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US GDP to Crash 34%!!

USD/JPY– Weekly Candlesticks
Source: GKFX / MT4 (July 29, 2020)

USD/JPY is back near 16-month support around 104.5/105. Breaks lower on previous occasions have been met with rapid buying. It might be 5th time lucky for the support zone to give way, opening up the critical 100 round number below.
 

TAKEAWAYS


•    Dollar drops after Fed’s ‘dovish hold’
•    GBP/USD back above 1.30
•    Big Tech Q2 earnings follow day of testimony for CEOs
•    DAY AHEAD: Germany Q2 GDP. US Q2 GDP
 

MARKETS


Gold and silver prices yo-yoed and the dollar slid while the action in stock markets was low key as investors awaited the Fed decision and watched tech CEOs squirm in front of politicians. A notable exception was shares of Kodak, where volatility went through the roof thanks to a burst of retail speculative trading. Chinese shares were also looking up with a 2% gain in Shanghai.
 

GURU WISDOM


“I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell.” – Tom Basso
 

The Fed


The Fed opted to leave interest rates on hold but extended dollar swap lines as a precaution. Chair Jerome Powell made reference to ‘high frequency’ data suggesting the economic recovery started to slow amid the rising rate of infections that began in June. On the whole the Fed’s ultra-dovish bias remains in place, as does the downward pressure on the US dollar.
 

GDP data


Germany is first up with second quarter GDP data that’s expected to show the biggest economic shock since WWII. The German economy is expected to have shrunk 9% versus Q1 and 11% since the same time last year. The euro remains bid leading into the data with EUR/USD near 2-year highs owing to optimism about the EU recovery fund.

US GDP is forecast to have lost a third of its value in the second quarter in an unparalleled crunch to economic activity. But as bad as the data is likely to be, investors have already turned their attention to the recovery and support from government.
 

Tech Earnings


It’s a busy 48 hours for Big Tech. First CEOs waded through antitrust hearings yesterday while US President Trump said he might issue executive orders against them. Today  earnings are out for the second quarter. 

As a group FAANG / MAGA or any other abbreviation for Big Tech has outperformed the rest of the market this year. To a large extent that has been investors expecting these earnings today to be insulated from the kind of carnage expected in other industries. Assuming that prediction holds true, the important thing in these results will be the guidance for Q3 and beyond.