In this webinar, we used price action to look at macro markets in the aftermath of this morning’s US CPI report. That report showed continued strength in US inflation as we’ve now had the sixth consecutive month of at-or-above-target inflation as we approach next week’s FOMC rate decision. But, despite the backdrop for higher rates as driven by consistent inflation gains, the US Dollar remains weak as the year-long down-trend remains in order.
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US Dollar Takes a Hit After CPI
This morning’s CPI print out of the US was not all that bad, as we saw the sixth consecutive month of at-or-above target CPI growth ahead of next week’s Federal Reserve rate decision. But the reaction in the Dollar was a pronounced move of weakness that syncs well with the timing of this morning’s CPI release, even though many are attributing this downdraft in the Greenback to the morning announcement of the firing of Secretary of State, Rex Tillerson. And while there may be something there, the fact of the matter is that most drivers, both positive and negative, have brought upon the same net result of USD-weakness. This alludes to the fact that there is something else going on here helping to drive weakness into USD even in-light of seemingly positive factors, like inflation pushing the Fed towards tighter policy options. This can help to keep the bearish trend in the US Dollar at the forefront as we near next week’s FOMC rate decision.
US CPI: Sixth Consecutive Month At-Or-Above Target, USD Falls in Response
Chart prepared by James Stanley
EUR/USD Support Bounce Runs to 1.2400
Last Thursday we looked at support in EUR/USD, and we’ve since seen a respectable recovery from the ECB-fueled dip to 1.2280. The problem at this point is the fact that we’re so far away from support that bullish setups could be difficult to justify. A pullback to the prior support zone of 1.2335-1.2350 keeps the door open for additional topside in the pair; perhaps even to another approach towards the 1.2500 psychological level.
EUR/USD Four-Hour Chart: Approaching Last Week’s Highs After 2280 Support Visit
Chart prepared by James Stanley
GBP/USD Catches a Bid After Spring Statement
Growth forecasts were upgraded this morning in the UK’s Spring Statement, and this has brought some life into the British Pound. This helped GBP/USD to break above a bearish trend-line that’s held in the pair since late-January. This can start to open the door for short-term top-side setups, but for the longer-term move, traders will likely want to await a bullish break of the 1.4000 psychological level, as stops can be difficult to justify given recent swing-lows.
GBP/JPY Approaching Under-Side of Post-Brexit Trend-Line
For short-side GBP plays, GBP/JPY may be getting close to a point of interest, as there is a bit of confluence around 149.41, as we have both the 38.2% Fibonacci retracement of the February sell-off along with the projection of the post-Brexit trend-line that had previously done a good job of helping to carve-out support.
AUD/USD Rallies to Resistance Zone
While the US Dollar has been exuberantly weak this morning after that CPI report, AUD/USD has started to show what could finish as an indecision candlestick on the Daily chart. Resistance is coming-in around a zone that we’ve been following around the .7900 level, and this can start to open the door to short-side setups. We looked at how lower time frames can be used to assist with timing into the setup; allowing for traders to let the move start to show before looking at fading what’s been a really strong short-term trend. This was previously a favored long-USD candidate, and with today’s resistance starting to show even as the US Dollar remains weak, that door may be re-opening around the Aussie.
NZD/USD Testing Longer-Term Fibonacci Resistance
We’ve been following a level in NZD/USD that’s started to come into play, and now its time to watch what the pair does to see if this is a workable theme. The level in question is the 38.2% Fibonacci retracement of the 2009-2011 major move at .7335, and this level has done a great job of helping to form resistance on the weekly chart over the past couple of years. With a really weak US Dollar running into a strong NZD in February, the pair was able to temporarily eclipse this value, leading to a fall to .7200. But since that support showed at .7200, prices have been on the way up and we’re now re-testing .7335 again.
We looked at the hourly chart to focus-in on this recent strength, and how a break below a short-term trend-line can start to open the door to short-side setups.
USD/CAD Comes Back to Life After 1.3000 Resistance
Last week saw a really weak Canadian Dollar as USD/CAD testing the 1.3000 psychological level. After three days of tests Monday-Wednesday, USD-weakness took over and drove the pair down to 1.2800. Since then, we’ve seen more recovery as CAD-weakness has remained a dominant theme. We’re now catching resistance around 1.2928, which is the 50% Fibonacci retracement of the May-September sell-off from last year. We looked at how shorter-term charts can be used to work with the current setup in USD/CAD.
Yen-Weakness Pronounced Ahead of BoJ Minutes
There appears to be a brewing theme around the Japanese Yen that should get some more information tonight with the release of BoJ meeting minutes from last week’s rate decision. Yen-strength has become quite pronounced in 2018, and this goes along with a consistent rise in inflation that saw January come-in at 34-month highs. This is similar to the Euro and the ECB last year, where stronger growth and inflation led markets to buy the Euro in anticipation of an eventual move away from stimulus. While we’re still waiting on confirmation of that move away from stimulus, Euro-strength remains; and in the Yen, that strength has crafted a fresh yearly-high against the US Dollar. Starting around the Tokyo open last night, however, was a spate of Yen-weakness that had begun about 24 hours ahead of the release of those meeting minutes.
USD/JPY Weekly Chart: Support Holding on at a Long-Term Area of Interest
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the Euro, the British Pound or the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on our EUR/USD, GBP/USD, USD/JPY, AUD/USD and U.S. Dollar pages. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
— Written by James Stanley, Strategist for DailyFX.com
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GBPUSD Price Slumps as Brexit Turmoil, USD Strength Takes its Toll
Sterling (GBP) Price and Latest Brexit News
- Sterling hits a four-month low against the US dollar.
- Chart looks oversold, but client sentiment remains heavily bearish.
GBPUSD – Bearish Sequence Continues Unchecked
Sterling is under heavy pressure against a resurgent US dollar and is touching levels last seen in mid-January this year and the recent sell-off continues. The recent break of support levels at 1.2894 and 1.2773 has left the pair without an anchor and sellers remain firmly in control. The recent breakdown has been primed by yet more Brexit confusion and concern as UK PM May continues to put forward her Withdrawal Agreement despite it already having been voted down in the House of Commons three times.
The US dollar continues its recent ascent with the US dollar basket (DXY) at a two-week high of 97.50 and threatening to make a fresh two-year high at 97.84. A break and close above here would produced another higher high on the longer-dated chart and reinforced further upside. Wednesday’s FOMC minutes and/or Friday’s US durable goods orders may well fuel this move higher.
GBPUSD may find some respite on the downside from the January 15 ‘spike low’ at 1.2669 yet this support looks fragile. The CCI indicator does show the pair as heavily oversold and this again may put a brake on any further sell-off in the short-term.
GBPUSD Daily Price Chart (August 2018 – May 21, 2019)
Retail traders are 81.7% net-long GBPUSD according to the latest IG Client Sentiment Data. See how recent daily and weekly positional changes affect GBPUSD and currently give us a stronger bearish contrarian trading bias.
S&P 500 Repeats Gap Down on Trade War News, Oil Cautious on US-Iran
Trade Wars Talking Points:
- A weekend for reflection on trade war ‘improvement’ around autos and USMCA led to another S&P 500 gap lower rather than relief
- With both US and Chinese parties unwilling to repair their trade rift, the impact on markets and economy is registering more palpably
- Growth will have its highlights this week, but it may be political risk that truly shapes the market landscape ahead
See how retail traders are positioning AUDUSD, EURUSD, S&P 500 along with the other FX majors, indices, gold and oil intraday using the DailyFX speculative positioning data on the sentiment page.
Trade War Enthusiasm Doesn’t Benefit a Weekend to Reflect
There was no small sense of surprise for many through the end of this past week when reports of ‘breakthrough’ on certain fronts of the global trade war failed to trigger a relief rally for the speculative benchmarks. It seems a weekend of reflection wouldn’t thaw that reticence any further. In fact, we opened the new week with speculative appetite on a backfooting with hesitation for most and an explicit squelch of pain from equities. The US benchmark indices opened Monday with another gap lower – the S&P 500’s drop from previous session close to new day’s open matched the slump on Friday. Equities retain more speculative premium relative to many other key risk assets, and the United States indices in particular maintain the greatest advantage among global shares milestones. This may be a cause of excessive risk exposure bleeding off, or it could reflect a market with a unique exposure to the chief fundamental risks moving forward. While both scenarios are plausible, I am of the mind that the former is more likely. That says something of the motivations of our markets. Watching for trade war updates may stir volatility, but it will struggle to generate trends if the market is not simply waiting for a cue on the theme. Alternatively, should momentum build behind a broad effort at ‘de-risking’, the abstract concept could place sheer speculative drive at the helm of systemic trends.
Regardless of whether the market moves forward with systemic bullish or bearish trends via collective speculation or behind the banner of an overt fundamental theme, we cannot afford to ignore the fundamental sparks as they ignite in the open market. As it stands, trade wars still poses the most pervasive and costly threat to the global economy. From the developments that could be labeled ‘relief’ from last week, there was still as little favorable market response for the assets more directly exposed to the headlines as from the broader ‘risk’ benchmarks themselves. The Canadian Dollar and Mexican Peso were still spinning their tires against the Greenback Monday, maintaining remarkably contrite ranges to bounce around. Meanwhile, the deferred decision by the Trump administration on auto tariffs translated into no significant lift in the Euro. What is far more surprising is that the reprieve didn’t prevent a drop from the DAX German equity index and German auto-manufacturer BMW continued its tumble lower. That isn’t to suggest that auto tariffs are the only risk that requires evaluation, but it is arguably one of principle concerns at hand.
It seems the speculative compass continues to favor the mood in US-China relations. There were no overt escalations to the trade war tab like there had been the past week – the US raising tariffs on $200 billion in Chinese imports to 25 percent on May 10th and China matching the tax rate on $60 billion in US goods on May 13th. However, rhetoric was clearly souring between the two. President Trump tweeted that there would be no 50-50 outcome in negotiations while China accused the US negotiators as harboring extravagant expectations’ and was in no rush to restart talks. In the meantime, the actions to ban Huawei in the US were keeping the company’s shares to bear trend while industry groups started to use the label of a ‘tech cold war’. A new industry has requested exclusion from the Trump tariffs: apparel companies asked the White House to keep footwear off the list. As we keep tabs on general risk benchmarks, it will also be important to monitor USDCNH as it menaces the politically-important 7.0000 level.
Growth and Political Risks Threaten to Amplify Market Movement
While there are different prevailing fundamental winds that will compete for market influence, there is little probability that these cross currents will shift the weight to a competing theme. That said, there is a strong probability that these significant developments can amplify the charge that we manage to generate. Sheer economic activity is a theme that is bound to draw significant attention this week. Thus far, the picture is mixed. Japan’s 1Q GDP update offered thwarted fears of recession with a robust 0.5 percent quarterly expansion that contrasted to the -0.1 percent contraction forecasted. Similarly, the annualized reading registered 2.1 percent growth against a -0.2 percent showing. How enthusiastic we should be in this reading given that consumer spending and business investment floundered which left a much weaker imports growth than export to do the heavy lifting is up for debate. For the United States, the Chicago Fed’s National Activity Index for April was unambiguous in its poor showing with a -0.45 versus -0.20 forecast. That does not support the outlook for an economy hosting a strong 1Q figure but struggling for sustained sources of growth moving forward. Ahead, the OECD will offer up an economic forecast Tuesday during European hours which will spur speculation for Thursday’s PMI figures from Japan, Europe and the US.
Another more open-ended fundamental risk in our immediate future is the scope of political risk across the global spectrum. Faltering diplomatic relations between the US and China certainly count for this category as do the impending EU elections. That said, there is more nebulous risk at play in the form of the growing threat between US President Trump and Congress. The latter is pressuring the former on financial information, testimony from his former staff and leveling threats against his family (son-in-law). There is high political drama to draw from this situation, but the economic implications are increasingly overlooked as the chances for infrastructure spending are increasingly jeopardized. Perhaps the most intense risk in this vein at present is the threat that a cold economic war between the US and Iran turns into a ‘hot’ military engagement between the two. Despite the frayed nerves and the contribution to troubled risk trends, oil prices are notably in check. Should this situation escalate, however, don’t expect the market to remain so detached.
Separating Volatility from Trend Intent for Euro, Pound, Aussie and Bitcoin
As we reach stronger fundamental developments moving forward, it is worth assessing what has greater potential for sheer (short-term) volatility and what is capable of hitting escape velocity on trend. The Euro has made a feeble effort to generate a clear trend with just the Eurozone and Italian current account balance figures to generate movement. Both series beat expectations significantly, but that does little to draw our attention away from far more systemic issues at hand. Thursday brings the start of the EU Parliamentary elections which threaten to further destabilize confidence in the shared currency already drawing fire from Italy’s anti-EU stance. Consumer confidence in the session ahead, Wednesday’s Draghi rhetoric and even Thursday’s PMIs are unlikely to draw our attention away from this systemic influence for too long.
The situation for the Pound is much the same. The Sterling has extended its slide to an 11th consecutive daily loss on an equally-weighted basis. That is an extreme move for the currency as it has only seen one other such move of that magnitude on the bearish course some 12 years ago. Here too, there is interim event risk to keep track of in the form of the Bank of England (BOE) member rhetoric and the upcoming inflation data, but that will seriously struggle to distract from the implications of the same Parliamentary elections on the UK. Having had to extend the Article 50 cut off for the Brexit, the United Kingdom was forced to participate in the elections, leveraging discontent to even greater heights. If there is serious concern that the UK will come out of this event with even stronger pressure for an ‘exit at all costs’ (no deal), the Pound could absolutely lose more altitude.
Far more limited in their respective volatility are the Australian Dollar and Bitcoin. The commodity currency offered up a remarkable surge to start the new trading week. The bullish gap for the equally-weighted measure was the largest since February 2016 while the ASX 200 similarly received a boost with a push to highs only overwhelmed by the records set back in 2007. The spark for this bullish view was the news that the Australian Federal election had settled with the government leadership unchanged. Markets prefer the status quo, but that doesn’t mean they can leverage that comfort to dynamic trend development. Australia is still beholden to commodities and China for its future. A similar, serious caveat has to be applied to Bitcoin. The cryptocurrency has drawn remarkable attention fr the extreme volatility of the past week. That level of activity has not come with any meaningful promise of trend, so tread carefully. We discuss all of this and more in today’s Trading Video.
If you want to download my Manic-Crisis calendar, you can find the updated file here.
Post-Election AUDUSD Rebound Susceptible to Dovish RBA Minutes
Australian Dollar Talking Points
AUD/USD has gapped higher following the Federal election, but attention now turns to the Reserve Bank of Australia (RBA) Minutes, with the Aussie Dollar exchange rate at risk of facing a more bearish fate as the central bank shows a greater willingness to further insulate the economy.
Post-Election AUDUSD Rebound Susceptible to Dovish RBA Minutes
The Australian dollar appears to be catching a bid with Prime Minister Scott Morrison on track to implement tax cuts and boost infrastructure spending, but it remains to be seen if the upcoming changes in fiscal policy will deter the RBA from reestablishing its easing-cycle as the central bank warns ‘that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target.’
The RBA Minutes may reveal a further change in the forward-guidance for monetary policy as ‘the inflation data for the March quarter were noticeably lower than expected,’ and Governor Philip Lowe & Co. may prepare Australian households and businesses for lower interest rates as private-sector consumption continues to be ‘affected by a protracted period of low income growth and declining housing prices.’
In turn, a batch of dovish comments is likely to drag on AUD/USD as it fuels bets for an imminent rate-cut, with the Australian Dollar at risk of facing headwinds ahead of the next RBA meeting on June 4 especially as the U.S. and China, Australia’s largest trading partner, struggle to reach a trade agreement, but the recent rebound in the Aussie Dollar exchange rate appears to be spurring a shift in market participation as retail sentiment comes off an extreme reading.
The IG Client Sentiment Report shows75.1% of traders are net-long AUD/USD, with the ratio of traders long to short at 3.01 to 1. In fact, traders have been net-long since April 18 when AUD/USD traded near 0.7160 even though price has moved 3.7% lower since then. The number of traders net-long is 7.3% lower than yesterday and 0.1% higher from last week, while the number of traders net-short is 29.9% higher than yesterday and 32.6% higher from last week.
The last time the sentiment index showed a similar dynamic was just ahead of the currency market flash-crash in January, with net-long exposure still heavily skewed ahead of the RBA Minutes. A further pickup in net-long interest may continue to offer a contrarian view as AUD/USD struggles to retain the rebound from the 2019-low (0.6745), but recent price action also appears to be spurring a rise in in net-short interest as Aussie Dollar gaps higher following the election.
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AUD/USD Rate Daily Chart
- Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7146), with the exchange rate marking another failed attempt to break/close above the moving average in April.
- In turn, AUD/USD remains at risk of giving back the rebound from the 2019-low (0.6745) as the wedge/triangle formation in both price and the Relative Strength Index (RSI) unravels, with the Fibonacci overlap around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement) still on the radar the exchange rate struggles to push back above the 0.6950 (61.8% expansion) pivot.
- Next downside hurdle comes in around 0.6730 (100% expansion), but will keep a close eye on the RSI as the oscillator bounces back from oversold territory, with the development warning of a larger rebound in the Aussie Dollar exchange rate.
Additional Trading Resources
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— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong.
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