May 20th 2022: Pandemic Low of $1.0638 Eyed as Resistance on EUR/USD

Charts: Trading View

(Italics: Previous Analysis)

EUR/USD Technical Analysis:

EUR/USD bulls entered an offensive phase on Thursday amidst broad USD softness. The US Dollar Index (USDX) plunged 1 per cent by the close of Europe, driven lower by US Treasury yields navigating south across the curve.

Evident from the weekly timeframe, EUR/USD buyers remain in the driving seat and are on track to form a textbook bullish engulfing candle ahead of 2nd January low at $1.0340 (2017). Overhead, Quasimodo support-turned resistance at $1.0778 is visible on the weekly scale, which if tested could be a reasonable platform for a ‘sell-on-rally’ theme, in a market decisively trending lower since 2021.

Lower on the curve, however, the daily timeframe reveals price is closing in on the underside of the pandemic low of $1.0638 (March 2020), a level that served as firm resistance at the beginning of May. Quasimodo support coming in at $1.0377 is seen to the downside, closely shadowed by a 1.272% Fibonacci projection at $1.0305. Adding to the daily timeframe’s technical landscape, the relative strength index (RSI) is seen closing in on the lower side of the 50.00 centreline.

Of technical relevance on the H4 timeframe, trendline resistance (taken from the high $1.1185) is now active, following an earlier retest of support at $1.0483. Overcoming the said trendline resistance shines light on H4 prime resistance at $1.0680-1.0640, which happens to reside 2 pips north of daily resistance mentioned above at $1.0638.

Analysis based on the H1 timeframe has price within reach of $1.06 after rebounding from nearby Quasimodo resistance-turned support at $1.0576. Upstream, H1 Quasimodo resistance can be seen as the next upside target at $1.0631, a base sharing chart space with daily resistance at $1.0638.

Technical Outlook:

Technical elements in this market show a clear downtrend present, with the daily RSI possibly testing 50.00 as resistance. This draws attention to the daily timeframe’s resistance at $1.0638, together with H1 Quasimodo resistance at $1.0631 and H4 prime resistance at $1.0680-1.0640 as a possible zone that sellers could emerge from.

AUD/USD Technical Analysis:

The Australian dollar outperformed against the US dollar on Thursday, adding 1.5 per cent and reclaiming Wednesday’s losses.

Price action on the weekly chart is threatening to engulf prime support at $0.6948-0.7242. This, in a market demonstrating a downside bias since early 2021, and daily action trading under its 200-day simple moving average at $0.7262 since 21st April, unearths weekly support at $0.6673 and a neighbouring 50.0% retracement at $0.6764.

Quasimodo support at $0.6901 on the daily timeframe remains in place. Upstream casts light on resistance at $0.7170, which happens to accommodate a 78.6% Fibonacci retracement at $0.7174 and a 38.2% Fibonacci retracement at $0.7149. Joining current resistances is the relative strength index (RSI); the indicator is poised to retest the lower side of the 50.00 centreline, following positive divergence ahead of support at 21.38.

Out of the H4 timeframe, movement is within range of trendline resistance, extended from the high $0.7661. Interestingly, just above this descending line resides the daily resistances. However, on the H1 timeframe, price is eyeballing $0.71 as possible resistance (joined by a 1.618% Fibonacci projection at $0.7088 and a 100% Fibonacci projection at $0.7122), which merges with current H4 trendline resistance.

Technical Outlook:

Despite recent buying, this remains a sellers’ market.

Immediate resistance is present around $0.71 (enclosed between H1 Fibonacci resistances at $0.7122-0.7088) on the H1, aided by H4 trendline resistance. Failure to attract sellers could unlock a whipsaw to daily resistances around $0.7170ish.

USD/JPY Technical Analysis:

Thursday watched the USD/JPY exchange rate refresh month-to-date lows, as markets largely continued to echo a risk-off tone.

Higher timeframe technical structure remains unchanged on the weekly and daily timeframes; here’s where the research team left the charts in Thursday’s technical briefing:

Buyers have been on the ropes since price action made contact with supply at ¥131.93-131.10 on the daily timeframe, in the shape of a shooting star candlestick pattern. The obvious downside objective resides at ¥125.54, a weekly resistance-turned support level. To the upside on the weekly scale, 28th January high (2002) is evident at ¥135.16.

Another key note on the daily scale is the relative strength index (RSI) departing from overbought territory and subsequently breaching a double-top pattern’s neckline stationed around the 66.93 31st March low (peaks were established from indicator resistance at 87.52). Familiar indicator support is now active at 40.00-50.00 (a temporary oversold zone since May 2021) which holds the double-top profit objective within at 45.93.

Focus remains directed towards the double-top formation at ¥131.26 on the H4 chart, displaying a neckline at ¥128.62 which, as you can see, ceded position on 12th May. Should Quasimodo support from ¥127.44 break, the pattern’s profit objective demands attention at ¥126.00, placed a touch north of the weekly support level underlined above at ¥125.54.

Elsewhere on the H1 timeframe, a near-test of Quasimodo support at ¥127.02 (and ¥127) materialised in recent trading, a move highlighting ¥128 and neighbouring supply at ¥128.35-128.12 (accompanied by a 50% retracement at ¥128.40 and a 61.8% Fibonacci retracement at ¥128.21).

Technical Outlook:

Scope to discover deeper water on weekly and daily timeframes, in addition to H4 price on the verge of dethroning Quasimodo support from ¥127.44, a test of H1 supply at ¥128.35-128.12 may be an area sellers draw to. Note that this zone is positioned directly above ¥128, therefore also marking the possibility of a ‘stop-run’.

GBP/USD Technical Analysis:

In spite of Wednesday’s deterioration, Thursday staged an impressive rebound and elevated GBP/USD higher by 1.3 per cent. Week to date, the currency pair is higher by 2 per cent, following last week’s pip-perfect test of Quasimodo support at $1.2164 on the weekly timeframe. However, it’s important to remain aware that this market has been entrenched within a strong downtrend since early 2021, emphasising weekly resistance at $1.2719 as a possible ceiling should price test this base.

The technical perspective on the daily timeframe has price bordering on the lower side of a bearish flag pattern formed in early May, made up between $1.2411 and $1.2614. Beyond here, a Quasimodo support-turned resistance is seen around $1.2762, whereas additional weakness draws attention to support from $1.2018.

In terms of the daily timeframe’s relative strength index (RSI), bullish divergence recently took hold with the indicator poised to retest the underside of the 50.00 centreline. Bear in mind, however, that the RSI can register oversold signals for extended periods in a downward facing market.

Coming from the H4 timeframe, resistance is likely on the radar at $1.2650 due to the level being accompanied by a 100% Fibonacci projection at $1.2683 and a 200% Fibonacci extension at $1.2677. Harmonic traders will acknowledge the 100% Fibonacci projection represents an AB=CD bearish formation. Key levels on the H1 timeframe right now, though, are supply at $1.2569-1.2541, followed by $1.26. Trendline support is visible to the downside, extended from the low $1.2156.

Technical Outlook:

The combination of the lower side of the daily bearish flag and H1 supply at $1.2569-1.2541 could be enough to tempt a technical bearish showing.

H1 trendline support is also likely to be of interest if price pulls lower, as both weekly and H4 timeframes demonstrate room to explore higher levels.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only.

To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

GBP/USD Price Forecast – The British Pound Continues Noisy Consolidation

British Pound vs US Dollar Technical Analysis

The British pound has rallied just a bit against the greenback during the trading session on Thursday, as the market continues its consolidation against resistance. The 1.25 level is an area where I would expect to see a lot of resistance, and therefore it is not a huge surprise to see that we have been banging around just below it. When you look at the chart over the last several weeks, you can see that a bearish flag had set up in this general vicinity, so it should contain a lot of noise. That noise will be difficult to overcome, especially in the macroenvironment that we find ourselves in.

The yields in America have come down just a bit during the trading session, and you may be seeing that reflected in the US dollar, but that is a temporary phenomenon. Furthermore, as there is more risk out there, yields will drop as people buy US bonds. Those US bonds need to be purchased in US dollars, and it is worth noting that the Eurodollar system has a major liquidity issue in certain parts of the world, and therefore demand for US dollars continues to rise.

At this point, the resistance barrier extends all the way to at least the 1.26 handle, but you also have the 50 day EMA above that could cause a bit of resistance. It would take a massive effort to turn things around, but I suppose anything is possible. Currently, I am looking for signs of exhaustion to sell into, as it offers cheap US dollars. The market will continue to be noisy, but that is probably going to be the case with almost anything in the Forex markets.

GBP/USD Price Forecast Video 20.05.22

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

Stocks Sink in a Vicious Sea of Red; Oil Bulls Are Blindsided by Stagflation Fear, Rates Down Trigger Demand for JPY, Leaving Gold in No Man’s Land

Global Macro and Stock Markets Analysis

US equities fell sharply Wednesday, S&P down 4%, the most significant daily decline since June 2020. The weakness came as Target’s quarterly earnings added fuel to the recession risk narrative, while the drop of US10 year yields down 10bps to 2.88% offered little support. And Oil settled at 2.3% lower on the day.

Equities continue to be at the mercy of broader macro themes, with more hawkish comments from Fed Chair Jay Powell leading to a further move higher in front-end rates, which continues to prove problematic for risk.

Medium-term, the Fed is likely to respond to any easing in financial conditions by ratcheting up the hawkish noises and, in effect, acting as a lid on the markets. And this should keep active money on the sidelines.

The relief rally trap door sprung when the S& P 500 4000 pins snapped after Target‘s earnings results exacerbated some recession fears that continued the theme of rising inventories detailed by Walmart on Tuesday. And the broad-based sell-off absolutely hammered tech.

Indeed, contagion from bellwether consumer earnings prints is sending stagflationary shockwaves through the market, and equities suffered another massive bout of indigestion after yesterday’s Alka Seltzer moment.

While rising inventories and higher inventory/sales ratios are not new, the big boxes now confirm recessionary worries and catalyze the severity of the sum of all stagflationary fears.

Oil Fundamental Analysis

The China reopening trade got blindsided by intense global recessionary impulses.

It is a very volatile market, but there are enough reasons to suggest why traders are looking to sell in the current environment.

An actual recession is likely one of the few antagonists that can contain oil prices with a supply deficit. And as the procession to recession shortens, oil prices could continue to fall due to demand concerns.

In addition to Venezuela barrels possibly coming to market offsetting the ongoing political fractious Libyan supply disruption, the EU sanctions package currently under discussion would likely legalize Russian supplies’ status quo at least through the year and take pressure off the prompt contract.

FOREX Fundamental Analysis

It was another busy day in G-10 FX with broad-based dollar demand across the spectrum, driven by a hawkish FED and safe-haven demand, which are two primary supportive channels for King Dollar.

Investors continue to evaluate the diverging approaches taken by central banks amid an inflation crisis. Federal Reserve Chair Jay Powell issued some hawkish comments on Tuesday about the possibility of raising the Fed Funds above neutral. At the same time, the Bank of England seems to have fallen behind the curve with its dovish approach, despite rampant inflation data emerging earlier Tuesday.

But folks that trade for a living, not analyze currencies as a job, are looking to buy JPY, which suggests the worm is turning on USDJPY.

Japanyese Yen

Local investor interest in buying USDJPY in the Asian session saw the pair touch a high in the 129.50/60 zone, coinciding with highs in various JPY crosses.

Since then, the pair has been heavy on rallies and opened the North America session near 129.00/10. This morning we open the Asia session at 128.30 as safe-haven demand is kicking in.

The JPY looks attractive with the global economy on the precipice of recession. JPY is interesting as the rise in USDJPY YTD has opened an enormous value gap for what is typically perceived as a safe-haven currency. Historically FX hedges for massive risk-off scenarios suggest that the YEN provides an excellent firebreak to the recessionary flames, especially against a “stock down rates down” seismic shock or a market backdrop consistent with recessionary pricing.

British Pound

Besides the Brexit risk and the BoE as a reluctant rate hiker, domestic political risk never seems to leave the GBP spectrum. “Red Wall” Conservative members of parliament are planning to ask Chancellor Rishi Sunak to remove Andrew Bailey as governor of the Bank of England. It seems nigh on impossible this would succeed, but it reflects the political pressure being heaped on the BoE.

Bailey is just two years into an eight-year term. Bailey has not helped himself, with comments such as predicting an “apocalyptic” rise in food prices earning him opprobrium from all corners.

Questioning the ability of your top central banker cannot be suitable for the currency.

Swiss Franc

USDCHF and CHF crosses continue to trade heavily, with little bounces, after SNB Chairman Jordan said the central bank is “ready to act if inflation strengthens.”

There is no relief in the crosses after disappointing quarterly results from major retailers weighed on the broader markets.

Gold Fundamentals

Gold is caught in the tug of war between recessionary safe-haven demand and do not fight the fed mode.

It is a tough market for gold investors, with stocks tanking and the street moving into a capitulatory sell-all frame of mind. And even lower bond yields are offering little support leaving bullion investors adrift in no man’s land.

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

May 19th 2022: Technical View Indicates EUR, AUD, and GBP Weakness Ahead

Charts: Trading View

(Italics: Previous Analysis)

EUR/USD Technical Analysis:

Demand for safe-haven bids materialised Wednesday amid sharp selling across European and US equities. The US dollar—measured by the US Dollar Index—also witnessed modest buying and longer-dated US Treasury yields jolted lower.

Europe’s single currency rotated south against its US counterpart, consequently trimming a portion of Tuesday’s 1.1 per cent advance. Technically, the currency pair is on the doorstep of 2nd January low at $1.0340 (2017) on the weekly timeframe, though trend direction remains on the side of sellers for the time being (dominant since the beginning of 2021). Adding to this, seen clearly from the monthly timeframe, the overall vibe has been to the downside since topping in April 2008.

Quasimodo support coming in at $1.0377 welcomed price action at the tail end of last week. Based on the daily timeframe, subsequent buying elevated the unit to the lower side of a daily bearish flag pattern, made up between $1.0471 and $1.0593. Overhead, the underside of the pandemic low of $1.0638 (March 2020) is also on the radar.

Against the backdrop of higher timeframes, the H4 chart reveals support at $1.0483 is being retested. Although H4 price action remains within a downtrend (most traders are likely watching the $1.0642 high to be engulfed [5th May] to confirm a potential uptrend), technicians may find interest in current support due to its position on the H1 scale.

Enclosed within a H1 decision point at $1.0470-1.0492, alongside a H1 trendline support, taken from the low $1.0349, these technical elements may be enough to trigger a bullish stance. What’s technically relevant is these areas are positioned below $1.05, promoting the possibility of a stop-run.

Technical Outlook:

Despite higher timeframes threatening further selling, the H1 decision point at $1.0470-1.0492 (together with H4 support at $1.0483 and H1 trendline support) might be sufficient to encourage a short-term bid back above $1.05.

AUD/USD Technical Analysis:

The Australian dollar fell against the US dollar on Wednesday, snapping a three-day winning streak after daily flow staged a rebound from Quasimodo support at $0.6901. Upstream on the daily chart casts light on resistance at $0.7170, which happens to accommodate a 78.6% Fibonacci retracement at $0.7174 and a 38.2% Fibonacci retracement at $0.7149.

Whether buyers have enough ‘oomph’ to reach the aforesaid resistances is difficult to estimate at this point. Discouraging further buying is the relative strength index (RSI); the indicator continues to explore space south of the 50.00 centreline (negative momentum). Indicator support also remains sketched in at 21.38.

In addition to the daily timeframe, price action on the weekly chart is threatening a break of prime support at $0.6948-0.7242. This, in a market demonstrating a downside bias and daily action trading under its 200-day simple moving average at $0.7263 since 21st April, unearths weekly support at $0.6673 and a neighbouring 50.0% retracement at $0.6764.

Recent hours on the H1 chart observed price tunnel through $0.70, movement shining light on trendline support, taken from the low $0.6829, and Quasimodo resistance-turned support at $0.6953, followed by a head and shoulders top profit objective at $0.6934.

Technical Outlook:

Chart studies suggest the H1 timeframe is likely to zero in on the head and shoulders top profit objective at $0.6934, with the possibility of also targeting $0.69 as it shares chart space with the daily timeframe’s Quasimodo support from $0.6901. As such, a short-term scene could unfold as we head into Thursday’s sessions.

USD/JPY Technical Analysis:

Demand for the safe-haven Japanese yen weighed on the USD/JPY currency pair Wednesday, guiding the unit lower by approximately 1 per cent. Buyers have been on the ropes since price action made contact with supply at ¥131.93-131.10 on the daily timeframe, in the shape of a shooting star candlestick pattern. The obvious downside objective resides at ¥125.54, a weekly resistance-turned support level. To the upside on the weekly scale, 28th January high (2002) is evident at ¥135.16.

Another key note on the daily scale is the relative strength index (RSI) departing from overbought territory and subsequently breaching a double-top pattern’s neckline stationed around the 66.93 31st March low (peaks were established from indicator resistance at 87.52). Familiar indicator support is now active at 40.00-50.00 (a temporary oversold zone since May 2021) which holds the double-top profit objective within at 45.93.

Across the page on the H4 timeframe, attention is on the recently formed double-top formation at ¥131.26, with a breached neckline plotted at ¥128.62. The pattern’s profit objective sits at ¥126.00, a touch north of the weekly support level underlined above at ¥125.54.

Analysis based on the H1 timeframe has buyers and sellers squaring off ahead of ¥128. Resistance demands attention at ¥128.45, sheltered under a decision point from ¥128.70-128.51. Should a break of ¥128 develop, aside from the ¥127.52 (12th May) low, limited support is seen until ¥127.

Technical Outlook:

A test of the H1 timeframe’s decision point at ¥128.70-128.51 could be movement that attracts bearish attention, in light of room to navigate lower on surrounding timeframes. Alternatively, H1 price dipping under ¥128 might encourage a bearish breakout scene, targeting at least the ¥127.52 (12th May) low.

GBP/USD Technical Analysis:

Sterling finished Wednesday on the back foot versus the US dollar after UK inflation clocked an eye-popping 9 per cent in April (y/y). Technically, price remains toying with Quasimodo support coming in at $1.2164 on the weekly timeframe, following April’s 4.3 per cent tumble. $1.2164 is a major technical level so a rebound—if only temporary—is likely anticipated by many traders. However, it’s important to remember that this market has remained entrenched within a strong downtrend since early 2021.

Meanwhile on the daily timeframe, GBP/USD snapped a three-day bullish phase ahead of the lower boundary of a bearish flag pattern formed in early May, made up between $1.2411 and $1.2614. Beyond here, a Quasimodo support-turned resistance is seen around $1.2762, whereas additional weakness draws attention to support from $1.2018.

In terms of the daily timeframe’s relative strength index (RSI), bullish divergence is currently in play with the indicator poised to retest the underside of the 50.00 centreline. Bear in mind, however, that the RSI can register oversold signals for extended periods in a downward facing market.

Across the page on the H4 timeframe, recent candle action shows price rejected Quasimodo support-turned resistance at $1.2476 (accompanied by a 61.8% Fibonacci retracement at $1.2457). An absence of obvious support is evident on the H4 chart until a Quasimodo formation at $1.2186. A closer reading of price action on the H1 chart has the pair making its way beneath $1.24, in the direction of support between $1.2287 and $1.2311 (made up of two Fibonacci ratios and the $1.23 figure).

Technical Outlook:

H1 support at $1.2287-1.2311 may interest short-term traders today. With that being said, a cautionary approach is likely to be adopted, as higher timeframes indicate sellers are in the driving seat for the time being. Consequently, traders might pursue additional confirmation before pulling the trigger at the aforementioned support area.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only.

To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

GBP/USD Price Forecast – The British Pound Pulls Back From a Large Round Number

British Pound vs US Dollar Technical Analysis

The British pound has pulled back just a bit during the course of the session on Wednesday as the 1.25 level has offered a significant amount of resistance. There is a lot of noise out there, but it should be noted that the market is very negative in general, so therefore it is very important to remember that as we do get these occasional bounces.

Signs of exhaustion will be jumped upon, and it should be noted that even though we bounced quite nicely, we have been so bearish over the last several weeks that we were due for this type of bounce. Ultimately, signs of exhaustion that manifest near the 1.25 level and the 1.26 level will be opportunities to get short. The 50 Day EMA is near the 1.2750 and dropping rather rapidly. All things being equal, it is very unlikely that this market changes its overall attitude anytime soon. Beyond that, then we have the 1.30 level where the market had broken down from. That would be the absolute “ceiling” in the market right now.

On the downside, the 1.22 level has been short-term support, but you can also make an argument of the market forming a bearish candlestick, and now we are retesting the area. Based upon that measured move, we could look to reach the 1.20 handle, which I think is a reasonable target given enough time. There will of course be volatility as per usual, but a little bit of money management and position sizing will be paramount, but ultimately this is a situation where it is almost impossible to be a buyer.

GBP/USD Price Forecast Video 19.05.22

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

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.

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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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.

GBP/USD Price Forecast – The British Pound Gives Up Early Gains

British Pound vs US Dollar Technical Analysis

The British pound initially tried to rally during the trading session on Monday but gave back early gains as we continue to see a lot of resistance above. The market has a ton of resistance just above, and therefore it is difficult to imagine a scenario where I would be a buyer. At this point, I would anticipate that the British pound is going to trade down to the $1.20 level, but we may get a short-term rally between now and then.

In fact, I believe that the $1.26 level above is a bit of a ceiling in the market, with of course the $1.25 level offering a certain amount of psychology in the market that will have to be paid close attention to. Given enough time, the market will see plenty of sellers jump back into the market as the reserve continues to tighten, and of course, is probably one of the most hawkish central banks in the world right now.

Adding more downward pressure is the fact that there is a lot of “risk-off” behavior out there, which in and of itself will drive money into the US bond markets. With this being the case, it is very likely that we will continue to see trouble going forward, with the trend so firmly ensconced, and of course, the momentum of these markets takes quite a bit of effort to turn things around. The market would have to break above the 50 Day EMA at the very least in order to start to look in the other direction. Ultimately, this is a “fade the rally” situation.

GBP/USD Price Forecast Video 17.05.22

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

Equites Remain Buoyant, China Stimulus , Oil Breaks Out , Gold Digs In +FX ( CNH-AUD-GBP)

Global Macro and Stock Markets Analysis

After dipping in and out of the red last week, worrying that the Fed’s inflation targeting could bring about a recession, equity markets ended the week in a relief rally fashion, led by tech and other oversold sectors, after Chair Powell hinted that the Fed would not look to shock the markets with 75 bp rate hikes at the next two meetings. And expectations continue to increase for a sizeable policy response from Chinese authorities ahead of a gnarly set of April data this week. This expectation is acting as a tailwind to sentiment.

Chair Powell’s appearance Tuesday at a WSJ event will attract some attention – but the data docket will do most of the talking this week with all eyes on US retail sales.

Indeed, investors remain laser-focused on the macro picture, particularly on consumer-based recessionary guidepost.

Still, the 2000 Tech-Bubble Crash analog would suggest the market has reached a comparable point of repricing and is possibly attracting dip buyers. But that does not mean the bear market is over, especially with the recession on everyone’s mind. I do not think that mortal coil passes quickly with traders looking to sniff out any signs of economic slowdown like a heat-seeking missile.

And while investment returns should be weaker in this cycle and without complicating the matter, higher interest rates imply smaller contributions to valuation. But looking at the post-pandemic market purely through the binary lens of Growth versus Value is becoming less relevant; investors will be driven by a different set of macro conditions and priorities than in the past, implying they will use different investment styles just like they did coming out of the 2000 tech crash.

Still, I do not think this is an excellent climate for investors as the market continues to trade on very short-term recessionary signals. And it is very “noisy,” keeping intraday volatility high with 150–250-point swings is common. Indeed, this is the hallmark of a market filled with air pockets which have left more than a few investors licking their wounds.

And while we have not reached that “sell everything “capitulation point, I do not think you want to be on the wrong side of the handshake line on this call.

Oil Fundamental Analysis

Crude oil finished the week at the highest since March 25 as the market seemed more spooked by Russia turning off power flows into Finland, b, and that domino effect than the chatter of a Beijing lockdown.

The Covid situation in mainland China remains fluid, although expectations continue to increase for a sizeable policy response from the authorities ahead of April data this week. Just as Americans are gearing up for summer road trips (summer driving season), any China policy response is a boon for the bulls. Indeed, US gasoline futures contract climbed to its highest level on record, signalling more pain at the pump for US consumers and higher inflation, mind you, which should now fall under the FOMC’s watchful eye while trying to snuff out the inflation fires.

Oil sentiment turned bullish on Friday, possibly related to more positive steps suggested by the National Health Commission in incrementally opening up China’s economy within the country’s zero-covid framework.

Suppose China opens its major cities – even gradually – that increases the prospects for policy easing. China’s official institutions have been reluctant to enact a significant stimulus, with a locked-down economy not giving policymakers bang for their buck via the multiplier effect.

Gold Fundamental Analysis

Bonds started to go like equities last year, with value versus growth chopping around almost intraday. It is the same thing in rates with breakevens and reals. A massive gain in real rates has sent gold lower. Still, bullion is hanging on as the missing ingredient to send gold crashing through $1780 is an associated and significant decline in inflation expectations. Still, downward pressure is likely to linger in the near term, particularly if Chair Powell maintains a hawkish tone this week; however, gold could find a respite if US economic data turns sour.

FOREX Fundamental Analysis

Chinese Yuan CNH

On Friday, there is bullish sentiment in China’s equities and CNH, particularly related to more positive steps suggested by the National Health Commission in incrementally opening up the economy within the country’s zero-covid framework. In addition, the policy overseers took to the airwave with “China CBIRC warns against betting on one-way yuan move.” Being an official agency of the PBoC, traders will take notice of these smoothing efforts. I suspect

Australian Dollar

While China’s stimulus this week could support the AUD, the big fear is China leaving the door open to on and off lockdowns and giving less scope to the monetary and fiscal policy upon the reopening. The significant risk is Beijing’s lockdown, which veers the market back to recession risk.

Any recessionary repricing will trigger AUDJPY selling again, which is typically viewed as the G-10 go-to hedge when the sum of all fears hits.

British Pound

I think GBP could garner a lot of G-10 focus this week, and for all the wrong reasons, notwithstanding, the UK government is seemingly intent on adjusting the Northern Ireland protocol. Bond traders react to the BoE, sending more precise signals that it may soon approach its terminal rate as the UK economy heads toward a potential recession. Hence the UK yield curve had a massive and largely idiosyncratic repricing last week, where the belly has rallied a lot more than elsewhere.

The Week Ahead – Central Banks Back in Focus Amidst Recession Fears

On the Macro

It is a busy week ahead on the economic calendar, with stats 59 due out through the week ending May 20. In the week prior, 45 stats were in focus.

For the Dollar:

It is a relatively busy week ahead.

On Tuesday, retail sales will be the area of focus ahead of jobless claims and Philly Fed manufacturing numbers on Thursday.

While the numbers will influence, Fed Chair Powell and FOMC member chatter will be the key in the week. The markets will be looking for Fed Chair Powell to back up comments from Friday and for members to align with his assurances.

On Friday, the Fed Chair assured the markets that larger rate hikes were off the table.

In the week ending May 13, 2022, the Dollar Spot Index rose by 0.87% to end the week at 104.563. In the week prior, the Index rose by 0.68% to 103.660.

For the EUR:

It is a quiet week ahead.

Eurozone trade and GDP numbers are due out ahead of finalized inflation figures on Wednesday.

Expect any revisions from the first estimate GDP and any upward revisions to prelim inflation figures to draw interest.

On Friday, flash consumer confidence figures for the Eurozone will wrap things up.

From the EU, the Economic Forecasts are due out on Monday and will likely have a greater impact than the numbers, however.

On the monetary policy front, ECB President Lagarde is due to speak on Tuesday, with the policy meeting minutes due out on Thursday.

For the week, the EUR slid by 1.32% to $1.0412. In the previous week, the EUR rose by 0.06% to $1.0551.

For the Pound:

It is a busy week ahead.

On Tuesday, claimant counts and the UK unemployment rate will draw interest ahead of inflation figures on Wednesday.

On Friday, retail sales numbers wrap things up. The stats will give the markets an idea of the impact of inflation on spending and whether the Bank of England needs to take a more hawkish stance to curb inflation.

From the BoE, the monetary policy report hearings will influence on Monday.

In the week, the Pound fell by 0.70% to end the week at $1.2262. The Pound tumbled by 1.79% to $1.2348 in the week prior.

For the Loonie:

Inflation will be the area of focus. On Wednesday, April’s figures are due out and will provide the Loonie with direction.

Other stats in the week include wholesale sales and RMPI numbers that will have less impact.

From the Asia Pacific

For the Aussie Dollar:

Wage growth will be in the spotlight on Wednesday ahead of employment numbers on Thursday.

While wage growth is an RBA consideration, employment figures will need to be positive to support a more hawkish RBA.

From the RBA, the meeting minutes are due out on Tuesday and will provide direction.

In the week, the Aussie Dollar slid by 1.92% to $0.6940.

For the Kiwi Dollar:

Wholesale inflation figures for the first quarter are out ahead of trade data on Friday.

With little else to consider, both sets of numbers will influence. However, China and sentiment towards the global economic outlook will remain the key drivers.

The Kiwi Dollar tumbled by 2.09% to end the week at $0.6276.

For the Japanese Yen:

First quarter GDP numbers will draw plenty of interest on Wednesday ahead of trade data on Thursday.

The Bank of Japan painted a grim picture at the last policy meeting, highlighting downside risks stemming from China and the war in Ukraine.

This week’s stats will give a sense of how bad it could be.

At the end of the week, April inflation figures are also due out. Barring a spike, however, we don’t expect too much influence on the Yen.

The Japanese Yen rose by 1.03% to end the week at ¥129.22 against the dollar. In the week prior, the Yen ended the week down by 0.66% to ¥130.56.

Out of China

Fixed asset investments, industrial production, and retail sales figures are out on Monday.

Expect plenty of interest in the numbers as the markets look to assess the impact of lockdown measures on economic activity.

While the government has promised support, we can expect market sensitivity to the numbers.

On the policy front, the PBoC will set loan prime rates on Friday, with any cuts to support riskier assets. Forecasts are for the PBoC to leave the LPRs unchanged.

Away from the economic calendar, COVID-19 news updates and chatter from Beijing will also influence.

In the week ending May 13, the Chinese Yuan slid by 1.84% to CNY6.7893. The Yuan declined by 0.88% to CNY6.6667 in the week prior.

Geo-Politics

Russia and Ukraine will remain the area of focus in the week ahead.

The Weekly Wrap – Fed Chair Powell Delivered Friday Comfort

The Stats

It was a quiet week on the economic calendar for the week ending May 13, 2022.

A total of 45 stats were monitored, following 62 stats in the week prior.

Of the 45 stats, 20 beat forecasts, with 22 economic indicators falling short of forecast. Three stats were in line with forecasts.

Looking at the numbers, 13 of the stats reflected an upward trend. Of the remaining 32 stats, 30 stats were weaker.

Out of the US

Inflation was back in focus, which caused market turbulence mid-week.

In April, the annual rate of inflation softened from 8.5% to 8.3% versus a forecasted 8.1%. The core annual rate of inflation softened from 6.5% to 6.2%. While softer, inflation was stronger than anticipated, supporting the more hawkish sentiment towards Fed monetary policy.

On Thursday, wholesale inflation also drew attention. In the month of April, the core producer price index increased by 0.4% after a 1.2% rise in March.

Initial jobless claims had a muted impact despite a rise from 202k to 203k in the week ending May-06.

On the monetary policy front, Fed Chair Powell calmed the markets on Friday, assuring that larger rate hikes remained off the table.

In the week ending May 13, 2022, the Dollar Spot Index rose by 0.87% to end the week at 104.563. In the week prior, the Index rose by 0.68% to 103.660.

Out of the UK

GDP and production figures were the main areas of focus in the week.

The stats were Pound negative, with the UK economy contracting in March and production hitting reverse.

In the first quarter, the UK economy grew by 0.8% quarter-on-quarter versus a forecasted 1.00%. The economy expanded by 1.3% in the previous quarter.

Year-on-year, the economy grew by 8.7% versus a forecasted 9.0%. The economy expanded by 6.6% in the fourth quarter of last year. More significantly, the economy contracted by 0.1% in March, after no growth in February.

Production figures also provided little comfort.

 

Production fell by 0.2%, partially offset by construction (+1.7%), with manufacturing production declining by 0.2%.

In the week, the Pound fell by 0.70% to end the week at $1.2262. The Pound tumbled by 1.79% to $1.2348 in the week prior.

The FTSE100 ended the week up 0.41%, partially reversing a 2.08% loss from the previous week.

Out of the Eurozone

ZEW Economic Sentiment figures for Germany and the Eurozone and Eurozone industrial production figures were the key stats.

In May, economic sentiment improved, with Germany’s ZEW Economic Sentiment Index up from -41.0 to -34.3. The Eurozone’s ZEW Economic Sentiment Index climbed from -43.0 to -29.5.

At the end of the week, industrial production disappointed, however.

In March, industrial production fell by 1.8% to test EUR support. Production rose by a modest 0.5% in February.

For the week, the EUR slid by 1.32% to $1.0412. In the previous week, the EUR rose by 0.06% to $1.0551.

The DAX rallied by 2.59%, with the EuroStoxx600 and the CAC40 seeing gains of 0.83% and 1.67%, respectively.

 

For the Loonie

It was a quiet week on the economic data front, leaving the Loonie in the hands of market risk sentiment.

In the week ending May 13, the Loonie fell by 0.42 to C$1.2929 against the greenback. The Loonie slipped by 0.21% to C$1.2875 in the week prior.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar slid by 1.92% to $0.6940, with the Kiwi Dollar tumbling by 2.09% to end the week at $0.6276.

For the Aussie Dollar

Business and consumer confidence numbers disappointed.

In April, the NAB Business Confidence Index fell from 16 to 10. The Westpac Consumer Sentiment Index fell by 5.6% in May, following a 0.90% decline in April.

For the Kiwi Dollar

Electronic card retail sales reversed a 1.3% decline with a 7.0% jump in April. The Business PMI disappointed, however, falling from 53.8 to 51.2.

For the Japanese Yen

Service sector PMI and household spending drew market interest in a quiet week on the data front.

In April, Japan’s services PMI rose from 49.4 to 50.7, up from a prelim 50.5. Service sector activity picked up in response to the government removing remaining COVID-19 restrictions.

Household spending figures disappointed, however. In March, spending slid by 4.1%, following a 2.8% decline in February.

The Japanese Yen rose by 1.03% to end the week at ¥129.22 against the dollar. In the week prior, the Yen ended the week down by 0.66% to ¥130.56.

Out of China

Trade and inflation tested investor appetite for riskier assets.

In April, exports increased by 3.9%, year-on-year, versus a forecasted 3.2% rise. Exports were up 14.7% in March.

The US dollar trade surplus widened from $47.38bn to $51.12bn as imports stalled.

Inflationary pressures picked up in April, with the annual rate of inflation accelerating from 1.5% to 2.1%.

In the week ending May 13, the Chinese Yuan slid by 1.84% to CNY6.7893. The Yuan declined by 0.88% to CNY6.6667 in the week prior.

The Hang Seng Index ended the week down 0.52%, while the CSI300 rose by 2.04%.

GBP/USD Weekly Price Forecast – The British Pound Continues to Meltdown

British Pound vs US Dollar Weekly Technical Analysis

The British pound initially tried to rally during the trading week, but then fell apart as it looks like we are going to continue to see a massive move lower. At this point, it should be obvious that you are fading any rally that happens, and the market breaking the way it has does suggest that perhaps we are going all the way down to the 1.20 level. I would expect some type of recovery, but that recovery will almost certainly get sold into.

I believe that the 1.25 level could offer significant resistance, so any bounce at this point in time will offer an opportunity to short this market, especially if we get in that area. I would probably drill down to a smaller timeframe in order to take advantage of the trend but keep an eye on the weekly chart. There should be no doubt as to the overall trend of the market, so at this point, you are waiting to pick up “cheap US dollars.” We could simply drop from here, but it is a situation where you do not want to change how you look at the market, and you certainly do not want to suffer at the hands of “FOMO.”

The market has formed four very negative candlesticks in a row, so at this point, we are most certainly oversold. The markets will continue to see a lot of noise, but bear markets do tend to have “rip your face off rallies” occasionally, so you need to pay close attention to that. Do not think that the market has suddenly changed, just that it is offering you a bit of value on these rallies.

GBP/USD Price Forecast Video 16.05.22

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

GBP/USD Price Forecast – The British Pound Continues to Show Signs of Weakness

British Pound vs US Dollar Technical Analysis

The British pound has gone back and forth during the trading session on Friday as it looks like the market is a bit exhausted at this point. Keep in mind that there has been a major surge in the US dollar, so it does make quite a bit of sense that we would see this market either stabilize or bounce. While the British pound looks extraordinarily weak, you need to keep in mind that you are looking for value in a currency when you are buying it, so a bounce is exactly what you would like to see. This gives you the ability to pick up “cheap US dollars”, and follow the overall trend. That being said, it is also possible that we continue to break lower and do not even bounce.

Either way, it is very likely that the British pound is going to go to the $1.20 area. The $1.25 level above is massive resistance, so I would be a bit surprised to see the market break above there. With that in mind, I will be looking at this market as one that I cannot buy anytime soon, and therefore I assume this is essentially a “one-way trade.”

The resistance barrier extends all the way to the 1.26 level, so therefore it is not until we break above there that I would start to question the trend. However, the 50 Day EMA is currently at the 1.2850 level, and starting to fall. Because of this, think it is probably only a matter of time before sellers would return regardless. We need a fundamental reason to think that the US dollar suddenly going to drop in value, which would almost certainly have something to do with the Federal Reserve.

GBP/USD Price Forecast Video 16.05.22

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

May 13th 2022: AUD/USD Eyes $0.68 Amid Absence of Support

Charts: Trading View

(Italics: Previous Analysis)

EUR/USD Technical Analysis:

Amidst broad dollar enthusiasm, Thursday watched EUR/USD extend lower and erase 1.4 per cent into the European close. Technicians adopting a multi-timeframe view are unlikely surprised by recent events. Weekly Quasimodo supports at $1.0467 and $1.0517 failed to spark bullish interest and subsequently gave way yesterday. Territory beneath the aforesaid barriers shine light on 2nd January low at $1.0340 (2017), pinned a touch under the daily timeframe’s Quasimodo support at $1.0377 which is currently active.

Of technical relevance on the daily chart is the bearish flag pattern, made up between $1.0471 and $1.0593. Thursday’s down move welcomed a breakout of the noted pattern, which led the currency pair to daily Quasimodo support (see above), a base closely shadowed by a 1.272% Fibonacci projection at $1.0305. Interestingly, pattern traders have likely pencilled in the bearish flag’s profit objective within striking distance of parity ($1.0000).

Readings out of the daily timeframe’s relative strength index (RSI) reveals the value stepped back into oversold territory after failing to find acceptance north of 38.70. Do remain aware that this indicator can remain oversold for prolonged periods in downtrends.

Quasimodo support on the H4 timeframe at $1.0351 is within reach of welcoming price action, following a decisive one-sided decline through H4 support from $1.0483 (now a marked resistance). Heading into US hours on the H1 timeframe, we can see the currency rebounded from $1.04 and tagged the lower side of a decision point at $1.0444-1.0426, consequently weighing on efforts to hold $1.04. With the aforementioned level ultimately giving way, $1.03 is an obvious support target on the H1 scale.

Technical Outlook:

Despite considerable losses in this market, notable support is on the radar between 2nd January low at $1.0340 (2017) on the weekly timeframe, the H4 Quasimodo support from $1.0351, and daily Quasimodo support at $1.0377. With this in mind, a TEMPORARY recovery effort could be seen in the coming days.

AUD/USD Technical Analysis:

The Australian dollar continued its slump against the US dollar on Thursday, firmly cementing position beneath weekly prime support at $0.6948-0.7242. This unearths weekly support at $0.6673 and a neighbouring 50.0% retracement at $0.6764.

In a market demonstrating a downside bias, with price action also trading south of its 200-day simple moving average at $0.7271, daily flow engulfed Quasimodo support at $0.6901 on Thursday and potentially set the technical stage for an approach towards daily support at $0.6678 (plotted nearby weekly support mentioned above at $0.6673).

According to the relative strength index (RSI) on the daily scale, the indicator is shaking hands with oversold levels after failing to shake hands with the underside of the 50.00 centreline. Indicator support also remains sketched in at 21.38.

Against the backdrop of higher timeframe action, H4 Quasimodo support is seen nearby at $0.6801 after price retested the lower side of H4 resistance at $0.6891. Joining the H4 Quasimodo support is the $0.68 figure on the H1 timeframe, clearly seen following a retest of the recently breached daily Quasimodo support.

Technical Outlook:

Following on from yesterday’s bearish episode, additional losses are potentially in the offing as all four timeframes analysed demonstrate scope to navigate lower levels until at least $0.68.

USD/JPY Technical Analysis:

The clear risk-off environment triggered demand for the safe-haven Japanese yen on Thursday and witnessed a sharp decline in USD/JPY. On track to snap a nine-week bullish phase, weekly price is poised to establish a bearish outside reversal on the weekly timeframe which could draw the unit to weekly support at ¥125.54. To the upside on the weekly scale, 28th January high (2002) is evident at ¥135.16.

Supply on the daily timeframe from ¥131.93-131.10 has served well as a technical ceiling, following Monday’s shooting star candlestick formation. Continuation selling remains on the table according to the daily chart, targeting weekly support underlined above at ¥125.54. Also of interest, the daily timeframe reveals price action ruptured the upper boundary of a flag pattern on 28th April, drawn from a high of ¥129.41 and a low of ¥127.80.

Assuming buyers regain consciousness and overcome neighbouring supply, traders will be looking to a take-profit objective circa ¥136.63 (drawn by extending the pole’s distance and adding this to the breakout point). Note that this profit objective sits above the weekly timeframe’s ¥135.16 high. Another key note on the daily scale is the relative strength index (RSI) departed from overbought territory.

It’s important to recognise that the decisive exit from the overbought area triggered a double-top pattern (neckline stationed around the 66.93 31st March low and peaks were established from indicator resistance at 87.52) and could lead the RSI to familiar support at 40.00-50.00 (a temporary oversold zone since May 2021) which holds the double-top profit objective within at 45.93.

Supporting the recent bearish drive is the H4 timeframe dipping beneath support at ¥128.72 which is now a resistance level. H4 Quasimodo support is seen at ¥127.44, with a break possibly unleashing movement towards current weekly support at ¥125.54. From the H1 timeframe, a clear-cut decision point is present at ¥128.74-128.44 (fixed to the underside of H4 resistance at ¥128.72). Also noteworthy is space beneath ¥128 appears free of support until around the ¥127 neighbourhood.

Technical Outlook:

For now, chart studies indicate a short-term bearish vibe. Should the H1 decision point at ¥128.74-128.44 hold, there’s little in the way of a drop towards ¥127.

GBP/USD Technical Analysis:

Latest developments out of the weekly timeframe on GBP/USD shows the currency pair finally made contact with Quasimodo support coming in at $1.2164, following four back-to-back weekly bearish candles. This is a major technical level so a rebound—if only temporary—is likely anticipated by many traders. However, it’s still important to remember that this market remains entrenched within a strong downtrend since early 2021.

Meanwhile on the daily timeframe, scope for further bearish activity is visible until support coming in from $1.2018, following the retest of Quasimodo support-turned resistance at $1.2334. For those who follow our analysis on a regular basis you may also recall that continued downside followed the formation of a daily bearish flag pattern formed in early May, made up between $1.2411 and $1.2614 (the profit objective can be plotted as far south as $1.18).

In terms of the daily timeframe’s relative strength index (RSI) bullish divergence appears unlikely within oversold territory at the moment. Bear in mind that the RSI can register oversold signals for extended periods in a downward facing market.

Quasimodo support is active on the H4 scale from $1.2186, with any break exposing 17th May 2020 low at $1.2075. Upstream, supply awaits at $1.2381-1.2320. A closer examination of price action on the H1 scale shows the pair retested Quasimodo support-turned resistance at $1.2248 and is currently exploring territory under $1.2200. H1 Quasimodo support is seen at $1.2114, followed by the $1.21 region.

Technical Outlook:

The weekly timeframe’s Quasimodo support at $1.2164 along with the H4 timeframe’s Quasimodo support at $1.2186 offers a floor in this market at the moment. On the other side of the field, nonetheless, the daily timeframe indicates a lack of support until $1.2018, together with the H1 timeframe circling below $1.22 with room to approach H1 Quasimodo support at $1.2114.

The above, coupled with the market’s downtrend, signals sellers could remain in the driving seat, despite the possibility of a brief recovery attempt. Downside targets rest around the $1.21 region.

DISCLAIMER:

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GBP/USD Price Forecast – The British Pound Continues to Look Vulnerable

British Pound vs US Dollar Technical Analysis

The British pound fell hard during the early hours on Thursday but then turned around to show signs of life again. Ultimately, this is a market that I think will continue to see selling pressure, and any rally at this point will be difficult to hang onto; I believe there are plenty of sellers above waiting to get involved. Because of this, I am paying close attention to the 1.24 handle.

Looking at this chart, it is more likely than not to continue to see any rallies fade on short-term charts because, quite frankly, this is a market that is an absolute mess. The Bank of England has already suggested that they will see a recession in the United Kingdom relatively soon and are the first central bank to do this honestly. On the other side of the Atlantic Ocean, you know the Federal Reserve is willing to tighten monetary policy rather aggressively, which lends to US dollar strength in general.

If we break down below the bottom of the candlestick for the trading session on Thursday, it is very likely that we will see some massive dumping of the British pound and a run to the US dollar. Ultimately, the market going would be an enormous sign of fear entering the market. We are on the precipice of something rather ugly happening, but odds favor a bit of a bounce before we go lower. That is not to say that we cannot, but without some catalyst, we will likely bounce and then fall again.

GBP/USD Price Forecast Video 13.05.22

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

UK GDP and Production Figures Sink the Pound

It was a busy morning on the UK economic calendar. Q1 GDP and industrial and manufacturing Production figures drew attention.

Disappointing numbers weighed on the Pound ahead of the UK open.

UK Economy Grows More Slowly than Anticipated in Q1

In the first quarter, the UK economy grew by 0.8% quarter-on-quarter versus a forecasted 1.00%. The economy expanded by 1.3% in the previous quarter.

Year-on-year, the economy grew by 8.7% versus a forecasted 9.0%. The economy expanded by 6.6% in the fourth quarter of last year.

In March, the economy contracted by 0.1% after no growth in February.

According to the Office for National Statistics,

  • Service fell by 0.2% on the month, weighing on growth in March.
  • Production fell by 0.2%, partially offset by construction (+1.7%).
  • Manufacturing production fell by 0.2%, with the manufacture of basic pharmaceutical products and pharmaceutical preparations (-5.4%) being the largest contributors to the production decline.
  • Monthly GDP is 1.2% above its pre-COVID pandemic level.
  • Despite a bad March, Services is 1.5% above its pre-coronavirus level.
  • Construction and production were 3.8% and 1.6% below, however.

Market Impact

Ahead of today’s stats, the Pound struck a current-day high of $1.22596 before hitting reverse.

In response to today’s stats, the Pound slid to a current-day low of $1.21807.

At the time of writing, the Pound was down by 0.53% to $1.21873.

Pound slides on weak GDP numbers.
120522 GBPUSD Hourly Chart

Looking at the Futures, the FTSE100 was down 164 points, with the European bourses and US majors also set for a bearish open.

Next Up

NIESR GDP estimate for the UK are due out later, ahead of US wholesale inflation and jobless claim figures.

May 12th 2022: Sterling Appears Vulnerable; $1.22 Potentially Eyed

Charts: Trading View

(Italics: Previous Analysis)

EUR/USD Technical Analysis:

Despite annual US consumer prices remaining at multi-decade tops in April, Europe’s shared currency finished Wednesday largely muted against its US counterpart.

As a result, our higher timeframe outlook remains unchanged:

A bearish flag pattern remains plotted on the daily timeframe. Technicians will recognise that a flag is considered a continuation signal, which assuming a breakout to the downside in this case, could watch daily flow take aim at daily Quasimodo support from $1.0377. Also of technical relevance on the daily chart is price fluctuating between the lower side of the pandemic low of $1.0638 (March 2020) and two 100% Fibonacci projections between $1.0494 and $1.0526.

In terms of the relative strength index (RSI), the indicator’s value exited oversold territory, following a near-test of support at 21.87 late April. Traders may also acknowledge early regular bullish divergence forming; a bullish failure swing would likely be a welcomed formation to help confirm the divergence. As of now, therefore, this appears a tentative signal.

Interestingly, trend studies support a bearish push. Seen clearly from the monthly timeframe, the overall vibe has been to the downside since topping in April 2008. Adding to this, the weekly chart has welcomed a clear downside bias since 2021 pinnacles. This, of course, places a strong technical question mark on Quasimodo supports between $1.0467 and $1.0517 from the weekly timeframe. Territory beneath the aforesaid barriers shine light on 2nd January low at $1.0340 (2017), pinned a touch under the daily timeframe’s Quasimodo support underlined above.

From the H4 timeframe, shorter-term flow has been pretty much motionless of late, working between prime resistance from $1.0680-1.0640 (an area accompanied by a 38.2% Fibonacci retracement at $1.0649 and a 1.272% Fibonacci projection at $1.0646) and Quasimodo support stationed at $1.0483. This area essentially marks the outer boundaries of the daily timeframe’s bearish flag.

As for H1 price movement, $1.06 and $1.05 have been talking points since early May. Outside of these two psychological levels are Quasimodo support at $1.0481 and a nearby 100% Fibonacci projection at $1.0492 (purple), as well as a resistance zone coming in from Quasimodo resistance at $1.0631 and a 100% Fibonacci projection at $1.0613 (red).

Technical Outlook:

The overall vibe remains to the downside in this market (see higher timeframes). Should a $1.06 test occur on the H1 timeframe that triggers a whipsaw to H1 resistance from $1.0631-1.0613 this could draw bearish hands into the market.

Leaving $1.06 unchallenged, on the other hand, directs candle action to $1.05. While a whipsaw into support from $1.0481-1.0492 is a possibility, upside from here might be limited and promote a bearish breakout scenario.

AUD/USD Technical Analysis:

Kicking things off from the top, regular readers may recall the research team highlighted that weekly prime support at $0.6948-0.7242 was under siege. The aforementioned area’s lower edge is poised to abandon position, unearthing weekly support at $0.6673 and neighbouring 50.0% retracement at $0.6764. This should not surprise. Technically, this market is entrenched within a long-term downtrend. Here’s what recent research noted:

The monthly timeframe has portrayed a downtrend since August 2011, indicating the rally from the pandemic low of $0.5506 (March 2020) to a high of $0.8007 (February 2021) on the weekly timeframe is likely to be viewed as a DEEP pullback, with recent downside therefore potentially seen as a move to explore lower over the coming weeks.

In conjunction with the weekly timeframe, price action on the daily timeframe retested (and held) the lower side of a Quasimodo support-turned resistance at $0.6995. Quasimodo support calls for attention at $0.6901. According to the relative strength index (RSI), the indicator is within reach of oversold space after failing to shake hands with the underside of the 50.00 centreline. Indicator support also remains sketched in at 21.38.

Wednesday observed a textbook stop-run above the widely watched $0.70 figure on the H1. One can only imagine the number of traders caught by this move, tripping breakout buyers (bull trap) and taking out sellers that faded $0.70 as resistance only to see price trade favourably hours later. H1 resistance at $0.7046-0.7056, coupled with H4 Quasimodo support-turned resistance at $0.7055, served well as an area to fade into the whipsaw. Going forward, the currency pair is within striking distance of H4 support from $0.6924 and the daily Quasimodo support marked at $0.6901 (alongside $0.69 on the H1 scale).

Technical Outlook:

This remains a sellers’ market for now after weekly price threatens to take on the lower side of prime support at $0.6948-0.7242. However, before sellers commit, they’re likely to pursue a close south of daily Quasimodo support at $0.6901.

USD/JPY Technical Analysis:

The immediate aftermath of Wednesday’s US inflation reading watched USD/JPY climb beyond ¥130 to a high of ¥130.81. As evident from the H1 timeframe, buyers handed the baton to sellers at trendline support-turned resistance, extended from the low ¥128.62. Subsequent flow dropped back under ¥130 to touch a low of ¥129.45, ahead of H1 trendline resistance-turned support, taken from the high ¥131.25, during US hours. As such, the aforementioned trendline support will be watched in early trade, as will ¥129.

Interestingly, space south of ¥129 points to H4 Quasimodo resistance-turned support coming in at ¥128.72, which dovetails closely with a H1 1.272% Fibonacci projection from ¥128.84. Harmonic traders may recognise this as an ‘alternate AB=CD’ pattern.

Higher up on the curve, the weekly timeframe demonstrates scope to draw north, with resistance unlikely until as far north as ¥135.16: 28th January high (2002). In terms of support, we’re still working with ¥125.54. From the daily timeframe, Monday’s shooting star pattern from the lower side of daily supply at ¥131.93-131.10 finally saw sellers make a show on Wednesday. Whether this is enough to take things lower is difficult to estimate at this point, since the trend in this market is aggressively to the upside (trending higher since the beginning of 2021).

Also of interest, the daily timeframe reveals price action ruptured the upper boundary of a flag pattern on 28th April, drawn from a high of ¥129.41 and a low of ¥127.80. Assuming price overcomes neighbouring supply at ¥131.93-131.10, traders will be looking to a take-profit objective circa ¥136.63 (drawn by extending the pole’s distance and adding this to the breakout point). Note that this profit objective sits above the weekly timeframe’s ¥135.16 high.

The relative strength index (RSI) on the daily timeframe has also been attempting to exit overbought territory in recent weeks. It’s important to recognise that any decisive departure from the overbought area triggers a double-top pattern (neckline stationed around the 66.78 31st March low and peaks were established from indicator resistance at 87.52) and could lead the RSI to familiar support at 40.00-50.00 (a temporary oversold zone since May 2021). Yet, an important caveat to be aware of is the RSI can remain overbought for prolonged periods in uptrends and initiate a number of false bearish signals.

Technical Outlook:

Ultimately, as noted in previous writing, direction remains tilted to the upside despite a slowdown in momentum in recent days.

Dropping in on ¥129, therefore, could entice dip buying, having seen additional H1 support ($128.84) and H4 support present at ¥128.72.

GBP/USD Technical Analysis:

Sterling remained under pressure versus the US dollar on Wednesday. From a long-term technical perspective, signs of further downside were clear.

The weekly timeframe, in a market decisively trending lower since the beginning of 2021, exhibits scope to tunnel lower until shaking hands with Quasimodo support coming in at $1.2164. This, of course, placed a question mark on daily Quasimodo support at $1.2334, which has recently vacated its position and perhaps cleared the path for the weekly Quasimodo support highlighted above.

For those who follow our analysis on a regular basis you may recall that continued downside has followed the formation of a daily bearish flag pattern formed in early May, made up between $1.2411 and $1.2614 (the profit objective can be plotted as far south as $1.18). In terms of the daily timeframe’s relative strength index (RSI) bullish divergence appears unlikely within oversold territory at the moment. Bear in mind that the RSI can register oversold signals for extended periods in a downward facing market.

In regards to the lower timeframes, there is little stopping H4 price from navigating lower until Quasimodo support at $1.2186, plotted just ahead of weekly Quasimodo support from $1.2164. Out of the H1 timeframe, recent movement crossed under $1.23 and is within a stone’s throw of H1 Quasimodo support at $1.2248. A break of the latter shines light on $1.22.

Technical Outlook:

Having noted $1.23 giving up position on the H1 scale, together with the weekly and daily timeframes demonstrating room to target weekly Quasimodo support at $1.2164, follow-through downside could be in the offing below H1 Quasimodo support at $1.2248 to $1.22.

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GBP/USD Price Forecast – British Pound Continues to Consolidate at Low Levels

British Pound vs US Dollar Technical Analysis

The British pound has gone back and forth during trading on Wednesday as we continue to see a lot of back and forth in this general vicinity. The 1.2350 level is an area that has attracted a lot of attention, so therefore it is not a huge surprise to see that we are still stuck in this range. Ultimately, I think this is a market that will find plenty of resistance above, so I am more or less looking at this as a “sell the rallies” type of situation. I would be especially interested in the area just above the 1.25 handle, which is a large, round, psychologically significant figure and an area where we have seen a lot of noise in the past.

It is not until we break above the 1.26 level that I think the British pound has a shot at rallying for a bigger move, but even then, I am not sold on owning the pound until we break above the 1.30 handle. There is a lot of real estate between here and there to overcome to make that feasible, so at this point, I think it is probably more likely than not that we are going to see plenty of resistance above and exhaustion that we can take advantage of.

Signs of exhaustion will be sold, and I do believe that it is only a matter of time before the US dollar overpowers the British pound yet again. With the higher than anticipated CPI numbers coming out on Wednesday, that only strengthens the case from a longer-term standpoint, but it is worth noting that we are oversold at the moment.

GBP/USD Price Forecast Video 12.05.22

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