Treasury bonds rallied yesterday and pushed the yields lower. This helped the EURUSD to turn bullish 10 pips above my target price of 1.0642. The current technical picture is a little mixed as I’m seeing some weakness in the T-bond market which (if it materializes) would support the dollar and pressure the EURUSD and GBPUSD. More on these markets below. USOIL is still in an uptrend. It has been my opinion that oil still has both fundamentals and technicals favouring the bulls and that it still makes sense to look for long trades as long as there’s no change in these market drivers. Yesterday the market retraced to 115.68 and the bulls started buying the market again. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
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EURUSD – Treasury bonds rallied yesterday pushing the yields lower. This helped the EURUSD to turn bullish 10 pips above my target price of 1.0642. The current technical picture is a little mixed as I’m seeing some weakness in the T-bond market which (if it materializes) would support the dollar and pressure the EURUSD. If, however, yesterday’s low in EURUSD isn’t violated decisively and T-Bonds continue to rally over the coming few days, then yields go down and the dollar is likely to follow. This would obviously turn EURUSD more bullish. For today’s trading, the key S&R levels for this market are 1.0626, 1.0652 and 1.07142. If the resistance is violated the alternative scenario from yesterday’s trade idea is more likely (the market rallies to 1.0804) and if the nearest support is broken, we are likely to see the 1.0626 level tested.
The ECB Press Conference and the rate decision could make this market swing about quite a bit tomorrow so be prepared by depositing trading funds to your account and by planning your trades carefully. Volatility means trading opportunities but remember too that if you are not well prepared and don’t plan your trades well there is a high risk that you will not be able to compete against the traders who are better prepared!
GBPUSD temporarily penetrated a key support level (1.2458) yesterday but then rallied. We had some political drama after 148 MPs voted against Prime minister Boris Johnson leading to speculations of his resignation but in the end, took a back seat in traders’ minds as they focused more on USD moves. Cable rallied to my alternative target of 1.2589 and then started to very soon lose momentum. For the last two weeks, GPBUSD has been in a trading range between 1.2458 and 1.2666 and the market will obviously have to break out of it at some stage. This would be likely to lead to a considerable move in Cable. For today’s trading, the levels to watch are 1.2430, 1.2534 and 1.2600. Note that the 1.2534 level is also a 38.2% Fibonacci retracement level and we have the SMA(20) there too – and it’s roughly where the channel breakout point is so it’s worth keeping an eye on. The area around the level could be quite significant in today’s trading.
USOIL – It has been my opinion that oil still has both fundamentals and technicals favouring the bulls and that it still makes sense to look for long trades as long as there’s no change in these market drivers. Yesterday the market retraced to 115.68 and the bulls started buying the market again. Now the nearest key market level is at 119.11 while the nearest key support is where the buying started yesterday. That’s also where we have the SMA(20) at the moment. Therefore, the market is still trending higher. Alternative scenario: USOIL sells off and breaks the rising trendline (currently) at 111.25 decisively, then we could see a move to 108. Therefore the market stays bullish above 111.25.
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||Fed hiked by 0.5% in May but according to Powell 0.75% hikes are off the table.|
|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 been drifting lower since early May as equity investors have moved over to T-Bonds in search of safety.|
|Employment||The May non-farm payrolls increased by 390K (436K previous) while the participation rate was confirmed at 62.3% (62.2% previous). The unemployment rate remained unchanged at 3.6%.|
|Inflation||The 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
- EUR – Main Refinancing Rate
- EUR – Monetary Policy Statement
- EUR – ECB Press Conference
- USD – Unemployment Claims
- CAD – BOC Gov Macklem Speaks
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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