FOMC June 19 Meeting Should Prepare Markets for Rate Cuts, USDJPY, EURUSD

The June meeting will be one of those meetings when the Economic Projections are updated, and currently, economists are projecting that the FOMC will use the June meeting to a hint of a rate cut, maybe as early as in July. At least that is what the rates markets is currently pricing in with an 86.9% probability.

There are a few reasons why the market has turned dovish. First, the composite Markit PMI indicator has dropped sharply over the last few months, and is now nearing the 50-boom-bust threshold, and indicating very low growth going forward. If the index slips below 50, it will suggest that the U.S. economy has stalled. Second, in the latest reading, US PCE Core inflation, dropped to 1.57% from being around the Fed 2% target from August 2018 until early 2019. Having interest rates at current levels while the Markit PMI is dropping sharply and thereby suggesting demand is dropping does not bode well for future inflation.

Third, the U.S. employment growth has been very poor in 2019, and February and May showed job growth of 56k, and 75k respectively. Fourth, neither the US or China are backing down, and it looks like the economic war will be prolonged. The situation might even escalate if the US increased tariffs further.

As the ECB is not ready to make any changes to its monetary policy, and the Euro is acting as a funding currency, it looks likely that the EURUSD could drift higher in the months ahead as the Fed cut rates and the ECB leaves their policy unchanged. We could also see a large reaction in the USDJPY, and we might see the price trade lower, as once again the USD is here traded against a funding currency.

As for the USD vs. the Australian and New Zealand dollars, I think it is unlikely that we see the dollar weakening too much, as the RBA and RBNZ will probably continue to remain dovish as their economies are soft. For my technical levels in EURUSD and USDJPY please see the video below.

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Risk Disclaimer:

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs / Spread betting with ATFX.

You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.

This market update was provided with an educational purpose, and is the personal opinion of Alejandro Zambrano, and not to viewed as trading advice by ATFX or Red Castle Ideas LTD.

AUDUSD at New Monthly Month Low as Data Suggest China Economy Remains Soft

Since the China Services and Manufacturing PMIs bottomed out a few months ago, stock markets have rallied, as traders expected better China economic growth at the start of 2019. However, the latest slide in industrial production and retail sales, remind us that the PMI survey does not always paint the actual state of an economy. The sharp decline in industrial production almost nullifies the sharp 8.5% annual growth seen March. The high correlation between industrial production and China GDP suggest that the Chinese economy remains soft.

The Australian dollar traders took the news badly and sent the AUDUSD to a new monthly low. As we shared in the last few weeks and in the ATFX quarterly outlook, a slide below the May 6 low of 0.6965 would complete the multi-month bearish descending triangle formed over October to May, and trigger a slide to the pattern target of 0.6617.

Our bearish view is reinforced today, and we suspect that traders will use a potential corrective move to the vicinity of the May 9 low at 0.6960 as an opportunity to add to their bearish exposure. We will remain bearish as long as the price trades below the May 13 high of 0.7037 and anticipate that trade wars and problems in the Chinese and Australian economy will continue to weigh heavy on the Australian dollar.  However, if China and the U.S. indeed agree to a deal that would improve the state of the world economy, I think it would be fair to anticipate stabilization in the Aussie dollar.

For more on how I would manage a trade in the AUDUSD, check out the video below.


Risk Disclaimer:

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs / Spread betting with ATFX.

You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.

This market update was provided with an educational purpose, and is the personal opinion of Alejandro Zambrano, and not to viewed as trading advice by ATFX or Red Castle Ideas LTD.

Are Chinese Stocks About to Give Back All of Their 2019 Gains?

The price had also reached the price target of a head and shoulders pattern formed in April and triggered on May 6. The pattern suggested a 6.2% decline.

The outlook going forward remains bearish unless the Chinese and U.S. governments compromise as an increase in tariffs could lead to a decline in consumption and higher inflation in the US and China.

On Friday, tariffs on US$200 billion of Chinese goods could increase from 10% to 25%, and the remaining US$325 billion of Chinese goods that have not been affected by tariffs could see duty added to them at the rate of 25%.

Per the April head and shoulders pattern the China A50 is short-term oversold, but looking beyond the near term, the China A50 could be in the process to carve out a major head and shoulders pattern that is projecting that prices could slide as low as their 2019 lows. For more on the rationale behind this view and the risks, please watch the video below.

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Risk Disclaimer:

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs / Spread betting withATFX.

You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.

This market update was provided with an educational purpose, and is the personal opinion of Alejandro Zambrano, and not to viewed as trading advice by ATFX or Red Castle Ideas LTD.

EURUSD Bears Lose Grip Over Price

Annual Euro area GDP was projected to increase by 1.1%, but instead, increased by 1.2%, which is a slightly higher pace than seen in the prior quarter, and suggests that the Euro area economy is stabilizing despite leading indicators such as the PMIs and IFO suggesting the opposite.

It is unlikely that today’s GDP numbers will have any significant influence on ECB’s monetary policy, and they are still expected to roll out new TLTROs in the next few months which I see as a form of monetary stimulus, and Euro bearish.

However, the bears are quickly losing the grip on the EURUSD direction and if the price trades above the April 24 high of 1.1226, they will have lost their edge in the short-term as the price would then be back trading deep in the descending triangle. If the price trades, above the April 24 high, I suspect the trend in the EURUSD will turn neutral and back trading sideways.

The Fed rate meeting takes place tomorrow, and it might provide some relief, as the market is very dovish compared with the Federal Reserve. The rates markets are currently projecting at least one rate cut with a 62% probability before the end of the year, and two rate cuts with a 20.9% probability. The Fed themselves, project that they will be able to raise rates before the end of the year, while I am not convinced that they will be able to do so I think the market is too dovish to anticipate rate cuts. If the Federal reserve indeed holds firm, and tell the market they will not cut rates this year it might cause the dollar to revisit last week’s low.

On the other hand, if they reduce their forecast to increase rates at least once in 2019, it will fuel the bearish side and could cause the EURUSD to revisit the 1.13 level.

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Risk Disclaimer:

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs / Spread betting withATFX.

You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.

This market update was provided with an educational purpose, and is the personal opinion of Alejandro Zambrano, and not to viewed as trading advice by ATFX or Red Castle Ideas LTD.

Russian Ruble Reattempts to Resume Bullish Trend

Most currencies are up against the dollar at the time of writing, but not all currencies have the same prospects of adding to its gains. The Russian ruble is looking most promising, while the USDZAR is looking to be carving out a significant inverse head and shoulders pattern. USDTRY is outright bullish, and it seems like the Turkish lira will add to its losses in the days ahead, while USDMXN is trading sideways.

The Russian ruble is looking most interesting after taking a break to its uptrend in the last few weeks. The USDRUB attempted in March to breakout from a multi-month descending triangle but fell short, after reaching a low of 63.68 and traded back into the pattern. However, in the last few days the price is once again trying to trade lower, and ATFX’s Chief Market Strategist, Alejandro Zambrano, suspects that USDRUB might reach its 2019 low of 63.62 as long as the price trades below this week’s high of 65.67.

The Turkish Lira is also highlighted in the video, as it looks to trade lower on technicals, but also as President Erdogan kept up pressure for a recount of local elections in Istanbul. The USDTRY left a relatively stable price range that latest from November 2018 to March 2019, and looks now to be heading to its rectangle pattern of 5.96. The price will need to trade below the April 2 low of 5.67 to turn neutral.

The Mexican Peso is trading sideways between 18.74 and 19.60, but the long-term prospects of a strong trend look good on a break to 18.74.

The South African rand is the short-term bullish, but if we take a longer-term view, it looks like the price is trying to carve out a significant inverse head and shoulders pattern.

Visit our site for more Forex Analysis.

Risk Disclaimer:

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs / Spread betting withATFX.

You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.

This market update was provided with an educational purpose, and is the personal opinion of Alejandro Zambrano, and not to viewed as trading advice by ATFX or Red Castle Ideas LTD.