AUD/USD Weekly Price Forecast – Australian Dollar Running Into 50 Week EMA

The Australian dollar has rallied significantly during the week, reaching towards the 50 week EMA which sits at the very top of the candlestick. If we pull back from here, it does make quite a bit of sense that the market could drift a few handles lower, because we are right where the massive break in support occurred. This is an area that at least from a technical analysis standpoint should be quite interesting for sellers, and therefore I think it will attract quite a bit of attention. Furthermore, with even more telling is that Donald Trump is coming with an announcement involving China heading into the weekend, and that more than likely will not do many favors for the Aussie dollar as well.

AUD/USD Video 01.06.20

That being said, if we were to break above the 0.67 level on a daily close, then I think we start to think about the market reaching towards the 0.70 level. Breaking above there would change the entire trend, something that I do not anticipate seeing. Yes, this has been an absolutely brutal bounce, but I think that in the end it is just that: a bounce. However, I am willing to follow the market and admit that I am wrong if we do break out to the upside.

Remember that the Australian dollar is overly sensitive to the Chinese situation, which of course could get overly complicated relatively soon. With that being the case, I think that the Australian dollar will probably take it on the chin. For what it is worth, the Aussie stock market looks absolutely horrible.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD Price Forecast – Australian Dollar Trying to Break Out

The Australian dollar has pulled back a bit to kick off the trading session on Friday, but then bounced as the 200 day EMA came into play. At this point, we are getting remarkably close to the 0.67 handle, an area that if we can break above, the market is likely to go much higher. At this point, it certainly looks as if the Aussie dollar is trying to take out the resistance and start a new trend higher, but one has to wonder what is going to happen between the United States and China? Clearly that is not going to be a good thing and with Donald Trump announcing a press conference late on Friday, we could see a sudden reversal. That being said, if the day closes above the 0.67 level, then it is likely that we continue to go much higher.

AUD/USD Video 01.06.20

This is a market that looks likely to have to make some type of significant decision, but at this juncture it is difficult to imagine that it is going to be easy. You need to be overly cautious when trading this pair, because once we make a move it is probably going to be rather drastic. Ultimately, I believe that the market will probably see some type of resolution, but clearly the market looks as if it is trying to break out to the upside. If this fails, it is right at where we had seen a major breakdown several months ago. In other words, it is decision time so therefore let the market decide and then simply follow.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data to Take a Back Seat with Trump’s News Conference the Main Event

Earlier in the Day:

It was a relatively busy day on the economic calendar this morning. The Japanese Yen and Aussie Dollar were in action early in the day.

Away from the economic calendar, the markets responded to Trump’s announcement on Thursday of plans to unveil measures against China at the news conference later today.

Fiscal stimulus from Brussels and the easing of lockdown measures across the EU and the U.S had provided support to riskier assets ahead of today’s open.

Looking at the latest coronavirus numbers,

On Thursday, the number of new coronavirus cases rose by 112,124 to 5,900,627. On Wednesday, the number of new cases had risen by 110,221. The daily increase was higher than both Wednesday’s rise and 106,139 new cases from the previous Thursday.

France, Germany, Italy, and Spain reported 5,612 new cases on Thursday, which was up from 1,892 new cases on Wednesday. On the previous Thursday, 1,976 new cases had been reported.

From the U.S, the total number of cases rose by 22,413 to 1,768,216 on Thursday. On Wednesday, the total number of cases had risen by 20,392. On Thursday 21st May, a total of 28,089 new cases had been reported.

The uptick on Thursday will need to be monitored in the coming days. With the easing of lockdown measures now in the 4th week, it would be in the coming days that a 2nd wave would become evident…

For the Japanese Yen

Inflation was in focus in the early part of the day, along with industrial production and retail sales figures.

In May, the Ku-area of Tokyo saw inflationary pressures return, with core consumer prices rising by 0.20% In April, consumer prices had fallen by 0.10%, year-on-year.

According to the Ministry of Internal Affairs and Communication.

  • Rising prices for clothes & footwear (+1.7%), furniture & household utensils (+1.7%), and culture & recreation (+1.2%) supported the rise.
  • There were also increases in prices for medical care (+0.8%) and housing (+0.7%).
  • Prices for Education (-8.9%) and fuel, light, & water charges (-1.9%) pinned back inflationary pressures, however.
  • There were also declines in prices for transport & communication (-0.1%) and miscellaneous (-0.8%).

In April, industrial production slumped by 9.1%, based on prelim numbers, following a 3.7% decline in March. Economists had forecast a 5.1% slide.

According to the Ministry of Economy, Trade, and Industry,

Industries that mainly contributed to the decrease were:

  • Motor vehicles, iron, steel & non-ferrous metals, and transport equipment (excl. motor vehicles).

Industries that mainly contributed to the increase were:

  • Production machinery.

Forecasts for May were not much better, with the forecast for industrial production revised from -1.4% to -4.1%. For June, however, forecasts are for production to rise by 3.9%.

Retail sales also disappointed in April, with lockdown and social distancing measures weighing.

According to the Ministry of Economy, Trade, and Industry, retail sales tumbled by 13.7% in April, year-on-year, following a 4.7% slide in March. Economists had forecasts an 11.50% decline.

The Japanese Yen moved from ¥107.701 to ¥107.608 upon release of the figures. At the time of writing, the Japanese Yen was down by 0.22% to ¥107.41 against the U.S Dollar.

For the Aussie Dollar

Private sector credit stalled in April, following a 1.10% increase in March.

According to figures released by RBA,

  • Business credit rose by 0.1%, following a 3.1% rise in March.
  • Personal credit slid by 3.0%, following a 1.4% decline in March.
  • Housing credit rose by 0.2%, which was down from a 0.3% rise in March.

The Aussie Dollar moved from $0.66312 to $0.66315 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.08% at $0.6642.

Elsewhere

At the time of writing, the Kiwi Dollar was down by 0.11% to $0.6203.

The Day Ahead:

For the EUR

It’s a busy day ahead on the economic calendar. Key stats include French and German retail sales figures for April and the Eurozone prelim inflation numbers for May.

Prelim inflation figures for France and Italy and 2nd estimate GDP numbers for France are also due out.

We will expect the numbers to have a muted impact on the EUR, however. The EU’s recovery plan and the continued easing of lockdown measures remain positives.

While COVID-19 news and updates remain EUR positive, the markets will need to monitor the number of new cases. On Thursday, there was an uptick. If an upward trend begins, this could question member state plans to ease lockdown measures further.

From the early part of the day, it was risk aversion that pinned back the EUR as the markets await Trump’s news conference later today.

At the time of writing, the EUR was up by 0.07% to $1.1085.

For the Pound

It’s yet another quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.

Through the day, expect market risk sentiment and any Brexit chatter to be key drivers.

At the time of writing, the Pound was up by 0.01% to $1.2322.

Across the Pond

It’s another busy day ahead on the U.S economic calendar. Economic data includes April inflation and personal spending figures and May consumer sentiment and Chicago PMI numbers.

Expect the May figures to have the greatest influence, with the markets likely to brush aside April numbers.

Outside of the numbers, FED Chair Powell is scheduled to speak. Any commentary on the U.S economy and monetary policy will garner plenty of attention.

The main event of the day, however, is Trump’s news conference. What does the U.S President have in store for China?

The Dollar Spot Index was up by 0.02% to 98.407 at the time of writing.

For the Loonie

It’s also a busy day on the economic calendar. Key stats include 1st quarter GDP numbers and April’s RMPI.

Expect the GDP figures to have some influence, though the markets are expecting some quite dire numbers. Anything better than forecast should be Loonie positive…

Crude oil prices and market risk sentiment will be the key driver on the day, however.

At the time of writing, the Loonie was down by 0.10% to C$1.3777 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD Price Forecast – Australian Dollar Continues to Levitate

The Australian dollar is flirting with breaking out for a longer-term trend change. That being said, there are a slew of problems out there that could work against it, so quite frankly I am a bit cautious about going long here. What I need to see is a daily close above 0.67 to be convinced that we are going to continue to see upward pressure. It is kind of astonishing if you think about it, as the US/China trade situation deteriorates, this will certainly have a negative effect on the Australian dollar. However, it does not seem to be something that people are willing to pay attention to at the moment, but when they do, I suspect that could cause a lot of economic pain.

AUD/USD Video 29.05.20

If we were to break down below the candlestick from the Wednesday session, that turns that candlestick into a “handyman” which also had formed right at the 200 day EMA, a very bleak and negative sign to say the least. However, if we get that breakout to the upside and the daily close above the 0.67 handle, it is highly likely that we go looking to the 0.70 at the very least, perhaps even higher than that. That being said, the market looks extraordinarily stretched, but I have thought that for a couple of weeks to be quite honest. The question now is whether or not we can continue to push higher? So far, it certainly has been resilient, but one would have to think that this rally is getting “long in the tooth.”

For a look at all of today’s economic events, check out our economic calendar.

U.S Weekly Jobless Claims to Put the Greenback in Focus as Geopolitical Risk Lingers

Earlier in the Day:

It was a relatively busy day on the economic calendar this morning. The Aussie Dollar and Kiwi Dollar were in action once more.

Away from the economic calendar, the markets also responded to the moves across the EU and the U.S from Wednesday.

Fiscal stimulus from Brussels and the U.S government’s moves to further reopen the economy provided both support for riskier assets early on. Market sentiment overshadowed economic data that remained weak while improving …

For the commodity currencies, however, concerns over rising tensions between the U.S and China did pin back any breakouts.

Looking at the latest coronavirus numbers,

On Wednesday, the number of new coronavirus cases rose by 110,221 to 5,788,503. On Tuesday, the number of new cases had risen by 95,878. The daily increase was higher than both Tuesday’s rise and 89,941 new cases from the previous Wednesday.

France, Germany, Italy, and Spain reported 1,892 new cases on Wednesday, which was up from 1,535 new cases on Tuesday. On the previous Wednesday, 3,225 new cases had been reported.

From the U.S, the total number of cases rose by 20,392 to 1,745,803 on Wednesday. On Tuesday, the total number of cases had risen by 19,185. On Wednesday 20th May, a total of 21,774 new cases had been reported.

For the Kiwi Dollar

Business Confidence improved in May, with the ANZ Business Confidence Index rising from an April -66 to a finalized -41.8. May’s prelim had come in at -46.

According to the latest ANZ Report,

  • A net 39% of firms expect weaker economic activity in their own business, with the retail sector the most pessimistic once more.
  • Employment intentions rose from a net 50.8% of firms intending to reduce employment to a net 42%.
  • Investment intentions improved marginally from a negative 45% to a negative 32%.
  • Profit expectations rose from a net 70.4% expecting lower profitability to a net 56%. The agricultural sector remained the weakest at -71%, with the construction sector the least negative at -42%.
  • Export intentions rose by just 6 points to -36.

The Kiwi Dollar moved from $0.61897 to $0.61840 upon release of the numbers. At the time of writing, the Kiwi Dollar was up by 0.05% to $0.6185.

For the Aussie Dollar

1st quarter private new capital expenditure fell by 1.6%, quarter-on-quarter, following a 2.8% fall in the 4th quarter. Economists had forecast a 2.6% decline.

According to the ABS,

  • While investments in building and structures fell by 1.1%, investments in equipment, plant, and machinery slid by 2.3%.
  • Year-on-year, total New CAPEX slid by 6.1%.
  • Investments in building and structures tumbled by 7.9%, with investments in equipment, plant, and machinery falling by 4.0%.

The Aussie Dollar moved from $0.66222 to $0.66282 upon release of the figures. At the time of writing, the Aussie Dollar flat at $0.6622.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.13% to ¥107.86 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s another relatively quiet day ahead on the economic calendar. Key stats include prelim May inflation figures from Germany and Spain.

Business and Consumer confidence figures out of Italy and the Eurozone should have a muted impact, following the EU’s COVID-19 recovery plan announced on Wednesday.

We will expect EU’s recovery plan and the continued easing of lockdown measures to provide support.

The markets will need to track any chatter from Beijing and Washington, however. Any rise in tensions and action from either side will test risk appetite on the day.

At the time of writing, the EUR was up by 0.11% to $1.1018.

For the Pound

It’s yet another quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.

On Wednesday, we saw the Pound take a hit in response to the threat of the BoE cutting interest rates into negative territory.

BoE Chief Economist Haldane had attempted to pour cold water on such a prospect but to no avail.

Through the day, expect market risk sentiment and any Brexit chatter to be key drivers.

At the time of writing, the Pound was up by 0.05% to $1.2267.

Across the Pond

It’s a busy day ahead on the U.S economic calendar. Economic data includes April durable goods, 2nd estimate GDP numbers, and pending home sales figures for April.

Barring any deviations from 1st estimates, expect April’s core durable goods orders to garner some attention.

Any moves in response to the durable goods orders are likely to be limited, however. The market focus will be on the weekly jobless claims figures.

There’s plenty of optimism as the U.S economy continues to reopen, but whether the markets can stomach another 2m jump remains to be seen.

The Dollar Spot Index was down by 0.17% to 98.893 at the time of writing.

For the Loonie

It’s a quiet day on the economic calendar. There are no material stats due out of Canada to influence the Loonie.

A lack of stats will leave the Loonie in the hands of market risk sentiment and the weekly EIA crude oil inventory numbers…

At the time of writing, the Loonie was down by 0.02% to C$1.3755 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Stumbles Amid News China Will Target Coal Exports

The Australian Dollar traded higher early Wednesday but ran into a wall of sellers at .6680, just slightly below the major March 9 top at .6685. The currency closed lower for the session, producing a potentially bearish closing price reversal top chart pattern.

We’ll know if the selling was profit-taking or shorting on Thursday if follow-through pressure takes out Wednesday’s low at .6568. The chart pattern doesn’t change the main trend to down, but it does indicate the selling may be greater than the buying at current price levels. This could trigger a 2 to 3 day counter-trend break.

At 02:14 GMT, the AUD/USD is trading .6630, up 0.0006 or +0.09%.

Australian Dollar

The whip-saw action in the Aussie that led to the reversal to the downside was fueled by changes in risk sentiment on Wednesday. Earlier in the session, demand for higher risk assets supported the currency. The catalyst behind the move was optimism over the opening of the global economy and talk of two potential vaccines for coronavirus. Later in the session, the Aussie tumbled from its high on concerns over escalating tensions between the United States and China.

There were other reports that the Australian Dollar turned sharply lower against the U.S. Dollar amidst signs China was looking to ramp up economic pressure on Australia. The potential restrictions on coal imports from Australia – which is Australia’s second largest export and earner of foreign exchange – follows similar more on retraining imports of Australia’s number one export:  iron ore, poundsterlinglive.com reported.

“If coal or iron ore, Australia’s biggest export goods, were considered to be the subjects of Chinese retaliation, the risk to the country’s economy and the AUD would be accentuated,” says Jane Foley, Senior FX Strategist at Rabobank.

New Zealand Dollar

The New Zealand Dollar is trading nearly flat early Thursday following yesterday’s potentially bearish closing price reversal top chart pattern.

On Wednesday, the Reserve Bank of New Zealand (RBNZ) released its Financial Stability Report and RBNZ Governor Orr gave a speech.

New Zealand’s financial system is in a solid position both to weather the significant economic impact caused by the COVID-19 pandemic and support recovery, the Central Bank’s governor said.

Adrian Orr also said in a financial stability report released on Wednesday that RBNZ economic stress test analysis suggests banks in the country can continue to lend and prosper through a broad range of adverse scenarios.

The RBNZ also said banks in the country have strong buffers of capital and liquidity, although their resilience will be tested in the coming months as loan losses rise from current low levels.

“Our economic stress test analysis suggest banks can continue to lend and prosper through a broad range of adverse scenarios,” RBNZ Governor Adrian Orr said in the financial stability report that it releases twice a year.

At 02:42 GMT, the NZD/USD is trading .6184, down 0.0005 or -0.08%.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD Price Forecast – Australian Dollar Testing Major Resistance

The Australian dollar initially tried to rally during the trading session on Wednesday but has given back quite a bit of the gains early during the trading session. By doing so, this is a sign that perhaps we are starting to run out of steam at a very crucial region. The question now is whether or not the market can continue to go higher? We are at an area that I think will tell where we are going longer term, as we are dancing around the 200 day EMA, and of course where we had broken down so significantly over the last couple of months.

AUD/USD Video 28.05.20

At this point, it is a “last stand” of sorts for sellers, because quite frankly the market has been chopping back and forth in trying to grind above this region but has not been able to do so quite yet. However, if we do break above the 0.67 handle, it is likely that the market continues to go much higher. Otherwise, we could see a long and slow move lower. Keep in mind that the Australian dollar is overly sensitive to the Chinese trade situation, and as a result it is likely that the market will be all over the place.

Ultimately, this is an area that I think is worth paying attention to, and therefore it is worth noticing whether or not the momentum can carry it higher. Quite frankly, this has been an extraordinary move, but one would have to think that eventually we run out of momentum. We have not had a significant pullback for the last 1000 pips or so. That is not normal behavior, just as it was not normal on the way down.

For a look at all of today’s economic events, check out our economic calendar.

Midweek Market Drivers: Global Expand Of COVID-19, Situation In Europe, and US-China Tensions

The number of new COVID-19 cases across the globe has exceeded 5 million.

How the situation is evolving in the European Union?

Aside from Spain, which has had 1 blip of over  1,000, we’ve seen the most adversely affected see sub-1,000 new cases each day for 9 consecutive days. The most affected being France, Germany, Italy, and Spain.

We had some concerns over how quickly governments were easing lockdown measures. When we factor in the 2-week incubation period, these numbers are fairly positive. They should give the markets some hope that a 2nd wave can be avoided.

Governments are about a 4-5 day period and about a week out to convince the more pessimistic…

If we look at China as a base case that should also be supportive.

We can then also look at virus vaccine news that has also been market positive late last week and early this week.

It appears that the coronavirus crisis continues to hit the global economy dramatically.

In the meantime, are there any improvements?

From the economic data, shifting through May and June numbers, the focus remains on employment and business and consumer confidence figures.

In Germany this week, we saw both business and consumer confidence improve, coming off the back the easing of lockdown measures.

The key, however, remains labor market conditions, which need to materially improve to drive confidence and consumption.

Expect these to be the key areas of focus and to drive the market near-term.

A pickup in consumption would drive a service sector recovery that would then filter through to the manufacturing sector.

Despite positive forecasts, the US-China conflict continues to be in the spotlight. Also, the Chinese government introduced a new HK Securities Law.

How did these events affect the markets?

There was some skepticism over the phase 1 trade agreement. We then saw accusations fly over the cause of the coronavirus pandemic leading to a deterioration in relations.

China has responded with the HK Securities Law and the U.S government is expected to respond in kind this week. This could include sanctions.

The markets have been almost Teflon in the early part of the week. On Wednesday morning, however, we saw risk appetite tested, as focus shifted back to the U.S – China tensions.

This shift in focus came as Trump announced that the U.S will respond to China’s plans for HK.

Let’s see what happens there. Beijing is not going to sit back this time around, not after the year-and-a-half that it took to come up with a phase 1 trade agreement.

Risk appetite will be tested. We do have COVID-19 news to keep the markets buoyed and there is also vaccine talk to provide support.

U.S China tensions, that relationship isn’t going to improve any time soon. Could you imagine a China-Russia alliance against the U.S and anyone else who wants to jump on Trump’s bandwagon?

That would certainly give the markets a rough time, particularly with Iran there in the Middle East as well.

It seems like the US-China tensions do not influence the markets significantly.

Meanwhile, is there anything else notable in regards to commodities and geopolitics?

Other than COVID-19, vaccines, and U.S China relations, there’s very little else to consider from a global financial market perspective.

There is one thing to consider, however, looking further down the track. Will the markets be as optimistic about the economic recovery once June stats begin to come out.

We saw May’s economic indicators show economic activity pickup from the depths of the abyss in April figures.

If we see June numbers fall off from May, then that optimism will come into question. May would have seen a larger pickup just due to the fact that economies were reopening.

I’m not convinced that the global economy will recover as quickly as the markets suggest. When you look at the equity markets and the rebound in the Aussie Dollar and Loonie. These are quite big moves when considering the doom and gloom ahead.

So, let’s see what happens when we begin to see June numbers…

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD Prepares for Uptrend after Wave 4 Bull Flag

Dear traders, the AUD/USD is showing strong bullish momentum, which looks like a wave 3 (purple). The current pullback could be a wave 4 (purple). This means that the uptrend could soon continue.

1 hour chart

AUD/USD 1 hour chart

The AUD/USD is in an uptrend (blue box) when reviewing the alignment of all the Moving Averages. Price is now building a bull flag pattern as a pullback. The uptrend continuation could be part of the wave 5 of wave 5. The main target is at 0.6750.

The AUD/USD needs to break the resistance Fractal (orange line) for a bullish breakout with the trend. Another scenario is that price bounces at support (green box) for a deeper retracement. Both the break and bounce could confirm (green check) the uptrend continuation. A break below the wizz 5 makes this wave outlook less likely.

AUD/USD chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

 

The ECB and Brussels Put the EUR in Focus as Geopolitics Tests Risk Sentiment

Earlier in the Day:

It was a relatively busy day on the economic calendar this morning. The Aussie Dollar and Kiwi Dollar were in action, with economic data out of China also in focus.

Away from the economic calendar, the market’s attention returned to U.S – China tensions and China’s security law for HK.

COVID-19 news and numbers did remain supportive, however, with positive vaccine news hitting the news wires in the 1st half of the week.

Looking at the latest coronavirus numbers,

On Tuesday, the number of new coronavirus cases rose by 95,878 to 5,678,282 On Monday, the number of new cases had risen by 83,824. The daily increase was higher than both Monday’s rise and 94,189 new cases from the previous Tuesday.

France, Germany, Italy, and Spain reported 1,535 new cases on Tuesday, which was up from 747 new cases on Monday. On the previous Tuesday, 2,848 new cases had been reported.

From the U.S, the total number of cases rose by 19,185 to 1,725,411 on Tuesday. On Monday, the total number of cases had risen by 19,790. On Tuesday 19th May, a total of 20,688 new cases had been reported.

For the Kiwi Dollar

The RBNZ’s Financial Stability Report was in focus in the early hours.

Salient points from the latest report included,

  • COVID-19 has led to unprecedented economic disruption, with small businesses under stress.
  • Fiscal and monetary policy has cushioned the near-term impact. These include wage subsidies, large scale asset purchases to reduce interest rates, and a record low OCR.
  • Banks are in a strong position to support the economic recovery. The Reserve Bank has adjusted policies to enable banks to keep lending.
  • Measures include:
    • Mortgage deferrals for households and small businesses.
    • Delayed implementation of planned increases to capital requirements by a minimum of 12-months.
    • Eased core funding ratio requirements.
    • Supported the Business Finance Guarantee Scheme by creating a Term Lending Facility.

The Kiwi Dollar moved from $0.61971 to $0.61984 upon release of the report. At the time of writing, the Kiwi Dollar was up by 0.11% to $0.6192.

For the Aussie Dollar

Construction Work Done fell by 1.0% in the 1st quarter, following on from a 3.0% slide in the 4th quarter. Economists had forecast a 1.5% decline.

According to the ABS,

  • Residential work done fell by 1.6%, quarter-on-quarter, and slid by 12.5% when compared with the 1st quarter of 2019.
  • Total construction work down fell by 6.5% in the 1st quarter, year-on-year.

The Aussie Dollar moved from $0.66512 to $0.66530 upon release of the figures. At the time of writing, the Aussie Dollar down by 0.11% to $0.6646.

Out of China

Industrial profit figures for April had little influence. Year-on-year, profits were down by 4.3%, following a 34.9% slump in March. Year-to-date, profits were down by 6.75%, following a 36.7% tumble in March.

The Aussie Dollar moved from $0.66512 to $0.66530 upon release of the figures.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.04% to ¥107.50 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. While there are no material stats due out of the Eurozone, the ECB and the EU Commission are in focus today.

In the early part of the European session, ECB President Lagarde is scheduled to speak. Expect any chatter on monetary policy or the economic outlook to influence. Lagarde’s speech precedes the release of the ECB’s Financial Stability Review. We will expect the review to be a key area of focus for the markets today.

With the ECB in focus early in the day, Brussels will also be in the spotlight. The European Commission is due to announce the COVID-19 Recovery Fund and EU Budget.

At the time of writing, the EUR was down by 0.10% to $1.0971.

For the Pound

It’s another quiet day ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.

A lack of chatter on Brexit and the risk-on sentiment has provided the Pound with further support this week. Expect any updates on Brexit and COVID-19 to test this support, however.

At the time of writing, the Pound was down by 0.06% to $1.2327.

Across the Pond

It’s also a quiet day ahead on the U.S economic calendar. Following Tuesday’s consumer confidence figures, there are no material stats to influence later today.

A lack of stats leaves geopolitics center stage. On Tuesday, U.S President Trump stated that there would be a U.S response to China’s plans for HK by the end of the week… Measures could include sanctions on China…

The Dollar Spot Index was up by 0.14% to 99.042 at the time of writing, with the U.S – China jitters providing support.

For the Loonie

It’s a relatively quiet day on the economic calendar. Building permit figures are due out later today that will likely have a muted impact on the Loonie.

With concerns over the U.S – China relations and the prospects of sanctions on China resurfacing, we can expect the Loonie to be under pressure.

Much will depend on how Beijing will respond to any steps taken by the U.S government. The continued easing of lockdown measures across major economies, remains Loonie positive, however.

At the time of writing, the Loonie was down by 0.06% to C$1.3785 against the U.S Dollar.

AUD/USD Price Forecast – Australian Dollar Peaks Through 200 Day EMA

The Australian dollar continues to grind higher, breaking above the 200 day EMA midday. Having said that, the market is likely to have to make some type of decision as to where we are going longer term. If we can clear the 0.67 level, we will have blown through the last bits of resistance, and it is likely at that point the market then goes looking towards the 0.70 level. That being said, the market is likely to continue seeing a lot of volatility, and therefore the Australian dollar is going to be one of the more interesting pairs to pay attention to.

AUD/USD Video 27.05.20

At this point, I do believe that the market breaking back down below the 0.66 handle could be a sign that we are continuing what looks to be a bit of a “rounding top”, but obviously we need to see a daily close to make that assumption. At this point, it certainly looks bullish, but I am waiting until we get that daily close, either above the 0.67 to start buying, or below 0.66 to start selling again.

The market is clearly on the precipice of major move one way or the other, and I have to admit that I am overly impressed by the resiliency of the Aussie dollar. The question now is whether or not we start to pay attention to the global economy, or if we pay more attention to the potential bullishness of economies reopening, albeit at much weaker levels? Remember, when you look at the chart you are paying attention to emotion at the same time.

For a look at all of today’s economic events, check out our economic calendar.

Who Needs China? Optimism and Hope Continue to Drive Riskier Assets Northwards

Onwards and upwards the global equity markets go and the commodity currencies are joining in on the rally.

Just 6-weeks ago, the Aussie Dollar was down at sub-$0.60 levels against the Greenback.

When considering the quite dire economic environment and the grim outlook, the broad-based recovery has been a remarkable one.

The bigger question that needs to be answered, however, is whether the latest breakout is sustainable.

The Here and Now

As we have moved beyond the 1st quarter and April economic indicators, the markets have formed a clear view.

May’s private sector PMIs suggested that the economic meltdown had bottomed out in April. Consumer confidence and business confidence figures have also shown that sentiment has picked up.

There’s one clear issue with the current sentiment, however.

While the U.S and China go back at it and the global supply chain remains broken, central banks and governments will be looking for a consumer-driven economic rebound.

In fact, when the news wires report of small firms leaving stimulus monies untapped, there must be some concern over what lies ahead.

At a minimum, there needs to be a marked bounce back in labor market conditions. That then needs to translate into consumption to fuel the merry-go-round.

The Good News

While there is so much uncertainty, the good news is that new coronavirus cases continue to head downwards. In key economies at least, with Asia and the EU impressing.

It is particularly poignant when considering the fact that we are now reaching that 2-week time-lapse since governments began introducing their lockdown measures, however.

At a minimum, this trend must continue in the next 1-2 weeks and with it, a successful treatment or vaccine.

Only then can the services sector truly expect a marked shift in outlook.

The Bad News

Trump could turn on China and the EU at any time and the China ball has already started rolling.

Throw in the EU, talk of a conflict with Iran and even the U.S severing ties with the Saudis and the geopolitical landscape may change forever.

As we have seen in the past, the markets don’t do too well to change. Just look at the effects of Brexit on the UK economy and the Pound.

So, for Trump there is the hope that, while the U.S economy may have seen its worst quarter since the Great Depression, the U.S equity markets continue to line voter pockets…

Today’s Market Moves

Today, we saw optimism overshadow U.S – China tensions and a gloomy economic outlook once again.

This may well continue should we see progress being made towards a COVID-19 vaccine or treatment drug.

Near-term, however, we will need to begin considering June figures to assess the speed of the economic recovery.

Today’s consumer confidence figures may be positive from a risk perspective. This is assuming that U.S consumer confidence does rise in spite of quite dire weekly jobless claims figures.

That leaves the markets exposed to a market shock, once we begin to digest June numbers…

Let’s face it, it would be almost a dream for labor market conditions, private sector activity, consumer consumption to bounce back to the end of 2019 levels…

At the time of writing, the EUR was up by 0.60% to $1.09603. Assuming that governments and central banks continue to throw money where it’s needed, we could even see $1.13 levels.

For the Aussie Dollar and Kiwi Dollar, we could see even greater gains…

It is a long way to fall though should that optimism shift in June, however.

26/05/20 EUR/USD Daily Chart

Risk Assets Rally Amid Pandemic Recovery Optimism

Positive coronavirus vaccine news and indications that global economies are slowly reopening helped to buoy investor mood.

American biotech company Novavax Inc. (NVAX) announced on Monday that it has started the first human trials of its experimental coronavirus vaccine. Results of the clinical trial are anticipated in July 2020.

Novavax CEO Stanley C. Erck stated: “Administering our vaccine in the first participants of this clinical trial is a significant achievement, bringing us one step closer toward addressing the fundamental need for a vaccine in the fight against the global Covid‑19 pandemic”. Last week, biotech Moderna announced that its experimental vaccine appears to be safe and able to stimulate an immune response against COVID-19.

Data from Johns Hopkins University indicates that coronavirus COVID-19 global cases have risen to 5,499,535 with 346,326 fatalities. In the hard hit United States over 98,000 people have lost their lives due to the coronavirus and more than 1.6 million have been infected. Nevertheless, all 50 states are beginning to reopen in some way.

Meanwhile, US/China tensions simmer and continue to dampen risk appetite. White House national security adviser Robert O’Brien warned on Sunday that the United States will likely sanction China if plans for new national security laws in Hong Kong are carried out.

Speaking on NBC’s Meet the Press, O’Brien stated: “It looks like, with this national security law, they’re going to basically take over Hong Kong and if they do … Secretary (of State Mike) Pompeo will likely be unable to certify that Hong Kong maintains a high degree of autonomy and if that happens there will be sanctions that will be imposed on Hong Kong and China.”

Looking at the AUD/USD daily chart we can see that the pair has reached its highest levels since March 9th. Resistance sits overhead at the 200 period simple moving average (SMA), while rising trendline support lies beneath.

For a look at all of today’s economic events, check out our economic calendar.

Dan Blystone, Scandinavian Capital Markets

AUD/USD and NZD/USD Fundamental Daily Forecast – Surging as China Pushes for More Stimulus, Lower Rates

The Australian and New Zealand Dollars are spiking to the upside on Tuesday as growing optimism about a global recovery from the COVID-19 pandemic drove investors into higher-yielding currencies.

The news initially underpinned prices while Sino-U.S. tensions kept a lid on prices. Early in the session, the trade sensitive Australian and New Zealand Dollars each rose about half a percent, but remained below last week’s highs.

The price action suggested that traders were having a hard time making a decision. The bulls were being encouraged by easing COVID-19 lockdown measures that were fueling growth optimism. The bears were being primarily influenced by the rising tensions between the U.S. and China.

At 09:41 GMT, the AUD/USD is trading .6617, up 0.0071 or +1.08% and the NZD/USD is at .6174, up 0.0071 or +1.17%.

However, the bulls were able to prevail sending the Aussie and Kiwi to multi-month highs as the U.S. Dollar weakened as investors shed safe-haven positions. The catalysts behind the surge in prices were the reopening economies and China stimulus expectations.

Japan lifted a state of emergency for Tokyo and four remaining areas on Monday, while many major European economies including France and Spain were also coming back to life after coronavirus-induced carbs.

Adding to the positive sentiment, the central bank of the region’s biggest trading partner, China, said it would strengthen economic policy and push for lower interest rates on loans.

In economic news, New Zealand’s Trade Balance came in better-than-expected at 1267M versus an estimate of 1250M. Meanwhile the previous reading was revised higher to 722M.

Daily Forecast

The Aussie and Kiwi should continue to be underpinned throughout the session on Tuesday as long as investors brush aside the tensions in Hong Kong and simmering U.S.-China relations and remain focused on the global economy recovery and the trend toward developing a new vaccine to combat Coronavirus.

The two currencies will face headwinds if a second-wave of the virus emerges, forcing governments to reimpose strict lockdowns and restrictions. Meanwhile, most investors are putting the bad news behind them and beginning to anticipate better time ahead.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data Puts the EUR and the Greenback in Focus as Risk Appetite Builds

Earlier in the Day:

It was a relatively quiet day on the economic calendar this morning. The Kiwi Dollar was in action, with April trade figures in focus.

Away from the economic calendar, the markets continued to monitor HK and the U.S reaction to China’s security law. Progress of the bill to make it more difficult for Chinese companies to list on U.S exchanges and China’s response also remains a factor.

COVID-19 news and numbers, however, remained supportive, driving market optimism and demand for riskier assets.

Looking at the latest coronavirus numbers,

On Monday, the number of new coronavirus cases rose by 83,824 to 5,582,404. On Sunday, the number of new cases had risen by 101,608. The daily increase was lower than Sunday’s rise, while higher than 82,564 new cases from the previous Monday.

France, Germany, Italy, and Spain reported just 747 new cases on Monday, which was down from 1,470 new cases on Sunday. On the previous Monday, 1,916 new cases had been reported.

From the U.S, the total number of cases rose by 19,790 to 1,706,226 on Monday. On Sunday, the total number of cases had risen by 20,190. On Monday 18th May, a total of 22,231 new cases had been reported.

For the Kiwi Dollar

On the trade front, the trade deficit narrowed from a NZ$3,460m to NZ$2,500m in April. The monthly trade surplus jumped from NZ$722m to a record NZ$1,267m.

According to NZ Stats,

  • The total value of goods exports decreased by NZ$220m (4.0%) from April 2019 to hit NZ$5.3bn.
    • A fall of NZ$211m (-69%) in the export of logs pinned back exports in April.
    • The slide in log exports, however, was offset by a NZ$202m (29%) jump in milk powder exports.
    • Kiwi fruit exports also continued to support, with a NZ$116m (37%) rise compared with April 2019.
    • Compared with April 2019, exports to Japan and the U.S increased, while exports to China, the EU, and Australia slumped.
  • Goods imports in April 2020 slid by NZ$1.1bn (-22%) to NZ$4.0bn, marking the 2nd largest decline on record.
    • A sharp slide in petroleum and products of NZ$352m (-58%) contributed to the slump in imports.
    • The imports of crude oil fell by NZ255m (77%), with petrol and diesel imports falling by NZ$97m (35%).

The Kiwi Dollar moved from $0.61011 to $0.60992 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.29% to $0.6121.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.14% to ¥107.86 against the U.S Dollar, while the Aussie Dollar was up by 0.24% to $0.6561.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. Germany remains in focus, with May’s GfK Consumer Climate figures due out later this morning.

Expect some influence from the numbers, which will give some indication of whether a service sector-driven economic recovery is feasible near-term.

Global trade terms remain weak, which will likely shift focus to service sector activity near-term. Consumer confidence and consumption will be pivotal in any economic recovery.

At the time of writing, the EUR was up by 0.11% to $1.0910.

For the Pound

It’s another quiet day ahead on the economic calendar. Following Monday’s holiday, expect Brexit and COVID-19 news updates to be the key drivers on the day.

Will there be a surprise decision to agree to a Transition period extension? The current economic environment would support such a move. It would be hard to imagine voters complaining when considering the impact of the COVID-19 pandemic on the UK economy.

At the time of writing, the Pound was up by 0.14% to $1.2208, with risk sentiment providing support.

Across the Pond

It’s also a relatively busy day ahead on the U.S economic calendar. Following Monday’s public holiday, May’s consumer confidence figures are due out later today.

A marked pickup would be needed in confidence to support a more optimistic economic outlook. Weekly jobless claims figures suggest that, while an easing of lockdown measures is positive, labor market conditions will weigh.

April’s new home sales and March house prices figures also due out should have a muted impact later today.

Away from the calendar, chatter from the Oval Office and any progress with the bill to toughen rules on Chinese firms listing on U.S exchanges will also influence. There’s also any U.S response to China’s plans for the HK security law to also monitor.

The Dollar Spot Index was down by 0.18% to 99.687 at the time of writing.

For the Loonie

It’s a quiet day on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.

Geopolitics and improved market sentiment towards the economic outlook will likely remain the key drivers.

Overnight BoC Governor Poloz spoke of inflation likely to take some time to return to target. Poloz added that the BoC has some flexibility in the time it takes to get inflation back to target. The comments suggested that there would be no monetary policy moves to fuel inflationary pressures.

At the time of writing, the Loonie was up by 0.17% to C$1.3961 against the U.S Dollar.

AUD/USD Price Forecast – Australian Dollar Quiet On Holiday

The Australian dollar has done little during the trading session on Monday, as many of the large economies around the world were celebrating various holidays. Because of this, it should not be a surprise that we have done nothing. Looking at the chart though from a longer-term perspective, we have recently pulled back from the 200 day EMA so it should be very resistive in this general vicinity anyway.

AUD/USD Video 26.05.20

Looking at the chart, the 50 day EMA is racing higher and as a result it is likely that we could see a bit of a squeeze coming relatively soon. The question now is whether or not it is higher or lower? I suspect it is probably lower, unless of course we get some type of major move into risk appetite, which I just do not see that happening. There are a lot of questions out there when it comes to the global economy, and it is difficult to imagine that things are suddenly going to change anytime soon.

I anticipate that we will continue to test the 0.66 level, before pulling back from there and trying to break down again. However, if we break above the 0.67 level, we will have broken through massive amounts of resistance, and go looking towards a major trend change for the longer term. If that does happen, becomes more of a “buy-and-hold” type of marketplace where people simply hang on to the Australian dollar because the entire global economy is starting to go positive again. That seems like a tall order, but it is basically what is going on.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data Puts the EUR in Focus, with Geopolitics and COVID-19 to also Influence

Earlier in the Day:

It was a particularly quiet day on the economic calendar this morning. There were no material stats out through the Asian session to provide any direction.

A lack of stats left the markets in the hands of chatter from the weekend and the latest COVID-19 news and numbers.

At the end of last week, news had hit the wires of China’s security law heading for Hong Kong, leading to some caution through the Asian markets.

Strong words from both the U.S and China as tensions have built tested market risk appetite early on.

While the rise in tension is certainly a concern, positive updates from COVID-19 vaccine trials provided support to riskier assets early on. The positive news was coupled with a continued downward trend in new coronavirus cases across the EU and the U.S.

Looking at the latest coronavirus numbers,

On Sunday, the number of new coronavirus cases rose by 100,455 to 5,497,427. On Saturday, the number of new cases had risen by 99,013. The daily increase was higher than both Saturday’s rise and 83,321 new cases from the previous Sunday.

France, Germany, Italy, and Spain reported 1,470 new cases on Sunday, which was down from 1,658 new cases on Wednesday. On the previous Sunday, 2,500 new cases had been reported.

From the U.S, the total number of cases rose by 20,190 to 1,686,436 on Sunday. On Saturday, the total number of cases had risen by 21,152. On Sunday 17th May, a total of 19,891 new cases had been reported.

The Majors

At the time of writing, the Japanese Yen was down by 0.01% to ¥107.65 against the U.S Dollar, with the Aussie Dollar down by 0.08% to $0.6532. The Kiwi Dollar was up by 0.01% to $0.6095.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Germany is back in focus, with 2nd estimate GDP numbers and May’s IFO Business Climate Index figures due out.

Barring a marked downward revision to the GDP numbers, the IFO figures will likely have the greatest influence.

As lockdown measures ease through May, the markets will be looking for a pickup in both business and consumer confidence.

Away from the economic calendar, expect the news wires to also influence. China and the U.S will be in focus as will any chatter from Brussels and EU member states on the COVID-19 recovery fund.

At the time of writing, the EUR was down by 0.02% to $1.0899.

For the Pound

It’s a quiet day ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction, with the UK markets closed.

A lack of stats leaves the Pound in the hands of Brexit and COVID-19 updates, both of which remain Pound negative.

While an easing in lockdown measures is positive, the continued spread of the virus across the UK has led to a delay of a more widespread opening of the economy.

With the UK’s neighbors taking more aggressive steps to ease lockdown measures, the UK economic recovery will likely trail behind those of the EU and the U.S.

At the time of writing, the Pound was up by 0.10% to $1.2185.

Across the Pond

It’s also a quiet day ahead on the U.S economic calendar, with no material stats due out to provide the Dollar with direction. The U.S markets are closed, which will leave volumes on the lighter side.

A lack of stats will leave the Dollar in the hands of any chatter from Beijing and the Oval Office and COVID-19 news…

The Dollar Spot Index was down by 0.08% to 99.787 at the time of writing.

For the Loonie

It’s a quiet day on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.

Expect risk sentiment to provide direction on the day. While the tension between the U.S and China was negative, progress towards a COVID-19 vaccine was positive early on.

At the time of writing, the Loonie was up by 0.01% to C$1.3997 against the U.S Dollar.

AUD/USD and NZD/USD Fundamental Weekly Forecast – Risk Sentiment Controlling the Price Action

The Australian and New Zealand Dollars finished higher last week, but buyers had to battle to hold on to early gains. A rally early in the week was triggered by strong demand for risky assets as stock markets rose in response to optimism over the re-opening of the global economy and positive news about a vaccine against coronavirus. Gains were capped, however, be renewed tensions between the United States and China that threatened the global economic recovery.

Last week, the AUD/USD settled at .6536, up 0.0119 or +1.86% and the NZD/USD finished at .6095, up 0.0161 or +2.71%.

The Aussie Dollar was also influenced by economic news and comments from Reserve Bank of Australia (RBA) Governor Philip Lowe.

Risk Sentiment Drove the Price Action

The Australian and New Zealand Dollar jumped the first three days of last week on encouraging early-stage data for a potential coronavirus vaccine and on the promise of more U.S. stimulus to lift and economy beaten down by the pandemic. The news drove up demand for higher-yielding currencies as it sent the U.S. benchmark S&P 500 Index to a 10-week high.

The Aussie and Kiwi retreated from highs late in the week as simmering Sino-U.S. tensions weighed on markets struggling to gauge the pace of economic recovery from the corona virus.

President Donald Trump’s rhetoric against China’s plan for a national security law in Hong Kong on Thursday raised concerns over Washington and Beijing reneging on their Phase-1 trade deal.

Aussie Traders Digested Central Bank Comments

Australia is facing an “unprecedented” economic contraction due to the coronavirus pandemic, though massive fiscal and monetary stimulus would help cushion the blow, minutes from the country’s central bank’s last meeting showed last Tuesday, Reuters reported.

The minutes showed board members discussed a range of economic scenarios in their policy deliberations, with the baseline case for gross domestic product to fall by 10% in the first half and 6% for all of 2020.

“An economic contraction of such speed and magnitude would be unprecedented in the 60-year history of Australia’s quarterly national accounts,” the RBA said.

“Members noted that the nature of the contraction and the expected recovery was also unprecedented because they were driven by public health measures, rather than induced by economic or financial factors.’

Despite the earlier than expected reopening of the domestic economy, unemployment was expected to remain elevated through 2021 while inflation was seen undershooting the RBA’s 2-3% medium-term target for the next few years, according to Reuters.

“Given this outlook, the Board would maintain its efforts to support the economy by keeping funding costs low and credit available to households and businesses,” the RBA added.

Weekly Forecast

Last week’s price action is going to be blueprint over the near-term. With the Australian and New Zealand economies opening up, this is going to be a positive for the currencies with additional support coming from surging demand for risky assets.

Gains are going to be limited by signs of a second-wave of virus outbreaks, weaker demand for risky assets or an escalation of tensions between the United States and China. There’s not much anyone can do with the economic data until the virus is contained and the stimulus money starts to circulate through the economy.

For a look at all of today’s economic events, check out our economic calendar.

How Volatility can be the Center of your Trading

This can be incredibly useful to define position sizing, which, to any trader who has been in the markets for a period will attest is one of the key variables/considerations within any trading plan.

It marries well with our assessment of risk, not just as we enter a position but throughout the full journey of that trade being ‘in the market’.

Vol defines our risk, our position sizing, but also the strategy. It is not just a major consideration for discretionary traders, but systematic (automated) too. In fact, if you’re running an EA and don’t have a vol variable in the code then I’d say the chances of doing some damage to the account longer-term increase markedly.

Volatility can be defined as realised or implied and both can be handy, you just need to find the right tool to assess vol. Realised is straight-forward – we can all see it, be it through the use of Bollinger Bands, ATR, pivot points (PP), envelopes and I can go on – there is a wide range of vol tools in the Metatrader platform.

Bollinger Bands as a vol guide

Bollinger Bands (BB) are a classic vol indicator, where we can see the bands moving wider or tighter, depending on how past distributions relate to the mean (in most cases the 20-day MA). Most retail traders don’t have a Degree in statistics and therefore have a limited understanding behind the logic behind distributions, be it normal as we see below, or one-sided. The logic in the case on BB’s is that 68.2% and 95.4% of distributions/price moves (respectively) are contained within one and two standard deviations from the 20-day MA, which is typically our mean.

Range bound (or mean-reverting) traders will use this to good effect when a market is moving sideways, especially when married with an oscillator, such as a 9- or 14-Day RSI, which will likely be trading around the 50 mark, or the mid-point, in a side-ways market – Buying into moves through the lower Bollinger Band or fading strength on moves above the top Bollinger band can be a strategy to focus on in this dynamic.

A normal distribution curve

Traders will look at the ATR (Average True Range) to get a quantifiable understanding of the recent trading range, with a view to leaving a stop loss 1 to 2x ATR. This is an effective way to manage position sizing, depending on the type of trade you are. In most cases, we need enough scope that should the trade turn, we have some ‘breathing room’ before ‘hopefully’ the tape turns and does what it is supposed to do. I say this in a somewhat cynical view, as hope is not a word we use in trading, and we react, and it’s how we react that defines the trade.

Pivot points married with implied volatility

I will often use pivot points (PP) on an intra-day basis, and as a guide to assess areas where we may see supply or bids come into the market after a move in the price – combining PP with the daily implied move derived through options pricing increases my conviction. For example, if I see the daily ‘straddle’ is pricing a 65-point move in AUDUSD (that move being higher or lower) and that move is close to the R2 or S2 (on the pivot points) then it gives me some belief of where the daily move should be contained, and because the options price is based on one standard deviation, I can hold a near 70% level of confidence here.

In the options world, this makes even more sense because market makers will have a vested interest in price not moving through the straddle price or ‘breakeven’ levels, as the buyer of volatility will be in the money.

Some will effectively combine Bollinger bands (BB) with pivot points. In fact, while the logic is wholly different, PP are similar to BB’s, as often you will see price contained intra-day by R2 or S2. Unlike BB’s, I am not sure of the statistical probability with using PP, but it would be high, at least on an intra-day basis.

With PP’s we can get information about who is deemed in control of a move, i.e. the bulls or bears, simply by seeing if the price is above or below the PP (pivot point). Naked chartists or pure price action traders would argue this is argument is clear from the candles anyhow, but it is nice to get a helping hand.

In the current AUDUSD set-up, we see the BB are narrowing, telling us realised vol is falling which we also see from the 5-day ATR (below)

In the above example, the price is only just below the PP, so not giving too much away.

However, I like the fact price is holding the 5-day EMA, which is trending higher and until price closes below here then I would also expect buyers to work order into S1. The top BB intersects with R1 and R2, but we can also see resistance at the TDST resistance at 0.6612 – For those who use ID sequential would understand a closing break here be bullish and suggest the pair will resume trending higher, with the price likely hugging the upper BB, with selloffs defined and contained into 5-Day EMA. One for the radar, although I guess I’d want to see a break higher in the US500.

I won’t go into the TD sequential indicator, but we can use this indicator effectively for timing reversals and/or understanding where we are in a trend. But it also has risk control elements that can be useful.

Here’s a good video on using this indicator

Implied volatility

Implied volatility (IV) is a consideration that gets less attention from retail FX traders, well, outside of those who trade options – Mostly as its harder to get the intel. Changes in IV is driven by options pricing and will give a sense of what the market believes is the expected movement in an instrument.

Volatility is set as an annualised (standard deviation) return, so when we look at monthly vol it looks at 1-month options which tell us the expected percentage move in spot (up or down) in the coming 12 months from current prices. We can break that down into daily, weekly, or monthly moves, by dividing the IV level by the square root of that period (time). For example, to get a daily move from 1-month vol, we know there are 250 trading days in a year. The square root of 250 is 15.8. So, if the 1-month AUDUSD implied vol is 10.86%, we know the implied daily move derived from the monthly expiry is around 0.68% (10.86/15.81).

Trading volatility is a science in itself, but I use it to understand how the market perceives future movement in an instrument over a pre-defined time frame. It will take in an element of historic/realised moves, but importantly looks ahead at all known events and makes a judgment call on the degree of movement in the underlying. I did a webinar on the subject:

– it is tough going, but hopefully, it can steer.

What interesting for me right now, is vols in major FX pairs are falling hard and IV has been radically suppressed. Of course, this is down to central banks and the incredible measures they have announced, and the fact that they are moving in alignment albeit with slightly different degrees of actions – the wash-up is vols have been shot to pieces.

For me, this has big implications not just on position size, but generally lower vol and positive equity markets mean carry positions tend to work far better – we often see increased flow in the MXN and TRY for example, as clients look at swap rate differentials.

But if I am looking at my AUDUSD example, and I am looking levels to fade the move intra-day, I can see this implied daily move also sits just below R2, the top BB and TDST. I am a willing seller into here, with a view to reverse the position on a daily close through 0.6611.

I often look at weekly IV and the implied move again, which may help with your perception of movement, which can help with position sizing. For those who are interested in this subject, I will cover off more on it in future.

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Chris Weston, Head of Global Research at Pepperstone.

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The Week Ahead – Geopolitics, Central Banks and COVID-19 in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 22nd May. In the week prior, 57 stats had also been in focus.

For the Dollar:

It’s a relatively busy week ahead on the economic data front.

A quiet 1st half of the week leaves May consumer confidence figures in focus on Tuesday. The markets will be looking for a pickup in confidence as the government eases lockdown measures. A continued rise in jobless claims, however, may lead to softer than anticipated numbers.

In the 2nd half of the week, April durable goods orders and weekly jobless claims will be in focus on Thursday.

While the markets may be able to stomach a slide in durable goods order, the weekly jobless claims will need to slide back considerably.

At the end of the week, April inflation figures, personal spending, and May’s Chicago PMI will also be in focus.

Barring any downward revision, we would expect 2nd estimate GDP numbers to have a muted impact on Thursday.

Other stats in the week include the April housing sector and trade data and finalized Michigan consumer sentiment figures. Expect the markets to also brush these numbers aside in the week.

Outside of the numbers, we will expect chatter from Capitol Hill and COVID-19 numbers to remain key drivers. On the monetary policy front, FOMC members will also draw more attention. At the end of the week, FED Chair Powell delivers a speech to wrap things up.

The Dollar Spot Index ended the week down by 0.54% to 99.863.

For the EUR:

It’s another busy week ahead on the economic data front.

In the 1st half of the week, key stats include German business and consumer confidence figures and 2nd estimate GDP numbers on Monday.

Barring a downward revision from 1st estimates, expect the consumer and business confidence figures to have a greater impact.

The markets will then need to look ahead to a relatively busy Friday.

Key stats include German and French retail sales figures for April and 2nd estimate GDP numbers from France.

The data is unlikely to have a material impact on the EUR, however. With the Eurozone in lockdown throughout April, the markets should be able to look beyond any dire numbers.

Over the course of the week, prelim May inflation figures are also due out but will have little influence.

For the EUR, a continued easing in lockdown measures and a downward trend in new COVID-19 cases is a must.

From the ECB, ECB President Lagarde is due to speak on Wednesday ahead of the ECB Financial stability review. Expect EUR sensitivity.

The EUR/USD ended the week up by 0.75% to $1.0901.

For the Pound:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats due out of the UK to provide the Pound with direction.

A lack of stats will leave the Pound in the hands of Brexit and COVID-19 news updates.

We’ve seen the Pound under tremendous pressure as a result of the lack of progress on Brexit.

Boris Johnson has stated that, in spite of the lockdown, there would be no extension to the transition period. Based on progress to date, the chances of a hard Brexit have increased as a result. A change in stance by the British PM and the Pound would find support, else expect a reversal of last week’s gains.

Brexit news from the weekend was Pound negative…

The GBP/USD ended the week up by 0.47% to $1.2173.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

For the Loonie, however, the markets will need to wait until Friday for economic data.

Key stats include 1st quarter GDP numbers and April’s RMPI.

We’ve seen GDP numbers from elsewhere. Will Canada see a similar contraction? Economists think so. It may be for that very reason that BoC Governor Poloz is scheduled to speak on Tuesday and Wednesday…

Away from the calendar, the upward trend in crude oil prices and a continued easing in lockdown measures remain Loonie positives. It remains to be seen whether crude can continue on the road to recovery, however.

Downside risks do remain. These include any signs of a 2nd wave pandemic and the U.S and China moving beyond words…

The Loonie ended the week up by 0.80% to C$1.3996 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s another quiet week ahead for the Aussie Dollar.

Key stats include 1st quarter construction work done and private new CAPEX on Wednesday and Thursday.

On Friday, April private sector credit figures will also be in focus.

With the economy in meltdown going into April, however, we would expect the numbers to have a muted impact.

The RBA has talked of material contraction in the 2nd quarter, so don’t expect 1st quarter and April stats to do too much damage.

Expect COVID-19 updates and any U.S or China move to influence, however.

The Aussie Dollar ended the week up by 1.93% to $0.6537.

For the Kiwi Dollar:

It’s another relatively quiet week ahead on the economic data front.  Key stats include April trade figures on Tuesday and May business confidence figures on Thursday.

The RBNZ downplayed the market optimism in its last policy statement. That should limit any material upside for the Kiwi Dollar from the stats.

While trade data has stood up well considering the economic lockdown, will business confidence see some improvement?

Concerns over global trade terms and tourism will certainly be two major issues that businesses will continue to face.

Outside of the numbers, the RBNZ Financial Stability Report Wednesday will draw attention. The Kiwi will also be sensitive to any chatter or action from Beijing and Capitol Hill.

The Kiwi Dollar ended the week up by 2.68% to $0.6094.

For the Japanese Yen:

It’s a relatively busy week ahead on the economic data front.

The markets will need to wait until Friday for the numbers, however.

Key stats include May inflation figures and April industrial production and retail sales numbers.

With the Japanese government only just lifting the COVID-19 state of emergency, April figures are likely to be dire… There shouldn’t be too many surprises, however.

May inflation figures will also have little influence on the Yen. A pickup in crude oil prices will provide support but unlikely to be material, with consumption having tanked…

Outside of the numbers, risk sentiment will continue to influence, though it may be too soon for the Dollar to give up the safe-haven mantle…

The Japanese Yen ended the week down by 0.54% to ¥107.64 against the U.S Dollar.

Out of China

It’s another quiet week ahead on the economic data front. Economic data is limited to April’s industrial profits. No one is expecting any major rebound, which leaves the markets exposed to any accelerated decline…

Ultimately, the market focus will remain on COVID-19 news and moves by Beijing and Washington amidst the latest spat.

Beijing’s plans to impose a security law on HK will also need close monitoring… U.S President Trump has promised a strong U.S response to any such move.

The Chinese Yuan ended the week down by 0.39% to CNY7.1294 against the U.S Dollar.

Geo-Politics

UK Politics:

Brexit and lockdown measures remain the key areas of focus in the week ahead.

While the Pound found much-needed support last week, a lack of progress on Brexit will be an issue.

News hit the wires over the weekend of the EU beginning to prepare for a hard Brexit. This may price out the element of hope that has continued to support the Pound.

COVID-19 news will also be of influence, as the UK government struggles to contain the spread of the virus.

U.S Politics:

Rising tensions between the U.S and China will likely be a key driver in the week ahead.

If Trump signs the Bill to target Chinese companies, expect China to target U.S companies with heavy reliance on China…

The markets will also be watching to see how the U.S responds should China formally introduce the security law for HK.

The Coronavirus:

Easing measures will continue in the week.

We’ve yet to see a marked increase in the number of COVID-19 numbers across the EU or the U.S, though concerns will linger over what lies ahead. Some comfort will be taken from the fact that China reported zero new cases on Saturday.

From the market’s perspective, there are 3 key considerations that remain:

  1. Progress is made with COVID-19 treatment drugs and vaccines.
  2. The downward trend in new coronavirus cases continues.
  3. Governments continue to progress with the easing of lockdown measures.

All of this will need to translate into a marked decline in jobless claims and a pickup in consumer confidence and consumption… U.S Jobless claims figures released last week were disappointing, raising some doubt over how quickly the job markets will recover.

At the time of writing, the total number of coronavirus cases stood at 5,396,972, with the U.S reporting 1,666,246 cases to-date.