USD/ZAR Bearish SHS Pattern Formation

MH3 is the right shoulder of the bearish formation. We can see the pin bar rejection at the M H3. The shooting star is the signal for a short trade. The zone is clear. 14.700-72 is the zone where we could see a move down. Watch for a bearish momentum up there. If M H3 stays strong we should see a drop towards 14.460 and 14.210.

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

Cheers and safe trading,

Nenad

 

South African Rand Starts Week Stronger Following U.S. Jobs Report

At mid afternoon, the rand traded at 14.2350 against the dollar, around 0.7% firmer than its previous close.

The rand rallied on Friday after the U.S. jobs report came in below market expectations, as the Fed has made a labour market recovery a condition for paring back its pandemic-era asset purchases.

Along with other risk-sensitive currencies, the rand moves regularly on shifts in the outlook for U.S. monetary policy.

“September is typically a period for global financial markets where risk-off can subside, and while some churn is evident, risk-taking can start to pick up, and further dovish comments from the Fed would support this,” Investec chief economist Annabel Bishop said.

This week’s economic data releases include South Africa’s second-quarter gross domestic product (GDP) figures on Tuesday, as well as July manufacturing and second-quarter current account numbers on Thursday.

Analysts polled by Reuters predict that GDP expanded 0.7% quarter on quarter, seasonally adjusted but not annualised, in the April-June quarter – down from 1.1% in the prior three-month period.

That reflects expectations for a sluggish economic recovery from the COVID-19 pandemic.

The yield on the government’s benchmark 2030 bond was flat at 8.810%.

In the equities market, stocks declined, led by retail group Steinhoff after a court judge ruled that it has jurisdiction to hear a liquidation bid against the retailer. The proceedings will now continue from later this week.

The news overshadowed positive developments regarding its lawsuit settlement proposal, which was approved by majority creditors and claimants on Monday, moving the group closer to finalising a deal that has been a major headache since the company’s restructuring.

Steinhoff shares closed 21.62% weaker at 2.90 rand.

Overall, the Johannesburg All-Share index fell 0.18% to 66,253 points while the Top-40 index declined 0.12%.

Mining stocks were also in the red, with the mining index down 3.57% on weaker commodity prices.

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

(Reporting by Alexander Winning and Nqobile Dludla, Editing by Timothy Heritage and Jan Harvey)

Stretched Dollar Remains Firm

Sterling fell to new six-month lows while the euro recorded its lowest level since late March, and the Australian dollar fell to new lows for the year. Led by a 2% fall in the South African rand, with the bulk of the sell-off coming after the central bank kept policy rates unchanged, which is now lower on the year, most emerging market currencies weakened. The Russian rouble was the strongest in that space, though the lion’s share of the gains came before the central bank hiked its key rate by 100 bp to 6.5% ahead of the weekend.

The dollar had seemed to track short-term US interest rates until recently, and its strength has come in the face of softer rates. The implied yield of the December 2022 Eurodollar futures contract finished the week near 42 bp, down 13 bp over the past few weeks. The 10-year yield fell to about 1.125% before recovering to trade closer to 1.30% at the end of last week.

The dollar and interest rates are behaving as one would expect in a risk-off environment. The contagious Delta variant appears to be dampening activity economic activity in Australia, Japan, and parts of Europe. Several US states are recording multi-month highs in cases, and weekly initial jobless claims unexpectedly rose to their highest level in two months (in the week through July 16).

Floods in Germany, Belgium, and China could also impact economic activity and prices. Droughts in North America may boost food prices and boost natural gas prices as an alternative for a decline in hydroelectric output. A freeze in Brazil sent coffee prices sharply higher, while wildfires in Canada saw lumber prices rise dramatically (almost 22% over the past three sessions) after trending lower in recent weeks.

On the other hand, equities are harder to fit into the risk-off narrative. Most of the large Asia Pacific equity market fell, but Europe’s Dow Jones Stoxx 600 rallied and will take a four-day advance into next week. The benchmark is within striking distance of the record high it set earlier this month. The S&P 500 and NASDAQ advanced and have only fallen in two of the past eight weeks. They are both poised to set fresh recorded highs.

Dollar Index

The Dollar Index recorded a key reversal in the middle of last week. After rising to its best level in three months (~93.20), it reversed lower and settled below the previous day’s low. Follow-through selling the next day took it to 92.50 and the 20-day moving average. It recovered by stalled near 93.00 before the weekend. Neither the MACD nor the Slow Stochastic confirmed the new high, but the underlying tone remains constructive and buying on dips seems stronger than the selling pressure into rallies. Moreover, the five and 20-day moving averages cross-over has caught the major moves this year since February, and the five-day average is still above the 20-day.

The year’s high was set in late March near 93.45. A break above there could target the high from early last November near 94.30, and the 94.50 area corresponds to the (38.2%) retracement of the drop since the panic-driven high in March 2020 near 103.00.

Euro

The downside momentum of the euro seemed to pause in recent days ahead of $1.1750. However, the bounces have been brief and shallow. The momentum indicators have not confirmed the recent lows. The risk is for a test on the year’s low set in late March near $1.1700, and a break of it could signal a return to the low set near $1.16 on the night of the US election last November.

The ECB’s lower for longer forward guidance could attract funds into the asset markets, but the euro itself is unloved, and speculators in the futures market are still scaling out of a net long position. A move above $1.1830, where the 20-day average is found, would lift the tone. The euro has not closed above the 20-day moving average since early June.

Japanese Yen

The dollar began last week testing JPY109.00, its lowest level since late May as the US 10-year note yield slumped below 1.20%. By the end of the week, the yield was back near 1.30%, and the greenback was around JPY110.60. It settled above its 20-day moving average (~JPY110.40) for the first time in a couple of weeks. The MACD and Slow Stochastic have turned up from oversold territory. Overcoming chart resistance near JPY110.65 could see a push above JPY111.00. The year’s high was set earlier this month near JPY111.65.

British Pound

Sterling fell to five-month lows near $1.3570 on July 20, just shy of the (50%) retracement of the rally from last November, found near $1.3550. In the second half of the week, a recovery attempt stalled near $1.3785 in front of the 20-day moving average (~$1.38). This area presents an important technical hurdle, which overcoming would lift the tone. The momentum indicators look constructive as they try to turn higher. A move below $1.3680 warns of a return to the lows.

Canadian Dollar

The greenback reached 5.5-month highs against the Canadian dollar at the start of last week, near CAD1.28. It pulled back to the CAD1.2525 area before buyers re-emerged, and it consolidated mostly below CAD1.26. The MACD has turned down, as has the Slow Stochastic, without confirming the high. Still, a push back above the CAD1.2650 area could warn of another run at the highs. The 20-day moving average is near CAD1.25, and the US dollar has not closed below it since early June. Doing so now would likely confirm that a top is in place.

Australian Dollar

The elevated covid cases in Sydney and the weakest composite PMI (preliminary reading) since May 2020 (45.2) illustrate headwinds for the Australian economy. The minutes from last month’s RBA meeting showed that officials have a flexible stance toward bond purchases. It is likely to use that flexibility at its August 3 meeting to boost its bond purchases. Ahead of that, investors expect a jump in Australia’s Q2 CPI, with the headline rising above 3.5% year-over-year from 1.1% in Q1.

The underlying measures will likely firm toward 1.5%-1.6% from 1.1%-1.13%. The Aussie posted a key reversal in the middle of the week by falling to new lows for the year (~$0.7290) and then recovered to finish above the previous day’s high. Sellers were lurking in front of $0.7400 and drove it back to $0.7350 ahead of the weekend. The pre-weekend price action was poor, and the close was near session lows. The next important support area is near $0.7300.

Mexican Peso

Although the dollar set four-day lows ahead of the weekend, it still managed to close high (0.5%) on the week for the third consecutive week. The JP Morgan Emerging Market Currency Index fell for the fourth consecutive week and the sixth weekly fall in the past seven weeks. The greenback peaked against the peso in the middle of the week, slightly above the 200-moving average (~MXN20.21). Initial support now is seen near MXN19.95 and a stronger shelf in the MXN19.80-MXN19.83 area.

The Slow Stochastic is trending higher and is approaching overbought territory. The MACD has flatlined near the trough. In the slightly bigger picture, the dollar has mostly been confined to a range set on June 24 (~MXN19.7150-MXN20.2150).

Chinese Yuan

The US dollar posted a minor gain of about 0.15% against the yuan ahead of the weekend to secure another weekly advance. The advance covers the last eight weeks without fail. While that is statistically true and no doubt has not been lost on official and private observers, it is also true that the greenback has been mostly in a CNY6.45-CNY6.50 range. Rather than see a depreciation of the yuan, it has gone essentially nowhere.

The dollar has not traded above the high set in late June near CNY6.4910 this month, though it was approached a couple of times. It is also true that the yuan’s 0.7% gain against the dollar this year make it one of the strongest emerging market currency so far this year and stronger than all the major currencies but the Canadian dollar (~1%). Moreover, by focusing on the eight-week decline of the yuan against the dollar, one misses the fact that the yuan is at five-year highs on a trade-weighted basis (CFETS).

This article was written by Marc Chandler, MarctoMarket.

Dollar Rises as U.S. Data Shows Inflation Running Hot

U.S. consumer prices rose by the most in 13 years in June amid supply constraints and a continued rebound in the costs of travel-related services from pandemic-depressed levels as the economic recovery gathered momentum.

“(This was) clearly an upside surprise. It will make (Federal Reserve Chairman Jerome) Powell’s testimony on Capitol Hill tomorrow a much trickier exercise than it would’ve otherwise been given that it will put some additional pressure on the ‘transitory’ narrative,” said Michael Brown, senior analyst at payments firm Caxton in London.

“FX reaction is as one would expect given an upside surprise, with the dollar rallying across the board in line with the sharp rise in Treasury yields,” said Brown.

Traders are looking forward to Powell testifying before Congress on Wednesday and Thursday for any signals on the timing of potential U.S. tapering.

Powell has repeatedly stated that higher inflation will be transitory, noting that he expected supply chains to normalize and adapt. Treasury Secretary Janet Yellen shares that view.

The dollar index, which measures the greenback against a basket of six currencies, was 0.59% higher at 92.762, its highest since July 8. The index is just shy of the three-month high of 92.844 touched last week.

The possibility of U.S. stimulus withdrawal – brought to the fore by a surprise shift in tone last month from the Fed – has boosted the dollar in recent weeks despite a renewed rise in coronavirus cases in many parts of the world.

U.S. consumer price inflation data is likely to help boost the dollar higher.

“It kind of reinforced the Fed taper story and the dollar has been consolidating for the front of the week, and I think this was the kick that it needed to renew its gains,” said Kathy Lien, managing director at BK Asset Management in New York.

Modest strength in the price of oil, a major export for Canada, failed to stanch the Canadian currency’s losses against its U.S. counterpart. The loonie was down 0.5% to a four-day low against the dollar. The Canadian central bank is due to update its economic forecasts at a policy announcement on Wednesday.

Sterling fell on Tuesday after the Bank of England scrapped pandemic-era curbs on dividend payments by banks, but warned some asset prices look stretched.

The pound was last down 0.49% against the dollar, with the bulk of the day’s losses coming after the release of the U.S. CPI data.

Escalating violence over the jailing of former President Jacob Zuma  sent South Africa’s rand down more than 2% to a three-month low against the U.S. dollar.

China’s yuan rose to a near one-week high after surprisingly strong trade data  eased fears about a slowdown in what has been one of the world’s strongest economic recoveries.

Cryptocurrencies remained on the back foot on Tuesday, with bitcoin down about 2.18% at a four-day low of $32,384.64, as investors shed riskier assets following U.S. inflation data.

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

(Reporting by Saqib Iqbal AhmedEditing by Sonya Hepisntall)

Africa’s Most Traded Currencies in 2020

Overview

The currency of a country tells you a substantial amount about its economy as well as living standards of the people.

As diverse as the African continent and her countries are, so are the currencies which see high daily volumes of trade.

Tunisian Dinar (TND)

The Tunisian Dinar trades at around 2.70 TND for 1 USD. Tunisia was colonized by the French and the use of the French Franc as the main currency continued for years, until 1960, when the country replaced the franc with dinar after obtaining independence.

The monetary policy of the country allows for the export and import of dinars, or the convergence thereof to other currencies, allowing the dinar to be one of the highest traded currencies.

Botswana Pula (BWP)

The Botswana Pula trades at around 11.04 BWP for 1 USD. The Botswana Pula is an attractive currency as traders tend to favour it when trading on the Johannesburg Stock Exchange, the largest stock exchange in Africa.

US Dollar (USD)

The US Dollar is the most dominant currency which is traded more often than any other currency in the world, forming part of 88% of all trades.

Nigerian Naira (NGN)

The Nigerian Naira trades at around 396.67 NGN for 1 USD. The Central Bank of Nigeria is solely permitted to issue the Nigerian Naria, and it controls the volume of money which is supplied in the economy to ensure that there is monetary and price stability.

Seychellois Rupee (SCR)

The Seychellois Rupee trades at around 20.91 SCR for 1 USD. The Seychellois Rupee, the official currency of Seychelles, falls among the most traded currencies in Africa. It is divided into 100 cents and referred to as ‘Roupi’ in the local Creole language.

Egyptian Pound (EGP)

The Egyptian Pound trades at around 15.66 EGP for 1 USD. Egypt is a famous Arab nation which has been in existence since the biblical times. Egypt is famous for its pyramids and the Egyptian pound, as the local currency, is one of the most valuable in Africa.

Zambian Kwacha (ZMW)

The Zambian Kwacha trades at around 21.38 ZMW for 1 USD. As one of the most valuable and most traded currencies in Africa, the Zambian Kwacha is the local currency of Zambia, a landlocked country in South Africa.

South African Rand (ZAR)

The South African Rand trades at aroxund 15.34 ZAR for 1 USD. South Africa is one of the most developed democratic states in Africa and comes in eighth in the strongest currencies in Africa. South Africa is a vibrant and competitive economy and the only African member of the G20 economic group.

You might like: South Africa is officially one of the fastest growing forex trading industries in the world.

Kenyan Shilling (KES)

The Kenyan Shilling trades at around 110 KES for 1 USD. Next to the US Dollar, the South African Rand, Nigerian Naira, and others, the Kenyan Shilling is one of the most traded currencies in Africa.

Dollar Bounces, Gold Slips, while Equities Hold Their Own

In the emerging market space, the liquid and accessible currencies, like the Turkish lira, Mexican peso, and Russian rouble, are down the most. The lira has fallen 1% after intrasession volatility that pushed it to a record low against the euro yesterday. That seems to be the source of the pressure on the lira against the dollar.

The South African rand is among the weakest among emerging market currencies today even though the IMF approved a $4.3 bln loan, the most granted so far to assist in combatting the virus. Despite the correction in the foreign exchange market, equities are mostly firm. In the Asia Pacific region, only a few markets could not sustain gains.

Japan, Taiwan, and Australia were among them. South Korea led the region with a nearly 1.8% gain. Europe’s Dow Jones Stoxx 600 is up almost 0.5% after falling for the past two sessions (~2%). US shares are little changed. US bond yields backed up yesterday, with the 10-year yields popping back above 60 bp. This exerted upward pressures in Asia and Europe. Gold reached $1981 before the profit-taking pushed it to about $1907 from where it is recovering. September WTI is little changed around $41.50 a barrel.

Asia Pacific

China is resorting to local lockdowns to combat the new outbreak in the virus. The 61 cases reported Monday were the most in four months. Separately, New Zealand became the latest country to suspend the extradition treaty with Hong Kong. That means that of the intelligence-sharing Five Eyes, only the US has not done so, though it has threatened to do so.

India has banned almost 50 Chinese apps to largely check the workaround the 59 apps banned last month. Another 250 apps are under review. India has cited threats to user privacy and national security. This is a new front in the confrontation with China. The US and Japan are considering their own bans on some Chinese apps.

The dollar is in a quarter of a yen range on either side of JPY105.45, as it is confined to yesterday’s range. The upside correction does not appear over, and the greenback could test previous support and now resistance near JPY106, where an option for $600 mln expires today (and a $1.8 bln option expires Thursday).

The Australian dollar is little changed as it moves within the $0.7065-$0.7180 range that has confined it for around a week now. It has held above $0.7115 today, but it may be retested. The PBOC set the dollar’s reference rate at CNY6.9895 today, nearly spot on where the models suggested. After falling to a four-day low near CNY6.9870, the dollar recovered back above CNY7.0. China seems intent on not allowing the US to get an advantage by devaluing the dollar, something that President Trump has advocated. A stable dollar-yuan rate in a weak dollar environment means that the yuan falls against the CFETS basket. Against the basket, the yuan is at its lowest level in a little more than a month.

Europe

News from Europe is light and the week’s highlights which include the first look at Q2 GDP (median forecast in the Bloomberg survey is for a 12% quarterly contraction), June unemployment (~7.7% vs. 7.4%), and the first look at July CPI (median forecast is for a 0.5% decline for a 0.2% increase year-over-year) still lie ahead.

Today’s focus is mostly on earnings and bank earnings in particular. European banks are being encouraged to extend the hold off of dividend payout and share buybacks that were first introduced in March. This may be worth around 30 bln euros. The UK is fully aboard too. In terms of loan-loss provisioning, European banks are expected to set aside around the same amount as they did in Q1, which was about 25 bln euros. In comparison, the five largest US banks have added a little more than $60 bln in the first half to cushion sour loans.

Fitch lowered its five-year growth potential for the UK from 1.6% to 0.9%. It also took EMU’s potential to 0.7% from 1.2%. This could weaken the resolve of asset managers, where industry surveys suggest a desire to be overweight European stocks and the euro on ideas of economic and/or earnings outperformance. That said, the number of analyst upgrades has surpassed the number of downgrades in Europe for the first time this year.

The euro reached $1.1780 yesterday. As the momentum stalled in Asia, some light profit-taking has been seen that saw it briefly dip just below $1.17 in early European turnover. Intraday resistance is seen near $1.1740-$1.1750. In the recent move, the session high has often been recorded in North America, and we’ll watch to see if the pattern holds today. The market may turn cautious ahead of tomorrow’s outcome of the FOMC meeting.

Sterling poked above $1.29 yesterday for the first time in four months. It made a marginal new high today (~$1.2905), but it too is consolidating. Support is seen in the $1.2830-$1.2850 area. As the euro was trending higher against the dollar yesterday, it also rose to about CHF1.0840, its highest level here in July. However, today’s consolidation has seen the euro slip back to around CHF1.0775. Look for it to find support above CHF1.0760.

America

The US reports house prices, Conference Board consumer confidence, and the Richmond Fed’s July manufacturing survey. Even in the best of times, these are not the typical market movers. The focus instead is three-fold: corporate earnings (today’s highlights include McDonald’s, Pfizer, and 3M), the negotiation over the fiscal bill, and the start of the FOMC meeting. Canada has not economic reports, while Mexico’s weekly reserve figures are due. It continues to gradually accumulate reserves. They have risen by about 4.5% this year after a 3.5% increase last year.

The Economic Policy Institute estimates that a cut in the $600 a week extra unemployment insurance to $200 a week will reduce aggregate demand and cut the number of jobs that were projected to be created. It expects a loss of about 2.5% growth and 3.4 mln fewer jobs. After this week’s FOMC meeting and the first look at Q2 GDP, the US July employment report is due at the end of next week.

It is one of the most difficult high-frequency economic reports to forecast. Still, the outlook darkened after last week’s increase in weekly initial jobless claims, which covered the week that the non-farm payrolls survey is conducted. Another increase, which is what the median forecast in the Bloomberg survey expects, is only momentarily going to get lost in the excitement around the GDP report.

The relatively light news day allows us to look a little closer at Mexico’s June trade data that was out yesterday. Mexico reported a record trade surplus of $5.5 bln. Yet, it is not good news. Mexico is hemorrhaging. The IGAE May economic activity index, reported at the end of last week, showed a larger than expected 22.73% year-over-year drop. The 2.62% decline in the month was nearly three times larger than economists forecast. With the virus still not under control, the government’s forecast for a 9.6% contraction this year is likely to be overshot. The record trade surplus was a function of a larger decline in imports (-23.2%) than exports (-12.8%).

Auto exports are off more than a third (34.6%) this year, to $47.5 bln. Other manufactured exports are down 3.4% to $113.8 bln. Petroleum exports have fallen by nearly 42% in H1 to $8.0 bln. Agriculture exports edged up by 7.3% to $10.5 bln to surpass oil. The peso’s strength reflects not the macroeconomy but its high real and nominal interest rates in the current environment. Yesterday, the dollar fell below MXN22.00 for the first time this month. The June low was near MXN21.46.

The US dollar initially extended its losses against the Canadian dollar, slipping to CAD1.3330, just ahead of last month’s low (~CAD1.3315) before rebounding to almost CAD1.3400. The upside correction could run a bit further, but resistance in the CAD1.3420-CAD1.3440 area may offer a sufficient cap today. The greenback found support against the Mexican peso near MXN21.90 and bounced back to around MXN22.07. Resistance is seen near MXN22.20. The peso is up about 4.5% this month, but within the region has been bettered by Chile (~+6.75%) and Brazil (~+6.15%). The Colombian peso’s almost 2..2% gain puts it in the top 10 best performing emerging market currencies so far this month.

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

Positioning the Secret Sauce for Further Gains in Risk

S&P500 and NAS futures opened a little lower, but have come roaring back with Asian equities firing up nicely, despite selling in crude futures.

Forex

Certainly, the MXN has worked well of late, and it feels like in the absence of a pullback in stocks and a further reduction in implied vol that USDMXN heads for 23. EURMXN could push through the 50-day MA (25.64) amid the favourable environment for carry positions, although, much still depends on price action in crude which, as I say is giving back some of last week’s 25.1% rally. I also went short EURAUD as a trade and feel the downside has opened up nicely here – here is my trade rationale.

AUDUSD continues to have lock-on on the S&P500 futures, with the US equity benchmark putting on 3.5% last week, dwarfed only by a 6% and 5.5% rally in the NASDAQ and Russell 2000, respectively.

AUDUSD daily – pushing the 100-day MA
AUDUSD daily – pushing the 100-day MA

S&P500

On the daily, the S&P500 will be eyeing a break of the 29 April high of 2954 and from we make an assault at 3000, which is obviously the round number, but the 100- and 200-day MA also sit here too. We are also told this is the line, where the CTAs (trend-following funds) flip to increase long positions in S&P500 futures, a development that could take us materially higher.

Looking at 5-day realised volatility in the S&P500, we see it has come down to 16.4%, from a high of 176% (17 March) and we’re back to pre-crisis levels and one suspects if vol sellers push the VIX closer to 20% (currently 27.98%), vol-targeting funds then enter the fray too.

White – S&P500 5-day realised volatility/RV, orange – 30-day RV

Source: Bloomberg

This, again, would be positive for risk FX such as the NOK, AUD, NZD, MXN and ZAR.

I have been guilty of not wanting to chase this rally in equity indices, but the lack of any follow-through in the selling (pick up in vol) has certainly lowered the impulse to short risk. I do see us moving past peek stimulus inspiration, with the Fed’s balance sheet growing at an ever-slower pace, as they do for other central banks, although the commitment to do more should we see a second wave in the corona virus is key.

On the fiscal side, the US House is due to vote on a Phase 4 bill on Thursday, rumoured to be close to $750b, and it’s uncertain that will pass, with Trump making it clear he wants to tie this in with a payrolls tax cut.

It is also clear that this is not a time for thinking too intently about valuation, with the S&P500 commanding an incredible 23.06x 2020 earnings, while 2021 FY earnings sit at 18x – economics have not played into considerations either. These are markets boosted by actions from the Fed to support credit and liquidity more broadly.

Re-positioning from hedge funds, specifically the systematic and rules-based crowd has been key and will be the reason, if it happens for new highs in US equity markets.

Consider that cash in money market funds, the safest of safe, has grown 30% since March, so there is still a ton of cash on the sidelines.

We can also look at the futures position in S&P500 futures held by non-commercial players and see this held net by short 222k contracts – that’s the largest net short positions held since 2015 and over two standard deviations of the 10-year average.

Total US$ value in money market funds

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Source: Bloomberg 

The disconnect between economic reality and valuation is keeping a lot of discretionary players from entering the market here, and that is fair as it feels incredibly wrong to buy risk – I guess that is one of the many reasons why a systematic approach can work in one’s favour.

So, we watch the S&P500 and NAS futures through Asia, where both markets were down smalls early doors and are coming back to the flat line as I type. There is little to trouble on the data side, although tomorrows (22:30aest) US CPI could be interesting with headline expected to drop 0.8% MoM and core -0.2%, amid a fierce debate on whether we get inflation or deflation as a result of COVID-19.

Retail sales (Friday 22:30aest) would typically get a strong look-in, and calls for an 11.7% decline won’t go unnoticed, but just as we saw with the 20m jobs lost in Fridays NFP and the failure to move markets; economic data at the moment is largely irrelevant, at least for markets – who will be looking intently on re-openings in the US and Europe, with plans to do so in the UK, Australia and others.

What could be important is the raft of Fed speakers this week, which you can see on the calendar below. Fed chair Powell mid-week speech will be the highlight, especially, with all the talk of negative rates that were priced into the rates market most intently on Thursday. In a crisis, you leave everything on the table, and things move so fast that what the central bankers say one day may not count the next. So, while Powell sits in the camp that negative rates are not warranted – he has been consistent on this message – it makes some sense for Powell to be vague enough to keep negative rates as a future option.

He can remove pricing from the fed funds future by lifting interest earned on excess reserve (IOER) by 5bp. However, with yields on 2- and 5-year Treasuries at record lows, in turn supporting sentiment more broadly, and reducing the appeal of the USD, it has pushed traders out the risk curve. Therefore, it makes sense for Powell to be somewhat vague on the subject.

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As the week rolls on front-end yields (2 and 5-year USTs) could matter for the USD this week and presumably for gold too, which maintains the 1738 to 1675 range. USDCNH continues to be a central focal point and barometer of sentiment towards the US-China relationship, while inflation expectations and implied vol continues to be central too.

Good luck to anyone trading the Bitcoin Halving today, with price trading lower into the event. It seems we are seeing a buy the rumour, sell the fact scenario play out before the fact it seems.

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Chris Weston, Head of Global Research at Pepperstone.

(Read Our Pepperstone Review)

Forex Regulation Across Africa – The Complete Guide

Partly, this intense growth was caused by the fact that ESMA enforced new restriction laws on the maximum leverage that EU traders can use (this caused FX brokers to focus on other big markets, like Africa)

An average of over $5.1 trillion is traded daily in the Forex market. Though worldwide, there are major forex trading centres which include London, Tokyo, Paris, Sydney, New York, Zurich, Singapore, and Hong Kong. A Forex trading day starts in Australia and ends in New York. The market stays open for 24 hours a day and five and a half days a week.

There are specific regulations in countries, continents that oversee the trading of Forex. In some countries, FX trading is restricted and banned while in others, it is fully supported. In this post, our focus is on Africa as we’ll be looking at Forex regulation across the continent.

Overview of Forex Trading In Africa

Forex trading is a very competitive activity, and in Africa, it is no different. The market has experienced speedy growth over the last two decades as more Africans are being enlightened on what Forex entails.

Significantly, the last decade has seen the Forex market go from almost unnoticed to becoming one of the most dynamic industries in the content. This can be attributed to the advent of mobile devices and other technologies.

There are about 1.3 million Forex traders in Africa. South Africa and Nigeria lead the way as both countries constitute a large percentage of the total figure.

Other countries where Forex trading is gaining ground are Kenya, Egypt, Angola, Namibia, and Tanzania. This has attracted international Forex brokers like IQ Option, IC Markets, XM Forex Trading, ForexTime (FXTM), and Olymp Trade.

With this vast amount of forex traders, it is expected that government financial regulatory bodies will be interested in monitoring trading activities in individual countries.

Forex-Friendly African Countries

A lot of African countries are Forex-friendly, but there are minor restrictions from the government. Forex can be traded in Nigeria, South Africa, Egypt, Kenya, Namibia, Ivory Coast, and many other African countries.

Whereas Forex trading cannot be said to be legalized in these countries, it also does not break the law. Before a Forex broker can offer Forex trading services to a country’s citizen, it is mostly mandatory to acquire a trading license.

Forex-Prohibited African Countries

Currently, a complete Forex ban is not placed on any country in Africa, unlike world countries like North Korea and Israel. As stated earlier, there are minor restrictions from the government in some countries. These restrictions do not prohibit the trade of Forex but are imposed to prevent fraudulent and scam activities.

Some of these restrictions are on the maximum trading amount and the maximum amount you can have in your Forex account. These are similar to Forex restrictions imposed in countries like China and Russia. Furthermore, Forex trading with non-licensed Forex brokers is prohibited in some African countries. Likewise, you can only trade Forex for yourself and not for anyone else (identification is mandatory for most Forex brokers).

Forex trading is usually not welcomed in countries governed with strict sharia laws. As a result, countries like Algeria, Benin, Burkina Faso, Egypt, etc., may not be the best to engage in Forex trading.

Let’s consider how Forex trading is regulated in some major African countries:

Forex Regulation In South Africa

In South Africa, various regulatory trading rules are put in place to minimize Forex trading risks. These regulations are imposed by the South African Financial Sector Conduct Authority (FSCA), formerly known as the Financial Services Board (FSB). The FSCA is the body responsible for monitoring and controlling all financial activities in the country. It is the most vigorous Forex market regulation in Africa.

The FSCA regulatory policies are in line with what is obtainable from regulatory bodies overseas. Notably, all OTC derivative brokers must report all trades in a bid to organize CFDs. Through the FSCA, Forex brokers can relate with each other without resulting in conflict.

According to topforexbrokers.co.za, the FSCA license incorporates some immense benefits like that FX brokers regulated by the FSCA treat their customer in good faith and that they help them with financial education and financial literacy. Not to mention that if anything goes south, a South African trader who is trading with FSCA regulated broker can go to FSCA if they think they have been scammed by their broker or mistreated.

Forex Regulation In Kenya

In Kenya, the Capital Markets Authority (CMA) regulates all financial activities, including foreign exchange trading. Before a Forex broker can do business in Kenya, they must be registered and licensed by the CMA.

Forex was previously unregulated in Kenya. Before 2016, lots of Kenyans were trading with unregulated brokers, and there were too many reports of fraudulent activities. As a result, the Kenyan government authorized the CMA to regulate Forex trading activities in the Finance Act 2016. The principal aim of the regulation is to make the market transparent and protect investors’ funds.

The CMA drew regulatory leads from international regulatory bodies like the Australian Securities and Investment Commission (ASIC) and the United Kingdom’s Financial Conduct Authority (FCA).

Forex Regulation In Nigeria

Forex trading in Nigeria is still unregulated despite the market being one of the most active ones in the continent. However, it is perceived that the country’s apex bank is working with the Securities Exchange Commission to commence Forex trade regulation.

Despite the absence of regulation in the country, the government does not consider Forex trading illegal. There are local Forex brokers who register just like other businesses and carry out foreign exchange activities as usual. Most Forex traders in Nigeria make use of foreign Forex brokers rather than the local ones due to this lack of regulation. The trading risk is totally on the trader, so they assume the foreign brokers are more trustworthy.

Banking policies do have effects on Forex trading in Nigeria. Some Nigerian banks may prevent customers from using their electronic cards to make payments or withdraw from foreign exchange platforms. Presently, there are imposed restrictions on the amount of foreign currency a Nigerian can spend outside the country. These are individual policies that could be eliminated if the Nigerian government properly legalizes Forex trading.

How To Select The Best Forex Broker For Africa

Due to the risks involved in Forex trading, it is vital to be cautious when deciding on the best Forex broker to invest in Africa.

Firstly, you should check for the broker license. If Forex trading is regulated in your country, check to see the Forex brokers licensed by the regulatory body. For a country like Nigeria, where the market is not restricted, consider foreign brokers who are licensed by global licensing authorities.

The next thing to do is to check out the trading platforms offered by these brokers. Check for their deposit bonuses, ratings, minimum deposit, and payment options before making a decision. For a practical trading experience, a Forex demo account should be featured where you can try your hands before going live. Do not invest real money if you haven’t fully understood how the platform works.

How To Stay Safe While Trading Forex

You should avoid any unlicensed Forex broker in Africa. The amount of Forex scams in African countries is on the high side, and it has resulted in grave losses for the victims. By going with a well-licensed broker, this risk is almost eliminated, and you can trade more assuredly.

Additionally, you should be cautious when making a substantial investment when you don’t fully understand the Forex market. Likewise, you should control your emotions and don’t spend all your money on Forex trading.

Conclusion – The Future Of Forex In Africa

Interest in Forex will undoubtedly continue to rise in the coming years. The sensitization level is currently high as Forex trading is advertised on newspapers, TVs, radios, websites, etc.

There are equally Forex seminars and programs to create awareness. More overseas Forex brokers are also picking interest in offering their services to African countries. Consequently, better regulatory policies will be imposed in countries that lack them so that aspiring traders can trade safely.

EUR/USD Price Forecast – Euro Continues to Chop Back and Forth With Positive Thursday

The Euro has rallied during the trading session on Thursday after the Federal Reserve has suggested that the central bank was going to come out and buy just about anything it could, including junk bonds. That being the case, the market is likely to continue punishing the US dollar, but at the same time the European Union is an absolute mess financially. Because of this, the market is likely to continue to see Euro weakness in general. The 1.10 level above is massive resistance, so I don’t think that the pair get above there. When we get closer to the 1.10 level I going to be selling on signs of weakness.

EUR/USD Video 10.04.20

To the downside, I see the 1.08 level as support, and the 1.06 level as the same. This pair will continue to chop around, thereby been very difficult to trade unless you can trade small or perhaps trade short-term charts. I favor the downside in this pair, despite the fact that the Federal Reserve is flooding the market with dollars. This will probably cause a short-term pop to the upside, but I suspect it will also be short-lived.

You can use this as a proxy for the US Dollar Index if your broker doesn’t offer it, because it is a major component to that indicator. Simply put, I use this chart as a gauge of US dollar strength or weakness in other trades, especially when it comes to emerging market currencies. For example, you can do something like use this chart to discern whether the US dollar is showing strength or weakness, and translate that against the Hungarian forint, Mexican peso, South African Rand, and so on.

The Dollar is Searching for its Price Ceiling

The dollar index tracks the USD against the six most popular world currencies, where the yen and the euro can be considered the main catalysts for a decline, having lost 3.0% and 2.6%, respectively.

Nevertheless, smaller and secondary currency pairs also deserve traders’ attention, the movement in which is a kind of manifestation of profound processes of financial markets. Judging by these movements, the longstanding carry-trade idea becoming obsolete, as the high-yielding currencies of emerging markets are no longer highly profitable and the central banks of these countries are softening their policies in the attempt to revive economic growth.

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Against the backdrop of the coronavirus epidemic and the Chinese authorities’ efforts to stimulate the economy, the Yuan is weakening. The Dollar is again worth more than 7 Yuan due to the easing of monetary policy of the authorities and fears of investors about a sharp cooling of China’s economic growth. The 7.0 mark was and remained an essential barometer of sentiment in China.

The price dynamic above this level reflects the continued uncertainty in markets about future growth prospects. In early 2017 and late 2018, the Yuan was heavily protected by PBC near this level. The signing of Phase One trade agreement also returned the renminbi underneath this waterline. However, the demand for the Dollar pushed the pair higher earlier this week.

The weakness of the Yuan and the Chinese economy also affected the Australian Dollar. AUDUSD is declining again this week, updating its 2009 lows below 0.67.  It was a kind of waterline at 0.70, and the pair failed its attempt to climb higher at the end of last year.

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A separate story is a Turkish Lira. This currency does not depend on problems in China so that it can be viewed as a different story. The USDTRY broke through 6.0 this week, following another cut of the rate by the Turkish Central Bank. TCMB has been more focused on reviving economic growth in recent months, rather than curbing inflation.

The steady downward trend of the lira against the Dollar has been observed for more than a month, and last week the pair crossed the 6.0 level, returning to last year’s highs. Above the current mark (6.08) the pair was only in May 2019 and from August to October 2018 during the period of extreme volatility in the pair. It seems that now the markets are trying to find the “ceiling” for the pair, the growth above which will be sensitive for the policymakers, forcing them to stand up for their currency.

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The same can be said about the South African Rand, which crossed the mark of 15.00 in USDZAR, which was repeatedly tested for strength in recent years but did not stay long. The weakening of the Rand against the Dollar looks more surprising as it is happening against the background of robust gold price growth, that previously determined the price direction of ZAR.

This article was written by FxPro

Forex Daily Recap – Pound Slipped on Downbeat June ILO Unemployment Data

GBP/USD

Cable continued to reveal over-sold conditions on the Relative Strength Index technical indicator that pointed near 28.14 adverse level. Notably, the slight rise in the June UK Unemployment Rate had favored the bears. This June ILO Unemployment data came around 0.1% higher than the previous 3.8%. Meantime, the July Claimant Count Change recorded 4K lower than the market expectations of about 32.0 K. Also, the June 3Mo/Yr Average Earnings Excluding Bonus reported 3.9% over 3.8% forecasts.

GBPUSD 1 Day 13 August 2019
GBPUSD 1 Day 13 August 2019

Nevertheless, the market appeared to pay less attention to other upbeat data releases and focused over the downbeat ILO report. On the technical chart, the GBP/USD pair continued to maintain its volatility within a multi-month old downward moving trend channel. Also, strong SMA conflux stands above the pair and the aforementioned trend channel, warning the bulls.

USD Index

After three adverse closings in a row, the Greenback was underway a positive closing today. On the back of robust US data, the USD Index breached above 97.63 resistance, providing strength to the Greenback bulls. In the middle of the day, the highly crucial July CPI that excluded Food & Energy data reported 2.2% over 2.1% estimates.

US Dollar Index 1 Day 13 August 2019
US Dollar Index 1 Day 13 August 2019

Notably, the YoY July CPI data upshot 0.1% this time over the market hopes of around 0.2%. Anyhow, after gaining some power and breaking above the 97.63 mark, the bulls were moving towards the next resistance target at 97.86 mark. On an overall view, the pair was maintaining a-two-and-a-half-month-old positive trend channel.

EUR/USD

The Fiber continued to hover in and around the 1.1200 psychological handle since the last six sessions, including today. Quite noticeably, the July German Harmonized Index of Consumer Prices came in-line with the previously recorded 1.1%. Also, the German August ZEW Survey – Economic Sentiment published -44.1 points over -28.5 points market expectations.

EURUSD 1 Day 13 August 2019
EURUSD 1 Day 13 August 2019

Nonetheless, the ZEW Survey – Economic Sentiment data for the Eurozone also published adverse reports. On the technical chart, the EUR/USD pair had already broken above a major counter trendline, signaling for a robust upward drift. However, overhead SMA cluster and resistances stalled at 1.1251 & 1.1283 levels were confining the upside.

USD/CNY

After touching the 7.0707 mark yesterday, the USD/CNY pair was heading downside on Tuesday.

USDCNY 1 Day 13 August 2019
USDCNY 1 Day 13 August 2019

On the economic docket, the July YoY YTD FDI – Foreign Direct Investment data came around 7.3% in comparison to the prior 7.2%. Such a positive Chinese data release activated the pair bears, shedding off the accumulated gains. Also, the strong growing Greenback added more oil to the fire, transferring power to the USD/CNY bears. Meantime, the MACD line hovered above the signal line with green histograms pointing to the north.

USD/ZAR

The South African Rand currency pair was triumphantly moving above the Ichimoku Clouds, maintaining a robust uptrend. Anyhow, after touching 15.47 psychological mark last day, the USD/ZAR appeared to heath south today.

USDZAR 1 Day 13 August 2019
USDZAR 1 Day 13 August 2019

Needless to mention, the bears seemed to pause near 23.6% Fibonacci retracement level or 15.0892 mark. Despite that, the base line and conversion line stood below the trading pair with face to the north-side. The down-lying Parabolic SAR technical indicator had touched the pair and was underway attempt to jump above the pair. The RSI that had knocked 76.54 over-bought levels appeared to play its role, dragging down the pair today.

The article was written by Bharat Gohri, Chief Market Analyst at easyMarkets

Forex Daily Recap – UK GDP Declined, Pushing GBP to Multi-Year Lows

GBP/USD

Cable continued to travel below the zero-line of the MACD, luring the sellers. The investor sentiment dropped significantly in the backdrop of downbeat UK economic data releases. The ongoing Brexit chaos seemed to have an impact over the UK’s economy.

GBPUSD 1 Day 09 August 2019
GBPUSD 1 Day 09 August 2019

Notably, the UK Q2 GDP remained at the top of the trader’s daily event watchlist. The market had already forecasted the GDP figures to decline by 0.5% this time and report near 0.0%. Somehow, the actual GDP statistics came around -0.2%, shocking the market participants. Moreover, the June Manufacturing Production and Industrial Production data also published adverse reports. Despite that, the UK PM Boris Johnson remained stubborn over exiting UK irrespective of attaining a deal for a Brexit.

USD/CNY

The Chinese Yuan pair continued to stay sustained within a multi-month uptrend channel. Quite noticeably, the MACD line had already crossed above the signal line at the start of August, favoring the bulls. Meantime, RSI stood near 81.03 overbought levels. At any point, this overbought RSI could have played its role in dragging down the pair. Anyhow, such a detrimental act has not taken place yet.

USDCNY 1 Day 09 August 2019
USDCNY 1 Day 09 August 2019

On the other hand, the Chinese economic docket showcased mixed data releases throughout the day. The July YoY Consumer Price Index (CPI) jumped 0.1% this time over the market hopes of around 2.7%. Also, the MoM CPI reported 0.4% in comparison to the 0.2% estimates. Somehow, the Chinese July YoY Producer Price Index (PPI) displayed -0.3% over -0.1% forecasts, pouring cold water on the pair’s daily positive drifts.

USD/CHF

After testing the overhead red Ichimoku Clouds earlier this month, the bears had taken control over the pair’s daily price actions. Even today, the pair extended the previous day’s downward rally, hovering near 0.9733 level.

USDCHF 1 Day 09 August 2019
USDCHF 1 Day 09 August 2019

Anyhow, a stable 0.9694 support handle stood on the downside in order to cover up any potential losses. The base line and the conversion line of the Ichimoku Clouds were making rounds above the USD/CHF pair, encouraging the bears. At around 05:45 GMT, the July MoM Switzerland Unemployment Rate s.a. came in-line with the previous as well as the consensus estimate, recording 2.3%.

USD/CAD

Canadian currency slipped following disappointing Jobs data thereby allowing the Loonie pair to climb fresh heights.

USDCAD 1 Day 09 August 2019
USDCAD 1 Day 09 August 2019

The July Net Change in Employment reported -24.2K over +12.5K street estimates. Also, the July Unemployment Rate rose 0.2% this time in comparison to the last 5.5%. Even the June MoM Building Permits came around -3.7% over +1.5% forecast. In the meanwhile, the July YoY Average Hourly Wages soared 0.9% over the last recorded 3.6%. Anyhow, the USD/CAD pair appeared to shrug over this upbeat data and refocused on the downbeat ones.

USD/ZAR

The Rand pair geared up on Friday, escalating towards the 1:1 Gann line, developing strong positive price actions. The RSI has crossed the 70 overbought benchmark, touching 76 mark, cheering up the bulls. Such a healthy upliftment in the pair came following abrupt growth in the Chinese Yuan.

USDZAR 1 Day 09 August 2019
USDZAR 1 Day 09 August 2019

South Africa relies highly on China for its Exports and Foreign Investment activities. Therefore, South African Rand currency remains highly correlated with the performance of the Chinese Yuan. With full ammunition intact, the USD/ZAR pair breached above the sturdy 15.1912 resistance that was restricting the upside since last few sessions.

 

Forex Daily Recap – China’s Currency Weapon Played, Dropping Yuan Past 7/Dollar

USD/CNY

Over to Trump’s latest additional tariff duties on Chinese goods, the Yuan slipped and crossed the seven mark to the dollar threshold. The Relative Strength Index (RSI) of the USD/CNY pair shot up to 84.49 level, showing heavy buying in the currency pair. Notably, on its way to the upside, the pair had crashed through multiple resistances stalled near 6.9340, 6.9617, and 6.9756 levels.

USDCNY 1 Day 05 August 2019
USDCNY 1 Day 05 August 2019

Rob Carnell, Chief Economist & Head of Research for Asia-Pacific, ING, Singapore commented, “What has taken the market by surprise is that nobody anticipated that President Trump would slap tariffs on China within 24 hours of their trade talks. (I) don’t think any of us had imagined how quickly President Trump would slap on more tariffs. This makes it very hard for China to decide what it needs to do next. You don’t really know if the people you are talking to matter, and it turns out they don’t. So, you don’t want to make concessions and then get tariffed anyway. Then you’re losing both ways.”

USD/ZAR

Along with the Chinese Yuan currency that got hit massive sell-off over uprising trade tensions, the South African Rand (ZAR) also underwent plunges. Notably, China remains South Africa’s primary export market. Moreover, China ensures some good amount of Foreign Investment in this highly investment risky place. Hence, South Africa stays quite highly dependent on the Chinese economy.

USDZAR 1 Day 05 August 2019
USDZAR 1 Day 05 August 2019

Today, as the Yuan crossed through the 7/Dollar mark, the Rand touched 14.9462/Dollar mark. The pair had already provided strong bullish signals last day, breaking above the Ichimoku Clouds. If the USD/ZAR pair had moved further more upwards, then the 15.0056 resistance would have got activated.

US Dollar Index

The Greenback was heading south in the North American trading session, aiming to close the day on a negative note, making it a hattrick. Notably, the USD Index had attempted multiple times in the last few months to breach the sturdy 98.32 resistance. However, last week, the Greenback had made it happen, touching the 98.92 highest mark. Anyhow, since the last few sessions, the bulls appeared to shed their gains, handing over the control to the bears.

US Dollar Index 1 Day 05 August 2019
US Dollar Index 1 Day 05 August 2019

Today, the most crucial ISM July Non-Manufacturing PMI came out 2.61% below the market expectations. The market had expected the data to report near 55.5 points. Anyhow, the actual figures recorded near 53.7 points, luring the sellers. Nevertheless, a robust more-than-a-month old slanting ascending support line would have taken care of any drastic drop in the Index. Meanwhile, the upbeat July Markit PMI Composite and Services PMI ensured to limit the daily losses. The July Markit PMI Composite recorded 1.94% growth over the previous figures. Also, the Services PMI rose a 1.53% increment, reporting 53.0 points over market hopes of around 52.2 points. Meantime, the uprising trade tensions kept encouraging the bears, bringing down the Greenback.

EUR/USD

On Monday, most of the EU members came up with their respective PMI data reports. Out of which, the market remained more concerned about the German and Eurozone data releases. Quite noticeably, the Eurozone July Markit PMI Composite data came out as per expectation, reporting 51.5 points. Anyhow, the German PMI slumped 0.98% this time over the prior 51.4 points.

EURUSD 1 Day 05 August 2019
EURUSD 1 Day 05 August 2019

Needless to say, Italy and France reported positive PMI data, expect Spain that missed estimates. On the technical chart, the EUR/USD was showing some resilient price actions, taking a bounce off the 1.1110 psychological support line. The Fiber kept marching upwards, breaking a 19-day old slanting descending support line. Even if the pair had attempted to climb more, then it could have encountered the overhead strong SMA conflux.

USD/CHF

The Swiss Franc pair was forming a Double Top trading pattern, hinting for more upcoming bearish sessions. Also, a 2-month old major counter trendline had confined the pair’s upside for the last few months. However, quite remarkably, the USD/CHF pair had broken and moved above this aforementioned counter trendline. Anyhow, the counter trendline took back control over the Swiss Franc pair in today’s trading session.

USDCHF 1 Day 05 August 2019
USDCHF 1 Day 05 August 2019

Meanwhile, the Switzerland economic docket showcased some positive data releases. The June YoY Real Retail Sales came out +0.7% over -0.5% market estimates. Additionally, the Q3 3m SECO Consumer Climate recorded -8 points, staying above the consensus estimate of around -10 points.

The article was written by Bharat Gohri, Chief Market Analyst at easyMarkets

Forex Daily Recap – RBA Cuts Interest Rate by 25 bps

AUD/USD

The Aussie pair remained seesawed throughout the day in the middle of RBA rate cuts. Australian economists and market experts had already expected a reduction in the interest rates this time. The policymakers declared a 25 bps rate cut marking the new interest rate near 1.25% over previous 1.50%. The Bank has performed a rate cut for the first time in the last three years. Following the RBA rate statement, the AUD/USD pair made a sudden jump of 0.30%, reaching near 0.6993 levels. However, the spike vanished within seconds and dropped back to 0.6965 levels. Also, earlier the day, Australian April MoM Retail Sales reported -0.1% over 0.2% estimates. Later the day, RBA Governor Philip Lowe mentioned that rate cut was to support the employment growth and maintain the desired inflation target. The Board also said that it would continue to monitor the developments in the labor market and adjust the monetary policy accordingly.

EUR/USD

After rallying at the top speed last day, the Euro pair had managed to reach 1.1260 levels. Today, the EUR/USD pair upshot in the early hours after the release of positive Spain and Italy Unemployment figures. The Spain May Unemployment Change reported -84.1K over -67.0K forecasts. Also, the Italy April Unemployment figures came out 0.1% lower than the market expectation of 10.3%. Following such positive reports, the pair soared and reached near 1.1276 levels.

EURUSD 60 Min 04 June 2019
EURUSD 60 Min 04 June 2019

Though the Job-related figures recorded some pleasing data elevating the pair, adverse Eurozone CPI ate away the accumulated gains. The European Monetary Union (EMU) reported the May Consumer Price Index (CPI) 0.1% lower than the 1.3% estimates. Also, the EMU CPI Core data came out as 0.8% over 0.9% forecasts.

USD Index

The fall in the Greenback appeared to pause after rebounding from the 97.00 bottom levels. USD Index made the opening on Tuesday morning near 97.20 levels and was trading near the same mark at around 17:13 GMT. The Buck touched the lowest point after positive Unemployment Eurozone data pushed the major rival EUR/USD pair upwards. Today, Fed Chair Powell responded to the market recession fears, addressing over chances of a rate cut. Powell said that the Bank would take appropriate steps to sustain economic expansion. The Central Bank Chairman mentioned that the Bank would closely monitor the trade issues, maintaining the 2% inflation target. Meanwhile, the US April MoM Factory Orders data reported -0.8% in comparison to the -0.9% consensus estimates.

USD/CAD

By day end, the Loonie pair continued to move in correlation with Greenback’s downward movement. The USD/CAD pair had remained consolidated near 1.3440 levels in the Asian session. The pair kept attempting to jump but failed to do so and remained capped under 1.3448 levels.

USDCAD 60 Min 04 June 2019
USDCAD 60 Min 04 June 2019

Meantime, the Crude Oil WTI Future was trading lower throughout the day, marking the day’s low near $52.44 bbl. The Commodity’s price kept plunging amid escalating trade tensions and Russia’s disagreement with the OPEC group. Russia remains stubborn over not extending the supply cuts beyond the end of June.

Forex Daily Recap – Former Safe-haven Ninja Slammed to 4-Month Low Levels

USD/JPY

The former “safe-haven” pair or Ninja continued the last day’s tumbling rally into Friday’s trading session. Last night, Japanese May YoY CPI figures excluding Fresh Food reported 0.1% lesser than the consensus estimates of 1.2%.

USDJPY 60 Min 31 May 2019
USDJPY 60 Min 31 May 2019

Today, in the morning session, the April Housing Starts data also came up with disappointing figures. Market hoped the statistics to report near -0.9% but the actual numbers recorded -5.7%. With such sparse domestic data, investors lost hope in the Japanese Yen. The currency continued to lose value throughout the day. Adding to the sour sentiment, the Buck also dropped heavily reaching near 97.76 levels over trade tensions.

USD/CAD

The Loonie pair made the opening on Friday’s trading session near 1.3536 levels. Anyhow by day end, the pair was hovering slightly lower near 1.3520 levels. Though there was quite shedding of pips in today’s session, the pair managed to keep up some weekly gains. In the Asian session, the pair remained uplifted marking day’s/weekly high near 1.3566 levels. The USD/CAD pair gained strength as Crude continued to lose value. The Crude Oil WTI Futures was trading near $53.25 bbl at around 19:21 GMT. The commodity price slipped drastically following US President Trump’s threat to impose tariffs on Mexico. Trump tweeted that the US would apply 5% taxes on all goods that come from Mexico. However, following some positive CAD data, the pair started the downfall for the day. Canadian March Q1 MoM GDP reported 0.5% over 0.3% estimates. The then plunging pair found support near day’s low of 1.3510 levels over positive USD data.

EUR/USD

The Euro pair had managed to remain range-bound in the last session on account of Ascension Day. The pair attempted to maintain a similar movement in the earlier hours, opening near 1.1136 levels. At around 06:00 GMT, the German April Retail figures came out. The market had positive expectation over both the monthly and yearly data. However, the low annual significant data reported higher-than-estimated, while high vital monthly data missed estimates. It was quite shocking to see the pair still heading upwards in the middle of such adverse reports.

EURUSD 60 Min 31 May 2019
EURUSD 60 Min 31 May 2019

Nevertheless, the pair started losing momentum at around 08:00 GMT. Italian GDP, CPI, and PPI figures came out. The country is already under debt crisis. Italian Annualized Q1 GDP figures reported as -0.1% over +0.1% estimates. The May Consumer Price Index (EU Norm) YoY broadcasted 0.1% lower than the market expectation of 0.2%. Also, Italian April PPI data reported 0.4% below 2.5% estimates. By this time, the pair had lost almost 25% of the morning gains. More 25% gains vanished with poor German May Harmonized Index of Consumer Prices. Laterwards, the pair kept uplifting over each release of USD-specific events which came out in-line with estimates. By then, the EUR/USD pair reached the highest point for the day near 1.1180 levels. However, the Fiber faced a healthy pullback making it reach near 1.1140 levels. The reason behind the sudden fall was the positive US Spending and Personal Income data.

USD/ZAR

The South African Rand pair kept slumping since the early morning session. Rand was under due pressure as internal political worries heated up. President Cyril Ramaphosa appoints David Mabuza as the Deputy President.  Investors stay worried as Mr. Mabuza was involved in various corruption matters. With the Greenback also losing power, the USD/ZAR pair touched the day’s low near 14.54 levels.

Rand Slammed by Perfect Storm of Market Risks: Gold Steady

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The USDZAR touched its highest level since October 2018 earlier this morning as the perfect storm of market risks rapidly eroded appetite for the South African Rand. One thing is for certain, the Rand is clearly unamused by headlines that David Mabuza is in the running to become re-appointed as Deputy President and this continues to reflect in the currency’s valuation. When factoring in how Mabuza has previously been previously linked to a number of scandals that have taken place, these reports that he re-appointed as deputy president are raising questions over Cyril Ramaphosa’s efforts to end corruption as stated during his inauguration speech as South African President on Saturday.

Emerging market currencies feel the heat

Persistent US-China trade tensions, Brexit and concerns over slowing global growth have certainly left a mark on emerging market currencies. The general lack of appetite for risk amid the growing uncertainty has offered nothing but pain to most major EM currencies this week. With the mood across financial market negatively impacted by geopolitical risk factors and risk-off becoming a recurrent theme, this will spell trouble for EM currencies in the short to medium term.

Commodity spotlight – Gold

One would have expected Gold prices to push higher given how trade concerns and Brexit continue to accelerate the flight to safety.

It seems investors are rushing towards the Dollar instead which is still seen a prime destination for safety in times of uncertainty and unease. While Gold is positioned to remain buoyed by risk aversion, upside gains will most likely be limited by an appreciating Dollar. The precious metal is poised to swing back and forth within a modest range until some sort of catalyst is brought into the picture. Technical traders will continue to closely observe how Gold behaves above the $1280 support level. Should this level prove to be reliable support, prices have the potential to appreciate towards the psychological $1300 resistance.

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

Dollar Slips Ahead of Fed Rate Decision: Gold Steady

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The sources of the Dollar’s weakness could be caused by investors maintaining a defensive stance towards the currency ahead of the Fed meeting and US jobs report on Friday. Easing concerns over slowing global growth coupled with cautious optimism over US-China trade talks may also result in Dollar weakness, given how the currency remains a destination of safety in times of uncertainty. Dollar bears have the potential to re-enter the scene if the Federal Reserve sounds more dovish than expected and Friday’s jobs report fails to meet expectations. Focusing on the technical picture, the DXY has the potential to test 97.50 in the near term if 98.00 proves to be reliable resistance.

Currency spotlight – EURUSD

The Euro’s recent appreciation has little to do with an improved sentiment towards the European economy but Dollar weakness. With disappointing economic data from Germany last week fuelling concerns over the health of the Eurozone and the ECB seen maintaining a dovish stance, the Euro is fundamentally bearish. Investors will direct their attention towards the latest Spanish Flash GDP quarter-on-quarter and German Prelim CPI month-on-month. Further signs of slowing growth in the Eurozone area should inspire bears with enough inspiration to attack 1.110. Even if prices decide to push higher on Dollar weakness, there is a formidable resistance level around 1.130.

Rand steady ahead of Balance of trade data

The Rand held steady against the Dollar on Tuesday morning as investors prepare for South Africa’s latest balance of trade figures.

Buying sentiment towards the local currency is poised to receive a boost if the trade balance posts a surplus for the second consecutive month in March. The next key risk event for nation will be on Thursday when the ABSA Manufacturing PMI data will be released. While the Rand is likely to venture higher if the report exceeds market expectations, where the local currency concludes this week will be influenced by US-China trade talks, the Fed meeting and US jobs report on Friday. Focusing on the technical picture, the USDZAR is on standby on the daily charts with prices trading around 14.33 as of writing. A breakdown below 14.28 has the potential to encourage a move towards 14.20.

Commodity spotlight – Gold

Gold bulls have marched into the trading week with a mission to keep prices above the $1280 support level.

There seems to be a fierce tug of war around this support level with a fresh directional catalyst needed for bulls or bears to reclaim the driving seat. With the Fed meeting, US-China trade talks and US jobs report all taking place this week, Gold could be instore for a rollercoaster ride.  In regards to the technical picture, prices are still bearish on the daily charts. However, bulls have the chance to seize back some control is a daily close above $1290 is achieved.

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

Russian Ruble Reattempts to Resume Bullish Trend

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

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

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

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

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

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Risk Disclaimer:

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

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

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

Bitcoin Back in The Limelight as Prices Surge Above $5000

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Bitcoin was one of the main talking points across financial markets today after suddenly climbing to its highest level since November 2018 above $5000.

While sudden and explosive swings are nothing new in the world of cryptocurrency, Bitcoin has certainly struggled for direction in recent months as investors evaluated the possibility of its adoption by the mainstream. Although the reason behind Bitcoin’s aggressive 23% jump remains a mystery, it does suggest that bulls could be back in town. In regards to the technical picture, BTCUSD turned bullish on the daily charts after prices rallied from $4200 to just above $5100. With prices trading above the 200 Simple Moving Average and the MACD trading to the upside, lagging indicators suggest that Bitcoin has the potential to push higher. A solid daily close above $5000 will be needed to seal the deal for bulls. Alternatively, if $5000 proves to be a reliable resistance, Bitcoin has scope to retest $4500.

Currency spotlight – GBPUSD

Sterling remained bruised and depressed on Tuesday after UK lawmakers rejected all alternative Brexit options for a second time.

This unfavorable development has created another element of uncertainty and confusion over Brexit at a time where investors are desperately seeking clarity. The United Kingdom now has until  April 12 to either seek a longer extension from the EU, agree on an alternative Brexit plan or leave the EU without a deal in place. Market fears of the UK crashing out of the EU with no deal is likely to weigh heavily on the Pound and this was reflected in the GBPUSD.

Taking a look at the technical picture, the GBPUSD is coming under pressure on the weekly charts. A breakdown below 1.3000 is seen opening a path lower towards the 1.2890 regions.

USDZAR hovers above 14.14

The Rand entered the second quarter of 2019 on a firm footing after Moody’s delayed its credit rate decision on South Africa. Positive data from the United States and China also supported appetite for emerging market currencies, with the Rand falling into this category.

Although the local currency weakened on Tuesday, this has more to do with an appreciating Dollar rather than a change in overall sentiment. If risk sentiment continues to improve on easing global growth fears and domestic data shows signs of stabilizing, the Rand has the potential appreciate against the Dollar.

In regards to the technical picture, the USDZAR is likely to test 14.00 if the 14.14 level is conquered.

Commodity spotlight – Gold

An appreciating Dollar and improvement in risk sentiment have reduced appetite for safe-haven Gold.

Positive economic data from China and the United States has eased investor concerns over slowing global growth, with equities and riskier assets back in focus. While Gold has the potential to sink further in the near term, the medium to longer term outlook remains in favor of bulls. Geopolitical risks in the form of Brexit, uncertainty over US-China trade talks and a dovish Federal Reserve are likely to continue supporting Gold. Focusing on the technical picture, the precious metal is likely to test $1280 in the near term. For bulls to jump back into the game, prices need to break back above the psychological $1300 level.

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

How to Trade the Trade War?

The developing trade war between the US and China has created turmoil in emerging markets, most noticeably in the form of a sell-off of the Chinese stock market and currency.

Trading the trade war is not very straightforward. Firstly, we really don’t know how it will end. It will probably be resolved eventually, but the timing will make a big difference.

The longer it lasts the more damage will be done, and that will have longer-term implications. A longer trade war may also trigger a domino effect through other parts of the global economy. If the trade war was to be resolved fairly soon, prices would normalize quite quickly.

One thing to remember is that it appears Trump is happy to keep the pressure on as long as the US stock indices continue making new highs. If volatility in the US stock market picks up, as it is now, he may be forced to soften his stance.

Several markets related to the trade war are currently very oversold, and should the impasse be resolved, sharp reversals are possible in some of these markets.

Traders should be careful of using the same approach across all emerging markets. Some markets have been caught up in the trade war, while others have deep-seated underlying problems of their own.

China

Tensions over trade began to grow between the US and China between January and May this year. In May the US began to effectively impose tariffs on certain imports from China by terminating tariff exemptions. More products were added in June and more gain in September.

The Chinese Renminbi has fallen 10% since March as the trade war has escalated. The Shanghai composite has meanwhile lost as much as 25% since the beginning of 2018.

USD/CNH Weekly Chart
USD/CNH Weekly Chart

The slide in the renminbi has to a certain extent offset the added tariffs – the weaker currency means US importers are paying slightly less before tariffs are added.

It’s worth noting that the slide in the value of the Renminbi has slowed significantly since July despite the additional tariffs with a double top potentially forming. It is possible that the Chinese Central Bank is supporting the currency to prevent capital flight, as they experienced in 2015/2016.

Not many forex brokers offer to trade in the Renminbi, but a few do. If you are looking to trade the Chinese currency you will be trading the Offshore Renminbi or CNH. The CNY is the Onshore Renminbi which us restricted and managed by the Central Bank.

Turkey

Turkey has several problems. Firstly, a series of populist policy decisions by the president eroded investor confidence, triggering a selloff of the already structurally weak Lira. This turned into a vicious cycle as much of the country’s government and corporate debt is USD denominated, and effectively rises as the Lira weakens. On top of this precarious situation, the US then imposed new import tariffs on Turkish goods.

USD/TRY Weekly Chart
USD/TRY Weekly Chart

The Turkish Lira had lost almost 46% of its value by the middle of August and is now consolidating in what could turn out to be either a continuation or reversal pattern. The benchmark equity index, the BIST100, fell as much as 30%, though it has recovered some of those losses.

The Turkish economy is one of the most vulnerable in the world, and further emerging market volatility could very easily lead to further losses for both the currency and stock market. Investors will probably want to see policy changes before a sustained recovery begins.

Argentina

Argentina had to turn to the IMF to help prop up its balance sheet in May, and this loan was recently increased to $57 billion. The Peso reached an all-time high of 41.47 against the USD, having traded at 18 in January. Last week, the Central Bank raised interest rates to 65%, indicating how serious the crisis is.

The benchmark stock index recently tested the all-time high recorded in January – though this has more to do with the inflationary effect of a weak currency than with earnings.

Argentina is one of the weakest markets and will be vulnerable to further fallout from the trade war. Traders watching the stock index should focus on the technical picture rather than trying to weigh up valuations and a fluctuating currency.

South Africa

South Africa’s economy has been under pressure for several years as a result of a scandal-ridden government. In the second quarter, the country officially dipped into a recession.

USD/ZAR Weekly Chart
USD/ZAR Weekly Chart

South Africa’s currency, the Rand, is structurally weak and was also rated by Bloomberg as one of the most vulnerable in the world. The Top40 stock index has made little ground since 2014 as political uncertainty led to an investor exodus.

A certain degree of political stability has been restored and South Africa is beginning to look more like a potential turn around play. South Africa is also a major commodity exporter and highly correlated with China’s economy. If the trade relationship between China and the US is resolved, SA may be a market to watch on the upside.

Commodities

Commodities, especially base metals like copper and iron ore are another potential play based on how things develop. If the standoff is prolonged its likely to have an ongoing impact on China’s domestic economy, which includes massive infrastructure projects. Besides metals prices, traders can also look to Australia’s large commodity exporters.

Global Tech Stocks

The original FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) have a few problems of their own. Not only are they priced for strong growth going forward, but the likes of Facebook and Google are facing growing scrutiny over issues related to users’ personal data.

The trade war has now brought a new dynamic to the sector. Chinese tech giants Alibaba and TenCent are both under pressure due to the trade war. China is also very important in Apple’s life, both as a supplier and as a customer. Ongoing pressure on China’s economy will eventually begin to impact Apple.

Summary

As you can see there are quite a few instruments that traders can use to play the trade war, either in the case of an escalation, or continuation or in the case that it is resolved. When choosing a forex broker it’s a good idea to look at the range of instruments offered so that you have the option of expressing trades through several instruments.

As was mentioned at the beginning, it’s impossible to predict how all of this will play out. Traders should, therefore, trade opportunistically and keep an open mind.