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A US-China Trade War Thaw Doesn’t Spark Risk Trends, EUR/USD Notches Large Wick

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Talking Points:

  • President Trump tweeted support for a Chinese mobile phone maker, but the market didn’t register it as ‘trade war averted’
  • There was little to offer a strong foothold for Dollar recovery, but EUR/USD Monday upper wick raises technical interest
  • Chinese and UK labor data is noteworthy, discrete event risk ahead; but the best tech pictures (NZD, CHF) don’t have cues

What do the DailyFX Analysts expect from the Dollar, Euro, Equities, Oil and more through the 2Q 2018? Download forecasts for these assets and more with technical and fundamental insight from the DailyFX Trading Guides page.

President Trump’s Tweet Does Not Restore Speculative Appetite Lost Through Trade Wars

Over the past two to three months, movement towards protectionism by some of the largest economies in the world had finally tipped the scales to outright trade war engagement. Fear that the US was withdrawing from the global economy and would incur retaliation from its major peers added to the scrutiny over a speculative run these past few years in particular that had grown increasingly dependent on the status quo. While we haven’t seen more recent events spur progress with critical breaks that usher in full, self-sustaining bear trends; there remains a bias on this front where bad news will further undermine market confidence while the alleviation of tension will not put the smashed tea cup of speculative appetite back together. Over the weekend, US President Donald Trump tweeted that he was working with Chinese President Xi Jinping to reverse a sanction on Chinese telecom ZTE imposed in 2017. While some see this as the administration walking back on its tough stance on trade through metals and intellectual property theft, it can also be read that there is easing on a stark and aggressive trade front. That said, the market’s didn’t respond with measurable enthusiasm. Neither the US benchmark indices (S&P 500, Dow), the Chinese markets (Shanghai Composite) or trade and risk sensitive assets (emerging markets) showed much relief – much less confidence.

A US-China Trade War Thaw Doesn't Spark Risk Trends, EUR/USD Notches Large Wick

Dollar Retreat Stalls with Competing Signs of Stall and Pause

The Dollar’s two-day retreat to end this past week didn’t pick back up immediately on the bearish charge to start things off Monday. While the Greenback did ease through the morning, momentum never showed up and the market made a quick turn to put the currency back on the bid. The result for the EUR/USD was the largest ‘upper wick’ since January 29. This has strong history for calling short-term turns, but it is by no means a sign of certainty that the benchmark pair is going to immediately return to its month-long – and still emergent – bullish reversal. For other Dollar-based pairs, we are still standing at key thresholds (USD resistance) such as GBP/USD, NZD/USD and USD/CHF. One of the complicating factors to the revival of trend is the lack of an explicit catalyst. The Dollar’s recovery is finding more motivation from a collective weakening of counterparts and rebalancing of extreme net short USD holdings than a clear cut driver like rising interest rate expectations or binary as a NFPs release. The ingredients are there, but the speculative reaction will unfold slowly until an accelerant is added.

A US-China Trade War Thaw Doesn't Spark Risk Trends, EUR/USD Notches Large Wick

China and UK Labor Data is Key Event Risk

There are a few notable economic releases on the docket for the upcoming session. For the US Dollar, we have: Fed speak to fine tune a locked in interest rate forecast; testimony by two Fed candidates (Clarida and Bowman) to fill two of the four empty FOMC Board seats and the March TIC flows which will tell us whether trade wars have incurred any measurable financial consequence for the US. The Euro meanwhile is scheduled for the Eurozone investor sentiment survey for ZEW where we can establish concerns over lingering issues for this economic giant. Neither currency is likely to elicit a strong reaction from the event risk. That said, the employment data from the UK and China have far greater capacity. The UK jobs figures has a history of sparking drama for the Pound when it sufficiently surprises. This has its greatest potential for putting pairs like GBP/USD and EUR/GBP on new trend through BoE timing through wage statistics, but that may be a reach. Watch for the volatility response. As for the Chinese data, we have the standard retail sales, industrial production and fixed assets figures. The real interest is in the new jobs series. This data has a poor track record of charging trend; but it is very important as an economic update nonetheless.

A US-China Trade War Thaw Doesn't Spark Risk Trends, EUR/USD Notches Large Wick

The Best Technicals Don’t Have Good Fundamental Triggers

While there is some moderate potential for fundamentally-triggered movement for the Dollar, Euro and Pound; the best looking broad-spectrum charts don’t have any high profile data or event on tap. I’m particularly intrigued by the conditions reflected in the Swiss franc and New Zealand Dollar. Both have shown exceptional technical patterns on a trade-weighted basis and particularly among their crosses. The franc has slid consistently over weeks to the pleasure of the SNB, but its recent congestion suggests pause that could boost the potential for reversal. A USD/CHF turn looks like it could be particularly dramatic, but it doesn’t align to the slow progress of the Dollar and my view on EUR/USD. If I were to take a perspective on the franc, it would be through EUR/CHF or CAD/CHF. In a similar fashion, the Kiwi has sunk aggressively of late, and is now pressuring a further break lower. Amongst the NZD crosses, there are a number of pairs that are at the technical cusp – NZD/USD, NZD/CAD, NZD/JPY – which I will monitor for technical course setting an a more reliable fundamental backdrop. We discuss all of this in today’s Trading Video.

A US-China Trade War Thaw Doesn't Spark Risk Trends, EUR/USD Notches Large Wick



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Top Tier Data, Risk Aversion Portend Volatility

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Financial markets may face breakneck volatility as a steady stream of heavy-duty scheduled event risk is compounded by wild swings in sentiment.

US Dollar Forecast: US Dollar Rally Poised to Continue as Market Sentiment Sours

The US Dollar may continue to push higher as haven demand amid deteriorating market sentiment takes over from Fed policy bets as the catalyst du jour.

British Pound Forecast: Oversold or Still in a Downtrend?

There is an argument to be made that Sterling has suffered enough and that most, if not all, of the bad economic backdrop has been priced in. But is next week the week to have that argument?

Australian Dollar Forecast: Australian Dollar’s Fall Could Resume If US Numbers Hold Up

The Australian Dollar faces a week full of US economic data, but much shorter of domestic numbers. This could see USD back in the ascendant, if only for lack of AUD-specific impetus.

Chinese Yuan Forecast: Yuan May Benefit from Capital Inflows, Trade Talks and Chinese PMI

Capital inflows could remain high around June 1, when A shares are officially included in MSCI indices; trade talks may solve some discrepancies; PMI gauges could boost the outlook of a sustainable recovery.

Crude Oil Forecast: Crude Spills on Saudi’s Proposed Increase, Short-Term Top Likely

Crude oil hit a wall as OPEC and its allies are said to increase production while total US inventories swelled by the most since February.

Equities Forecast: S&P, Dow, DAX & FTSE – A Cautionary Pause Begins to Show

While US equities remain in a state of consolidation, matters are a bit more worrisome across the Atlantic, as both the DAX and the FTSE have put in bearish reversal formations.

Weekly Forecast: Top Tier Data, Risk Aversion Portend Volatility

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

See how retail traders are positioning in the majors using the IG Client Sentiment readings on the sentiment page.



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Euro Moving Towards Key Support to Curb Persistent Selling

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EUR/USD TECHNICAL HIGHLIGHTS:

  • EURUSD selling shows no signs of abating, close below Jan 2017 trendline sets up further weakness
  • Key risk events on the calendar come in the form of Eurozone inflation and US NFP report

For the intermediate-term fundamental and technical outlook on EUR/USD, check out the recently released DailyFX Quarterly Forecast.

The theme of selling EURUSD has shown no signs of abating with the pair now trading around the mid-1.16 area. Last week saw the trendline dating back to January 2017 offer some mild support on Wednesday, however, another bout of Euro weakness saw the trendline support ultimately breached. A close below the trendline could provide a telling sign that another leg lower will be in store for the pair.

As we look ahead to next week, risk events on the calendar for the Euro will come in the form of the Eurozone inflation and the latest US NFP report. In terms price action, the aforementioned breach of the Jan’17 trendline sets up run in on the 2016 high situated at 1.1616, while a weekly low from November 7th at 1.1553 looks to be pivotal, a break below will likely see an extension of the bear run. Resistance on the topside resides at 1.1709, marking the 38.2% Fibonacci Retracement of the 1.0340-1.2556 rise, alongside 1.1750 (May 24th high).

EURUSD bulls on the longer term may find comfort in the fact that the Relative Strength Index on the daily chart is in oversold territory, which could indicate that the pair may see a modest reversal in the near-term. However, when the pair has previously been in oversold territory the rebound has been mild at best and followed by another wave of selling.

EURUSD CHART: DAILY TIMIE-FRAME (Sep 16-May-18)

Please add a description for the image.

Chart by IG

HELPFUL RESOURCES FOR FOREX TRADERS

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX



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Crude Spills on Saudi’s Proposed Increase, Short-Term Top Likely

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Crude Spills on Saudi's Proposed Increase, Short-Term Top Likely

Fundamental Forecast for USOIL: Neutral

Talking Points:

  • The ONE Thing:Saudi turning on the spigots may lead to lower prices, but bullish environment remains. OPEC rhetoric is rightly center stage as oil traded notably weaker toward week’s end. Saudi Arabia’s oil minister, Ali-Falih, said he sees a ‘likely’ oil supply boost in H2 2018.
  • Per BHI, U.S. Oil Rig Count rises to 859, US total count at 1059
  • Crude Oil Price Forecast: Brent Premium Favors OPEC Induced Volatility
  • The technical analysis picture of crude oil shows a sharp pullback off 3-year highs. Chart support comes in for the WTI front-month contract at $67.50/$64.50 per barrel.

Crude had the first weekly decline for the month of May as OPEC’s comments spooked bulls. More oil coming out of Saudi & Russia is helping to narrow a popular futures calendar spread that helped to visualize the bullish support for crude that weakened this week.

Shortage Fears Wane on OPEC+ Rhetoric

Crude Spills on Saudi's Proposed Increase, Short-Term Top Likely

Data source: Bloomberg

Seemingly bearish rhetoric took hold of the Oil market causing the price to fall on Friday. Multiple reports came about OPEC, and their allies that are collectively known as OPEC+ as rolling back production cuts. There remains uncertainty about Venezuelan and Iranian supply that has likely supported these comments from OPEC+.

The front-month WTI crude contract broke back below $70 and calendar spreads between December 2018 to December 2019 futures contracts narrowed to the weakest levels in more than a month. The wide spread aligned the move above key resistance levels.

Additionally, owners of oil producer equities are likely not as concerned as an exposed futures traders given that many producers have been locking in high prices through hedging via options.

Crude has nearly erased May’s Gains With ~3.5% Drop Last Week

Crude Spills on Saudi's Proposed Increase, Short-Term Top Likely

Data source: Bloomberg. Created by Quasar Elizundia

Once again, WTI and Brent crude has become the market everyone is discussing! Unlock our forecast here

Big Pullback on 240-Minute Chart

Crude Spills on Saudi's Proposed Increase, Short-Term Top Likely

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The sharp pull-back is seen well with RSI(5) on the four-hour chart. The RSI(5) has hit the lowest point since crude began its impressive ascent from $58/bbl in February to above $72/bbl earlier this week.

Since the news came that Saudi and Russia are considering easing global output cuts, the price dipped aggressively lower. Oil has its first weekly loss for the month on Friday’s nearly 3% loss.

Traders can look to trendline support zone and prior structure support points near $64.50/67.50 as likely support on the pullback. A deeper move below this zone would shift me from neutral to cautiously bearish, but the broader cycle change favoring commodities makes this a difficult view to hold.

Not familiar with Ichimoku? You’re not alone, and you’re in luck. I created a free guide for you here

Next Week’s Data Points That May Affect Energy Markets:

The fundamental focal points for the energy market next week:

  • Monday: US Memorial Day
  • Monday: Statistics Norway releases quarterly survey on planned investments in the oil industry
  • Wednesday (delayed for holiday) 04:30 PM ET: API Weekly Oil Inventories Report
  • Thursday (delayed for holiday) 11:00 AM ET: EIA issues weekly US Oil Inventory Report
  • Thursday 12-2pm: EIA releases monthly report
  • Friday 1:00 PM ET: Baker-Hughes Rig Count
  • Friday 3:30 PM ET: Release of the CFTC weekly commitments of traders report on U.S. futures, options contracts

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client

Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis,

our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

—Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical

analysis that is powered by fundamental factors on key markets as well as

trading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell

Join Tyler’s distribution list.

https://www.dailyfx.com/free_guide-tg.html?ref-author=Yell



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