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EURUSD drops lower with EUR approaching parity with the dollar sending the USD-Index higher. So far so good, that’s what you’d expect to see as the Fed hikes rates and Europe is facing a threat of recession. But, what’s interesting is that USDJPY fails to follow suit. How come is JPY strengthening even though the Fed’s raising rates and BOJ’s Governor Hauriko Kuroda said today that the central bank will stick to its dovish guidance on interest rates for now? He added that the BOJ “won’t hesitate to take additional easing steps,” and that interest rates are expected to remain at their present or lower levels. This should weaken the JPY against the dollar but that’s not what’s happening. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

In today’s report, I provide you with trade ideas, analysis and key technical levels on

  • USDJPY – Key price levels
  • USNGAS – Still bullish above 7.20
  • USOIL – Losing momentum right below my T1
  • BTCUSD – Pushed the daily close back above a key support level

Get live updates on my analyses and trade ideas here:

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USDJPY 8h chart 05 13

USDJPY has started to reverse a long-term uptrend. It’s a yield sensitive currency pair. As the US T-Bond market rallies, the yields go down and the JPY strengthens against the dollar. Over the past few days, I have focused on how the US 10-year bond futures became overextended to the downside and have rallied. There’s more to the story, however. As the US yields are moving lower, what could be happening is that the markets are pricing in some growth slowdown in the US while they expect Japan will also suffer from high inflation and even though the BOJ keeps talking dovish they might be forced to change tactics sooner or later. Reversal is still only a potential reversal and we need to keep an eye on the US T-Bond market, yields and whether the USDJPY rallies fail at resistances and if this results in the pair breaking support levels. That’d be the confirmation that a reversal is indeed in the works. The nearest key price levels for USDJPY are 126.90, 127.51, 129.40 and 131.36.

USNGAS 1h chart 05 13

USNGAS rally stalled yesterday but there was no willingness to sell the market down. As a result, we had a tight range in which traders looked for cues on where the market could be heading next. Now it seems that the breakout is taking place. If this breakout is successful the market could move quickly to my T1 price. The overall fundamental and technical picture remains supportive of higher prices. As you know I’ve been focusing on the 7.20 and saying that I’m oriented on the long side in this market above the level. Those interested can read my analysis in yesterday’s report here. The nearest key levels for USNGAS are 7.31 and 7.85.

USOIL 2h chart 05 13

USOIL trade idea (here) worked out brilliantly! The market rallied to within $0.05 of my T1 level and has since corrected a bit lower. At the time of writing this oil is trading just above a minor support level at 105.43. The market is trading at an upper end of a bull channel which is a risk factor for the longs here. The nearest key price levels for intraday trading are 103.57, 105.43 and 106.55.

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BTCUSD broke a highly significant support level at 28600 intraday yesterday. The market, however, managed to push the daily close above this key level. If we now see follow-through buying and a decisive rally above 32200 the worries for the $BTC holders are over – at least for a while. The nearest key intraday levels for this market are 25401, 27081, 28002 and 32148.

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 ReserveFed hiked by 0.5% in May but according to Powell 0.75% hikes are off the table. 
StimulusThe 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. 
YieldsThe US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes. 
EmploymentThe March nonfarm 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). 
InflationThe US annual inflation growth for April slowed down and came in at  8.3%. This represented a 0.2% drop from the 41-year high of 8.5% in March. It was, however, above the analysts-predicted number of 8.1%.

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The Next Main Risk Events

  • USD – Prelim UoM Consumer Sentiment
  • USD – FOMC Member Mester Speaks
  • CNY – Retail Sales y/y
  • EUR – EU Economic Forecasts
  • USD – Empire State Manufacturing Index

For more information and details see the TIOmarkets economic calendar here.

Trade Safe!

Janne Muta

Chief Market Analyst

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