- Brazilian Real surged 4.35% versus the Dollar Friday, bucking a 6-day streak of losses
- Brazil’s central bank offered intervention for a fourth day after a trucker protest slowed the economy
- The protest’s added to inflation views and prompted speculation of a rate hike from the central bank
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The Brazilian Real posted a staggering rally against the Dollar Friday as a collection of factors came to buoy the currency of the largest Latin American economy. The climb was seemingly fueled by an unexpected uptick in inflation. The consumer price figure came in at an annualized rate of 2.86% in May versus an expected 2.74%. Although inflation is well below the targeted 4.5%, the increase was a surprise and some analysts believe the recent trucker strike will increase inflation again next month. Exerting similar pressure, the central bank of Brazil has engaged in intervention aimed at arresting the currency’s slide this week, increasing the sale of currency swaps hoping to cushion volatility but with little effect. Today, the Brazilian central bank conducted a fourth day of currency swap sales and the Real seemed to have found its feet.
Chart 1: USD/BRL 1 Hour, June 3-8
Despite the willingness of the central bank to intervene, the lack of response through three days of direct actions calls into question whether it was really the group’s efforts that stoked the rebound. It was no doubt a contributing factor as was the speculation that the Brazilian central bank will increase interest rates. Further uncertainty from the looming presidential election in October likely contributed to speculation. The Latin American nation has seen falling interest rates since June of 2015 when the interest rate was 14.25%. Currently, the benchmark rate is 6.50%, a record low and unchanged from the central bank meeting in May. What is remarkable about Friday’s rally is that it comes at a time when emerging markets are coming under intense pressure. The segment of economies and assets are finding themselves at risk with rising interest rates in the United States and the advance of global trade wars. The Fed will meet next week to release their interest rate decision with heavy speculation of a rate hike which will further raise costs for emerging markets with debt denominated in dollars.
The rate decision by the Fed is not the only factor affecting emerging markets as a trade war waged by the US begins to take effect. With an opportunity to appeal to the United States, members of the G-7 are voicing concern over the tariffs this weekend at a summit in Canada. Officials of other nations will be watching the summit closely for any developments in the trade war and the effect it will have on their economy. Already, emerging markets like Turkey, India, and South Africa have seen losses in their currencies versus the dollar as the fear of fallout from broken trade lines begins to take its toll for these countries’ exports and risk appetite in general.
For live coverage of the Fed’s rate decision next week, join John Kicklighter’s live webinar coverage of the event.
Chart 2: USD/TRY Daily, Year to Date
Chart 3: USD/IDR Daily, Year to Date
Chart 4: USD/ZAR Daily, Year to Date
Slowing New Zealand GDP to Rattle Post-Fed NZD/USD Rally
Trading the News: New Zealand Gross Domestic Product (GDP)
Updates to New Zealand’s Gross Domestic Product (GDP) report may rattle the NZD/USD rally following the Federal Reserve meeting as the growth rate is expected to narrow to 2.5% from 2.6% per annum in the third-quarter of 2018.
Another downtick in the GDP print may produce headwinds for the New Zealand dollar as it warns of a slowing economy, and a dismal development may push the Reserve Bank of New Zealand (RBNZ) to alter the forward-guidance as the central bank warns ‘trading-partner growth is expected to further moderate in 2019.’
Even though the official cash rate (OCR) sits at the record-low of 1.75%, the weakening outlook for economic activity may encourage the RBNZ to further insulate the economy as the central bank asserts that ‘the direction of our next OCR move could be up or down.’ In turn, a GDP print of 2.5% or lower may spark a bearish reaction in NZD/USD, but a positive development may fuel the advance following the Federal Reserve meeting as it curbs bets for an RBNZ rate-cut. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
Impact that the New Zealand GDP report has had on NZD/USD during the previous release
(1 Hour post event )
(End of Day post event)
12/19/2018 21:45:00 GMT
3Q 2018New Zealand Gross Domestic Product (GDP)
NZD/USD 15-Minute Chart
New Zealand’s Gross Domestic Product (GDP) report showed the growth rate increasing 2.6% after expanding a revised 3.2% in the second-quarter of 2018. A deeper look at the report showed Mining as the biggest contributor to growth as the sector grew 12.4% in the third-quarter, with Wholesale Trade climbing 1.1.% during the same period, while Utilities suffered a 2.3% decline after rising 4.1% during the three-months through June.
The New Zealand dollar struggled to hold its ground following the below-forecast print, with NZD/USD pulling back from the 0.6800 handle to close the day at 0.6774. Learn more with the DailyFX Advanced Guide for Trading the News.
NZD/USD Daily Chart
- Broader outlook for NZD/USD remains fairly constructive as both price and the Relative Strength Index (RSI) continue to track the upward trends from earlier this year, but the exchange rate may face range-bound conditions over the near-term as it appears to be stuck in a long-term wedge/triangle formation.
- With that said, the Fibonacci overlap around 0.6930 (23.6% expansion) to 0.6960 (38.2% retracement) sits on the radar as it lines up with the 2019-high (0.6942), with a break/close above the stated region raising the risk for a run at the December-high (0.6969).
- Next region of interest comes in around 0.6990 (50% expansion) following by the 0.7040 (50% retracement) zone, but failure to hold above the 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion) area may trigger a move back towards 0.6780 (100% expansion) to 0.6790 (50% expansion).
Additional Trading Resources
New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.
Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.
— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.
Crude Rally Testing Critical Resistance Zone
In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. Crude Oil prices have rallied nearly 10% from the yearly lows with the advance now testing a key technical resistance confluence around the 60-handle. These are the updated targets and invalidation levels that matter on the Crude Oil weekly price chart. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
New to Oil Trading? Get started with this Free How to Trade Crude Oil Beginners Guide
USD/CAD Weekly Price Chart
Notes: In last month’s Crude Oil Weekly Technical Outlook we noted that price was approaching 2018 pitchfork resistance with, “A topside breach of this formation / the high-day close at 57.14 targets more a more significant resistance confluence at 59.61-60.06 where the 50% retracement of the October decline and the 2018 open converge on the 2015/ 2016 pitchfork resistance- look for a larger reaction there IF reached.” Oil prices are testing this critical resistance confluence today on the back of a weak inventories report that showed a drop of more than 9.59mln barrels last week.
The focus is on a reaction off this threshold with the yearly advance at risk near-term while below. A weekly close above would be needed to suggest that a more meaningful low was registered in December with such a scenario targeting the 52-week moving average at ~62.82 and the 61.8% retracement of the 2018 decline at 63.68. Key support and bullish invalidation now rests back at 55.21/53– weakness beyond this threshold would risk substantial losses for crude prices.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Bottom line: We’re looking for a reaction on this stretch into confluence resistance at 59.61 – 60.06. Watch the weekly close- below would highlight the threat for a near-term correction / exhaustion in price. From a trading standpoint, a good place to reduce long-exposure and raise protective stops. We’ll be looking for possible price exhaustion heading into next week IF crude prices respect this threshold into the close. I’ll publish an updated Crude Oil Technical Outlook once we get further clarity in near-term price action
Even the most seasoned traders need a reminder every now and then- Avoid these Mistakes in your trading
Crude Oil Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-short Crude Oil – the ratio stands at -1.04 (49.1% of traders are long) – neutral reading
- Long positions are 4.2% lower than yesterday and 5.7% lower from last week
- Short positions are 8.2% lower than yesterday and 1.5% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil – US Crude prices may continue to rise. Yet traders are less net-short than yesterday but more net-short from last week and the combination of current positioning and recent changes gives us a further mixed Oil – US Crude trading bias from a sentiment standpoint.
See how shifts in Crude retail positioning are impacting trend- Learn more about sentiment!
Previous Weekly Technical Charts
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
US Market Open: Top 3 Market Drivers
Market Themes and Movers – Brexit, FOMC and US-China Trade.
GBP: Another day of confusion and conflicting Brexit deal/delay talks continue to leave Sterling rudderless. Despite the current impasse the British Pound remains bid, although it is becoming increasingly vulnerable to short, sharp moves as news flows continue. The latest round of media reports suggest that PM May is looking for a three-month Brexit delay from EU negotiators although putting a revised meaningful vote to Parliament cannot be ruled out. UK inflation data released this morning showed little change and was put aside as traders focus on Brexit updates.
USD: The latest FOMC monetary policy decisionswill be released later in the UK session with monetary settings expected to be left unchanged. Traders will look for clues from Fed Chair Jerome Powell on the future path of interest rates, via the dot plot, and his latest thoughts on balance sheet normalization.
Gold/Oil: Both gold and oil are struggling to make further headway with one eye on the FOMC meeting and the other on the latest US-China trade negotiations with US President Donald Trump tweeting yesterday that talks were going ‘very well’. As with Brexit, the situation remains fluid with news flows again the dominant driver for trade war risk sentiment. With global growth falling, any positive trade news should underpin oil at its present level and may well give it a further leg-up in the short- to medium-term.
Chart of the Day – US Dollar Basket – Over to You Fed
DailyFX Economic Calendar: For updated and timely economic releases.
Retail sentiment is an important tool for any trader to help gauge market sentiment and positioning. We provide updated daily and weekly positional changes on a wide range of currencies and asset classes to help decision making.
Market Movers with Updated News and Analysis:
- Sterling (GBP) Price Slips on Renewed Brexit Confusion, UK Inflation Stable.
- Preview for March FOMC Meeting and US Dollar Price Forecast.
- Trading Outlook for Gold Price, Crude Oil, Dow Jones and More.
- FTSE Technical Analysis – Support on Dip, New Levels of Resistance Targeted.
— Written by Nick Cawley, Market Analyst
To contact Nick, email him at Nicholas.Cawley@ig.com
Follow Nick on Twitter @nickcawley1
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