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Monday was a day of overall US Dollar weakness as US President Donald Trump accused China and Russia of devaluing their currencies. The attack came at a time when the two largest economies are trying to compromise on tariff negotiations. Things were looking good last week on this front as sentiment rebounded when both Trump and China’s President Xi Jinping offered positive developments.
Nevertheless, Wall Street finished Monday’s session higher with the S&P 500 and Dow Jones up 0.81% and 0.87% respectively. This was in-part due to a rise in health-care supply companies which welcomed the news that Amazon Inc. shelved plans to sell pharmaceutical products. In addition, ebbing geopolitical tensions over Syria probably also contributed to the rise in stocks.
However, most currencies showed a rather mixed performance. Especially the ones that are sensitive to risk trends. This included the Japanese Yen, Australian and New Zealand Dollars. The British Pound was the best performing major across the board, almost perfectly inversely tracking the US Dollar. Crude oil prices declined, probably because of easing tensions around Syria.
Ahead, China’s first quarter GDP release is the top tier event risk during the Asian trading session. Data out of the country has been underperforming as of late, opening the door for a downside surprise. Such a scenario presents a potential risk for currencies like the Singapore Dollar or Malaysian Ringgit due to their affiliated countries having key trading relationships with China.
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IG Client Sentiment Index Chart of the Day: EUR/JPY
CLICK HERE to learn more about the IG Client Sentiment Index
Retail trader data shows 44.6% of traders are net-long with the ratio of traders short to long at 1.24 to 1. In fact, traders have remained net-short since Apr 09 when EUR/JPY traded near 131.51; price has moved 0.9% higher since then. The number of traders net-long is 14.6% lower than yesterday and 22.1% lower from last week, while the number of traders net-short is 6.2% lower than yesterday and 12.1% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/JPY-bullish contrarian trading bias.
Five Things Traders are Reading:
- TIC Data Shows Chinese Appetite for US Assets Rose Before Tariffs by Peter Hanks, DailyFX Research
- USD/JPY Rate Forecast: Knock, Knock, Knocking on Key 108-Level by Tyler Yell, CMT, Forex Trading Instructor
- FX Overbought/Oversold: It’s Tough To be a British Pound Bear Out There by Tyler Yell, CMT, Forex Trading Instructor
- FX Markets Look to US Retail Sales, UK & Japanese CPI, BOC, & More by Christopher Vecchio, Sr. Currency Strategist
- Weekly Technical Perspective on NZD/USD, GBP/USD and EUR/NZDby Michael Boutros, Currency Strategist
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— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
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DAX & CAC Technical Outlook – More Strength Ahead?
DAX/CAC Technical Highlights:
- DAX yet to show signs of reversing despite resistance
- Big-picture topping potential remains
- Strength has the CAC trading in ‘open space’
DAX yet to show signs of reversing despite resistance
The DAX rally off the lows found opposition last week after a slight breach above a swing-high in February and just below the 200-day MA, however; the reversal sparked only very minor selling. Yesterday’s turn back higher has the market geared up to take on the 200-day and better.
On a breakout above the 200, a thorough testing of the underside of the double-top from November-January should be in play. The zone extends from 12745 up to the mid-12800s and is likely to prove problematic. How problematic, we’ll need to wait and see.
Should we see a strong rejection, then we’ll perhaps flip the script to a short bias, but if it is anything like what we saw this past week, then we’ll need to respect the trend off the March low. There is still the possibility that we see a long-term top develop should we see a strong turn down in the weeks ahead.
We’ll delve more into the ‘head-and-shoulders’ top scenario at a later time should it become relevant. If this scenario is to come to fruition, it’s worth noting that the DAX shouldn’t climb too much higher from current levels.
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DAX Daily Chart
Strength has the CAC trading in ‘open space’
Of the two big Euro-zone indices, the CAC has been an absolute monster off the late-March low. Nothing has provided any real opposition, not the 200-day MA, not the late-Feb swing-high. Looking higher, there isn’t much preventing the index from trading higher towards the January high, 2007 trend-line.
This doesn’t mean the index will necessarily get there without set-backs, or at all, but as far as quality price levels to lean on, resistance is difficult to come by. As long as we don’t see a strong turnabout in momentum, the benefit of the doubt remains with the long-side. Support first clocks in at the Feb swing-high around 5363.
Heads up, the ECB meets on Thursday. For live coverage, you can join my colleague Nick Cawley at 11:30 GMT time.
CAC Daily Chart
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Key Reversal Targets 2017 Slope Support
The British Pound has fallen more than 3% off the yearly highs with the decline taking out the April opening range lows. While the broader outlook does remain constructive, near-term the risk for a pullback in price has us looking for a possible exhaustion lower down near structural support.
GBP/USD Daily Price Chart
Technical Outlook: In my last Weekly Technical Outlook we noted that Cable was approaching the 2018 highs at 1.4346 with a breach above this threshold needed to keep the broader long-bias in play. Price posted an outside-weekly reversal off this threshold before break below the objective April opening range lows yesterday. The decline also validates a break of the November slope line and leaves the risk lower while below the monthly open at 1.4024.
Note that yesterday’s close marked the fifth consecutive daily decline – three of the last five instances of such an occurrence saw a slight reprieve (a day or so) before registering a new low. That said, look for initial support along the lower parallel.
GBP/USD 240min Price Chart
Notes: A closer look at price action sees Cable trading within the confines of a near-term descending pitchfork formation extending off the March highs with this week’s decline slipping below the monthly range lows / 61.8% retracement at 1.3965. IF this break is legit, topside advances should be capped by the weekly highs / monthly open resistance at 1.4024/31. A break lower from here targets the lower parallel / 100-day moving average at 1.3854/67 with broader bullish invalidation for the multi-year uptrend at the March low-day close at 1.3775.
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Bottom line: The British pound has broken below the monthly opening range but looks like the decline may be losing some steam here near-term. From a trading standpoint, we’ll favor fading strength while below median-line of the descending pattern with the decline to ultimately offer more favorable long entries near long-term slope support.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
GBP/USD IG Client Positioning
- A summary of IG Client Sentimentshows traders are net-long GBPUSD- the ratio stands at +1.33 (57.0% of traders are long) – weak bearishreading
- Long positions are 15.2% higher than yesterday and 83.1% higher from last week
- Short positions are 0.5% lower than yesterday and 42.6% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias from a sentiment standpoint.
See how shifts in GBP/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant Data Releases
Other Setups in Play
– Written by Michael Boutros, Currency Strategist with DailyFX
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Respect New Uptrend For Now
- The ASX 200 is climbing again
- Range trade has given way to a new upside channel
- That channel will take it up to 6000, however, and there bulls should probably worry
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The ASX 200 broke out of its ascending channel to the downside mid month, but price action since suggests that its subsequent consolidation may have been mere prelude to another upward foray.
The index has been admittedly rangebound since, trading between. April 16 and 17’s intraday low of 5831.1 and the intraday high of April 23 and 19 at 5904.9. At the time of writing (0100 GMT Tuesday) that range is history, if only just with the index a bare half dozen points above the top.
If it can close above there, then the 5934-5971 region last traded in mid-March could form the next target for the bulls. However above that the 6,000 level beckons and that barrier has proved too much for the index so often, both in the recent past and, indeed, for the past decade, that it’s probably wise to expect plenty of cashing out should it get there again.
Downside support may come in at the base of a new, nascent uptrend channel, which is at 5857.8 on Tuesday. Below that there is likely to be a cluster of near-term props forming in sum a band between April 10’s highs around 5848 and April 2’s closing low of 5686.
Still the uptrend should probably be respected for the moment, with the ASX currently in the middle of it. The Sydney stock benchmark’s simple moving averages fail to suggest anything obviously amiss, with the 20-50- and 100 day version in rank order and nicely spaced. The index’s Relative Strength Index is nudging higher, as you’d probably expect given the nice little run-up seen this month. However at a stolid 59 it doesn’t suggest any vicious overbuying.
Resources for Traders
Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.
— Written by David Cottle, DailyFX Research
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