Euro, sterling plunge on soft business activity data, UK budget woes

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The euro and sterling plummeted to fresh 20-year and 37-year lows against a surging U.S. dollar on Friday after surveys showed the downturn in business activity across the euro zone and Britain accelerated this month and the economies were likely entering a recession.

Also weighing on sterling, Britain’s new finance minister Kwasi Kwarteng announced tax cuts and household and corporate support measures and the UK debt office laid out plans for 72 billion pounds ($79.74 billion) of additional issuance for this financial year to fund the stimulus.

Sterling posted its biggest weekly decline against the U.S. dollar in two years after it touched a fresh 37-year low of $1.0840. The pound was the day’s biggest loser against the dollar, down 3.4% at $1.0874, and also had its largest daily percentage loss in two years.

British bond yields also surged on Wednesday as prices sank. Benchmark UK 10-year yields soared to 3.829%, a level not seen since April 2011.

“The market is giving very strong signals that it is no longer willing to fund the UK’s external deficit position at the current configuration of UK real yields and exchange rate,” wrote George Saravelos, global head of FX research at Deutsche Bank in a research note.

“The policy response required to what is going on is clear: a large, inter-meeting rate hike from the Bank of England as soon as next week to regain credibility with the market. And, a strong signal that it is willing to do ‘whatever it takes’ to bring inflation down quickly and real yield into positive territory,” he added.

Earlier in the session, UK PMI figures showed the downturn in Britain’s economy worsened this month as companies battled soaring costs and faltering demand.

Moving in line with the pound, the euro dropped 1.5% to $0.9689, after earlier hitting its lowest level since October 2002 of $0.9669.

The fall was triggered in part by data showing S&P Global’s flash euro zone Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, fell further in September.

The downturn in German business activity deepened, as higher energy costs hit Europe’s largest economy and companies saw a drop in new business.

Europe’s shared currency had its worst weekly performance since March 2020.

CENTRAL BANK POLICIES

The yen was 0.6% lower at 143.30 per U.S. dollar, but had its first weekly gain of 0.3% in more than a month after Japanese authorities intervened in markets on Thursday to support the currency for the first time since 1998.

The yen rallied more than 1% on Thursday on news Japan had bought yen to defend the battered currency. Trading was thin on Friday with Japanese markets closed for a public holiday.

The dollar index, which measures the U.S. currency against a basket of currency including euro, sterling and yen, surged to 113.23, its highest since May 2002 and topping two-decade highs hit earlier this week. It was last up 1.6% at 112.96, posting its best largest weekly percentage rise since March 2020.

“The buck is indeed a safe haven unlike any other time in recent decades because the war and its effects are not affecting the U.S. domestic goals,” said Juan Perez, director of trading at Monex USA in Washington.

The Bank of England lifted interest rates by 50 basis points on Thursday in an attempt to tackle inflation but, like previous rate hikes in recent months, the move failed to support the pound as it was overshadowed by concerns about the economy.

The dollar received a boost this week from a very hawkish Federal Reserve policy announcement and rising Treasury yields.

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Currency bid prices at 4:01PM (2001 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 112.9400 111.2200 +1.56% 18.060% +113.2300 +111.0700

Euro/Dollar $0.9695 $0.9834 -1.41% -14.72% +$0.9851 +$0.9669

Dollar/Yen 143.3100 142.4000 +0.65% +24.50% +143.4500 +141.7700

Euro/Yen 138.93 140.00 -0.76% +6.61% +140.2500 +138.6800

Dollar/Swiss 0.9820 0.9769 +0.52% +7.66% +0.9839 +0.9757

Sterling/Dollar $1.0869 $1.1259 -3.46% -19.62% +$1.1273 +$1.0840

Dollar/Canadian 1.3590 1.3488 +0.77% +7.50% +1.3612 +1.3470

Aussie/Dollar $0.6534 $0.6642 -1.63% -10.12% +$0.6656 +$0.6512

Euro/Swiss 0.9520 0.9608 -0.92% -8.19% +0.9622 +0.9499

Euro/Sterling 0.8916 0.8734 +2.08% +6.14% +0.8934 +0.8712

NZ $0.5751 $0.5846 -1.63% -15.98% +$0.5856 +$0.5732

Dollar/Dollar

Dollar/Norway 10.5920 10.3915 +2.21% +20.56% +10.6520 +10.4155

Euro/Norway 10.2669 10.2331 +0.33% +2.59% +10.3117 +10.2080

Dollar/Sweden 11.2817 11.0650 +0.59% +25.10% +11.3275 +11.0552

Euro/Sweden 10.9402 10.8763 +0.59% +6.88% +10.9598 +10.8896

(Reporting by Gertrude Chavez-Dreyfuss in New York; Additional reporting by Joice Alves in London; Editing by Susan Fenton and Jonathan Oatis)

Goldman recommends traders short the euro versus Swiss franc after ECB rate hike

LONDON (Reuters) – Goldman Sachs recommends investors short the euro against the Swiss franc following the European Central Bank’s record rate increase as they think it likely the Swiss National Bank will want to take action to arrest the franc’s depreciation.

In a note published on Thursday, Goldman Sachs said they recommend a short EUR/CHF trade, targeting 0.955 on a tactical horizon, with a stop at 0.985.

One euro was worth 0.9668 Swiss francs on Thursday.

(Reporting by Samuel Indyk, editing by Alun John)

Trade Of The Week: Can ECB Hawks Rescue Euro Bulls?

Our focus falls on the European Central Bank (ECB) which is expected to unleash a monetary bazooka in the form of a 75-basis point rate increase! Such a move will place the ECB among the ranks of 40+ central banks that have increased rates by 75bp or more in one go this year in the face of soaring inflation.

Before we take a deep dive into what to expect from the ECB meeting on Thursday, it is worth keeping in mind that the Eurozone economy remains vulnerable and faces the growing risk of recession. The unsavoury combination of ongoing geopolitical tensions, untamed inflation, and energy crisis continues to darken the outlook for Europe with the latest development revolving around Russia’s Gazprom dumping salt into the wound.

Interestingly the euro was able to hold its ground versus most G10 currencies in August excluding the dollar. However, things are not looking too pretty quarter-to-date with the euro down roughly 5.7% against the king of the currency space.

Since the EURUSD secured a solid daily close below parity back in late August, prices have struggled to push higher thanks to technical and fundamental factors.

The outlook for the EURUSD remains bearish on the daily, weekly, and monthly timeframe with prices wobbling above 0.9900 as of writing. Given how the ECB is expected to join the jumbo hike club, could this be enough to cushion the downside and rescue euro bulls?

The Low Down…

Eurozone inflation hit a new record high in August at 9.1%.

This was higher than the 8.9% witnessed in July and above the 9% market forecast. With inflation hitting such lofty and uncomfortable levels, market expectations intensified over the ECB adopting an aggressive approach toward rates in an effort to cap inflation. According to Bloomberg, traders and predicting a 66% probability of a 75 bp rate hike in September. It does not end here.

Last Friday, Gazprom made a last-minute decision to suspend natural gas flows through the Nord Stream 1 pipeline – ultimately worsening the squeeze on Europe’s energy supplies. This move is likely to expose the economy to downside shocks and create more uncertainty and fuel inflationary pressures as gas prices soar.

What to Expect From ECB?

Before thinking about what to expect from the ECB on Thursday, there are a couple of things to keep in mind before the big day. ECB hawks are certainly in the building but the question is how much resolve they have to tame inflation. It’s worth keeping in mind that the latest ECB economic forecasts could offer fresh insight into inflation expectations. It will be interesting to see what the central bank has to say about the energy crises and whether this will push the Eurozone into recession. Let’s not forget about the depreciating euro and how it could impact the central bank’s policy outlook.

Possible Outcomes on Thursday

  • ECB hikes rates by 75 basis points and strikes hawkish tone opening doors to further jumbo hikes. This move may inject euro bulls with fresh inspiration, pushing the EURUSD back above parity towards 1.0100. However, upside gains may be capped by the gloomy outlook for the Eurozone.
  • ECB hikes rates by 75 bp but expresses concern over the economic outlook, reducing bets of more aggressive hikes down the road. Euro pops higher but bears seize control – limiting gains below parity
  • ECB surprises markets with a 50 bp hike and strikes dovish tone, this could excite euro bears – triggering a selloff that breaches the 0.9900 floor.

EUR/USD: The Path of Least Resistance South…

As the subtitle says, the path of least resistance for the EURUSD points south.

Earlier we identified how the currency pair was bearish on the daily, weekly and monthly timeframe. Looking at the weekly timeframe, prices are respecting a bearish channel and trading well below the 50-, 100- and 200-week Simple Moving Average. Sustained weakness below parity could trigger a selloff towards 0.9700 and 0.9600, respectively. A strong weekly move back above 1.1000 may suggest an incline towards 1.0200.

Zooming in on the daily, prices remain bearish but there could be a period of consolidation if 0.9900 proves to be reliable support. A solid daily close below this level could trigger a selloff towards 0.9700. Should 0.9900 prove to be reliable support, a rebound towards parity and potentially higher could be on the cards before bears re-enter the scene.

For more information visit FXTM.

CHF Supports Not Waning Yet | USD/CHF & EUR/CHF

The reversal in fortune for the Swiss Franc has been one of the more interesting market stories this year. Following initial weakness as the US Dollar soared higher over Q1 & Q2, the Swiss Franc has since rebounded almost 7% against the DollarAgainst the Euro, the Franc has climbed almost 10%.

As we begin to move into the second-half of the year, traders are wondering whether the strength in CHF is likely to continue, or if a reversal is on the cards? With that in mind, it’s important to take a look at the factors which have been driving CHF this year and whether they are likely to continue to support the currency or if a change is likely.

Factors Driving CHF So Far This Year

  • Changing SNB narrative
  • Shifting risk flows

Changing SNB Narrative

The main factor driving the current rally in CHF has been the shift in SNB narrative we’ve seen this year. Over the early part of the year, the SNB reaffirmed its commitment to maintaining an easing presence in the markets, despite soaring global inflation and many other central banks embarking on a tightening path. This message saw huge capital outflows from CHF as rising rate projections in other economies attracted demand away from CHF.

However, as we moved through Q2, the SNB began to shift its view, raising its inflation forecasts over the year and warning of the need to intervene to help quell rising prices. Then, in a major twist, the SNB announced a surprise rate hike in June, lifting rates from -0.75%, the lowest in the world, to -0.25%. This move front-ran the anticipated ECB hike in July and fuelled a major rally in CHF across the board, most notably against those currencies which had previously been supressing CHF.

Shifting Risk Flows

With the SNB hiking rates and signalling further hikes to come, along with removing its usual language around excessive franc strengthening, CHF saw a fresh influx of safe-haven demand. Prior to the move by the SNB, JPY had been the safe-haven of choice, along with USD. However, the fresh surge of demand on the back of the rate-hike saw capital rotating out of other safe haven areas, including gold, and into the Swissy.

Upside Risks for CHF

Looking ahead, there is good reason to anticipate further CHF strengthening. The shift in narrative at the SNB represents a major change in the global financial system, given the SNB’s prior status of having the lowest rates globally. As the SNB continues to lift rates, particularly if/when rates turn neutral/positive, this will draw further capital inflow to CHF.

Potential “Fed Pivot”

Alongside this, there is now a growing conversation around the Fed potentially slowing down on rates. With economic activity having remained in negative territory in Q2 and with recent CPI data showing that inflation slowed last month, many players are now repricing their Fed rate projection over the remainder of the year. If the Fed does slow down on rates and the focus on the recession grows in prominence, this will no doubt act as a downward catalyst for USD, bolstering demand for CHF.

Risk Backdrop to Remain Supportive

Furthermore, the risk backdrop which has been supporting CHF looks set to continue to add support. While global stocks are currently rallying the re-pricing of Fed rate hike expectations, if focus begins to land more on the risks of a global recession, this is likely to see stocks begin to slide, driving greater safe-haven demand towards CHF.

With the Russia-Ukraine war showing no signs of ending near-term, and with the negative impacts of the war growing as time goes on (energy prices rising, supply issues driving inflation), risk appetite remains highly vulnerable to further downside shocks. With this in mind, CHF look likely to continue to rally against EUR which is bearing the brunt of the war due to the eurozone’s specific economic exposure to Russia and Ukraine.

Let’s take a look at the technical layout for both USDCHF and EURCHF.

USD/CHF – Weekly Chart 

The break below the .9540 level was a significant technical development. However, the breakdown was immediately rebuffed by demand at the .9375 level. With price still above the bullish trend line from 2021 lows, traders need to monitor the current resistance. A break back above here will turn focus to the .9640 level next. To the downside, a break of the support and trend line will open the way for a move down to .9100

 

Chart, line chart Description automatically generated

 

EUR/CHF – Weekly Chart

The bearish channel in EURCHF has seen the market breaking down below several key support levels. With price now trading below the last support at the .9780 level and below the bear channel low, the outlook remains heavily bearish. Bulls will need to see a break of the 1.0100 level to affect a shift in sentiment for the pair.

 

Chart, line chart, histogram Description automatically generated

ESTY DWEK – CIO

EUR/CHF Parity Could Signal Further Euro Declines

The steep drop in the euro has come back into focus this week with EURUSD plunging to fresh 2022 lows, now down close to 10% on the year. However, perhaps the most notable development is EURCHF holding below parity for the first time since the currency peg was removed in 2015.

While the pair tested below parity earlier in the year, the move was quickly rebuffed. However, with EUR sinking across the board, the move looks likely to hold this time and given the general backdrop traders are now asking whether EURUSD will be the next pair to sink below parity or whether EUR is likely to reverse in the near-term.

In order to assess this, let’s take a look at what has been driving price action this year and how these factors are likely to develop going forward.

What has been driving EURUSD and EURCHF this year?

  • Dovish ECB Vs G10 Central Banks
  • Policy shift at the ECB / EZ recession risk
  • Unexpected SNB Rate hike

Dovish ECB Vs G10 central banks

Over much of the first half of the year, EUR was driven lower as a result of the monetary policy divergence between the ECB and Fed, as well as other hawkish central banks within the G10. With the ECB battling the fallout from the Ukraine war, the eurozone economy was thought to be too fragile to withstand any tightening and the ECB reaffirmed its commitment to maintaining an easing presence in the market.

Shift in ECB sentiment

Since Q2, however, there is an important shift. The ECB is no longer able to ignore spiralling inflation nor could they any longer categorise the rise as transitory. With price soaring across the eurozone, the ECB began to lay the groundwork for the first rate-hike in over a decade.

The sudden shift in outlook from the ECB affected a pause in the EURUSD decline as traders digested the shifting landscape. The central bank has since turned more hawkish and announced 50 basis points in July and signalled further rate hikes in the coming months, committing itself to bringing inflation back to 2%.

Unexpected SNB rate hike

However, the sudden shift at the ECB was not the only major surprise on the central bank front this month. The SNB front-ran the ECB’s July hike with an unexpected 50bps hike in June.

In the face of slower than elsewhere but quickly-expanding Swiss inflation, the SNB announced the move and signalled the likelihood of further hikes to come this year as it too battles inflation. Notably, the SNB was even seen refraining from its usual comments around the strength of the Franc. With Switzerland losing its status as having the lowest interest rates globally, CHF saw a seismic shift in price action, reflected in the swift drop below parity in EURCHF.

Bearish outlook for EUR

Given the more vulnerable nature of the eurozone economy with regard to the ongoing conflict in Ukraine, the risks look skewed towards further downside.

The ECB’s shift in tone was largely upstaged by more aggressive action from the Fed in June and with further such action expected this month and across the remainder of the year, it seems hard to think the ECB will be able to play catch-up, especially given the more idiosyncratic risks the eurozone faces.

Indeed, the ECB’s planned monetary policy normalisation is adding to growth fears in the eurozone, heightening the risk of recession there, which will no doubt create a further drag on EUR. Both USD and CHF stand to benefit, not just from central bank hawkishness, but also from increases safe-haven demand amidst any further market volatility this year.

EUR bullish risks

It’s important to highlight the risks to this outlook. Given the level of built-up hawkish Fed expectations. If the Fed is seen pausing rate hikes or greatly reducing the pace of hikes over the remainder of the year, this might allow EURUSD to recover. Similarly, if recessionary risks die down and safe-haven demand fades, EURCHF might find similar room to recover.

EURUSD – Monthly chart

The breakdown below parity, a long-term support level, is a major bearish development. While the price has recovered somewhat since the sentiment and momentum remain weak. The bulls need to see a break back above 1.0800 to negate this view.

EURCHF – Weekly Chart

EURCHF has been grinding lower within a well-defined bear channel over the last few years. Recently, we’ve seen prices blowing through parity and falling as low as 0.9700. Down here, the outlook is not very cheerful and the pair could see a leg lower unless the SNB surprises markets with a less hawkish tone.

EUR/CHF Parity Could Signal Further Euro Declines

While the pair tested below parity earlier in the year, the move was quickly rebuffed. However, with EUR sinking across the board, the move looks likely to hold this time, and given the general backdrop, traders are now asking whether EURUSD will be the next pair to sink below parity or whether EUR is likely to reverse in the near-term?

In order to assess this, let’s take a look at what has been driving price action this year and how these factors are likely to develop going forward.

What has been driving EURUSD and EURCHF this year?

  • Dovish ECB Vs G10 Central Banks
  • Hawkish Fed
  • Policy shift at the ECB / EZ recession risk
  • Unexpected SNB Rate hike

Dovish ECB Vs G10 central banks

Over much of the first half of the year, the EUR was driven lower due to the monetary policy divergence between the ECB and Fed and other hawkish central banks within the G10. With the ECB battling the fallout from the Ukraine war, the eurozone economy was thought to be too fragile to withstand any tightening, and the ECB reaffirmed its commitment to maintaining an easing presence in the market.

Hawkish Fed

On the other hand, the Fed was turning aggressively more hawkish. Following the initial Q1 rate hike, the Fed began quickly upgrading its rate projections, and with each meeting since March has turned more and more hawkish. In June, the Fed announced a 75bps hike, its largest hike since the early 90s, and traders are now forecasting a similar move to come this month.

A shift in ECB sentiment

Into Q2, however, there was an important shift. The ECB was no longer able to ignore spiraling inflation, nor could they any longer categorize the rise as transitory. With prices soaring across the eurozone, the ECB began to lay the groundwork for the first-rate hike in over a decade, due this month.

The sudden shift in outlook from the ECB affected a pause in the EURUSD decline as traders digested the shifting landscape. While the bank initially signaled a 25bps hike in July followed by a larger hike in September, the bank has since turned more hawkish, and the market is now anticipating a larger hike in July followed by a further hike in September.

Unexpected SNB rate hike

However, the sudden shift at the ECB was not the only major surprise on the central bank front this month. The SNB front-ran the ECB’s July hike with an unexpected 50bps hike in June.

In the face of slower than elsewhere but quickly-expanding Swiss inflation, the SNB announced the move and signaled the likelihood of further hikes to come this year as it battles inflation. Notably, the SNB was even seen refraining from its usual comments around the strength of the Franc. With Switzerland losing its status as having the lowest interest rates globally, CHF saw a seismic shift in price action, reflected in the swift drop below parity in EURCHF.

The bearish outlook for EUR

Given the Fed’s own aggressively hawkish projections and the more vulnerable nature of the eurozone economy with regards to the ongoing conflict in Ukraine, the risks look skewed towards further downside.

The ECB’s shift in tone was largely upstaged by more aggressive action from the Fed in June, and with further such action expected this month and across the remainder of the year, it seems hard to think the ECB will be able to play catch-up, especially given the more idiosyncratic risks the eurozone faces.

Indeed, the ECB’s planned monetary policy normalization is adding to growing fears in the eurozone, heightening the risk of recession there, which will no doubt create a further drag on the EUR. Both USD and CHF stand to benefit, not just from central bank hawkishness but also from increased safe-haven demand amidst any further market volatility this year.

The EUR bullish risks

It’s important to highlight the risks to this outlook. Given the level of built-up hawkish Fed expectations, any shift in this narrative will no doubt weigh on the USD. If the Fed is seen pausing rate hikes or greatly reducing the pace of hikes over the remainder of the year, this might allow EURUSD to recover. Similarly, if recessionary risks die down and safe-haven demand fades, EURCHF might find similar room to recover.

EURUSD – Monthly chart

The breakdown below the 1.0350 support level formed by 2016 and 2022 lows is a major bearish development. While price holds below this level, the outlook is for the pair to continue lower toward parity and perhaps to record lows. Bulls need to see a break back above 1.0800 to negate this view.

Monthly Chart
Source: FlowBank / TradingView

EURCHF – Weekly Chart

EURCHF has been grinding lower within a well-defined bear channel over the last few years. Recently, we’ve seen price blowing through key supports, including the 1.0100 level. While below here, the outlook is focused on a test of the .9780 level next and the channel low.

Weekly chart
Source: FlowBank / TradingView

The Story for the Swissie

Professional forecasters and central banks have been surprised by the persistence of rising prices, with the latter rapidly shifting their forward guidance. The Swiss National Bank (SNB) has just announced a policy normalization, surprising markets with a 50-basis point hike. What will this mean for the Swiss franc?

In short: 2022 has given investors a lot to chew on. But among many developments of this year, one really stands out; It’s inflation and the impact that high inflation has had on central bank policy. The USDCHF, known as the Swissie, rose to multi-month highs, briefly crossing above parity because of rising yields in the US, but fell nearly 3% after an unexpected 50bps rate hike from the SNB. Similarly, EURCHF which received a boost from the ECB early in the month, slid more than 2% to retest its previous support level.

From a fundamental perspective, odds are in favor of a stronger Swiss franc. EURCHF weakness is set to continue despite ECB’s policy normalisation as the risks of an economic slowdown in the Old Continent are rising. And though the war in Ukraine is weighing on the CHF against the USD, we expect the Swissie to ultimately mean revert, as we expect inflation to start cooling off in the US, removing pressure on the Fed to pursue its aggressive policy.

FX markets vs Equity markets

Geopolitical tensions and concerns about stagflation have dominated financial markets this year, pushing investors away from riskier assets. The EURCHF was tracking the underperformance of the German DAX index compared to the more defensive Swiss SMI index for much of the past year, with the pair trading at one point near parity.

But recently, even as risk appetite is back in the markets, the EURCHF is on the fall as the SNB didn’t show hesitance to firmly raise rates by 50bps. Why is the SNB not worried about a stronger CHF? On one hand, the high level of inflation in the Eurozone compared to inflation in Switzerland reduces the negative impact of a stronger CHF, taking off pressure on the Swiss National Bank (SNB) to intervene heavily in the FX market.

On the other hand, a rapid appreciation of the EUR against the CHF would undermine SNB’s price stability mandate, the reason why the governor of the SNB announced similar plans (if not more bullish), challenging speculative bets on a stronger EUR against the CHF.

ECB’s policy normalisation is positive for the euro, but not enough. Now that the war is escalating, with Russia cutting off gas supplies and the EU agreeing on a partial ban on Russian oil imports, the risks of higher for longer EU inflation have increased.

ECB

European consumers saw inflation (CPI) increase by 8% in May, and European producers saw input prices surge close to 37% year-over-year. These record numbers put enormous pressure on ECB to raise rates significantly to lower the burden of imported inflation. The current market pricing for the ECB terminal rate stands at 1.76%.

This implies ECB’s expected tightening policy is around 0.30% above the neutral rate (estimated at 1.5%). Historically, that has not been enough. In the early 90s, the Banque De France pushed 5-year French government bond yields more than 200bps above the prevailing levels of neutral nominal rates to avoid the de-anchoring of inflation expectations. Should the ECB find itself in such a situation, this significantly increases the risk of a recession in the eurozone and consequently the risk of a weaker EUR.

The battle between the bulls and bears

A terrific chart setup does not always require fancy lines, zones, and indicators. Looking at the USDCHF graph, the sentiment was quite bullish for the USDCHF in the second quarter of 2021, period during which USDCHF briefly broke above parity driven by higher real yields in the US. Though recently, dollar bulls seem caught by surprise. The pair fell almost 3% when the SNB announced a shocking but robust 50bps rate hike, squeezing short bets on the Swiss franc.

Lately, the price is oscillating around 0.9650 just below the 0.50 Fibonacci retracement level (0.97), suggesting an intense ongoing battle between the bulls and bears. Any move above or below is likely to signal the beginning of another trend in the pair.

However, traders need to be cautious of the bearish trend of the dollar. From a longer-term picture, the Swiss franc remains cheap versus the dollar as Switzerland has consistently had a current account surplus of roughly 8% of GDP, way above the level of deficits that the US government has reported for decades.

In addition, after rocketing higher over the past year, economists do expect US inflation to moderate for the rest of 2022. We’re seeing encouraging signs that some of the worst disruptions to supply chains are easing, the cost of freight is declining, many retailers are now reporting plenty of inventory, and market-based estimates of future inflation have been declining in the US.

If this trend of moderating inflation can hold, this would remove the market’s fear of an extreme 1970s-style scenario, and hence reduce pressure on the Fed to pursue a very aggressive policy, something that is starting to be priced in by Treasuries as yields on the 10-years US government bonds are pulling back from June highs.

Negative Feedback Loop, Oil Off the Lows ,Gold Shines + Friday Forex Follies – G10 and Asia FX

Global Macro and Stock Markets Analysis

Broader indexes are off the lows, but conviction remains near zero. The rebound was primarily due to covering bids by crowded shorts and a slight bounce in higher beta Tech as bond yields fall.

Mounting global recession risk is top-of-mind for markets but as the procession to recession shortens, growth concerns are rising, leaving equities vulnerable to the negative feedback loop.

What would typically be met with a shoulder shrug, incrementally weaker data can now amplify downside move. And with few positive developments of late, the market remains vulnerable to the prevailing narrative, with the negative feedback loop only growing louder in recent sessions.

Oil Fundamental Analysis

China is easing lockdowns and mobility restrictions in Shanghai and considering more widespread easing, leading to higher oil prices. Though Brent is off weekly highs, it is still well-above weekly lows.

The growing threat of disruption to Russian crude exports continues to help oil sentiment, despite opposition to an EU-wide embargo from Hungary and a handful of other EU member states that remain heavily reliant on Russia.

News of unrest in Libya reminds supply-side risks, but Russia remains the focus.

And while more extensive than expected drops in US crude and gasoline inventories initially had a limited impact, this week’s US inventory data still screens bullish for oil.

But if US growth data continues to sour, oil prices could get caught up in the negative stock market feedback loop.

Gold Fundamental Analysis

Gold has turned higher as US yields slip and the US dollar sheds some of its safe-haven appeals due to weaker US growth data.

The dynamic in the gold market has changed for the first time in several months. Bullion prices have begun liberating themselves from the tendency to sell into economic destruction, similar to other commodities, and now appear to be acting as a safe- haven. With gold performing well as equities tumble, bullion could catch a short market by surprise if it can hold this pattern.

Friday’s Forex Follies

The safe-haven dollar is not so safe these days.

The US dollar is weaker as the curve is pricing in fewer hikes, and some are putting higher weight on recession probability.

So, the focus has turned from don’t fight the Fed to a policy mistake with hikes getting priced out along the US curve on poor data and higher recession risks. The Fed is leading the hiking cycle, so USD will also get hit first as hikes are repriced lower.

Rates market Technicals are also playing a role, with 10y yields topping out near 3%. The lower end of the range is now 2.70%, so some in the market think there can be a test of that level on the downside; hence gold has found some lustre.

China stabilizing would be a massive weight off the equity market’s shoulders. A couple of well-positioned areas could see a flip if there starts to be some better news from China.

From the G10 side, AUD has room to move higher if China can stabilize short term (NZD and CAD should benefit).

JPY remains a buy in a recessionary environment, as is CHF on SNB intervention talk. The ECB is raising rates into a perfect storm that will undoubtedly widen periphery spreads, making lower EURCHF screens brighter.

In Asia FX, the periphery would benefit from any easing of China concerns. Hence there has been some selling interest across $Asia pairing longs and initiating some tactical shorts on the China easing impulse. I think the undervalued MYR could be an excellent rally candidate with the BNM already hiking rates. And of course, the travel-sensitive THB is well on its way after the robust trade data, and a bounce in tourism will meld to offer the BoT room to hike rates to ward off imported inflation.

As we suggested on the China reopening bounce, it could turn the tide for the YUAN; it is seemingly doing that as there has been less USD buying the past few sessions while longs have started to give way to a strong domestic equity impulse.

However, the lower move is likely due to reports suggesting members of the Chinese Communist Party should shed overseas assets is likely contributing to the downdraft.

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

EUR/CHF Defends Crucial Supports

In some cases, like the EURUSD, it is still just a correction or at least looks like it but on other instruments, we may be witnessing something more promising.

EUR/CHF Technical Analysis

EUR/CHF Daily chart

In today’s piece is the EURCHF where we can see a really handsome bullish pattern. Since the end of February, the EURUSD was inside a symmetric triangle pattern, which was created after a strong down trend. May brought us a switch in the sentiment, which resulted in a bullish counter offensive, which managed to crash all major, mid-term resistances.

The first one, was the upper line of the triangle. That ended the correction and was the first step towards the bullish sentiment. Then, the price managed to break two horizontal resistances, pretty close to each other but each one seemed to be relevant and respected. The last one was the long-term down trendline (blue).

EUR/CHF Price Forecast

A breakout is one thing but stating the above is another. Last week, ended with a test of the broken resistances as supports. The test was positive for buyers and ended with the price aiming higher. That means that crucial levels were defended and the price should not drop any lower. It seems that in the next few days and weeks, the EURCHF should be aiming north. The positive sentiment is on the table, as long as the price stays above 1.033 (lower orange), the price coming back below would be a sell signal but chances for that are now rather slim.

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

Forex, Gold and Indices – Usual Friday Correction

Major Financial Markets Technical Analysis

USDJPY overnight corrects the 50% of the most recent downswing.

GBPJPY also slightly corrects the recent slide and tests the major horizontal resistance.

It’s also correction day for the SP500 and Nasdaq.

DAX, German Index is doing much better than its American peers. The weak Euro is to blame, which is helping German exporters.

EURUSD joins the correction party as well. 1.05 on the horizon.

Gold breaks a major, long-term up trendline.

AUDUSD breaks the long-term, horizontal support on the 0.7. That’s pretty negative.

EURCHF drops to test a combination of three crucial supports, the down trendline, a horizontal one and the upper line of the symmetric triangle.

GBPAUD with a massive double bottom formation. The price is close to a neckline, so a breakout here would be a major buy signal.

Traders Edge: Market Briefing Video 13.05.22

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

EUR/CHF Breaks Two Major Resistances and Aims Higher

EURUSD resisted, but of course the strength of the American currency didn’t help. EURUSD still suffered, but our hero today is the EURCHF, which is very strong and actually gave us a proper, long-term buy signal.

EUR/CHF Technical Analysis

Since March 2021, EURCHF is on a legitimate downtrend and since the end of February, the pair was in a symmetric triangle pattern (red). By the beginning of May, after a series of bullish candles, the price managed to escape from the triangle to the upside. That only encouraged buyers and increased the momentum allowing the price to rise further and break the mid-term down trendline (blue).

EUR/CHF Trading Strategy

Breaking those two resistances is definitely a great sign and an invitation to go long. The buy signal is here and stays on the table as long as the price stays above the horizontal support on the 1.035 (orange).

An alternative scenario includes the price coming back below the orange support, which would effectively give us a sell signal. But the chance of that happening are now rather limited.

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

Basics of Forex Trading – Part 1

What is the forex market? Why is it a great market to trade? What is a currency pair and how it is read? What are the major terms and concepts that forex traders need to learn? These are some of the questions you will find answers to at the end of this series.

Forex trading can be an exciting and lucrative activity, but it can also be tough, especially for beginners. New market participants underestimate the importance of financial education, lack risk management skills, tend to have unrealistic expectations, and fail to control their emotions, pushing them to act irrationally and impair their performance. In addition, traders in all markets have to accept drawdowns and losses because the best strategies only work part of the time.


KEY POINTS

  • The forex market is the largest and most liquid financial market in the world.
  • Traders speculate on the foreign exchange through currency pairs.
  • A variety of factors affect the price of a currency in relation to a second currency.
  • The trader opens and closes positions through buy, sell, stop, and limit orders.
  • Traders use margin and leverage to increase reward and risk.

What is the Forex Market?

The foreign exchange market, also called ‘forex’ or the ‘FX market’, is a global decentralized venue where the world’s money is exchanged through the buying and selling (short) of different currencies. This trading takes place through transactions at brokerages, over-the-counter (OTC) markets, or via the interbank system, rather than centralized exchanges.

Many types of market participants trade the forex market, including private individuals (retail traders) working from home on personal computers or on the road through mobile devices. Thousands of professionals also trade forex through funds, institutions, central banks, and commercial banks, among others.

Forex has grown into the world’s most liquid market for the following reasons:

  • Its Enormous size, with trillions of dollars in daily transactions
  • 24-hour access between Monday and Friday
  • Wide variety of currencies and currency pairs
  • All levels of volatility, from quiet price action to historic uptrends and downtrends
  • Low account minimums
  • Low transaction costs (commissions, spreads, fees, and interest)

Forex trading is conducted through cash-based spot markets, as well as derivatives markets that provide sophisticated access to forwards, futures, options, and currency swaps. Private individuals generally trade forex to speculate on higher or lower prices, making a profit or loss on each closed position. On the other hand, most institutional forex activity is geared towards hedging against currency and interest rate risk or to diversify large portfolios.

New traders open accounts at forex or contracts for difference (CFD) brokers, taking exposure when they speculate on currency pairs, like the Euro vs. U.S. Dollar (EUR/USD) or U.S. Dollar vs. Japanese Yen (USD/JPY). At a typical forex broker, the participant opens a buy or sell (short) position in a decentralized market and books a profit or incurs a loss on the difference between the opening and closing prices.

Exposure at a CFD broker is taken between the trader and broker, establishing a legal obligation to exchange the difference between the entry and exit price of the asset, which can be a currency pair or other financial instrument that includes stocks, bonds, and futures. Forex lot sizes are uniform regardless of currency pair while CFDs have greater size flexibility. This advantage translates into greater risk control and customization of a trader’s experience level and market strategy.

What Moves the Forex Market?

Many factors move the forex market on a daily basis. Forex traders keep 24-hour economic calendars close at hand because regularly-scheduled data releases generate the majority of currency pair rallies and declines, especially when numbers fall outside expectations projected by experts. Global shock events and political developments move currency markets as well, with an election, skirmish, or natural disaster translating into highly-volatile price action.

Economic Calendar

Reading a Forex Quote

Foreign exchange is always quoted in pairs. For example, in the EUR/USD currency pair, the Euro (EUR) is the ‘base’ currency while the U.S. Dollar (USD) is the ‘quoted’ currency. The quoted currency is always the equivalent of one base currency, so if the EUR/USD exchange rate is worth 1.1222, you will get $1.12 for €1.00.

Note how the EUR/USD currency pair has four decimals. This is typical of most currency pairs, except those including the Japanese Yen (JPY), which displays only two decimals. When a currency pair moves up or down, the change is measured in ‘Pips’, which is a one-digit movement in the last decimal of a currency pair. So, for example, when the EUR/USD rallies from $1.1222 to $1.1223, the EUR/USD has increased by one Pip.

Forex Quote

The broker’s trading platform will display two prices in a currency pair quotation: a SELL price on the left (BID price) and a BUY price on the right (ASK price). The difference between these prices is called the ‘spread’. The spread is pocketed by the broker and is one of the main ways in which the company makes money.

A buy order that’s filled above the quoted ask or sell order that’s filled below the quoted bid incurs ‘slippage’, one of the biggest obstacles to profitable forex trading. Slippage occurs most often in volatile or active currency pairs when placing a market order.

Forex Spread

The average daily trading volume of the forex market now exceeds 5 trillion U.S. Dollars, making it the most liquid market in the world. Liquidity refers to how easy it is for market participants to open and close positions without affecting the price of the underlying asset.

The concept of liquidity also works hand-in-hand with volatility, which measures the speed and velocity of changing buy and sell prices. The majority of forex traders love volatile markets because they provide greater opportunities to profit, especially with short-term strategies like scalping and day trading.

Forex Trading Risks

Most forex traders lose money over time. Lack of preparation, bad leveraging, weak skill sets, and emotional fatigue all take their toll, triggering losses that eventually force the trader to ‘wash out’, leaving the forex game to the next participant.  The profitable minority learns how to overcome these headwinds, often spending hours building skillsets, doing research, and testing new systems and strategies.

In addition, banks around the world seek to manage sovereign and credit risk through bid and ask prices on the interbank quoting system, triggering frequent supply and demand disruptions unrelated to market-moving events or economic releases. These pose a major risk for the typical newcomer who grows complacent between scheduled market movers, failing to place stop losses, or taking too much short-term exposure for their experience level.

Ironically, the new trader’s biggest risk comes from the broker they choose. The vast interbank system is a hodgepodge of ‘regulated brokers’, offering unbiased market access, and ‘unregulated brokers’ who take advantage of customers’ lack of sophistication. These companies are easy to spot because most are domiciled (headquartered) in off-shore tax havens, rather than in the U.S., U.K., E.U., or Australia, which heavily regulate currency trading.

Unregulated brokers do the most damage when they operate a ‘dealing desk’ that takes the other side of a customer’s position and manipulate price through ‘requoting’ to trigger stops and force unexpected losses, especially in the off-hours when most active traders are asleep. It can also be difficult to get your money back when you choose to close an account at an unregulated broker.

Key Forex Trading Terms

Currency Pair: Currency pairs consist of two currencies, the base currency on the left (top) and the quoted currency on the right (bottom). EUR/USD is an example of a currency pair. When buying this pair, the trader buys the Euro and sells the U.S. Dollar. Alternatively, when selling this pair, the trader sells the Euro and buys the U.S. Dollar.

Major Pairs: Currency pairs can be sub-divided into major, cross, minor, and exotic pairs. Major pairs include the U.S. Dollar as the base or counter-currency, coupled with one of seven major currencies: EUR, CAD, GBP, CHF, JPY, AUD, and NZD.  New traders focus on major pairs because they’re highly liquid and carry lower transaction costs through tighter spreads, limiting slippage.

Cross Pairs: Cross pairs consist of any two major currencies, except the U.S. Dollar. Unlike major pairs, cross pairs have higher transaction costs, higher volatility, and lower liquidity, increasing potential slippage. Examples of cross pairs include EUR/GBP, EUR/CHF, and AUD/NZD.

Exchange Rate:  Exchange rate shows the price of a base currency, expressed in terms of a counter-currency (quoted currency). For example, if the EUR/USD exchange rate is 1.2500, €1.00 will cost $1.25. A rising exchange rate indicates the base currency is appreciating against the counter-currency while a falling exchange rate indicates the base currency is depreciating against the counter-currency.

Bid/Ask: Currency pairs have two exchange rates: the bid price and the ask price. The bid price identifies the current price that market participants can sell (short), while the ask price identifies the current price that market participants can buy. The bid price is always lower than the ask price and the difference between the two is called the spread.

Spread: The difference between the bid price and ask price. The spread marks one type of transaction cost for a trade and a profit source for the broker. This cost can greatly reduce profits or increase losses when engaged in high-frequency trading strategies, like scalping.

Pip:  Pip refers to ‘percentage in point’, or the smallest increment that a currency pair can rise or fall in price. One pip is equal to the fourth decimal of most currency pairs. For example, if the EUR/USD ask price is quoted at 1.2542 and rallies to 1.2548, the change is equal to six pips.

Hedge: A hedge marks a forex transaction intended to offset or protect another position from positive or negative exchange rate risk. Traders, investors, and institutions apply hedging techniques to enhance profits, limit losses, or protect investments.

Margin: Brokers lend money up to a multiple of account capital, called margin, so traders can take leveraged positions. Borrowed funds incur transaction costs through overnight lending rates. For example, a 30: 1 margin allows exposure up to 30 times higher than account capital.  Leveraged positions need to build profits in excess of borrowing costs or they lose money.

Leverage: Leverage allows traders to take positions in excess of account capital through broker margin lending. Taking substantial leverage is risky for new forex traders but an appropriate and required strategy for experienced forex traders.

Major Order Types

The forex trader opens a position through a buy or sell order, specifying whether to take the position ‘at the market’, or at a specified price. A market order will execute immediately at the current ask price for a buy or the current bid price for a sell. Both orders can incur slippage when prices are moving quickly, triggering trade executions at much higher or lower price levels.

A limit order can be used in place of a market order, specifying the price at which a) the limit order turns into a market order or b) the exact price of the entry. The order will be filled when the price is hit with the first technique, potentially incurring slippage, but the price can ‘skip over’ order with the second technique and never get filled. Similar limit order types, including stop and stop-loss orders, are used to open, manage, and close outstanding positions.

In summary:

  • Buy Stop: open a long position at the price higher than the current price or close a short position at the price lower than the current price.
  • Sell Stop: open a short position at the price lower than the current price or close a long position at the price higher than the current price.
  • Buy Limit: open a long position at the price lower than the current price or close a short position at the price higher than the current price.
  • Sell Limit: open a short position at the price higher than the current price or close a long position at the price lower than the current price.

Summary

The forex market has grown hugely popular with new traders and has never been easier to access. Learning the basics of forex trading isn’t overly complicated but choosing the right way to trade requires self-examination, with a realistic view of personality traits, available time, long-term goals, and current income. It’s a rewarding endeavor that benefits from dedication, patience, emotional control, and a willingness to build multiple skillsets and strategies over time.

Ukraine Crisis: What It Could Mean for Oil, Gold, the Swiss Franc, the DAX, and the Russian Ruble?

Last weekend, the US warned that a Russian attack was imminent, only to be followed by reports that Russian forces are being pulled back from the border. At the time of writing, the latest headlines feature talk of a violation of cease-fire rules, and doubt being cast by the US and NATO as to whether Russian troops are indeed being withdrawn. The latest updates have prompted US stock futures to pull back, leaving the S&P 500 index cowering below its 200-day simple moving average for now.

S&P 500 Daily chart

All this speculation and uncertainty has left investors and traders on edge, leaving them wondering what could happen to various assets if this Ukraine crisis escalates?

Here are a few potential scenarios:

1) Brent oil may top $100

At the start of the week, Brent oil, which is the benchmark used worldwide for oil prices, reached its highest levels since 2014. That climb was driven in part by the escalating tensions surrounding the Ukraine crisis, though Brent prices have since dropped slightly on signs that tensions are easing.

Brent daily chart

Note that half of Russia’s oil exports go to Europe. If an invasion on Ukraine forces Europe to impose sanctions on Russian oil and disrupt supplies, that could make oil harder to find in a world that needs it as economies continue their post-pandemic reopening.

​Scarcer oil supplies should boost prices, potentially sending Brent to $100 for the first time since 2014.

2) Gold may reach $1900

Gold has had a fabulous February so far, boasting a month-to-date climb of almost 5%. Sure, a lot of that has been due to gold traditional role as an inflation hedge. However, the precious metal is also seen as a safe haven asset, meaning that investors lap gold up during times of heightened fear and uncertainty.

Gold daily chart

From a technical perspective, spot gold formed a ‘golden cross’ last week, which is where its 50-day moving average (blue line) crosses above its 200-day moving average (purple line). Such a technical event typically points to more gains, and indeed spot gold has already broken above the downward trend line that had capped gains since spot gold posted its all-time high back in August 2020.

Of course, an armed conflict involving major economies would send markets scurrying towards gold, potentially pushing up prices past that psychologically-important $1900 level last seen in June 2021.

3) EURCHF may fall past 1.03

The Swiss Franc (CHF) is also widely regarded as a safe haven asset, in contrast to the euro currency which could be dragged lower by any worsening in the Ukraine crisis, given that Europe gets a third of its gas supplies through Ukraine.

Hence, this contrast between Europe being negatively impacted by the Ukraine crisis, along with the Swiss Franc’s role as a safe haven, could send CHF towards its strongest levels against the euro since 2015.

Already back in 24th January 2022, amid swirling concerns of the Ukraine crisis, EURCHF had dipped below that psychologically-important 1.03 level, only to have recovered since.

Still, this currency pair remains sensitive to developments pertaining to the Ukraine crisis, and traders would have little qualms sending EURCHF to a new 7-year low if an armed conflict erupts.

EUR/CHF Daily chart

4) DAX could break decisively below 15,000

The DAX is the benchmark index for Germany’s stock market (this index gives you an idea how Germany’s stock market is doing overall).

Already, the DAX is the worst-performing major stock index in Europe, dragged lower by fears surrounding the Ukraine crisis. So far this year, the DAX has fallen by 0.28% which is a bigger drop compared to France’s CAC (-0.21% year-to-date), and the Euro Stoxx 50 (-0.16% year-to-date). From a technical perspective, seeing as how the DAX’s 50-, 100-, and 200-day simple moving averages have converged, it appears that German stocks have been seized by fear, reluctant to move decisively one way or the other given the dark clouds that hang overhead.

DAX Daily chart

Yet, those who have been tracking this benchmark index would’ve noticed that, since March 2021, the DAX has been able to claw its way back above 15,000 every time it drops below that psychologically-important level. In market lingo, we would say that the 15,000 level has offered strong “support” for the DAX.

However, the DAX’s 15,000 support may come undone if the Ukraine crisis takes a major turn for the worse.

5) Russian Ruble may weaken towards 80 versus US dollar

Since spiking past 80 against the US dollar in January, the Russian Ruble has pared back some of the losses amid the ongoing Ukraine crisis. USDRUB rises when the Ruble weakens, and USDRUB falls when the Ruble strengthens against the greenback.

Still, USDRUB remains supported above its 50-day simple moving average for support, amid lingering concerns.

USD/RUB Daily chart

Overall, the threat of sanctions against Russia has to be greatly diminished in order for the Ruble to regain its strength as reflected by the nation’s strong economic fundamentals and the gains from oil prices. Note that, as of 2020, Russia is the third largest oil-producing nation in the world (after the US and Saudi Arabia). Hence, the Ruble has a strong relationship with oil prices: RUB typically strengthens alongside rising oil prices considering how important the commodity is to the Russian economy).

Otherwise, a further escalation in the Ukraine crisis which raises the prospects of sanctions against Russia could diminish demand for the Ruble, which may then revisit the psychologically-important 80 mark against the US dollar.

Overall, it appears there that the Ukraine crisis will not come to a conclusive end anytime soon, with EU and G7 leaders set to meet on the matter in the coming days.

In the meantime, market participants will have to keep watch and monitor how these various assets respond to the next stage of the ongoing Ukraine crisis.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Gold Will Soon Test The Crucial Resistance

Indices start the new week on the front food, drawing another bullish candle on the daily chart. On the SP500 it starts to look a bit ridiculous to be honest with you.

Dax is more modest, inside of a mid-term trend continuation pattern. Of course breakout to the upside seems more probable.

I guess the star of today is gold, which is climbing higher towards the crucial resistance of 1835 USD/oz. This is where the great battle will probably take place.

Silver is also advancing higher, creating the right shoulder of the iH&S pattern

USDJPY is going lower after breaking the crucial horizontal support, which happened after the bearish escape from the triangle.

EURCHF has a promising triple bottom formation.

AUDNZD collapses after the beautiful Head and Shoulders pattern.

The same applies to the CHFJPY.

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

Situation on Major Instruments Before the Inflation Data

The SP500 tries a reversal with an inverse head and shoulders pattern bouncing off a major up trendline.

The DAX is very close to breaking two major horizontal resistances.

Gold is on the way to test an important horizontal support at 1782 USD/oz.

Oil continues its upswing after escaping from the flag pattern.

The EURCHF needs to close the day above the down trendline in order to get a proper buy signal.

The EURJPY is in the process of creating a right shoulder of a very promising inverted Head and Shoulder pattern.

The EURNZD continues the drop after broken supports were tested as resistance.

The AUDCAD is going to test a major support level on the 38,2% Fibonacci.

The USDJPY is getting closer and closer to end the long-term symmetric triangle pattern.

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

USD Is Giving Up the Latest Gains

The SP500 is in all-time-highs. Nothing to see here, let’s move on.

The Dow Jones is inside a flag formation, close to all new all-time-highs.

Gold is possibly trying to create the right shoulder of the inverted Head and Shoulders patterns, but it may only be wishful thinking.

The EURUSD on the other hand is definitely drawing a right shoulder.

The EURCHF is heading higher and aiming for the upper line of the flag, after a bounce from an ultra-strong support.

The GBPUSD is in bouncing from a crucial horizontal resistance, continuing the negative sentiment.

The EURGBP is inside a falling wedge pattern, a breakout to the upside quite probable.

The EURNZD has continued to drop after a false bullish breakout.

The GBPCHF, on the other hand, is in a fresh false breakout pattern with a great potential for a further huge slide.

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

American Dollar Retaliates

Yesterday’s FOMC brought havoc to the market. The vast majority of the instruments quoted against the USD are going down. Stocks are mixed…with this amount of money on the market that is indeed a great occasion for a correction but definitely not a major sign for a reversal.

The SP500 is still safely above the main uptrend line.

The Dow Jones on the other hand broke the major uptrend line but I do not think it will be permanent.

The DAX is doing great, it’s in a channel up formation above the major support.

Gold dropped like a rock. It’s back inside the flag and the sentiment is negative.

The USDCAD climbed higher with a sweet long-term buy signal.

The EURCHF is fighting for a bullish engulfing on the weekly chart. That is possibly a great occasion to go long.

The AUDUSD broke the lower line of the triangle is aiming lower.

The GBPUSD broke the crucial horizontal support and long-term up trendline, it’s is an invitation to go short.

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

Buyers Do Not Have Enough

Indices are firm in the middle of the week with the SP500 flirting with all-time-highs and the Nasdaq coming back above major supports. Two main indices are slightly behind: the DAX and Nikkei but we cannot say that there is a major bearish situation there. At least not yet.

Gold protected the crucial mid-term up trendline and saved its positive sentiment.

Brent Oil escaped from a few days long consolidation and is aiming for new long-term highs.

The USDCAD consolidated above the strong long-term horizontal support, which may indicate willingness for a breakout.

The ERUCHF keeps dropping but the price is getting closer to the mother of all supports, where the situation can get very interesting.

The EURAUD is in a very clean price action setup, where the price bounces from a combination of two horizontal and one dynamic resistance. As long as we stay below, the sentiment is negative.

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

Dollar Slides to Multi-Month Lows as Fed Rate Hike Fears Fade

By Stephen Culp

U.S. Treasury yields stalled as market participants grew increasingly confident that the Federal Reserve will hold off on hiking interest rates for the time being, despite worrisome near-term inflation spikes.

“We’re seeing this dollar weakness against numerous pairs and the market is starting to believe the Fed that we’re going to have low interest rates a lot longer,” said Edward Moya, senior market analyst at OANDA in New York.

“That’s going to be bearish for the dollar. You’ll eventually see commodity-based currencies outperforming,” Moya added.

A spate of Fed policymakers are expected to speak this week and the U.S. central bank is due to release the minutes from its April policy meeting on Wednesday, which will be parsed for any signs of a shift in its economic outlook and monetary policy.

“Normally everyone gets excited for the Fed minutes, but these minutes are old,” Moya said. “We had a disappointing payrolls report and very hot CPI and PPI that happened after the meeting, most are focused on the raft of (Fed) speakers.”

The dollar index was last down 0.41% at 89.799.

The progress of COVID-19 vaccine deployment and easing of measures to contain the pandemic has lifted higher-risk currencies that stand to benefit most from economic revival.

For an interactive graphic on worldwide vaccine rollout and access, click here https://graphics.reuters.com/world-coronavirus-tracker-and-maps/vaccination-rollout-and-access.

The euro gained 0.51% to $1.2214, passing its highest level since Feb. 25, and the dollar fell 0.24% to 108.935 Japanese yen.

The British pound, buoyed by the lifting of COVID-19 restrictions, rose past the $1.42 level for the first time since Feb. 24. [GBP/]

“What really has helped the pound is reopening momentum and willingness to become vaccinated,” Moya said. “It’s suggesting (the UK) recovery is going to stick. They’re finally getting on the other side of Brexit.”

Rising oil prices supported the Norwegian crown and helped boost the Canadian dollar to a six-year high. [O/R]

Bitcoin edged higher but remained near the three-month low it hit after Tesla Inc boss Elon Musk dampened enthusiasm for the cryptocurrency over the weekend.

Rival digital currency ether jumped 3.62% to $3,404.

========================================================

Currency bid prices at 9:47AM (1347 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

89.7990 90.1840 -0.41% -0.202% +90.2040 +89.6890

Euro/Dollar

$1.2214 $1.2152 +0.51% -0.03% +$1.2234 +$1.2153

Dollar/Yen

108.9350 109.1750 -0.24% +5.44% +109.2750 +108.8550

Euro/Yen

133.04 132.73 +0.23% +4.83% +133.1600 +132.7000

Dollar/Swiss

0.8969 0.9033 -0.70% +1.38% +0.9035 +0.8961

Sterling/Dollar

$1.4199 $1.4139 +0.43% +3.94% +$1.4220 +$1.4135

Dollar/Canadian

1.2043 1.2068 -0.19% -5.41% +1.2071 +1.2014

Aussie/Dollar

$0.7795 $0.7770 +0.31% +1.31% +$0.7813 +$0.7765

Euro/Swiss

1.0952 1.0974 -0.20% +1.34% +1.0982 +1.0954

Euro/Sterling

0.8600 0.8593 +0.08% -3.77% +0.8609 +0.8582

NZ

Dollar/Dollar $0.7253 $0.7216 +0.51% +1.00% +$0.7271 +$0.7211

Dollar/Norway

8.1985 8.2570 -0.73% -4.55% +8.2580 +8.1795

Euro/Norway

10.0120 10.0345 -0.22% -4.35% +10.0530 +10.0019

Dollar/Sweden

8.2855 8.3285 -0.01% +1.09% +8.3434 +8.2750

Euro/Sweden

10.1219 10.1225 -0.01% +0.45% +10.1486 +10.1170

(Reporting by Stephen Culp; Additional reporting by Ritvik Carvalho; Editing by Paul Simao)

Sellers on Gold Have Appetite for More

Buyers on Gold struggle to hold above the crucial support on 1765 USD/oz. If broken, the target is on the 1680 USD/oz and in theory, this level looks extremely solid.

Nasdaq finishes the head and shoulders pattern and is ready to break the neckline.

DAX is still fighting on pre-Covid February highs.

EURUSD with a sharp reversal but still with a positive sentiment.

NZDCAD with a potential very dangerous false bullish breakout.

EURCHF corrects the recent surge.

Two safe haven currencies, CHFJPY test the 117.7 again. As long, as we stay below, the sentiment is negative.

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