USD/CAD Daily Forecast – Demand For Safe Haven Assets Boosts U.S. Dollar

USD/CAD Video 15.05.20.

Stronger Oil Fails To Help The Canadian Dollar As Safe Haven Assets Get Support After Another Round Of Poor Economic Data

USD/CAD gained ground despite stronger oil while the U.S. dollar was mixed against a broad basket of currencies.

Today, investors and traders had to digest a flurry of U.S. economic news. The most important economic release of the day was the U.S. Retail Sales report which showed that retail sales declined by 16.4% in April.

Industrial Production and Manufacturing Production reports also painted a gloomy picture as Industrial Production declined by 11.2% month-over-month while Manufacturing Production fell 13.7%.

A glimmer of hope was provided by the preliminary Michigan Consumer Sentiment for May which increased from 71.8 in the previous month to 73.7.

This increase could be explained by the massive government aid which boosted consumer sentiment. In addition, the U.S. economy has started to reopen which should have provided consumers with more confidence about future perspectives.

Interestingly, the U.S. dollar is mostly flat today, and the U.S. Dollar Index stays close to the 100.5 level. There’s a significant resistance level at 101, and any major upside move in USD/CAD will likely require a corresponding move in the U.S. Dollar Index above 101.

Technical Analysis

usd cad may 15 2020

USD/CAD has settled above the 20 EMA level at 1.4050 and continues its attempts to move higher. Previously, the 20 EMA did not serve as a material level for USD/CAD, but this time the pair seems to have found some support near this level.

The next resistance level for USD/CAD is located at 1.4150. The pair has recently tried to get above it but stronger oil helped the Canadian dollar gain more ground against the U.S. dollar and this attempt failed.

In case USD/CAD manages to settle above 1.4150, it will likely gain additional upside momentum and head towards the major resistance level at 1.4250.

On the support side, the support at the 20 EMA level is followed by the support at the 50 EMA level at 1.3990. In case USD/CAD gets below the 50 EMA level, it will head towards the major support level at 1.3850.

Previously, the pair received some support near 1.3900, so it is possible that such support will once again present itself in case the pair moves towards 1.3850.

Oil Continues To Rally As Traders Believe That The Worst Is Over

Oil Video 15.05.20.

Goldman Sachs Believes That The Market Is Headed For Deficit In June

Goldman Sachs stated that the oil market may experience deficit in June as oil demand improves while oil production cuts intensify.

Nevertheless, Goldman Sachs maintained its forecasts for summer with Brent at $30 per barrel and WTI at $28 per barrel.

The recent EIA Weekly Petroleum Status report showed a surprising decline in U.S. crude oil inventories. If inventories continue to decline, the market will view it as a sign that demand is increasing at a time when the domestic oil production is in a downside trend.

According to the latest EIA report, U.S. domestic oil production has declined to 11.6 million barrels per day (bpd). The previous Baker Hughes weekly survey showed that active U.S. drilling rigs targeting crude oil declined to 292, so it is highly likely that the U.S. production will continue to fall.

Interestingly, Goldman Sachs does not expect oil price upside from current levels despite its forecast of a deficit in June. The reasons for this are the uncertainty about the global demand recovery and the inventory overhang which will continue to put some pressure on oil prices for the upcoming weeks.

Will Oil Rally Ignore The Increase Of U.S. – China Tensions?

U.S. and China have exchanged threats in what appears to be a new round of their standoff. The U.S. is not satisfied with China’s response to the coronavirus threat and plans to block shipments of semiconductors to China’s Huawei.

Meanwhile, China’s newspaper the Global Times reported that the country was ready to put U.S. companies on an unreliable entity list in case the U.S. damages Huawei position.

At this point, no actual moves were made but the increase of U.S. – China tensions comes at the worst possible time as the world economy tries to recover following the acute phase of the coronavirus crisis.

In case of real anti-China moves from the U.S. administration, trade with China may suffer which will put additional pressure on the demand for oil. In my opinion, this story should be followed closely as another phase of a trade war between the two biggest economies can damage the fragile recovery and limit prospects for oil price upside.

Silver Price Daily Forecast – Silver Gets To Pre-Crisis Levels

Silver Video 15.05.20.

Silver Gains Upside Momentum And Gets To The $16.50 Level

As I wrote yesterday, the breach of April highs at $15.80 opened the way to pre-crisis levels at $16.50.

Following a consolidation near $15.50, silver gained major upside momentum and the move to $16.50 was very robust.

The U.S. dollar is showing some weakness today, and the U.S. Dollar Index has fell closer to the 100 level. A weaker U.S. dollar is a tailwind for silver as it makes it cheaper for buyers who have other currencies.

Finally, gold is getting to new highs on a spot basis, which is a major positive development for the whole precious metal segment. A rally in gold will likely lead to an influx of new investor money into the whole sector.

The U.S. Retail Sales report, which showed that Retail Sales plunged by 16.4% in April, has likely increased demand for safer haven assets including precious metals.

While industrial demand is an important component of the cumulative demand for silver, an increase in investment demand could provide additional upside.

Unlike gold, silver is still far from its recent highs so it maintains its attractiveness as a catch-up play.

Technical Analysis

silver may 15 2020

Silver gained robust upside momentum once it breached the resistance level at $15.65 and the following resistance level near April highs at $15.80. Currently, silver has settled at the following resistance level at $16.50.

I’d note that the upside move was significant and some traders would like to take some profits off the table at pre-crisis levels. In addition, RSI is getting to an overbought territory, which increases chances of a near-term pullback.

In case silver manages to settle above $16.50, it will move towards the next resistance level at $17.25. Likely, additional upside in gold, which will improve investor mood across the whole precious metal sector, will be required for such a move.

On the support side, the previous resistance area at $15.65 – $15.80 will become a new support area for silver. In case silver gets below this support level, it will head towards the next support area at the 50 EMA at $15.45. A move below this level will signal a change of a trend in silver.

U.S. Stocks Set To Open Lower After Disappointing Retail Sales Report

Retail Sales Dive By 16.4% In April

S&P 500 futures are pointing to a lower open following the release of a disappointing Retail Sales report.

Analysts expected that Retail Sales will decline by 12% month-over-month in April, but the report showed that Retail Sales declined by as much as 16.4%.

The year-over-year data is even more grim as Retail Sales shrank by 21.6%. Retail Sales excluding Autos also showed a notable decrease, declining by 17.2% compared to analyst consensus which projected a decline of 8.6%.

Put simply, the U.S. retail sector has taken a huge hit in April as consumers were locked in their homes due to coronavirus containment measures.

Previously, worse-than-expected economic data often fueled market rallies as investors bet on additional stimulus from the government and the Fed.

However, this week’s focus has shifted to potential risks of the second coronavirus wave and a deeper-than-expected recession so the poor Retail Sales data may lead to a material sell-off.

U.S. – China Tensions Increase

U.S. – China tensions are set to increase further as the U.S. wants to block shipments of semiconductors to Huawei from global chipmakers, according to a Reuters report.

The move will certainly lead to a deterioration of an already challenging relationship as the U.S. accuses China of concealing the true state of things on the coronavirus front early in the pandemic.

In a recent interview, the U.S. President Donald Trump even suggested that he could cut ties with China if necessary.

The market will watch the development of this story very closely as a trade war between the two biggest economies will further complicate the rebound from the coronavirus crisis.

Oil Continues To Rally As Traders Believe That The Worse Is Over

Oil continues its upside move as market participants believe that the previously announced cuts will be sufficient enough to improve the supply/demand balance and provide support for oil prices.

Recently, International Energy Agency has improved its oil demand outlook, and the oil market is focused on the current reopening efforts around the globe.

In addition, the U.S. domestic oil production continues to fall at a rather rapid pace, eliminating fears about a potential oil storage crisis.

It remains to be seen whether oil-related equities will be able to provide support for the general market today but oil price upside may serve as a catalyst which could prevent the market from a bigger sell-off.

GBP/USD Daily Forecast – All Eyes On U.S. Retail Sales

GBP/USD Video 15.05.20.

How Much Damage Was Sustained By The U.S. Retail Sector?

GBP/USD found support near 1.2170 and currently trades close to 1.2200. The yesterday’s rebound of the U.S. equity market helped riskier assets but downside risks remain.

The U.S. Dollar Index, which measures the U.S. dollar strength against a broad basket of currencies, has pulled back a bit but stays above the 100 level.

The U.S. Dollar Index remains in a range between 99 and 101, and an upside move out of this range will be bearish for GBP/USD as it will signal broad U.S. dollar strength.

The most important economic release of the day is the U.S. Retail Sales report. Currently, analysts expect that U.S. Retail Sales declined by 12% in April following a decline of 8.4% in March.

Most likely, this will be a market-moving report so traders should watch it closely.

Other important economic data from the U.S. will include Industrial Production, which is expected to decline by 11.5% on a month-over-month basis, and Manufacturing Production, which is expected to contract by 13%.

The general market mood will also impact GBP/USD trading today as investors start to worry about the potential second wave of coronavirus, increasing U.S. – China tensions and the devastating impact of current virus containment measures.

If such worries prevail, the U.S. dollar will get more support due to its role as a safe haven asset of last resort.

Technical Analysis

gbp usd may 15 2020

GBP/USD got support near the first material support level at 1.2170. The pair will have to settle below this level to have a chance to continue the downside trend and head towards 1.2000.

A move below 1.2170, which is the low of the first pullback following the rebound from mid-March lows, will likely lead to increased downside momentum and take the pair to the next support level at 1.2115.

On the upside, the previous major support at 1.2250 has become the new resistance, and the pair will likely need additional catalysts to return to the previous trading range above 1.2250.

If this happens, GBP/USD may get upside momentum. In this scenario, the next important resistance level is located at the 20 EMA at 1.2350, followed by the 50 EMA level at 1.2410.

USD/CAD Daily Forecast – Strong Oil Supports The Canadian Dollar

USD/CAD Video 14.05.20.

USD/CAD Stays Flat After The Release Of The U.S. Initial Jobless Claims Report

USD/CAD is mixed as the U.S. Dollar Index continues to stay above the 100 level but stronger oil provides support for the Canadian dollar.

The U.S. dollar continues to get support as the market is worried about the pace of the economic recovery while the recent U.S. Initial Jobless Claims report shows that job losses continue.

Roughly 3 million Americans have filed for unemployment benefits in a week, taking the total number of initial filings since the beginning of the coronavirus crisis to more than 36 million.

The market is worried about the pace of the recovery due to both the severity of job losses and the uncertainty regarding the situation on the coronavirus front as countries continue to reopen their economy.

Multiple public health experts have warned against reopening too soon, noting that a hasty reopening could lead to a bigger health crisis and ultimately lead to more economic damage.

Meanwhile, oil is gaining ground after the International Energy Agency has improved its oil demand outlook for 2020, providing support for the Canadian currency.

Today, the factors playing in favor of both the U.S. dollar and the Canadian dollar are balanced so USD/CAD is flat.

Technical Analysis

usd cad may 14 2020

USD/CAD has tried to test the resistance level at 1.4150 but met material selling activity and pulled back closer to 1.4100. The nearest support for the pair may be seen near the 20 EMA at 1.4050, but I do not think that it will be significant.

The first material support level for the pair is at the 50 EMA at 1.3990. In case USD/CAD settles below this level, it will once again head towards the major support level at 1.3850.

In this case, USD/CAD may also receive support closer to 1.3900, at the lows of the recent pullback.

On the upside, the resistance at 1.4150 is a major obstacle on the pair’s way towards the major resistance level at 1.4250. In case the resistance level at 1.4150 is breached to the upside, USD/CAD will likely gain additional upside momentum and a test of the resistance at 1.4250 may happen soon.

 

Oil Gains Ground As IEA Improves Its Oil Demand Forecast

Oil Video 14.05.20.

IEA Expects That Oil Demand Will Fall By 8.6 Million Barrels Per Day

Today, oil gains ground despite the weakness in the equity markets due to International Energy Agency report which stated that 2020 oil demand would contract by 8.6 million barrels per day (bpd) compared to the previous expectation of a 9.3 million bpd contraction.

IEA notes that better than expected mobility in OECD countries as well as the easing of lockdown measures have led to an upward adjustment of demand forecast for the second quarter of this year.

Meanwhile, oil supply is set to fall by 12 million bpd in May as IEA sees OPEC+ countries complying with their new production quotas while production cuts from other countries further decrease available supply.

Indeed, yesterday’s EIA Weekly Petroleum Status report has shown that the U.S. production continues to fall. It is highly likely that the U.S. oil production will continue to slide as current oil prices make many wells uneconomic.

In general, IEA believes the the outlook for oil has improved since April and that production cuts have already played an important role in the stabilization of oil markets.

Coronavirus And Trade War Fears May Put Pressure On Oil

The recent optimism in the oil market is based on the assumption that demand will improve while supply stays at low levels due to the OPEC+ deal and production cuts by non-OPEC+ countries.

For this thesis to play out, economies should start to gradually recover while the virus must remain under control despite the lifting of the lockdown measures.

The recent U.S. Initial Jobless Claims report has shown that the U.S. economy continues to lose jobs at an alarming pace which means that the recovery may take longer than expected.

Another potential problem may come from the trade war front as the U.S. is increasingly disappointed with China’s handling of coronavirus which has wrecked havoc in the world economy.

At this point, the U.S. limits itself to verbal interventions but if it proceeds with real actions like tariffs or sanctions, global trade may suffer at inopportune time, putting additional pressure on oil demand.

Thus, while the IEA report paints a brighter picture than in the previous month, oil traders may still remain cautious as they try to evaluate the speed at which the global economy recovers from the huge blow dealt by the virus.

Silver Price Daily Forecast – Silver Stays Glued To The $15.50 Level

Silver Video 14.05.20.

Silver Manages To Hold Its Ground Despite Stronger U.S. Dollar

Silver continues to trade close to the $15.50 level amid U.S. dollar strength and equity market sell-off following the disappointing U.S. Initial Jobless Claims data.

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, has settled near the 100.5 level.

The U.S. Dollar Index remains in a range between 99 and 101, and a move out of the range will lead to increased momentum of the U.S. dollar. An upside breakout will serve as a bearish factor for silver since stronger U.S. dollar makes silver more expensive for buyers who have other currencies.

Meanwhile, gold continues to stay above the $1700 level which signals continued investor appetite for precious metals amid the current turmoil. Silver benefits from higher gold prices as they attract more investors into the whole precious metal segment.

It remains to be seen whether the recent equity market downside will turn into a serious sell-off and whether such a sell-off will help silver gain more ground.

The U.S. dollar and the U.S. government debt have served as safe haven assets during the coronavirus crisis while silver did not always play this role due to the significant impact of industrial demand on the cumulative demand for silver.

Technical Analysis

silver may 14 2020

At this point, silver fails to gain momentum despite the fact that it has breached the 50 EMA at $15.40. A potential reason for this is the stronger U.S. dollar which has recently gained ground as demand for safe haven assets increased.

The nearest resistance for silver is located at $15.65. In case silver gets above this level, it should quickly head towards the test of April highs at $15.80. After spending so much time dealing with the $15.65 resistance, the test of the next resistance which is just 15 cents away could be very quick.

In case silver gets above April highs, it will likely head towards pre-crisis levels at $16.50.

On the support side, the nearest support for silver is located at the low end of the current range at $15.30, while the major support will be provided above $14.60.

 

U.S. Stocks Set To Open Lower After Another Disappointing Initial Jobless Claims Report

Initial Jobless Claims Report Shows That 3 Million Americans Filed For Unemployment Benefits In A Week

The Initial Jobless Claims report has just been released, and it showed that 3 million Americans filed for unemployment benefits compared to analyst consensus which expected the report to show a figure of 2.5 million.

Meanwhile, Continuing Jobless Claims were better than expected at 22.8 million compared to consensus of 25.1 million. It should be noted that the Continuing Jobless Claims data lags the Initial Jobless Claims data by one week.

The previous number of Continuing Jobless Claims was 22.3 million so the continuous unemployment did not rise that much. Apparently, some people who have lost their jobs managed to find them in areas which were less hit by the coronavirus.

Both reports highlight the very challenging situation in the U.S. job market, and S&P 500 futures, which are down about 1% in premarket trading, are finally showing sensitivity to poor economic data.

IEA Report Helps Oil To Gain Some Ground

Recently, oil prices have shown some strength despite the material downside move in the equity market.

The International Energy Agency has just released its monthly report which revised the projected hit to oil demand in 2020 from 9.3 million barrels per day (bpd) to 8.6 million bpd.

However, it remains to be seen whether the recent stability on the oil price front can provide support for oil-related equities which have been declining together with the general market in the recent days.

The Market Is Worried That Coronavirus Will Continue To Impact Life For A Long Time

The World Health Organization stated that coronavirus may become endemic in human population just like HIV. According to the European Medicines Agency, a vaccine could be ready in about a year in an optimistic scenario.

This scenario is not that optimistic for the world economy since it signals that some virus containment measures will have to be implemented for many months to come.

Even the hard-hit nations are very far from developing herd immunity. According to the French Pasteur institute, just 4.4% of French citizens have been infected by the coronavirus. The institute stated that about 65% of the population should be immune to the virus to develop herd immunity.

In case the market starts pricing in the risks of a more challenging exit out of the pandemic, the stocks will have further room to fall from current levels.

GBP/USD Daily Forecast – British Pound Loses Ground Amid Global Sell-Off

GBP/USD Video 14.05.20.

Virus Fears Put Pressure On Riskier Assets

GBP/USD has settled below the support level at 1.2250 and continues to move lower.

The U.S. dollar is gaining ground against a broad basket of currencies, and the U.S. Dollar Index has firmly settled above the 100 level. I’d note that the U.S. Dollar Index is still in the range between 99 and 101, and a move out of this range will lead to increased momentum.

There are several reasons for the current U.S. dollar strength. U.S. Federal Reserve Chair Jerome Powell has stated that the Fed was not expecting to use the negative interest rate policy, something that the U.S. President Donald Trump wanted it to do.

The adoption of a negative interest rate policy would have put pressure on the U.S. dollar as the yield on U.S. dollar instruments would have come into spotlight and traders would have searched for better-yielding instruments.

The other reason is the renewed fears about a second wave of coronavirus which have put pressure on riskier assets like the British pound and provided a tailwind for safe haven assets like the U.S. dollar.

The World Health Organization has recently stated that the coronavirus may never go away and that it was hard to develop a vaccine. Adding to pressure is the fact that some countries that have relaxed restrictions are seeing an increase in the number of coronavirus cases.

Technical Analysis

gbp usd may 14 2020

GBP/USD has breached the major support level at 1.2250 and immediately gained additional downside momentum. Now, the pair heads towards the next support level at 1.2170, which was the low of the first pullback following the rebound from mid-March lows.

In case this support level is breached to the downside, GBP/USD will find itself on the way to 1.2000, although I’d expect some support at 1.2115.

On the upside, the previous support at 1.2250 will serve as the first resistance for the pair. Those traders who have missed their chance to sell near this level will likely use this opportunity if GBP/USD returns to 1.2250, creating resistance.

In case this resistance is breached to the upside and the pair returns to the previous trading range, the next major resistance is located at the 20 EMA at 1.2360.

USD/CAD Daily Forecast – Powell’s Comments Boost The U.S. Dollar

USD/CAD Video 13.05.20.

The U.S. Fed Is Not Thinking About Negative Rates

USD/CAD continues its rebound from the major support level at 1.3850. Today, the U.S. dollar got a boost from the U.S. Federal Reserve Chair Jerome Powell who stated that negative interest rates were not a tool in the Fed’s current toolbox.

Earlier, traders were starting to place bets on the possibility of negative interest rate policy in the U.S. Currently, the U.S. dollar is supported by its safe haven status, but the adoption of negative interest rates may have put yields in focus and lead to weakness of the American currency.

The U.S. Dollar Index, which has been below the 100 level ahead of the Powell speech, returned back above 100, highlighting the U.S. dollar strength against a broad basket of currencies.

A surprising decline in U.S. oil inventories did not provide much support for oil prices so the Canadian dollar did not get a boost from the oil market side.

Meanwhile, it looks like deflation is the new near-term reality for developed economies since various economic reports show that prices were decreasing in April.

For example, the latest U.S. PPI report showed that producer prices declined by 1.3% in April, while the previously released Inflation Rate was -0.8% month-over-month.

Technical Analysis

usd cad may 13 2020

USD/CAD has breached the 50 EMA level at 1.3980 and the 20 EMA level at 1.4040 and continues to go higher boosted by Fed’s comments about negative interest rates.

The next resistance for USD/CAD is located at the highs of the previous rebound at 1.4150. If this resistance level is breached to the upside, USD/CAD may gain additional upside momentum and head towards the test of the major resistance level at 1.4250.

I continue to believe that the pair will need significant catalysts to get above 1.4250. Such catalysts may include an unexpected decline in the price of oil (bearish for the Canadian dollar) or a general sell-off in the global markets (bullish for the U.S. dollar).

On the support side, the nearest support level is located at the 50 EMA at 1.3980. In case this level is breached to the downside, the pair will once again head towards the major support level at 1.3850.

Oil Mixed After EIA Report Shows That Crude Inventories Declined

Oil Video 13.05.20.

U.S. Domestic Production Drops To 11.6 Million Barrels Per Day

Yesterday, the API Crude Oil Stock Change report showed that oil inventories increased by 7.58 million barrels.

The EIA Weekly Petroleum Status Report has just been released.  The report indicates that oil inventories unexpectedly decreased by 0.7 million barrels. This is a very surprising development which has immediately provided support to WTI oil prices.

Interestingly, there were no major moves in gasoline and distillate fuel inventories. Gasoline inventories decreased by 3.5 million barrels while distillate fuel inventories increased by 3.5 million barrels.

Domestic oil production took a big hit from low oil prices and decreased from 11.9 million barrels per day (bpd) in the previous week to 11.6 million bpd. At this point, it looks like the pace of domestic production cuts intensifies.

It will be interesting to see whether the following EIA Weekly Petroleum Status report confirms this trend.

In order to start dealing with the elevated inventory problem, domestic oil production should continue to decrease while demand increases as the country gradually lifts lockdown measures and reopens its economy.

If the decrease in the crude inventories is not a one-time event, future reports may provide more support for oil prices.

Russia And Saudi Arabia State That They Are Commited To Oil Market Stability

Saudi Arabia and Russia have recently issued a joined statement about the current situation in the oil market. Leading oil producers stated that they were firmly commited to achieving market stability and expediting the rebalancing of the oil market.

They also noted that they were pleased with the recent signs that oil demand is growing.

Recently, Reuters published a report which stated that OPEC+ countries were willing to maintain existing production cuts beyond June.

In the original deal, the size of production cuts gradually declined after June 2020, but the current state of the oil market dictates a more aggressive approach.

While demand is recovering, oil producers need to eliminate excessive inventories fast to improve oil prices which stay at low levels. Budgets of oil producing nations suffer at the current oil price levels so there is a sense of urgency to improve pricing.

 

Silver Price Daily Forecast – Silver Continues Its Attempts To Get Closer To April Highs

Silver Video 13.05.20.

Silver Consolidates Near $15.50

Silver continues to trade near $15.50 as the equity market weighs the risks of the second wave of coronavirus while the forex market digests the words of the Fed Chair Jerome Powell who stated that the Fed was not looking at negative rates.

The U.S. President Donald Trump has recently pushed for the adoption of the negative interest rate policy, but Jerome Powell has openly stated that the Fed did not view negative interest rates as an attractive policy.

He also added that the economy may face an extended period of weak growth and that a lot depended on the success on the healthcare front.

Powell’s words are generally bullish for the U.S. dollar, and the U.S. Dollar Index, which measures the strength of the American currency against a broad basket of currencies, continues to stay near the 100 level.

A stronger U.S. dollar is an obstacle to silver upside since it makes silver more expensive for buyers who have other currencies. However, in absence of strong moves on the currency side, silver may continue to live a life of its own.

In a bullish development for the whole precious metal segment, gold continues to stay above $1700 per ounce. The more time gold spends above this level, the higher the chance that it will attract a new wave of investments into precious metals.

Technical Analysis

silver may 13 2020

Silver stays above the 50 EMA level at $15.40. Currently, a minor resistance level has formed near $15.65. If this resistance is breached to the upside, silver will quickly get to the test of April highs near $15.80 with good chances to get above this level.

At this point, it looks like silver is going through a consolidation phase. After this phase, a stronger move will be possible. In case silver manages to settle above April highs, the road to pre-crisis level at $16.50 will be open.

On the support side, silver enjoys minor support at the low end of the current trading range at $15.30, which is close to the 20 EMA level. In case this level is breached to the downside, silver will head towards the major support level at $14.60.

U.S. Stocks Mixed As Core PPI Declines More Than Expected

Deflation Is Coming To The U.S.

S&P 500 futures are mixed in premarket trading following the release of PPI and Core PPI reports. Producer prices have declined by 1.3% month-over-month in April compared to analyst consensus which called for a decline of 0.5%.

Core PPI also showed bigger than expected pricing contraction  at -0.3% month-over-month.

Weak PPI data follows the yesterday’s  Inflation Rate and Core Inflation Rate reports which showed that coronavirus put significant pressure on pricing.

The main risk of any huge monetary stimulus is the erosion of the value of money via inflation, but currently weak demand leads to deflationary processes in the U.S.

This is not a good sign given the example of Japan which has struggled with deflation for quite some time and has not found its way back to healthy growth rates.

Trump Pushes Fed To Adapt Negative Interest Rates

Recently, U.S. Federal Reserve officials have argued against the adoption of negative interest rate policy in the U.S. However, the U.S. Presidend Donald Trump is pushing for such policy, calling it a “gift” which should be accepted.

The yield on the U.S. debt is already pricing in a probability of negative interest rates. The 2-year note is yielding less than 0.16%, while the 10-year bonds are yielding 0.65%.

However, these low rates are still far from Germany’s example as its 10-year bonds yield -0.53%.

Theoretically, low yields are bullish for equities since they make them more attractive in comparison to bonds. However, recent practice shows that the negative yield policy has its own problems.

All Eyes On Coronavirus As Economies Continue To Reopen

Yesterday, the U.S. stock market was down about 2% due to comments from the infectious disease expert Dr. Fauci who told the Congress that the virus was still not in control and that hurried reopening may lead to new outbreaks.

The risk of the second wave of the virus is the biggest risk for the market so traders will keep watching coronavirus data closely as the U.S. and EU proceed with their gradual reopening plans.

The economic data clearly shows that no economy in the world will be able to sustain another strict lockdown without dire consequences, and no amount of money-printing will be able to deal with the damage done by a potential second wave of the virus.

At this point, it looks like the market will need additional positive data on the virus front to continue the rebound.

 

GBP/USD Daily Forecast – Support At 1.2250 Holds Well

GBP/USD Video 13.05.20.

UK Economy Contracts Less Than Expected

GBP/USD is rebounding from the major support level at 1.2250 following the release of UK economic data.

First-quarter GDP Growth Rate was -2.0% on a quarter-over-quarter basis compared to analyst consensus of -2.5%. On a year-over-year basis, GDP Growth Rate was -1.6% compared to consensus of -2.1%.

The British economy contracted less than expected which is good news for the pound, although the real hit for the UK economy will come in the second quarter.

Other economic data also exceeded expectations. Construction Output declined by 7.1% in March on a year-over-year basis while analysts expected it to contract by 8.2%.

Industrial Production declined by 8.2% on a year-over-year basis compared to expectations of a 9.3% contraction.

I’d note that while all of the above-mentioned reports contained data which came ahead of expectations, they showed that the UK economy was taking a huge hit from coronavirus.

Anyway, this data may provide some support for the British pound which has been under pressure due to virus fears and uncertainty about the timing of the end of the lockdown measures.

Also, comments from the U.S. President Donald Trump, which pushes the Fed to adopt negative interest rates, may also provide support for GBP/USD.

Technical Analysis

gbp usd may 13 2020

GBP/USD has once again found support above 1.2250. This is a major support level for the pair, and GBP/USD continues to trade in a wide range between 1.2250 and 1.2650.

In case GBP/USD manages to settle below 1.2250, it will likely get significant downside momentum and head towards the next support at 1.2170.

In this case, the pair could transfer from a range-bound mode into a downside mode, and it will have good chances to get below the support at 1.2170. In this scenario, GBP/USD will head towards 1.2000.

On the upside, the nearest resistance level for GBP/USD is at the 20 EMA at 1.2385, followed by resistance at the 50 EMA at 1.2430.

In case GBP/USD manages to get through the above-mentioned resistance area, it will head towards the next resistance level at 1.2500.

The better-than-expected UK economic data may help GBP/USD hold above 1.2250 but the risk is still shifted to the downside as the world markets may start pricing in a slower recovery following yesterday’s comments by Dr. Fauci, who told the U.S. Congress that the coronavirus outbreak was not yet under control.

 

 

USD/CAD Daily Forecast – Stronger Oil Supports The Canadian Dollar

USD/CAD Video 12.05.20.

U.S. Dollar Loses Ground As Demand For Safe Haven Assets Decreases

USD/CAD fell closer to 1.4000 as the U.S dollar lost ground against a broad basket of currencies and oil prices increased following the decision of UAE and Kuwait to make additional production cuts.

The U.S. Dollar Index fell below the 100 level as the demand for safe haven assets decreased. The U.S. Dollar Index continues to stay range-bound between 99 and 101, and a move out of this range will lead to increased momentum in USD/CAD.

The U.S. has recently published inflation data for April. Both the Core Inflation Rate and the Inflation Rate went into the negative territory on a month-over-month basis.

It remains to be seen whether the markets will see this as a one-time event or if deflation fears will start to impact trading.

Meanwhile, the U.S. Federal Reserve decided to buy ETFs that invest in corporate debt. The unlimited support provided by the Fed is a bearish factor for the U.S. dollar.

However, the Fed has also provided rather bullish comments as its officials have several times reiterated that they did not want to take interest rates into the negative territory.

Previously, the U.S. dollar had a yield advantage over its major counterparts but now that almost everyone has cut the rates close to the zero mark, this advantage is gone and the main factor supporting the U.S. dollar is its safe haven status.

Technical Analysis

usd cad may 12 2020

USD/CAD faced resistance at 1.4060 and pulled back closer to 1.4000. The first support level for the pair is located at the 50 EMA at 1.3970.

In case this support level is breached to the downside, USD/CAD will head towards the major support level at 1.3850, although it may also have support near the recent lows at 1.3900.

On the upside, the first resistance level for USD/CAD is located at 1.4060, followed by the resistance level at 1.4150. At this point, each attempt to rebound is met by resistance at a lower level, which is a bearish sign for USD/CAD although things may change quickly in the current volatile environment.

The pair has already made several attempts to test the support level at 1.3850, and it will likely need to first settle closer to this level to have a realistic chance to go lower.

Oil Gains Ground As UAE And Kuwait Increase Production Cuts

Oil Video 12.05.20.

UAE and Kuwait Join Saudi Arabia In The Attempt To Improve Near-Term Supply/Demand Balance

Yesterday, Saudi Arabia announced that it will cut its oil production by an additional 1 million barrels per day (bpd). This move has provided some support for oil prices which were under pressure from fears about a potential second wave of the coronavirus.

Saudi Arabia’s decision was followed by announcements of additional production cuts by UAE and Kuwait. UAE is set to decrease its oil production by another 100,000 bpd, while Kuwait will cut its oil production by additional 80,000 bpd.

The key question for the market is whether these cuts are simply an effort to boost oil prices or they are forced due to lack of buyers for Middle East oil.

At this point, the oil market has taken the news as a moderately positive catalyst. There was no rally but oil prices did not dive due to oversupply fears.

Meanwhile, oil stays at low levels with most benchmarks below $30 per barrel. In this environment, oil producers will have to continue adjusting their production to current levels of demand until the demand recovers together with the world economy.

Recent Oil Price Recovery Will Get Tested By Inventory Reports

As it is hard to estimate the hit to oil demand in the near term, traders focus on weekly inventory reports to evaluate the current condition of the physical oil market.

API Crude Oil Stock Change will be published today while the EIA Weekly Petroleum Status Report is due tomorrow.

Currently, analysts expect that crude oil stocks have increased by 4.3 million barrels. A figure below this level could provide support for WTI and push it closer to recent highs.

In addition to the crude oil stock change, the market will focus on the new data about U.S. domestic oil production. The previous report showed that domestic production declined from 12.1 million bpd to 11.9 million bpd, and the market expects continued decrease of production as oil companies shut down uneconomic wells.

In case production is cut by more than 200,000 bpd compared to the previous week’s level, oil will likely get increased buyer support.

Silver Price Daily Forecast – Boosted By Weaker U.S. Dollar, Silver Continues Its Upside Move

Silver Video 12.05.20.

Silver Holds Above The 50 EMA At $15.40

Silver continues to trade above the 50 EMA level at $15.40 while the U.S. dollar loses ground against a broad basket of currencies and equity markets cheer the Fed’s decision to buy bond ETFs and the encouraging comments about potential COVID-19 treatments.

The U.S. Dollar Index is back below the 100 level as investors increased purchases of riskier assets and dumped safe haven assets like the U.S. dollar. The weakness of the American currency is bullish for silver as it makes it cheaper for buyers who have other currencies.

Meanwhile, gold stays above $1700 per ounce which is a supportive catalyst for the whole precious metal segment. Gold volatility has decreased in recent days as it tries to stabilize above the key $1700 level.

The U.S. has recently released Core Inflation Rate and Inflation Rate reports which showed that the country experienced deflation in April on a month-over-month basis.

Typically, precious metals are considered to be a way to protect investors from the negative effects of inflation. However, these are unprecedented times, and precious metals may gain ground on deflation data because it signals that central banks will have to continue their quantitative easing programs to support the markets and the economy.

Technical Analysis

silver may 12 2020

Slowly but surely, silver gets closer to the next resistance level near April highs at $15.80. This time, silver will have a much better chance to successfully test this level.

In case silver manages to settle above $15.80, it will likely gain additional upside momentum and head towards pre-crisis levels at $16.50, completing the rebound from mid-March lows.

On the support side, the nearest support for silver is at the 50 EMA at $15.40. The spread between the 50 EMA and the 20 EMA has narrowed, and I do not expect that the 20 EMA will serve as a separate support level.

In case silver goes below the 50 EMA, it will head towards $15.00. The main support area for silver is located above $14.60. This is the level that should not be breached for silver to continue its rebound. If silver settles below $14.60, a robust downside momentum may develop and take silver closer to the next support area at $14.00.

U.S. Stocks Set To Open Higher On Optimism About Potential Treatments For COVID-19

World Health Organization States That Some Treatments Limit Severity Or Length Of The Coronavirus Disease

S&P 500 futures are pointing to a higher open after the WHO stated that some treatments were showing decent results against COVID-19.

The market is eager to react on any positive news on the coronavirus front, especially at the time when fears about the second wave of the virus started to emerge.

The current economic crisis has its roots in the healthcare crisis so the only way for the world to return back to normal is through either effective COVID-19 treatment or a vaccine.

The markets have previously dismissed poor economic data and focused on the upcoming recovery, and any positive news about anti-coronavirus drugs or vaccines will likely be bullish for stocks.

U.S. Federal Reserve Starts Buying Debt ETFs

An unprecedented crisis demands unprecedented measures. The Fed has decided to start purchasing ETFs invested in corporate debt to support the markets.

Not surprisingly, some market participants view it as a first step on the way to purchases of stock ETFs.

The Bank of Japan has been buying stocks for quite some time and has increased its equity-buying program during the coronavirus crisis. The results of Japan’s policy of low interest rates and never-ending QE are muted.

While Japan’s example is not inspiring, the market will likely view Fed’s debt ETF purchases as a material positive factor as it provides immediate support for asset prices.

U.S. Inflation Falls Due To Weaker Demand

The U.S. has just reported inflation data for April. Core Inflation Rate was 1.4% year-over-year and -0.4% month-over month compared to analyst consensus of 1.7% and -0.2% respectively.

Inflation Rate was 0.3% year-over-year and -0.8% month-over-month compared to analyst consensus of 0.4% and -0.8% respectively.

Inflation decreased as virus containment measures put pressure on demand. Consumer activity was hit by several factors. First, people had to stay at home because of the pandemic. Second, some consumers have lost their jobs. Third, some people have started to worry about their job security and cut back on spending.

Negative inflation rates are a dangerous phenomenon so it is highly likely that the government and the Fed will continue to use all available measures to get inflation back to the positive territory.

GBP/USD Daily Forecast – U.S. Dollar Gains Ground As Fed Hints It Won’t Take Interest Rates Into The Negative Territory

GBP/USD Video 12.05.20.

GBP/USD Stays Below The 20 EMA At 1.2400

GBP/USD faced resistance above 1.2400 and pulled back as global markets became worried about a potential second wave of coronavirus and the Fed signaled that it won’t take U.S. interest rates into the negative territory, providing support for the U.S. dollar.

Chicago Fed President Charles Evans stated that rates would stay near zero for quite some time but added that he did not expact that negative interest rates would be a tool that the Fed would use.

These comments boosted the U.S. dollar since the market was already pricing in a probability of negative interest rate policy in the future.

The U.S. Dollar Index, which measures the U.S. dollar strength against a broad basket of currencies, returned back above the 100 level but stays below the key resistance level at 101.

To break through 101, the U.S. dollar will need increased investor appetite for safe haven assets. Such a breakout would be bearish for GBP/USD.

In China, authorities decided to conduct a city-wide coronavirus testing in Wuhan over a period of 10 days. The markets will be watching the results of this test very closely since they will indicate a potential of the second wave of coronavirus after the end of strict lockdown measures.

Technical Analysis

gbp usd may 12 2020

GBP/USD continues to trade in a wide range between the support level at 1.2250 and the resistance level at 1.2650 although the pair has recently settled closer to the low end of this range.

GBP/USD met material resistance in the area between the 20 EMA at 1.2400 and the 50 EMA at 1.2440. This resistance area is a major obstacle on the pair’s way to the upside.

In case GBP/USD manages to settle above this level, it will likely gain additional upside momentum and quickly head to test the next resistance level at 1.2500.

On the support side, the nearest material support level is located at 1.2250. GBP/USD has already tried several times to test this level but the pair got buyer support in the 1.2250 – 1.2300 area.

In case the support at 1.2250 gets breached to the downside, GBP/USD will gain downside momentum and head towards the next support level at 1.2170.