Risk aversion continues as yields pushed the US stock indices lower. The biggest casualty was the tech-heavy Nasdaq which suffers the most from the rising cost of financing. Markets are worried that the fed is behind the curve and acting too slow. This creates inflation fears and pressures the stock markets. Therefore today’s main risk events are the release of US inflation data (CPI and PPI) are highly significant and could swing the dollar and the stock indices substantially. My trade ideas for today are GBPAUD long and EURAUD short. I will also provide updates on EURGBP and EURCHF. And I’ll keep you posted via Telegraph when I see new opportunities emerging. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The way I have structured my analysis is that I will post trade ideas when I see them but when now apparent trade ideas stand out at the time of writing the analysis I will provide you with analysis and key price levels on markets that are worth putting on a watchlist. As soon as something catches my eye I will update you on our Telegram channel.
I tend to include Target 1 (T1) and Target 2 (T2) levels (or ranges) so that you have an idea of how far the market would probably move if price action supports my trade ideas. The target one is a high probability target while the next target is further away and therefore there’s a greater risk that the market doesn’t reach the level. While I don’t provide investment advice my analysis helps you in your own market analysis and then you can decide how to trade the markets. If you need help more help with your trading join me at the next live analysis webinar here: www.TIOmarkets.com/webinars I will show you live how to analyse the markets and identify trading opportunities.
GBPAUD shows strength as the pair has broken out of a medium-term bear channel. I’m looking for long trade opportunities above the 1.7432 support with T1 at 1.7637 and T2 at 1.7720. The alternative scenario is that the support (1.7432) is broken decisively and the market declines to 1.7371.
EURAUD has been rallying lately but yesterday the red team started to get active below the 1.4690 support level. The level also coincides with a downward pointing trend channel top which adds to its significance. Sellers pushed the pair below a rising trendline so this could turn into a shorting opportunity. I’m interested in shorting this market below the 1.4690 resistance with targets at 1.4570 (T1) and 1.4476 (T2). Alternative scenario: EURAUD rallies above 1.4690 and moves to 1.4760.
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EURGBP missed my T1 level by 0.07%. In general, it makes sense to take profits somewhere ‘close enough’ to a target level as the R/R gets worse the closer the price gets to a target level. Now the pair has moved to the level I gave you in the alternative scenario. The pair is now trading in a tight range between 0.8342 and 0.8360. Measured moves point to 0.8325 on the downside and 0.8375 on the upside. These are likely target if there’s a decisive breakout in either direction. EUR is weakish against the major competitors so the support could break first.
EURCHF is trading right below the 1.0131 support which has been a key support level lately. I said yesterday (here) that as the pair once again failed to stay above the 1.0194 key resistance the probabilities for the market breaking the 1.0131and heading to my T1 1.0067 have increased. It’s now interesting to see if there will be follow-through selling in this market or whether the bulls will once more try to push the price higher. The pair stays bearish below the 1.0194 level. The alternative scenario is that EURCHF rallies above the 1.0194 resistance and moves to 1.0280.
Macro Drivers for the USD As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The Federal Reserve||Several FOMC members support 0.5% rate hike in May. The Fed is prepared to taper by $60B of treasuries and $35B of mortgage back securities per month.|
|Stimulus||The Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe.|
|Yields||The US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes.|
|Employment||The March non-farm payrolls increased by 431K while the analyst consensus had predicted 492K new jobs. The unemployment rate dropped to 3.6% and average hourly earnings were in line with expectations (0.4% vs. 0.4% expected).|
|Inflation||The annual headline inflation reading for January came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).|
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The Next Main Risk Events
- EUR – ZEW Economic Sentiment
- EUR – German ZEW Economic Sentiment
- USD – CPI & Core CPI
- NZD – RBNZ Rate Statement and Official Cash Rate
- GBP – UK CPI y/y
- JPY – BOJ Gov Kuroda Speaks
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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