Our short idea on EURUSD worked out almost to perfection. We said yesterday that the pair was weak after the better than expected US PMI data and that the support zone at 1.2132 – 1.2160 could come into play. This allowed TIOmarkets traders to bank 30 to 50 pips on the short side. This is a sizeable move in a currency pair that has the daily ATR currently at 60 pips. Institutional buying began 4 pips above our target zone and forced the price higher. Those participating on the long side had an opportunity to take home another 40 pips or so. If you would like to learn how to better take advantage of our analysis, join the next free webinar at TIOmarkets.com. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
Oil prices kept on rallying for the third day in a row yesterday. The bullish sentiment prevailed as analysts expect to see a fuel demand surge in the US and Europe but also in China. As the OPEC+ countries remain disciplined in their production increases it is believed that the price of oil will remain firm later this year also. Today’s release of US Crude Oil Inventories is expected to show a decline of one million barrels (vs. -1.7M week earlier). The US Federal Reserve Bank said there will be a “gradual and orderly” sale of its corporate bond and ETF holdings. These consist of corporate bonds (purchased in the secondary market) as well as corporate bond ETFs the Fed purchased during the Covid-19 pandemic.
Another quiet day in the major stock indices ensued as traders wait for the employment and earnings data from the US (released on Friday). The S&P 500 (+0.14%), Nasdaq Composite (+0.14%) and Russell 2000 (+0.13%) while the DJIA remained almost unchanged at +0.07%. Trading in AMC Entertainment (+95.22%) however was nothing of the kind. The massive rally in the stock came after the company published plans for a new platform called AMC Investor Connect. The company wants to communicate better with retail investors but it will also provide them perks at AMC movie theatres. Other retail favourites BlackBerry (+31.92%), GameStop (+13.34), and Bed Bath & Beyond (+62.1%) rallied with the AMC.
The price of gold has rallied over 10% since it broke out of the bullish wedge we identified in March. Now XAUUSD has been losing momentum for five days and in doing so has created a small bearish wedge. The width of the wedge gives us a downside target of the 1860 – 1871 range. This is where we have the 23.6% retracement level and the 20-day SMA. The area would become relevant if the red team manages to push the price decisively below the lower end of the wedge (where the market is now trading at). Alternatively, if the gold bulls step in and manage to create yet another higher low above 1896 support the price could rally and possibly test the 1916.55 high.
USDJPY is trending higher and has been able to put in a higher reactionary low at 109.33. Today’s rally indicates that the bulls are in charge above this support level. We need to, however, see further buying to take the pair to the recent reactionary high at 110.20. Should the bulls succeed in this the next hurdle for them would be the channel high at 110.50. A break below 109.33 would be likely to bring the channel low (currently at 109) into play.
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 FED||The Fed has on several occasions repeated its commitment to ultra-accommodative monetary policy. The rates are likely to stay near zero but now some Fed officials have said that the Fed should start considering potentially tapering their asset purchases.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus and the Biden administration has indicated it will seek to deliver another two trillion dollars in infrastructure spending.|
|Yields||After trending higher since the beginning of August 2020, the Treasury yields have been moving lower or sideways. All in all, the yields and interest rates are extremely low on both nominal and real basis.|
|Payrolls||The latest miss in payrolls was the biggest in the recorded history. Analysts expected to see one million new jobs in April but the actual number came in at 266K (down from 770K in March).|
|Inflation||As per CPI inflation is running at a 5% annual pace over the last 6 months, while PPI shows annual inflation pace at 7.4% over the same period.|
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Market News & Facts
- The first signs of tapering as the Fed starts to exits corporate bond positions
- Lagarde says ECB is committed to preserving favourable financing conditions
- Mora, EU chief coordinator of Iran talks optimistic about an agreement next week
- Australian May Construction PMI 58.3 (59.1 previous)
- Australian Q1 GDP +1.8% q/q (+1.5% expected)
- RBA’s Lowe taper talk not pushing the AUDUSD higher
- Ramsden at BOE suggests demand could get ahead of supply
- UK Nationwide m/m change in house prices +1.8% (+0.8% expected)
- Chinese authorities relax emission controls, iron ore and AUDUSD higher
- Chinese Caixin manufacturing PMI for May 52.0 (52.0 expected)
- Australian Net exports -0.6% relative to GDP (-1.2% expected)
- New Zealand Business confidence for May 1.8 (vs. previous -2)
- Japan April Retail sales +12% year on year
- Japan April Industrial Production +2.5% m/m (+3.9% expected)
- RBNZ Governor Orr: Downside risks to the economy have decreased
- Tokyo May headline CPI -0.4 % y/y (-0.5%, expected)
- Japan April unemployment rate 2.8% (2.7%, expected)
- Australian Q1 private capital expenditure +6.3% (+2% expected)
- China’s April industrial profits +57.0% (previous +92.3%)
The Next Main Risk Events
- USD – ADP Non-Farm Employment Report
- USD – Unemployment Claims
- USD – ISM Services PMI
- USD – Crude Oil Inventories
- GBP – BOE Gov Bailey Speaks
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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