
July was an important month for the FX market. ECB and FED were the main topics. Dollar Index rose %0.0445 and EURUSD fell %0.2477. Despite the calm, Gold is the winner of the month with the help of record low real yields and surge more than %3. S&P 500 continues its low volatility rally with a %2.4 increase. Brent had a roller-coaster month which ends with a %2.1 increase.
ECB Changed Inflation Target

After many years, ECB changed its inflation target from “close but below %2” to just %2. As explained further at July 22 meeting, ECB will allow target overshoot until %2 achieve near the middle of the forecast horizon and stay above the target for the remainder of the forecast horizon. The more dovish ECB may cause problems for the EURUSD when the FED’s tapering begins.
FED is Still Pointing at Jobs Market

FED is staying dovish despite rising inflation. Powell indicated after the FOMC that the jobs market is on the path to a fast recovery, but it has a long way to go. Payrolls are still below more than 6 million relative to pre-pandemic levels. But %5.4 CPI data and rising home prices causing worry about continuing asset purchases. Powell is still relaxed about the inflation being transitory but warns about upside risks. And now a possible new Covid wave because of the delta variant, FED may continue to stay dovish at least until Jackson Hole (27 August).
Upcoming Non-Farm Payroll Change Data


Continuing Claims resumed their fall as expected, but this does not mean people are returning to work, not yet anyway. Despite the record-high job openings (JOLTS), people don’t want to rush to find jobs amid the pandemic. Thanks to the pandemic programs, they don’t have to. Pandemic programs’ claims decreased for the last month, mostly because some of the states end the program but overall remained high enough. Upcoming nonfarm payrolls data may announce as similar to last month, high but not high enough to cause major tapering worries.
GOLD

There are a lot of fundamental data supporting the next bullish wave for gold in the second half of 2021. First of all, central banks are active again. After the calm year in 2020, world central banks bought 333.2 tons of gold, according to World Council report and Bloomberg, which is %39 higher than the 5-year average. Thailand, Hungary, and Brazil are the major buyers with close to 210 tons.

Despite the recovery, piling debt is causing debt to GDP to remain high, which is supporting the gold price. The ratio will likely remain high or rise even further if the new infrastructure and social plans are passed by congress.

The most supportive fundamental data is the real yields. 10-Year real yields fell to the lowest levels of all time, which is highly and negatively correlated with Gold. 5-year weekly correlation with the real yields is negative %94, and basic regression’s expected gold value between them is currently at $1919, shows $110 upside (not scientifically perfect regression).

For the short-term, gold is stuck between 1790 and the major resistance, 233-day moving average. Despite the fundamental support, the 233-day moving average must be broken for a new bullish wave to start. As for support, below 1790, 1750-1765 zone can be followed throughout August.
EURUSD

EURUSD reversed from the uptrend line with the support of the RSI divergence. For more short-term outlook, bullish wedge formation broke as expected and a new trend channel is formed. Upward pressures are expected to continue as long as markets won’t see a big positive surprise come from the monthly jobs data or a change of tone from the FED. Fibonacci levels from the May top can be followed as target resistances, especially 1.20 if the uptrend channel continues.
BRENT

Brent had a roller-coaster month after the OPEC+ meeting. The UAE demanded more supply increase because of the new production capabilities but other members refuse this suggestion. Because of that OPEC+ could not increase production until an agreement is reached. The UAE gets half of the extra production increase which means more supply for the markets. Now the price continues to test the 13-year downtrend amid delta variant fears and rising stock exchanges. As long as Brent stays below the 77-80 zone, bearish pressures may increase in August.
S&P 500

Stock markets continue their up moves since the 2020 Covid-19 shock. Despite high valuations, tax, delta variant, and tapering risks S&P 500 rise further with better than expected earnings from most stocks. Bloomberg BEst Price Target, which is a weighted average of analysts from different contributors is showing the 4863 level for 12 months. If we take the start of the year targets, for the last five years, just one-time real price close below the target price and that was the rate increase year for the FED. However, S&P close %5 to %9 above the target in the other years but it is already above more than %10 of the target price of the end of December, and tapering talks continue. A possible correction is due but until that happens, the uptrend will be in effect. The 50-day moving average can be the main support of the uptrend.