U.S. Dollar Index (DX) Futures Technical Analysis – Mixed Performance with Main Trend Up, Minor Trend Down

The U.S. Dollar is inching higher against a basket of major currencies on Wednesday after trading both sides of the market earlier in the session.

Bullish traders are trying to re-establish the uptrend that has carried the greenback to a 20-year high against its major peers for months. However, demand for the dollar has gone flat recently, as safe-haven demand subsided and Treasury yields paused their rally.

At 10:52 GMT, June U.S. Dollar Index futures are trading 103.500, up 0.093 or +0.09%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.63, down $0.23 or -0.83%.

Underpinned by Hawkish Fed Chatter

After posting its biggest one-day setback in more than two months on Tuesday, the dollar is bouncing back early in today’s session, as U.S. Federal Reserve chief Jerome Powell struck a more hawkish tone as the central bank battles to rein in surging inflation.

Powell pledged that the U.S. central bank would ratchet up interest rates as high as needed, including taking rates above neutral, to kill a surge in inflation that he said threatened the foundation of the economy.

ECB Rate Hike Talk Capping Dollar Gains

Gains in the U.S. Dollar have also been capped recently by a stronger Euro. The single-currency is flirting with a one-week high a day after European Central Bank policymaker Klaas Knot said a 50 basis point rate increase in July was possible if inflation broadens. Knot is one of the more hawkish ECB members, according to Commerzbank.

Daily June U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum has been trending lower since May 13. A trade through 105.065 will signal a resumption of the uptrend. A move through 102.375 will change the main trend to down.

The minor trend is down. It changed to down on Tuesday when sellers took out 103.405. This confirmed the shift in momentum.

On the upside, the nearest resistance is a pair of 50% levels at 103.720 and 104.150.

On the downside, the nearest support is a retracement zone at 102.430 to 101.820.

Daily Swing Chart Technical Forecast

Trader reaction to the first pivot at 103.720 is likely to determine the direction of the June U.S. Dollar Index on Wednesday.

Bearish Scenario

A sustained move under 103.720 will indicate the presence of sellers. Taking out the intraday low at 103.235 will indicate the selling pressure is getting stronger. This could trigger a plunge into the support cluster at 102.438 to 102.375.

Bullish Scenario

A sustained move over 103.720 will indicate the presence of buyers. Overtaking 104.150 will signal that the buying was getting stronger. This could trigger a surge into the main top at 105.065.

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

USD/JPY Forex Technical Analysis – Could Strengthen Over 129.434, Weaken Under 129.147

The Dollar/Yen is edging lower on Wednesday with traders tracking the movement in U.S. Treasurys closely. Volatility has been low and the trading ranges tight the past four sessions. This suggests investor indecision and impending volatility.

In the United States, U.S. Treasury yields were mixed on Wednesday morning, as concerns around inflation continued to weigh on investor sentiment.

The market could also be showing signs of transitioning from bullish to bearish, but that’s pretty remote since it would take a major modification in central bank policy to actually make a change of this magnitude.

At 09:28 GMT, the USD/JPY is trading 129.138, down 0.222 or -0.17%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.54, up $0.02 or +0.03%.

In economic news, Japan’s economy shrank for the first time in two quarters in the January-March period as COVID-19 curbs hit the service sector and surging commodity prices created new pressures, raising concerns about a protracted downturn.

The new concern in Japan is stagflation, or a mix of tepid growth and rising inflation.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since May 9. A trade through 126.945 will change the main trend to down. A move through 131.348 will signal a resumption of the uptrend.

The minor range is 126.945 to 131.348. The USD/JPY has been straddling its pivot at 129.147 for five straight sessions.

On the downside, the nearest support is a pair of 50% levels at 127.410 and 126.316. The latter is a potential trigger point for an acceleration to the downside.

Daily Swing Chart Technical Forecast

Trader reaction to the pivot at 129.147 is likely to determine the direction of the U.S. Dollar on Wednesday. But they’re going to need a catalyst like Treasury yields to create some movement.

Bullish Scenario

A sustained move over 129.147 will indicate the presence of buyers. If this can generate enough upside momentum then look for a test of the minor top at 130.813, followed by the main top at 131.348.

Bearish Scenario

A sustained move under 129.147 will signal the presence of sellers. This could create the downside momentum needed to challenge a support cluster at 127.520 – 127.410. This is the last potential support before the main bottom at 126.945.

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

The Pound Takes a Dive Despite a Spike in Inflation

It was a busy start to the day for the UK market. Following impressive UK employment figures on Tuesday, UK inflation was in the spotlight this morning.

Pound sensitivity to economic data has intensified as the market looks to second guess the Bank of England’s next move.

Pound Sinks Despite a Spike in UK Inflation

In April, the UK’s annual rate of inflation accelerated from 7.0% to 9.0% versus a forecasted 9.1%. Month on month, consumer prices rose by 2.5% following a 1.1% increase in March.

Wholesale inflationary pressures softened, however. In April, the producer price input index rose by 1.1%, which was in line with forecasts. The index jumped by 4.6% in March, however.

According to the Office for National Statistics,

  • The annual rate of inflation was at its highest level on record.
  • Food and energy prices surged to drive up the cost of living and raise further concerns over the economic outlook.
  • In April, prices for gas and electricity surged in response to the Office of Gas and Electricity Markets (Ofgem) increasing its cap on energy prices.

The Ofgem price cap limits the price energy suppliers can charge households that either use a prepayment meter or are on the “standard variable” energy tariff.

In February, Ofgem announced the cap levels for the period April 1 to September 30 and noted that,

“Those on default tariffs paying by direct debit will see an increase of GBP693 from GBP1,277 to GBP1,971 per year. Prepayment customers will see an increase of GBP708 from GBP1,309 to GBP2,017.”

The result is 12-month inflation rates of 53.5% for electricity and 95.5% for gas.

Fears of an economic recession stemming from an unrelenting upward trend in the inflation rate and household cost-of-living hit the Pound.

Market Impact

Ahead of today’s UK inflation figures, the Pound struck a pre-stat high of $1.25009 before hitting reverse.

In response to the numbers, the Pound tumbled to post-stat and a current-day low of $1.23712 before finding support.

At the time of writing, the Pound was down 0.79% to $1.23917.

Cable 180522 Hourly Chart

NZD/USD Forex Technical Analysis – Could Weaken Under .6298, Strengthen Over .6393

The New Zealand Dollar is edging lower early Wednesday after posting three days of gains, primarily on short-covering. Traders are likely reacting to Australia’s disappointing wage growth report, which came in weak enough to suggest its central bank may have to pull back the reins on a series of aggressive interest rate hikes.

At 08:41 GMT, the NZD/USD is trading .6348, down 0.0013 or -0.20%.

Some light position-squaring ahead of the May 25 Reserve Bank of New Zealand could also be taking place. According to ANZ, the Reserve Bank of New Zealand (RBNZ) is expected to raise its Official Cash Rate (OCR) 50-basis points to 2.00%.

Beyond that, ANZ says the path is murkier. However, they think the RBNZ will switch to the more usual pace of 25bp hikes from July onward as evidence mounts that demand is cooling. However, if any more upside surprises to inflation emerge, the hurdle for another 50-pointer in July is low.

Daily NZD/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6217 will signal a resumption of the downtrend. A move through .6569 change the main trend to up.

The minor trend is also down. A trade through .6380 will change the minor trend to up. This will shift the momentum.

The minor range is .6380 to .6217. Its pivot at .6298 is support.

The nearest resistance is a short-term 50% level at .6393. This is followed by a long-term 50% level at .6467.

Daily Swing Chart Technical Forecast

Trader reaction to .6298 will determine the direction of the NZD/USD on Wednesday.

Bullish Scenario

A sustained move over .6299 will indicate the presence of buyers. If this move creates enough upside momentum then look for an intraday surge into .6380, followed by .6393.

Bearish Scenario

A sustained move under .6298 will signal the presence of sellers. If this generates enough selling pressure then look for the move to possibly extend into the long-term Fibonacci level at .6231, followed by the main bottom at .6217.

The main bottom at .6217 is a potential trigger point for an acceleration to the downside. The daily chart indicates there is plenty of room to the downside with .5921 the next major target.

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

S&P 500, Oil and Forex Analysis – Never Underestimate the Purchasing Power of the US Consumer

Global Macro and Stock Markets Analysis

While the market is still trading short-term impulses; however, arguably we are likely reaching peak Fed and inflation. That is coincident with the equity market running peak bearishness.

Remember that Fed fear has been the root cause of equity unrest.

But never underestimate the purchasing power of the US consumer as the solid retail sales print pushes back against the US recessionary fat tail and pricing out China’s extreme left tail(lockdown) should meld to support global equity markets, with the reopening of supply chains easing inflation concerns, at least over the short term.

That has allowed asset managers to pick through the wreckage of a 15% decline in the S&P in just four weeks.

Stability is most necessary for all the fundamental factors that could be cited as a trigger to buy back in. And there are tentative signs of that happening.

Oil Fundamental Analysis

While optimism around Chinese oil demand prevailed yesterday, the EU disagreeing on the makeup of a Russian embargo, could win today. The ” special ” summit on 30-31 May is the next opportunity to agree on such an embargo, so the lack of an EU Russian oil ban could limit top side ambition until then.

Beyond the near term, less awful news on China offers a nip in the tail in the form of much higher oil demand and prices, which is positive for producers, but harmful for consumers sentiment.

And with unaffordable prices at the pump, which are a by-product of demand exceeding supply, the Fed will be on a mission to raise rates to at least moderate the demand side of the economy, which could eventually filter through to a mild form of demand destruction where there could be a buyer strike rather than buyers splurge over US peak driving season.

FOREX Fundamental Analysis – Chinese Yuan

The IMF’s decision to raise the weighting of the RMB in its SDR basket by 1.36 ppt indicates that the RMB has steadily gained attraction as a global currency since the 2015 SDR review. And could encourage more reserve managers to do the same given the current weakness as the country is on the cusp of reopening.

The reopening plans can, of course, be knocked off track. Still, a renewed willingness to reopen reflects fewer new covid cases, which should open the door to more stimulus and support China’s equity market. And importantly for the Yuan, it should attract capital inflows.

Pricing out the extreme left tail for China should support global equity markets in the near term and reduce safe-haven demand in the FX Asia basket.

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

AUD/USD Forex Technical Analysis – Next Challenge is .7048 – .7099 Retracement Zone

The Australian Dollar is inching lower against its U.S. counter-part early Wednesday after highly-anticipated data on wages came out softer than expected, dampening calls for faster rate hikes and sending bond yields lower. Additionally, early buyers failed to clear a key resistance level despite closing on the high of a three-day rally the previous session.

At 05:31 GMT, the AUD/USD is trading .7024, down 0.0007 or -0.10%. The Invesco CurrencyShares Australian Dollar Trust ETF (FXA) is trading $69.46, up $0.41 or +0.59%.

After months of anticipation ahead of the wages report, the actual figures were a letdown. Wages rose only a modest 0.7% in the first quarter, nudging annual growth up a fraction to 2.4%. That was below the median forecasts of 2.5%.

Bullish traders were really hoping for a 2.7% or reading or higher. This would have pushed the Reserve Bank of Australia (RBA) to hike its benchmark interest rate by more than 25 basis points in June.

Daily AUD/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6829 will signal a resumption of the downtrend. A move through .7266 will change the main trend to up.

The minor trend is also down. A trade through .7053 will change the minor trend to up. This will shift the momentum.

The short-term range is .7266 to .6829. It retracement zone at .7048 to .7099 is resistance.

The minor range is .6829 to .7047. Its pivot at .6941 is the nearest downside target.

Daily Swing Chart Technical Forecast

Trader reaction to .7048 will likely determine the direction of the AUD/USD on Wednesday.

Bearish Scenario

A sustained move under .7047 will indicate the presence of sellers. If this move creates enough downside momentum then look for a pullback into the pivot at .6941.

Trader reaction to this level should determine the near-term direction of the AUD/USD. Counter-trend buyers are going to stop the price slide and form a secondary higher bottom, or sellers will continue to drive prices into at least .6829.

Bullish Scenario

A sustained move over .7047 will signal the presence of buyers. Taking out .7053 will change the minor trend to up and could create the upside momentum needed to challenge .7099, followed closely by .7144.

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

USD/JPY Price Forecast – US Dollar Continues to Reach Higher Against the Japanese Yen

US Dollar vs Japanese Yen Technical Analysis

The US dollar has rallied just a bit after initially dipping on Tuesday, to show a continued uptrend in this market. The ¥130 level seems to be attracting a certain amount of attention, so that is something that you need to be aware of. If we can break above there, then we will probably test the highs, but it is not until we break above there that the market really takes off. I anticipate that more likely than not, we are going to see a market that is more sideways than anything else. With that in mind, it is more likely than not going to be more or less a short-term type of situation.

If we were to break down below the ¥127.50 level, then it is possible that we could drop to the 50 Day EMA, which is currently breaking above the ¥125 level. That is an area that will continue to attract a certain amount of attention due to the psychology and of course the previous resistance that we had seen there. As long as the Bank of Japan continues to fight bond yields, that means they are essentially “printing yen” and therefore it drives down the value of the currency.

At the same time, the US dollar gets a continual lift due to the hawkish behavior of the Federal Reserve. As long as that is going to be the case, it does make quite a bit of sense that we would see this market attract buyers as the Japanese yen will be shunned by most traders.

USD/JPY Price Forecast Video 18.05.22

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

GBP/USD Price Forecast – British Pound Slams Into a Large Round Number

British Pound vs US Dollar Technical Analysis

The British pound has rallied significantly during the course of the trading session on Tuesday to reach the 1.25 level, an area that obviously would cause a certain amount of interest, as it is a large, round, psychologically significant figure. Furthermore, it is worth noting that the market has a lot of noise all the way to the 1.26 handle, and therefore I think it is only a matter of time before the sellers come back in and push this market lower. After all, we are in a massive downtrend, and that should continue to be the case going forward.

When you look at the chart, you can see that the 50 Day EMA is near the 1.2750 level and dropping. The 1.30 level is the top of the overall downtrend from what I can see, so it is really not until we break above there that I would consider buying. Nonetheless, I would anticipate a certain amount of volatility as during the trading session on Tuesday there are five Federal Reserve members speaking. With so many people paying close attention to the Federal Reserve, it is difficult to imagine a scenario where we would not see a lot of noise.

Nonetheless, the market continues to look very shaky, so that typically does not end up being induced above a market that is going to be more “risk on.” In general, this is a market that continues to see more of a “fade the rally” type of attitude, and I think that will continue to be the case.

GBP/USD Price Forecast Video 18.05.22

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

GBP/JPY Price Forecast – The British Pound Explodes to the Upside Against the Japanese Yen

British Pound vs Japanese Yen Technical Analysis

The British pound has rallied a bit during the trading session against the Japanese yen on Tuesday as we continue to see plenty of strength against the Japanese yen in various currencies. With this being the case, the market is likely to continue seeing a lot of noisy behavior, and therefore it is probably only a matter of time before we get a little bit of a pullback.

However, if we can stay above the ¥160 level, then I would be convinced that this market is trying to rally. Keep in mind that this pair is highly sensitive to risk appetite and of course, risk appetite is all over the place right now, so it is going to continue to be a very difficult situation. The size of the candlestick is rather impressive, and that does tell you that there is a little bit of momentum here. If we can break above the ¥162.50 level, that would be very bullish as well. Nonetheless, it is interesting to see how this has played out, but if we get a turnaround and break down below the ¥160 level, then it is likely that we could go much lower.

It is worth noting that the market bounced from the 200 Day EMA, which of course is an indicator that a lot of people pay attention to. If we break it down below that level, then it is likely that the ¥155 level could be the next support level, and breaking down below there would kick this market into a major downtrend just waiting to happen.

GBP/JPY Price Forecast Video 18.05.22

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

EUR/USD Price Forecast – Euro Slams Into Resistance

Euro vs US Dollar Technical Analysis

The Euro rallied significantly during the trading session on Tuesday to break above the 1.05 level. By doing so, we have challenged a major resistance barrier, but it looks like we are already starting to see sellers come back in. The 1.06 level is an area above that is also resistive, so we are essentially in a major “zone” that has a lot of pressure. That being said, if we were to break above the 1.06 level, then it allows the market to go chasing the 50 Day EMA. The 50 Day EMA has broken down below the 1.08 level, an area that had previously been supported. I think we need to get above all of that to even consider buying the Euro.

The Federal Reserve continues to tighten and sound hawkish, especially with the inflationary numbers in the United States causing major problems. Beyond that, we have just seen retail sales come in much weaker than anticipated, showing signs that the American consumer is starting to pull back. If that is going to be the case, the Federal Reserve will certainly have to pay attention to this, because inflation has become a major political issue in the United States.

Unless the Federal Reserve suddenly changes its attitude, and there is essentially zero chance that it will, I do not anticipate this market turning around anytime soon. Because of this, I am looking to fade all rallies that show signs of exhaustion. The market is more likely than not going to continue to go lower as we are basically just retesting a bearish flag at this point.

EUR/USD Price Forecast Video 18.05.22

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

AUD/USD Price Forecast – Australian Dollar Breaks Through Round Figure

Australian Dollar vs US Dollar Technical Analysis

The Australian dollar has rallied during the trading session on Tuesday to break above the 0.70 level, showing signs of life yet again. That being said, the market is going to continue to be a bit noisy, but quite frankly it is difficult to imagine a scenario where the Aussie dollar simply takes off to the upside because quite frankly the US dollar is like a wrecking ball to almost everything at this point. Because of this, I believe that we have a situation where traders are going to come in and jump all over this market as it is most certainly negative. That being said, you also have to keep in mind on risk appetite in general.

If we break down below the 0.70 level, then it is likely that the market goes looking to the 0.6850 level, possibly even lower than that. A breakdown below the 0.68 level would be catastrophic for the Aussie, perhaps sending the market much lower. Rallies at this point in time continue to be looked at with suspicion, and therefore I think it is probably only a matter of time before they get faded. In fact, it is not until we break above the 0.72 level that I would take any rally seriously.

The market continues to be very noisy but still favors the greenback as there are so many concerns around the world currently. I think that continues to be the case, and therefore I still think that the US dollar is king, and will remain so for the foreseeable future. Commodity markets of course are heavily influenced by the Aussie as well, but I look at this as a bit of a relief rally more than anything else.

AUD/USD Price Forecast Video 18.05.22

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

EUR/USD Mid-Session Technical Analysis for May 17, 2022

The Euro is climbing against the U.S. Dollar on Tuesday amid expectations of higher interest rates from the European Central Bank (ECB). On Monday, ECB policymaker Francois Villeroy de Galhau said a weak Euro threatened price stability in the currency bloc.

An ECB rate hike is not guaranteed, however, due to deteriorating economic conditions. The central bank is not in the same position as the Federal Reserve, for example, to raise rates, despite rising inflation.

At 11:30 GMT, the EUR/USD is trading 1.0533, up 0.0098 or +0.94%. On Monday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $96.63, up $0.28 or +0.29%.

The common currency is also being underpinned by a weaker greenback. Nonetheless, worries that escalating tensions with Russia could lead to a gas embargo, a recession in the Euro Zone and prevent the ECB from lifting interest rates are capping the Euro’s prospects.

“There is undoubtedly a risk that the ECB might have to delay its lift-off in the end or that it will not hike interest rates as much as it currently seems willing to do,” Commerzbank analyst You-Na Park-Heger wrote in a morning note.

US Retail Sales Could Fuel Volatility

Today U.S. retail sales report, due to be release at 12:30 GMT, is expected to show that retail sales increased by 1.0% during April and core retail sales rose by 0.4%. The report will reveal information on how consumers are spending in the wake of inflation hovering near a 40-year high.

A strong report will justify the aggressive tone from the Fed. Treasury yields are likely to rise on the news, which would likely cap the EUR/USD.

A weak report could be an early sign of economic weakness. Although it probably won’t derail the Fed’s plans for 50-basis point hikes in June and July, it could put a cap on future rate hike expectations. This may strenghen the EUR/USD, at least temporarily.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the main bottom at 1.0354 will signal a resumption of the downtrend. Taking out the January 3, 2017 main bottom at 1.0339 will reaffirm the downtrend. The main trend will change to up on a trade through 1.0642.

The minor range is 1.0642 to 1.0354. The EUR/USD is currently trading on the strong side of its pivot at 1.0498, making it support.

The short-term range is 1.0936 to 1.0354. Its retracement zone at 1.0645 to 1.0714 is the nearest resistance.

The main range is 1.1185 to 1.0354. Its retracement zone at 1.0770 to 1.0868 is controlling the near-term direction of the EUR/USD.

Daily Swing Chart Technical Forecast

Trader reaction to the pivot at 1.0498 is likely to determine the direction of the EUR/USD into the close on Tuesday.

Bullish Scenario

A sustained move over 1.0498 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the resistance cluster at 1.0642 – 1.0645.

Overtaking 1.0645 will indicate the buying is getting stronger with 1.0714 – 1.0770 the next potential target zone.

Bearish Scenario

A sustained move under 1.0498 will signal the presence of sellers. This could trigger a quick break into the minor pivot at 1.0455. If this fails to hold then look for a test of the support cluster at 1.0354 – 1.0339. The latter is a potential trigger point for an acceleration to the downside with the next major target the January 8, 2003 main bottom at .9860.

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

NZD/USD Forex Technical Analysis – Trade Through .6380 Shifts Momentum to Upside

The New Zealand Dollar is edging higher on Tuesday, basically tracking its Australian counterpart which is climbing on the back of somewhat hawkish Reserve Bank of Australia (RBA) meeting minutes. Technical traders are also responding to oversold conditions that are encouraging weak shorts to trim some of their positions.

At 09:45 GMT, the NZD/USD is trading .6360, up 0.0049 or +0.78%.

While still early in the process, the NZD/USD could be building a support base after testing a major long-term retracement zone at .6231 – .5921 last week. Besides central bank activity, traders are also responding to expectations that China may be ending its lockdowns soon.

US Retail Sales Could Fuel Volatility

Today U.S. retail sales report, due to be release at 12:30 GMT, is expected to show that retail sales increased by 1.0% during April and core retail sales rose by 0.4%. The report will reveal information on how consumers are spending in the wake of inflation hovering near a 40-year high.

A strong report will justify the aggressive tone from the Fed. Treasury yields are likely to rise on the news, which would likely pressure the NZD/USD.

A weak report could be an early sign of economic weakness. Although it probably won’t derail the Fed’s plans for 50-basis point hikes in June and July, it could put a cap on future rate hike expectations. This may weaken the NZD/USD, but more than likely put a lid on any major price advances from current levels.

Daily NZD/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6217 will signal a resumption of the downtrend. A move through .6569 will change the main trend to up.

The minor trend is also down. A trade through .6380 will change the minor trend to up. This will shift momentum to the upside.

The minor range is .6380 to .6217. Its 50% level at .6298 is support.

On the upside, the short-term resistance is a pivot at .6393. This is followed by a long-term 50% level at .6467.

Daily Swing Chart Technical Forecast

Trader reaction to .6298 is likely to determine the direction of the NZD/USD on Monday.

Bullish Scenario

A sustained move over .6298 will indicate the presence of buyers. Taking out .6380 will change the minor trend to up and could create the momentum needed to overcome .6393. This could trigger a surge into .6467.

Bearish Scenario

A sustained move under .6298 will signal the presence of sellers. This could trigger a break into the long-term Fibonacci level at .6231, followed by the main bottom at .6217. This is a potential trigger point for an acceleration to the downside with the May 15, 2020 main bottom at .5921 the next major target price.

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

Can the UK Data Splurge Save Sterling?

Written on 17/05/2022 by Lukman Otunuga, Senior Research Analyst at FXTM

Sterling should come with some sort of health warning. This morning, it is the turn of the bears to take a bruising after sellers were looking to push GBP/USD down to another round number and 1.20. This morning’s strong set of UK employment data has helped propel the pound higher and we get the all-important inflation figures out early tomorrow.

Red-hot labour market

It’s the middle of the month so that means a UK data deluge. First up were today’s jobs numbers which saw unemployment fall to its lowest level in nearly half a century in the first quarter of 2022. The jobless rate stood at 3.7% with fewer people out of work than there were job openings for the first time on record. Hiring demand remains solid and a lack of workers means wage growth is running a little faster than it was before the pandemic.

Amid all the headlines, the scorching labour market may start to cool as the squeeze on household incomes deepens. It is also important to note that the Bank of England recently forecast that the unemployment rate could rise above 5% in the next two years. So, upcoming employment reports will be important as they inform on increasing recession risks to the economy.

CPI on a tear to 9%+

We may get even bigger headlines tomorrow with the release of inflation data for April. Consensus sees a huge jump in the headline figure to 9.1% y/y from 7% in March. It is going some when a miss on the data could still print at 9% for headline CPI. The main culprit for the surge is the massive 54% energy price hike by the UK energy regulator (Ofgem). This is really a symptom of the energy crisis in Europe due to surging wholesale market prices surpassing the caps and driving several suppliers to the wall.

Key for markets will be the size of the relative price shock to household’s energy bills. The BoE has already warned of 10% inflation into autumn later this year. This is expected to dampen discretionary household spending and crowd out some pricing power in other part so the economy. Indeed, this could show up in the retail sales numbers that are released on Friday.

Sterling bounces hard

Governor Bailey added to the more positive sentiment around the pound by sounding more combative yesterday on fighting inflation. This was in contrast to the recent BoE meeting and the focus on the grim growth outlook. His emphasis was clearly more on runaway inflation and the tight labour market at his testimony. This has helped solidify rate hike hopes for a 2% policy rate by the end of the year. Cable needs to close above 1.25 to fend off more selling. Any consolidation would then need to advance beyond the month-to-date top at 1.2638.

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

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USD/JPY Forex Technical Analysis – US Retail Sales Report Sets the Tone

The Dollar/Yen is slightly higher early Tuesday as investors await the release of a slew of U.S. economic reports including retail sales and industrial production.

The futures markets are priced for consecutive 50 basis point hikes from the Federal Reserve in June and July and for the benchmark U.S. interest rate to reach 2.75% by year’s end. Today’s reports could confirm those expectations or cast doubts over whether the economy is strong enough to withstand the Fed’s aggressiveness.

At 06:50 GMT, the USD/JPY is trading 129.340, up 0.230 or +0.18%. On Monday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.54, up $0.13 or +0.18%.

Today U.S. retail sales report, due to be release at 12:30 GMT, is expected to show that retail sales increased by 1.0% during April and core retail sales rose by 0.4%. The report will reveal information on how consumers are spending in the wake of inflation hovering near a 40-year high.

A strong report will justify the aggressive tone from the Fed. Treasury yields are likely to rise on the news, which would give the USD/JPY an added boost.

A weak report could be an early sign of economic weakness. Although it probably won’t derail the Fed’s plans for 50-basis point hikes in June and July, it could put a cap on future rate hike expectations. This may weaken the USD/JPY, but more than likely put a lid on any major price advances from current levels.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 126.945 will change the main trend to down. A move through 131.348 will signal a resumption of the uptrend.

The minor range is 126.945 to 131.348. The market is currently straddling its pivot at 129.147.

Support is a pair of 50% levels at 127.410 and 126.316.

Daily Swing Chart Technical Forecast

Trader reaction to 129.147 is likely to determine the direction of the USD/JPY on Tuesday.

Bullish Scenario

A sustained move over 129.147 will indicate the presence of buyers. If this move creates enough upside momentum, we could see a surge into the minor top at 139.813, followed by the main top at 131.348.

Bearish Scenario

A sustained move under 129.147 will signal the presence of sellers. If this move gains any traction then look for the selling to possibly extend into the nearest support cluster at 127.520 – 127.410.

Side Notes

The reaction by U.S. Treasury yields to the retail sales and industrial production reports on Tuesday will ultimately determine the direction of the USD/JPY.  Basically, higher yields, higher USD/JPY and lower yields, lower USD/JPY.

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

UK Employment Figures Give the Pound an Early Boost

It was a busy start to the day for the UK market. Employment numbers were in focus ahead of the market open.

According to the Office for National Statistics,

  • Employment surged by 83k in the three months to March, compared with the previous three months to December.
  • As a result, the unemployment rate fell from 3.8% to 3.7% versus a forecasted 3.8%.
  • Also positive was a jump in wage growth. The Average Earnings Index + Bonus increased 7.0% in March compared with 5.4% in February.

For April, claimant counts also painted a rosier picture, with claim counts falling by 56.9k versus a forecasted 42.5k decline. In March, claimant counts fell by 46.9k.

The stats delivered a much-needed boost to the Pound and supported more BoE rate hikes to curb inflation.

Market Impact

Ahead of today’s stats, the Pound fell to a pre-stat and a current-day low of $1.23168 before rising to a pre-stat high of $1.23491.

In response to today’s numbers, the Pound slipped to a post-stat low of $1.23465 before jumping to a post-stat and a current-day high of $1.23650.

At the time of writing, the Pound was up 0.30S% to $1.23564.

Stats give the Pound a boost.
Cable 170522 Hourly Chart

Ahead of the European open, the futures market point to a bullish open for the major indexes.

At the time of writing, the FTSE100 was up 40 points, with the DAX 30 risings by 129 points.

Up Next

Later today, second estimate GDP numbers for the Eurozone are due out ahead of retail sales figures from the US.

With market jitters over the threat of a recession lingering, weak US retail sales numbers could test support for riskier assets.

Markets Remain in Fight or Flight Mode While Rolling the Dice on Recession Odds

Global Macro and Stock Markets Analysis

US equities fell .4 % in a choppy session to start the week with little change to the broader macro or recessionary narrative.

Markets remain in fight or flight mode while rolling the dice on recession odds.

Still, traders seem to be in the mood to stay bearish until proven otherwise. However, there is still a lingering risk- on tone despite horrific Chinese data.

Investors’ hopes remain elevated that yesterday’s worse than expected Chinese outruns could prove to be a ‘whatever it takes” moment, and local policymakers will step hard on the stimulus pedal.

Oil Fundamental Analysis

Oil prices are up near 2.5 % on a confluence of anticipated Chinese demand returning amid Russian supply concerns. But China’s covid slowdown is music to oil bull’s ears as the breadth of the shift is where the surprise lies.

In addition, Shanghai has announced a gradual reopening starting immediately. It aims to return to everyday life by June 1, so we should expect mobility to return to its usual post haste.

But importantly, this could mean more stimulus down the pipe as even a gradual reopening increases the prospects for policy easing.

China’s official institutions have been reluctant to enact an adequate stimulus program as the locked-down economy is not giving policymakers bang for their buck via the multiplier effect.

Oil investors will continue watching the China covid curve while playing the China rebound story through Oil futures and XLE.

FOREX Fundamental Analysis

Chinese Yuan CNH

Traders have moved off, at least this one has, the CNH/JPY competitive advantage trade as a motive to sell the Yuan. And are now looking at the typical RMB correlation associated with local equity markets.

While a depreciating RMB is theoretically positive for export-oriented firms, it is generally associated with lacklustre overall share market performances.

With a good chance, policymakers could use yesterday’s economic data low point as a watershed moment to release a flood-like stimulus once the economy opens. There should be a positive bounce in Chinese equities and possibly change the tide for USDCNH. But mainland stocks will need to do the heavy lifting, not the PBoC

Japanese Yen

For the yen, the tide may be starting to turn. The Japanese currency broke nine successive weeks of losses against the US dollar last week.

There has been a notable change in how the pair operates in the last week.

US rates had been behind the currency moves – pushing the US dollar higher against the yen, euro, franc, and Aussie.

Now the drivers are more technical. When rates go up and equities go down – the S&P 500 had fallen 6.4% since May 4 when the Federal Reserve lifted rates by 0.5 percentage points – dollar-yen is not rallying as much. Instead, it is now trending down.

Traders want to buy the yen – and the classic ‘risk-off’ hedge of holding yen calls. Again, this is rolling the dice on US recession odds which could cause a significant spill across the global markets.

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

AUD/USD Forex Technical Analysis – Weak US Retail Sales Could Spike Aussie into .7048 – .7099

The Australian Dollar is edging higher early Tuesday after Australia’s central bank signaled another rate hike was likely at its June policy meeting. The move also shows traders are shrugging off bearish economic news from China, indicating oversold conditions.

At 06:05 GMT, the AUD/USD is trading .7006, up 0.0037 or +0.53%. On Monday, the Invesco CurrencyShares Australian Dollar Trust settled at $68.98, up $0.35 or +0.51%.

RBA Minutes Give Aussie Surprise Boost

Besides the technical short-covering, the Aussie is getting help from minutes of the Reserve Bank of Australia’s (RBA) last policy meeting, which dropped a heavy hint that another rate rise was coming in June.

June financial futures dipped to fully price in a quarter-point hike to 0.60% on June 7, and have rates reaching 1.35% by August following inflation data for the second quarter.

Looking Ahead…

Aussie traders are now gearing up for Wednesday’s all important wage data figures, which will offer clues on the pace of wage inflation. Traders expect the data to show annual growth picking up to 2.5%. Additionally, jobs data for May on Thursday could show unemployment falling under 4.0% for the first time since the early 1970s.

In the U.S., traders are waiting for the release of April’s retail sales report and others including industrial production. Bearish retail sales numbers could weaken the case for an aggressive Fed. This news would put pressure on the U.S. Dollar, leading to more short-covering in the Australian Dollar.

Daily AUD/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through .6829 will signal a resumption of the downtrend. A move through .7266 will change the main trend to up.

The minor trend is also down. A trade through .7053 will change the minor trend to up. This will shift momentum to the upside.

The minor range is .7053 to .6829. Its pivot at .6941 is new support.

The short-term range is .7266 to .6829. Its retracement zone at .7048 to .7999 is the next upside target. This is followed by additional resistance at .7144 to .7218.

Daily Swing Chart Technical Forecast

Trader reaction to .6941 will likely determine the direction of the AUD/USD on Tuesday.

Bullish Scenario

A sustained move over .6941 will indicate the presence of buyers. If this move creates enough upside momentum then look for a surge into the resistance cluster at .7048 – .7053. Sellers could come in on the first test of this area, but if it fails, prices could spike into .7099.

Bearish Scenario

A sustained move under .6941 will signal the return of sellers. This could lead to a near-term test of the main bottom at .6829, followed by long-term bottoms at .6811 and .6777.

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

USD/CAD Price Prediction – USD/CAD Stabilizes Near Friday’s Close Despite Stronger Dollar and Yields 

Key Insights

  • Gold prices recovered after volatile trading. 
  • Treasury yields eased as investors await clues about the Fed’s next move. 
  • Oil prices faced upward traction amid supply concerns over the Russian oil embargo.

USD/CAD remained little changed as the dollar continued to strengthen against most major currencies. The dollar moved higher nearing two-decade highs as investors long the dollar. Benchmark yields traded lower as investors await this week’s economic data. The ten-year yield declined by 3 basis points today. 

Gold prices whipsawed as investors develop greater bearish sentiment. A stronger dollar supports bearish gold prices.

Oil prices rose as European diplomats showed optimism regarding a potential Russian oil ban, which would reduce the oil supply. The prospect of the oil embargo offset concerns about demand due to the sustained lockdowns in China.

The Empire State Manufacturing Index came in lower than expected. Investors await this week’s economic data about retail sales for clues about the size of the Fed’s next move.

April housing starts will be reported on May 18th, which will signal how interest rate-sensitive sectors like the housing market are faring in tightening financial conditions. 

Economists predict that housing market activity will remain elevated despite a decline from the previous month. US companies with foreign earnings will also face a headwind from the dollar strengthening relative to other currencies, which will be evident in their earnings.

Technical Analysis

The USD/CAD held steady near the 1.289 level, but the pattern indicates that a top may be developing for the currency pair. A break below the 1.289 level will signal further downward pressure, putting the currency pair in the 1.27s region. 

Resistance is seen near the 10-day moving average of 1.291. Support is seen near the May 5th low near 1.27. 

Short-term momentum is negative as the fast stochastic had a crossover sell signal. Medium-term momentum turns negative as the MACD line might generate a crossover sell signal.

This scenario happens when the MACD line (the 12-day moving average minus the 26-day moving average) crosses the MACD signal line (the 9-day MA of the MACD line). The trajectory of the MACD is in positive territory, which reflects an upward trend in price movement.

EUR/USD Mid-Session Update for May 16, 2022

The Euro is trading higher against the U.S. Dollar on Monday as Euro Zone Government bonds rose back towards recent multi-year highs, after European Central Bank policymaker Francois Villeroy de Galhau said a weak Euro threatened price stability in the currency bloc.

The Euro’s weakness on currency markets could threaten the ECB’s efforts to steer inflation towards its target, Villeroy said.

At 18:15 GMT, the EUR/USD is trading 1.0423, up 0.0015 or +0.15%. The Invesco CurrencyShares Euro Trust ETF (FXE) is at $96.49, up $0.14 or +0.14%.

“Let me stress this:  we will carefully monitor developments in the effective exchange rate, as a significant driver of imported inflation,” Villeroy told a conference at the Bank of France, which he also heads.

“A Euro that is too weak would go against our price stability objective.”

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher following the confirmation of Friday’s closing price reversal bottom.

A trade through 1.0642 will change the main trend to up. A move through 1.0354 will negate the closing price reversal bottom and signal a resumption of the downtrend.

The minor range is 1.0642 to 1.0354. Its 50% level or pivot at 1.0498 is the nearest upside target.

The short-term range is 1.0936 to 1.0354. Its retracement zone at 1.0645 to 1.0714 is resistance.

Daily Swing Chart Technical Forecast

Trader reaction to 1.0397 will determine the direction of the EUR/USD into the close on Monday.

Bullish Scenario

A sustained move over 1.0397 will indicate the presence of buyers. Taking out the intraday high at 1.0439 will indicate the buying is getting stronger. This could trigger an intraday surge into the pivot at 1.0498.

Since the main trend is down, sellers could come in on the first test of 1.0498, but overcoming it could trigger an acceleration to the upside with the next major target a resistance cluster at 1.0642 – 1.0645.

Bearish Scenario

A sustained move under 1.0397 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly lead to a retest of the minor bottom at 1.0354, followed by the January 3, 2017 main bottom at 1.0339.

The main bottom at 1.0339 is very important because it is the last potential support before the January 8, 2003 main bottom at .9860.

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