- While there was a rise in a range of risk assets – like SPX and emerging markets – it was saddled with skepticism
- The Dollar’s long-term risks with trade wars are growing more mainstream, threatening its recovery effort
- AUD was top performing currency Monday with a range of data, but we face two more rounds with the RBA and 1Q GDP ahead
Do you want to learn how to trade event risk? Download the strategy guide on for trading news events on theDailyFX Trading Guides page.
The Risk Enthusiasm Gap Undermines Trend…So Do Trade Wars
The S&P 500 has gapped higher to start eight of the past nine weeks. And yet, over that same period of time the benchmark has gained remarkably little traction with volatile trade and little promotion of trend development. When it comes to evaluating risk trends, the US benchmark indices offer decent shortcuts. That said, they are not well-suited to measuring true conviction nor the early signs of risk aversion. Rather than labeling this and other US indices general risk measures, we should consider their measure more as a measure of complacency that defaults to short-term risk taking. We can see the lack of depth behind sentiment comparing the different headliners. The S&P 500 and Dow enjoyed the bullish gap but follow through in active trade was notably reserved. The tech-heavy Nasdaq however exhibited gap and follow through to close in on record highs. Even more concentrated was the FAANG collective which has extended its run into record territory on an accelerated rising wedge. We see the same targeted speculative reach without true conviction across global indices (FTSE MIB, DAX, Nikkei 225, etc), emerging markets and Yen crosses. Skepticism should come as no surprise with trade wars in starting to hit their stride.
Dollar’s Fundamental Troubles Start to Grow Apparently, Manifest in Technicals
With the US depressing the accelerator to global trade wars, the implications for global investor sentiment is relatively straight forward. The detrimental influence on global growth readily translates into financial market strength. Yet, there are also long-term regional implications. Though the Trump administration is pursuing tariffs in a bid to offer short-term support for its own economy, the long-term ramifications are exceptionally detrimental to the United States if its global trade partners retaliate in concert. And, that is what they seem intent on doing. In response to the passage of its aluminum and steel tariffs last week; the European Union, Canadian and Mexican authorities all announced economic responses to the US. Before this news, a number of key policy members – such as EU trade minister Malmstrom – said collaborative efforts to respond to the aggressive moves were already being considered. What surprises me is not the market’s concern, but rather its timely recognition of the negative implications for the US. It is already starting to show in the headlines and the hesitation from the dollar is already starting to show in a head-and-shoulders pattern in the DXY Dollar Index (inverse head-and-shoulders for EUR/USD). This is not the sign of a reversal yet, but it is the precursor should it be motivated. Watch the tenor of the headlines and the progress from the Greenback carefully.
The Trouble with Trading a Hyper-Active Aussie Dollar
If there is any single currency that is clearly charged for fundamentals this week, it would be the Australian Dollar. The currency was already off to a remarkably strong start Monday with a range of event risk supporting a launch higher. Though all the various indicators would ultimately support a bullish tone, the first quarter corporate profit charge of 5.9 percent was clearly the leading update. An equally-weighted index for the Aussie Dollar posted shows the best daily performance since July 18. That intensity is difficult to deny, but to simply through conviction behind a strong single session would clearly be very risky given what is on tap over the coming 48 hours. Tuesday afternoon in Australia, the RBA is due to weigh in on its monetary policy bearings. Under normal circumstances, this would be an event of little consequence as they hold steady at record low benchmark. Yet, the change in tone with the RBNZ and BoC recently have changed the market’s sensitivity to monetary policy views for primary carry currencies. Even beyond the policy decision, Wednesday further brings 1Q GDP. This is too much high profile event risk to assume a trend can readily form without interference. Be mindful of your Aussie setups, even when they look as technically appealing as AUD/USD or GBP/AUD.
Oil’s Retreat Surpasses Another Milestone
Crude oil has frustrated many swing traders for months. It has a tendency to forge intense but abrupt moves that fall apart before any progressive momentum trend can form. If you are quick enough to take advantage of the volatility or patient enough to wait out a year-long investment, there was something to this market. Yet, most of us don’t fall into that category. Another attempt at a swing may be under way, but its course seems to have flipped to a bearish bias. The US-based WTI crude oil contract has slid below its 100-day moving average shortly after clearing a multi-month rising trendline support. In other words, the technical implications of a turn are starting to grow more material. Yet, a break is not a trend. Momentum arises from motivation and then conviction. Tempered growth and competing forces of production are working to weigh the supply-demand balance. Yet, we can see an obvious curb on the evolution of a true bear trend when we compare the spread between the WTI and its European counterpart (Brent). The spread has ballooned to just shy of $12. If this market were to tip a full blown bear trend, both would be heading lower at a closer tempo. 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.
Weekly Trade Levels for US Dollar, Euro, Sterling, Loonie, Gold & Oil
DXY, Euro, Loonie Monthly Opening-Ranges Intact
The US Dollar Index is trading into the monthly opening-range highs into the start of the week and the focus is a reaction around the 98.05/10 resistance zone- note that the monthly ranges in Euro and Loonie also remain intact. In this webinar we review updated technical setups on DXY, EUR/USD, USD/CAD, GBP/USD, Crude Oil (WTI), Gold, USD/JPY, AUD/USD, EUR/AUD & SPX.
Why does the average trader lose? Avoid these Mistakes in your trading
Key Trade Levels in Focus
DXY – Immediate focus is on topside resistance at 98.05/10. Initial support at 97.87 with near-term bullish invalidation raised to 97.71.
EUR/USD – Euro is coiling into the monthly opening-range just above slope support. Immediate focus is on support at 1.1140. Initial resistance at 1.1187 with near-term bearish invalidation at monthly-open resistance at 1.1215– look for a bigger reaction there IF reached. A break lower would expose 1.1110.
GBP/USD – Sterling broke below multi-month slope support last week with price responding to near-term pitchfork support into the open. Initial resistance at 1.2798 with bearish invalidation at 1.2859. Downside support objectives at the August low-day close at 1.2697 and the 100% extension at 1.2662.
Gold – Risk for near-term recovery while above the yearly / monthly low-day close at 1270. Initial resistance at 1280 with near-term bearish invalidation with the monthly open a 1283.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Key Event Risk This Week
Economic Calendar – latest economic developments and upcoming event risk
Active Trade Setups:
—Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop
AUD: The Aussie outperforms following a shock election outcome, in which Prime Minister Scott Morrison secured re-election (full story). In reaction, the Aussie gapped higher at the Asia open, reclaiming the 0.69 handle against the greenback. However, as equity markets have headed lower throughout the European morning, risks are for gains to be faded. Alongside this, key headwinds in the form of trade war tensions and a potential RBA June rate cut are likely to limit upside. Reminder, RBA Governor Lowe due to speak tonight after RBA meeting minutes (calendar)
Crude Oil: Oil prices surged at the Asia open as Saudi Arabia signalled that cuts could be extended throughout the remainder of 2019 at the JMMC meeting, while President Trump had also stepped up his critical rhetoric towards Iran. Although, with equity prices beginning to push lower, oil prices have pared the majority of its initial gains.
Equities: US equity futures have headed lower amid the continued crackdown by the US on China’s Huawei, which in turn has chipmakers come under pressure, while Google also stated that they are to restrict the company’s use on android services. Elsewhere, Apple’s price target had been cut by HSBC to $174 (median street price target = $220), citing concerns over China, while tariff led price increases on Apple products could also have dire consequences on demand. Apple shares currently lower by 2.4% in pre-market.
Source: DailyFX, Thomson Reuters
DailyFX Economic Calendar: – North American Releases
WHAT’S DRIVING MARKETS TODAY
- “Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low” by Nick Cawley, Market Analyst
- “COT Report: Japanese Yen and Euro Shorts Collapse, USD Longs Reduced” by Justin McQueen, Market Analyst
- “Crude Oil Price May Be Carving Out a Top” by Paul Robinson, Currency Strategist
- “Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor
— Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.email@example.com
Follow Justin on Twitter @JMcQueenFX
Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low
Gold (XAU) and Silver (XAG) Price Analysis and Charts.
Gold (XAU) Needs to Support to Hold
The sell-off on gold continues with the precious metal down around $30 in less than a week. Gold is under pressure from a resurgent US dollar, buoyed by last Friday’s Uni of Michigan data which smashed expectations and hit a multi-year high. The important 61.8% Fibonacci retracement level at $1,287/oz. failed to provide any support when broken last week, while the $1,287 – $1,281/oz. zone made up of old horizontal support is being tested now. A clear break and close below opens the way to the recent double bottom around $1,266/oz. which is currently being guarded by the 200-day moving average at $1,268.6/oz. Below here the 50% Fibonacci retracement level at $1,262/oz heaves into view.
Gold (XAU) Daily Price Chart (August 2018 – May 20, 2019)
Silver (XAG) Nears a Fresh Six-Month Low
Another precious metal under heavy selling pressure. Silver is now at levels last seen in early December last year and is over 11% lower since making its recent high of $16.21/oz. in late February. The downtrend since the late-February high continues to be respected and it is possible that silver completely retraces all the way back down to the November 14 low at $13.89/oz. Psychological support at $14.00/oz. may slow the decline, while the CCI indicator shows that the market is extremely oversold.
Silver (XAG) Daily Price Chart (August 2018 – May 20, 2019)
IG Client Sentiment data show that retail traders are 79.1% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts give us a stronger bearish contrarian bias.
— Written by Nick Cawley, Market Analyst
To contact Nick, email him at firstname.lastname@example.org
Follow Nick on Twitter @nickcawley1
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