinflation and rising unemployment.

3. Key points from the minutes highlight strong support for easing policy if data aligns with expectations, with isolated hawkish views likely outweighed by broader consensus. Concerns about the impact of delayed policy easing could prompt more substantial cuts, possibly indicating a 50bps reduction in the near future.

4. Businesses are reporting weakened pricing power and easing wage pressures, reinforcing the Fed’s view that inflation risks are diminishing.

There goes the NIKKEI

The ISM Manufacturing PMI for August 2024 registered at 46.8%, indicating a decline from 48.5% in July.

This marks the fourth consecutive month of contraction and the 20th time in the last 21 months that the manufacturing sector has been in contraction territory.

The reading of 46.8% was below analyst expectations, highlighting ongoing challenges in the sector​.

Forex Grid Strategy

A simple strategy to help improve your consistency without pinpointing exact entries and even if you misjudge the market direction.

The FX markets don’t trend as most brokers and marketers suggest. Instead of trending indefinitely, they often revert to the mean, making a reversion strategy highly profitable.

Grid trading isn't new, but it’s underutilized and often misunderstood. This strategy allows you to contextualize price, buying low and selling high, maximizing profits while limiting risks.

1. Setting Up Your Trading Grid

Price Levels and Zones: Our grid consists of 4 price levels and 3 price zones.

Price Levels: Based on major support and resistance levels on a daily chart.

Distance: Approximately 4 times the daily Average True Range (ATR) apart.

2. Trading Within the Grid

Directional Bias: Decide if the market will rise or fall.

Bullish Market: Buy aggressively in the bottom zone and exit near the top.

Bearish Market: Sell at the top and exit near the bottom.

Position Sizing: Use small position sizes, no greater than 0.5% of your account from one grid level to the next. This approach allows for multiple positions at different price points, giving you time and flexibility to profit even if your initial market direction is wrong.

3. Risk Management Example

If the price moves from one level to the next, you risk 0.5%. A full move from bottom to top risks 1.5%. Even with three positions against you, the maximum loss would be 3% of your account.

4. Practical Application

Even in a trending market, selling at resistance and exiting at the next level can be profitable. The trading grid helps you contextualize price and plan trades without needing to predict immediate market direction accurately.

Grid trading allows you to eliminate the need for perfect market timing, making it easier to profit consistently. With practice, this strategy can significantly improve your trading results.

U.K Election – Equity Market Thoughts

1. Historically, the UK market was flat on average 6m after Labour elections, but up 12m later.

2. While underperforming on average immediately around Labour wins, the MSCI UK modestly outperformed global peers 12m later.
The FTSE 250 has outperformed the FTSE 100 on average 12m following Labour wins.

3. Historically, the UK sectors that performed best around Labour victories were Materials and Communication Services. Tech and Consumer Discretionary lagged.

(Citibank)

Our AI tool pinpointed three industries likely to under-perform in June, based on the data:

1. Fabricated Metal Products
2. Electrical Equipment, Appliances & Components
3. Transportation Equipment

The performance of these ETFs validated our AI tool’s predictions:

1. XME closed 9.85% lower over the following month.
2. IYJ closed 2.2% lower.
3. FTXR closed 0.19% higher, which still underperformed compared to the broader market.

USD/JPY broke out above an ascending triangle confirming resumption in up move.

Next objectives are located at 161.80 and target for the 163.50 area.

Last week’s low of 158.80/158.00 should be a potential support zone in case a short-term pullback develops.

The UK Election on July 4th has the potential, as with all top tier political events, has the potential to inject volatility into the markets.

That said, the 2024 general election appears to be passing without much fanfare or drama. In many ways, this is a return to an era when UK politics rarely produced the kind of volatility witnessed over the past 14 years.

Should results be consistent with current polling, we expect limited GBP impact.

New Home Market Softening as Rates Restrict Activity

New home sales fell 11.3% to a 619K-unit pace in May, the weakest pace since November 2023. The new home market has softened recently alongside higher mortgage rates, increased availability of existing homes and a more moderate pace of economic growth.

Although these factors are likely to remain as a constraint moving forward, an uptick in mortgage applications for purchase so far in June suggests that the small dip in mortgage rates over the past several weeks will translate to a slightly stronger pace of home sales in coming months.

(Wells Fargo)

EUR/USD is challenging the interim support of 1.0670/1.0650 representing the ascending trend line drawn since last October.

A brief bounce is likely; the 200-DMA at 1.0800 is first hurdle. Crossing this would be essential to confirm an extended rebound.

Break through 1.0670/1.0650 will denote risk of deeper decline. In such a scenario, next objectives could be located at April trough at 1.0600 and lower limit of the range since 2023 near 1.0484/1.0448.

USD/JPY has broken out of a small ascending triangle within which it consolidated since May. This breakout denotes the uptrend has probably resumed. Daily RSI showing signs of bearish divergence, but currently no signs of being overbought, highlighting regain of upward momentum.

Next objectives could be located at projections of 161.80 and target for the pattern near 163.50/163.75.

Last week low near 157.70/157.10 is important support near term.