Archive May 2019

XAU Breakout Trade Faces First Test


Gold Price Weekly Outlook: XAU Breakout Trade Faces First Test

Gold has surged more than 2.8% off the yearly lows with price now testing initial resistance targets. These are the levels that matter on the XAU/USD weekly chart.

In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. Gold prices surged more than 1.1% this week after a strong reversal off confluence support. The advance is now testing initial resistance objectives with our focus on the weekly close. These are the updated targets and invalidation levels that matter on the XAU/USD weekly price chart heading into June trade. Review my latestWeekly Strategy Webinar for an in-depth breakdown of this setup and more.

New to Gold Trading? Get started with this Free How to Trade Gold -Beginners Guide

Gold Weekly Price Chart (XAU/USD)

GLD

Notes:In my last Gold Price Weekly Outlook we noted that the, “immediate focus is on the weekly close in relation to the 1275/76 zone. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops.” Price continued to respect this support threshold on a close basis for the past seven-weeks with XAU/USD briefly registering a low at 1275 on Thursday before reversing sharply higher.

The advance is now testing resistance at the 2018 open at 1302and a weekly close above this threshold is needed to suggest a more significant reversal is underway targeting the 61.8% retracement of the yearly range at 1316 and the yearly high-week close at 1327. Key confluence support remains at the 1275/76– a weekly close below is still needed to fuel another leg lower with such a scenario targeting more significant support / broader bullish invalidation at 1253/58.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line:Gold prices remain constructive while above 1275/76 heading into the open of June trade with a weekly close above 1302 needed to fuel the next leg higher in price. From a trading standpoint, a good spot to reduce long-exposure / raise protective stops. Be on the lookout for weakness early in the month to offer more favorable long-entries targeting a breach of the May range. I’ll publish an updated Gold Price Outlook once we get further clarity in near-term price action. Review our latest Gold 2Q forecasts for a longer-term look at the technical picture for XAU/USD prices.

Even the most seasoned traders need a reminder every now and then-Avoid these Mistakes in your trading

Gold Trader Sentiment

Gold

  • A summary of IG Client Sentiment shows traders are net-long Gold – the ratio stands at +2.76 (81.2% of traders are long) – bearish reading
  • The percentage of traders net-long is now its lowest since May 15th
  • Long positions are 12.5% lower than yesterday and 10.7% lower from last week
  • Short positions are 15.7% higher than yesterday and 14.6% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Yet traders are less net-long than yesterday & compared with last week and therecent changes in sentiment warn that the current Gold price trend may soon reverse higher despite the fact traders remain net-long.

See how shifts in Gold retail positioning are impacting trend- Learn more about sentiment!

Previous Weekly Technical Charts

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— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex





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AUD/USD Rate Outlook Hinges on RBA Amid Bets for 25bp Rate Cut


Australian Dollar Talking Points

AUD/USD appears to be stuck in narrow range ahead of the Reserve Bank of Australia (RBA) meeting on June 4, but fresh developments coming out of the central bank is likely to shake up the near-term outlook for the Aussie Dollar exchange rate amid bets for a 25bp rate-cut.

Fundamental Forecast for Australian Dollar: Neutral

AUD/USD holds above the monthly-low (0.6865) despite signs of slowing activity China, Australia’s largest trading partner, and the exchange rate may continue to congest over the coming days as the RBA insists that ‘a further decline in the unemployment rate would be consistent with achieving Australia’s medium-term inflation target.’

It remains to be seen if the RBA will reduce the official cash rate (OCR) to a fresh record-low as recent data prints indicate a robust labor market, and Governor Philip Lowe & Co. may merely attempt to buy more time as ‘the central forecast scenario remained for progress to be made on the Bank’s goals of reducing unemployment and returning inflation towards the midpoint of the target.’ In turn, more of the same from the RBA may ultimately keep AUD/USD afloat as the central bank appears to be in no rush to reestablish its rate cutting cycle.

Cash

However, it seems as though it will only be a matter of time before Governor Lowe & Co. take additional steps to insulate the economy as officials retain a dovish forward-guidance and insist that ‘without an easing in monetary policy over the next six months, growth and inflation outcomes would be expected to be less favourable than the central scenario.

With that said, the RBA may take a preemptive approach in managing monetary policy especially as the U.S. and China struggle to reach a trade deal, but the recent rebound in AUD/USD appears to be shaking up market participation, with retail sentiment coming off an extreme reading.

AUDUSD

The IG Client Sentiment Report shows65.9%of traders are now net-long AUD/USD compared to 69.4% earlier this week, with the ratio of traders long to short at 1.94 to 1. In fact, traders have been net-long since April 18 when AUD/USD traded near 0.7160 even though price has moved 3.4% lower since then.

The percentage of traders net-long is now its lowest since Apr 19 when AUDUSD traded near 0.71507. The number of traders net-long is 3.1% lower than yesterday and 12.3% lower from last week, while the number of traders net-short is 10.4% higher than yesterday and 65.7% higher from last week.

The tilt in the sentiment index offers a contrarian view as AUD/USD continues to track the bearish trend from late last year, but the jump in net-short position suggest the retail crowd is positioning for range-bound conditions as the exchange rate fails to extend the rebound from the monthly-low (0.6865).

AUD/USD Rate Daily Chart

AUDUSD

Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7130), with the exchange rate marking another failed attempt to break/close above the moving average in April.

In turn, AUD/USD remains at risk of giving back the rebound from the 2019-low (0.6745) as the wedge/triangle formation in both price and the Relative Strength Index (RSI) unravels, with the Fibonacci overlap around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement) still on the radar the exchange rate struggles to push back above the 0.6950 (61.8% expansion) pivot.

Next downside hurdle comes in around 0.6730 (100% expansion), but will keep a close eye on the RSI as the oscillator bounces back from oversold territory, with the development raising the risk for a larger rebound in the aussie-dollar exchange rate.

Additional Trading Resources

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— Written by David Song, Currency Strategist

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May Eurozone Inflation Report & EURJPY Price Forecast


Eurozone Inflation Report Talking Points:

  • The initial May Eurozone inflation report is due on Tuesday, June 4 at 09:00 GMT.
  • Soft inflation readings will underscore the necessity for the European Central Bank to take dovish policy actions at the June ECB rate decision.
  • Recent changes in retail trader positioning suggest that EURJPY could decline further in the days ahead.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

06/04 TUESDAY | 09:00 GMT | EUR Eurozone Consumer Price Index (MAY A)

The preliminary May Eurozone Consumer Price Index is due on Tuesday, just days before European Central Bank policymakers meet for their June policy meeting. According to Bloomberg News, the headline Eurozone inflation reading is due in at 1.3% from 1.7% (y/y), while the core reading is due in at 0.9% from 1.3% (y/y).

With inflation expectations falling precipitously in the past few weeks – since May 5, the 5y5y inflation swap forwards have declined by 10-bps from 1.404% to 1.291% – it’s seems highly likely that the May inflation report will not only be weak, but it will be used as the basis for more dovish policy action by the ECB at their June meeting.

Eurozone Inflation Expectations Have Plunged Despite Brent Oil Holding Steady

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Pairs to Watch: EURGBP, EURJPY, EURUSD

EURJPY Technical Analysis: Daily Price Chart January 2018 to May 2019) (Chart 2)

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The bearish breakout from the symmetrical triangle continues to drive EURJPY prices lower. Price has closed below the daily 21-EMA every session since April 23, and the drop to fresh yearly lows at the end of May portends to more weakness at the start of June.

From a momentum basis, there is no reason to be bullish. EURJPY price is below the daily 8-, 13-, and 21-EMA envelope. Meanwhile, both daily MACD and Slow Stochastics continue to trend lower in bearish territory; the latter of which has sustained an oversold condition, typically a sign of strong bearish momentum. The rising trendline from the 2012 and 2016 swing lows is now in focus near 120.50.

IG Client Sentiment Index: EURJPY (May 31, 2019) (Chart 3)

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EURJPY: Retail trader data shows 71.8% of traders are net-long with the ratio of traders long to short at 2.55 to 1. In fact, traders have remained net-long since Apr 25 when EURJPY traded near 125.814; price has moved 3.8% lower since then. The number of traders net-long is 2.4% lower than yesterday and 2.9% lower from last week, while the number of traders net-short is 33.8% lower than yesterday and 27.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURJPY-bearish contrarian trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX





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June RBA Rate Decision & AUDUSD Price Forecast


RBA Rate Decision Talking Points:

  • The Reserve Bank of Australia meets on Tuesday, June 3 at 04:30 GMT; rates markets are pricing in a 38% chance of a 25-bps rate cut.
  • Price action in AUDUSD has been choppy of recent, and now the downturn in place since mid-April may be coming to an end.
  • Retail tradershave remained net-long since April 18 when AUDUSD traded near 0.71738; AUDUSD price has moved 2.2% lower since then.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

06/04 TUESDAY | 04:30 GMT | AUD RESERVE BANK OF AUSTRALIA RATE DECISION

Since the last Reserve Bank of Australia rate decision on May 7, economic data trends have proved disappointing. The Citi Economic Surprise Index for Australia, a gauge of economic data momentum, fell from 43.9 on May 7 to 26.9 on May 31. While there was neither a GDP nor an inflation report released, the data that did come out proved middling at best. March Australia retail sales grew by 0.3% after adding 0.9% in February (m/m), while the April Australia jobs report showed a strong topline figure that was undercut by a surprise rise in the unemployment rate.

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In the interim period since the last RBA meeting in May, rates markets have continued to pull forward expectations of a 25-bps rate cut into the first half of 2019. After the May RBA meeting, there was a 59% chance of a 25-bps rate cut in June; currently, those odds sit at 93%.

Given that market pricing is very tight as is –there is a 70% chance of a second 25-bps rate cut by September (overall, a 79% chance of two cuts in 2019) – it will take a lot for the RBA to not disappoint steep dovish expectations. When a policy decision is priced-in this far in advance, it shouldn’t be a surprise if the corresponding currency (in this case, the Australian Dollar) doesn’t respond with a significant price reaction.

Pairs to Watch: AUDJPY, AUDNZD, AUDUSD

AUDUSD Technical Analysis: Daily Timeframe (June 2018 to May 2019) (Chart 1)

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A technical analysis overview of AUDUSD prices showcases a currency pair that may be attempting to bottom. Price is currently enmeshed in the daily 8-, 13-, and 21-EMA envelope; AUDUSD has closed below the daily 21-EMA since April 22. But with the daily 21-EMA being tested for the first time in five-weeks, there is tangible technical evidence that a turn may be in the midst of its early stages (helped by broad US Dollar weakness).

A move back above the daily 21-EMA at 0.6944 would increase the likelihood of a return back to the former 2019 closing low established in January at 0.6982. Otherwise, if AUDUSD were to fall below 0.6899 (the low during the last week of May), then traders may want to rethink the perspective that prices are bottoming out.

IG Client Sentiment Index: AUDUSD Price Forecast (May 31, 2019) (Chart 2)

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AUDUSD: Retail trader data shows 77.7% of traders are net-long with the ratio of traders long to short at 3.49 to 1. In fact, traders have remained net-long since April 18 when AUDUSD traded near 0.71738; price has moved 2.2% lower since then. The percentage of traders net-long is now its highest since Apr 25 when AUDUSD traded near 0.70185. The number of traders net-long is 9.5% higher than yesterday and 7.7% higher from last week, while the number of traders net-short is 16.8% lower than yesterday and 4.8% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUDUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUDUSD-bearish contrarian trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX





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Investors Flee Risky Corporate Debt Amid Rout


S&P 500 Outlook:

S&P 500 Outlook: Investors Flee Risky Corporate Debt Amid Rout

The risk appetite of investors is waning as the S&P 500 and Dow Jones continue to slide. On Wednesday, the HYG ETF – which grants exposure to high yield corporate debt – registered its largest daily net outflow in 2019. The outflows effectively double down on the same theme that has sparked an unwillingness for many market participants to maintain exposure in riskier trades like Tesla and Uber.

Investors Shed High Yield Corporate Debt Exposure

S&P 500 price chart and HYG ETF fund flows

Data source: Bloomberg

Wednesday’s outflow of -$700 million was the largest on a single-day basis since December 21, when traders reduced their exposure to HYG by -$864 million. In the year-to-date, the HYG ETF has returned 5.11% – compared to roughly 10% for the S&P 500. During this period, HYG has seen its net flows total $884 million, despite shedding -$1.06 billion this week alone. Interestingly, investor allocation to the largest broad-market tracking funds has shrunk in the year-to-date.

Broad Market Exposure Cast Aside

S&P 500 price chart outlook and SPY ETF

Data source: Bloomberg

While investors have expressed demand for the riskier HYG fund for the year, net capital flows for the largest Index-tracking funds have dwindled in 2019. SPY, IVV and VOO, which boast a collective $536 billion in assets under management, have seen a total of -$6.3 billion leave their coffers in the first five months of 2019. Prior to May, the funds registered inflows nearing $10 billion – but a total net outflow of -$16.3 billion in the last month has shattered the capital allocation trend.

Check out the DailyFX Trading Guides page for quarterly forecasts, educational content and more.

The lack of demand – despite an overall market gain of roughly 10% – highlights the shift in the perceived risk-reward ratio of the stock market at current valuations. With trade wars and slowing global growth, yield curve inversions and surprise tariffs, the optimism of many investors has been battered. Until some of these headwinds are resolved or there are newfound reasons for optimism, the “Sell in May and Go Away” theme is poised trickle into June.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: Stock Market Volatility and its Relationship with S&P 500 Returns

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.





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What Can the Fed, ECB and BOJ do to Offset Trade Wars?


Central Bank Weekly Talking Points

  • As the US-China trade war has escalated, the PBOC has reverted to boosting the USDCNH exchange rate to offset the impact of the Trump tariffs.
  • Central banks like the BOJ and SNB have to be more clever in trying to intervene in markets, unlike the PBOC.
  • Meanwhile, if the Fed or the ECB were to act, it would likely be along the interest rate channel rather than directly in FX markets.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

Trade tensions are rising in every corner of the globe. At the center of every issue seems to be the United States, be they issues with China, the European Union, Canada, or Mexico. As the specter of trade wars rises, we’ve started to see policymakers take steps – some concrete, others less so – in order to shore up their economies from downside risks.

Not all central banks are created equally, however, and therefore the tactics that they’ve used, they’re currently using, and they will use in the future will all differ slightly.

People’s Bank of China Reverts to Currency Intervention

The People’s Bank of China is unique relative to G7 or developed economies’ central banks insofar as it does not respect the ‘non-direct FX intervention’ policy followed elsewhere. Accordingly, USDCNH has become one of the most reliable tools for distilling sentiment about the US-China trade war: we’ve previously detailed how a Chinese Yuan depreciation can effectively offset the negative economic impact of the Trump tariffs.

Read more: Chinese Yuan at 7.00 Barrier: The Most Important Level for Currency Markets

Other Degrees of Central Bank Interference

With other central banks bound to no direct intervention in FX markets, policymakers at some of the major central banks need to be creative in how they approach markets.

Due to the soft growth and inflation environment that persists in countries like Japan and Switzerland, for example, market participants are well-versed in the knowledge that interest rates maintained by the Bank of Japan and Swiss National Bank will be staying at or below zero for an extended period.

In turn, surprise actions like what the SNB did with the EURCHF floor in September 2011 and January 2015 tend to be the most effective way to impact markets.

How Will the Fed Respond to Trade Wars?

But for central banks like the Federal Reserve or European Central Bank, there is too much global reliance on the stability of asset prices in order to dramatically surprise market participants. Instead, these central banks move at a more glacial pace: once every three months, new growth, inflation, and jobs forecasts are produced that yield guidance on the forward path of interest rates. Policy is more predictable.

If the Fed is going to get involved in trade wars, then it is highly likely that it will do so along the interest rate route rather than directly intervening in USDCNH like the PBOC or making a surprise policy announcement akin to the BOJ or SNB. To this end, traders would be wise to watch how US rates markets have evolved in recent days as trade war concerns have skyrocketed.

Fed Funds Pricing Two Potential Rate Cuts in 2019

The probability of a rate cut in 2019 has increased in a materially significant over the past week. Ahead of the May Fed meeting, there was a 68% chance of a 25-bps rate cut by the end of the year; now those odds have risen to 91%. In fact, Fed funds futures are pricing in a 71% chance of a cut by September and a 63% chance of a second cut by December.

Federal Reserve Rate Hike Expectations (May 31, 2019) (Table 1)

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We can measure whether a rate cut is being priced-in by this time next year by examining the difference in borrowing costs for commercial banks over a one-year time horizon in the future. Over the past two weeks, rate expectations have been rapidly pricing in a cut, with rates markets discounting -66-bps by June 2020; this is a 16-bps increase from this time last week.

Eurodollar December 2019/2020 Spread: Daily Timeframe (October 2018 to May 2019) (Chart 1)

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Rate pricing has changed dramatically since the end of April. After oscillating around pricing in one 25-bps rate cut for several weeks, the Eurodollar June 2019/2020 contract spread collapsed dramatically in May, particularly over the last week of the month. Whereas one 25-bps rate cut was priced-in at the start of May, now two cuts (or 50-bps) are priced-in; rates markets are quickly leaning into pricing in three 25-bps rate cuts transpiring between now and June 2020.

DXY INDEX TECHNICAL ANALYSIS: DAILY PRICE CHART (JUNE 2018 TO MAY 2019) (CHART 2)

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The dramatic shift in Fed rate cut expectations in recent days has proven cumbersome for the US Dollar (via the DXY Index). On approach back to its May and yearly highs, the DXY Index rally has been cut down ahead of resistance and thus price remains in its five-week long sideways range.

The timing of the recent developments comes poorly for the DXY Index, which is now looking a retest of the rising trendline from the March 2018 lows – the backbone of the entire bull move. Should the DXY Index price drop below 97.55 in the coming sessions, odds would increase for a range break some time in June.

Read more: Gold Price Bullish Breakout Begins amid Topside Range Breach

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides





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New Zealand Dollar Grinds at Support


In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. The New Zealand Dollar has plummeted more than 6% from the yearly highs against the US Dollar with price now testing lateral support around the 65-handle. These are the updated targets and invalidation levels that matter on the NZD/USD weekly price chart heading into the start of June trade. Review my latest week’s Strategy Webinar for an in-depth breakdown of this setup and more.

New to Forex Trading? Get started with this Free Beginners Guide

NZD/USD Weekly Price Chart

NZD/USD Price Chart - Kiwi Weekly - New Zealand Dollar vs US Dollar

Notes: In my last New Zealand Dollar Weekly Price Outlook we noted that Kiwi had, “broken below both up-trend support and the multi-month range we’ve been tracking and leaves the risk weighted to the downside in NZD/USD.” One month later and price is down more than 2% with Kiwi registering fresh yearly lows last week.

The immediate focus is on the 2018 low-week close at 6507– a weekly close below this threshold is needed to keep the short-bias viable targeting the 2018 low at 6424 and more a more significant support confluence at 6343/47. Initial resistance stands at the January swing lows at 6586 with broader bearish invalidation now lowered to the yearly open at 6705.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line: Failure to mark a weekly close below 6507 would leave the immediate short-bias vulnerable heading into the start of June trade. From a trading standpoint a good spot to reduce short-exposure / lower protective stops. Be on the lookout for downside exhaustion near-term. Ultimately a larger recovery should prove corrective and may offer more favorable entries.I’ll publish an updated NZD/USD Price Outlook once we get further clarity in near-term price action.

Even the most seasoned traders need a reminder every now and then-Avoid these Mistakes in your trading

NZD/USD Trader Sentiment

NZD/USD Trader Sentiment - Kiwi Positioning - New Zealand Dollar vs US Dollar Price Chart

  • A summary of IG Client Sentiment shows traders are net-long NZD/USD – the ratio stands at +3.35 (77.0% of traders are long) – bearish reading
  • Traders have remained net-long since April 2nd; price has moved 5.6% lower since then
  • Long positions are 3.7% higher than yesterday and 0.4% higher from last week
  • Short positions are 22.9% lower than yesterday and 4.6% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZD/USD prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger NZD/USD-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in NZD/USD retail positioning are impacting trend- Learn more about sentiment!

Previous Weekly Technical Charts

Learn how to Trade with Confidence in our Free Trading Guide

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex





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Gold Price Bullish Breakout Begins amid Topside Range Breach


Gold Price Talking Points:

  • Gold prices have broken out of the 1266.18 to 1288.58 range, which has been in place since April 15.
  • Now that gold volatility has started to turn higher, gold prices may be supported in the near-term.
  • Changes in retail trader positioning suggest that gold prices can still trade higher.

Looking for longer-term forecasts on Gold and Silver prices? Check out the DailyFX Trading Guides.

With global risk assets falling in tandem as the week and month come to a close, gold prices have attracted significant positive attention. The aggregate fall in US equity markets, US Treasury yields, and the US Dollar has boosted demand for gold. Rising uncertainty around global trade continues to plague investor sentiment, and questions over meager US growth conditions have once again started to provoke speculation over a Federal Reserve rate cut this year.

For gold prices, this is perhaps the perfect concoction of news flow and cross-asset market reactions for a near-term turn to the topside. With US real yields dropping (nominal Treasury yields are falling while inflation hasn’t moved) and the denominated currency (US Dollar) pulling back from its yearly highs, there are substantive fundamental reasons for gold prices to be trading higher.

GVZ (Gold Volatility) Technical Analysis: Daily Price Chart (May 2018 to May 2019) (Chart 1)

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As was noted yesterday, perhaps the best development for gold prices in the near-term has been how gold volatility and gold prices have interacted in recent days. Even as gold volatility fell to an all-time closing low earlier this week, gold prices did not follow suit; we suggested that this was a bullish sign for bullion. Now, with gold volatility rising again, gold prices have seen a surge to the topside.

Gold Price Technical Analysis: Daily Chart (April 2018 to May 2019) (Chart 2)

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Now that gold prices have traded above 1288.58, we are topside break of the consolidation as well as the downtrend from the February and March 2019 highs. To this end, while the forecast has shifted in a bullish direction, gold prices now need to clear 1303.21, the May high, in order to cement their bullish breakout move.

Ultimately, if gold prices have been consolidating in a bullish falling wedge since January, then the terminal price target would be for a return to the 2019 high at 1346.61.

IG Client Sentiment Index: Spot Gold Price Forecast (May 31, 2019) (Chart 3)

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Spot gold: Retail trader data shows 73.4% of traders are net-long with the ratio of traders long to short at 2.76 to 1. The percentage of traders net-long is now its lowest since May 15 when it traded near 1296.78. The number of traders net-long is 12.5% lower than yesterday and 10.7% lower from last week, while the number of traders net-short is 15.7% higher than yesterday and 14.6% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests spot gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current spot gold price trend may soon reverse higher despite the fact traders remain net-long.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides





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US Dollar Price Outlook in EUR/USD, GBP/USD and USD/CAD


EURUSD, GBPUSD, USDCAD Talking Points:

  • The US Dollar is pulling back after another strong week, with near-term support showing up around the 98.00 level on DXY.
  • EURUSD has put in a higher-low after failing to re-test the 1.1106 level; but USD-strength has remained very clearly in pairs like GBP/USD and USD/CAD, each of which have hit multi-month highs or lows as the June open nears.
  • DailyFX Forecasts are published on a variety of currencies such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

US Dollar Pulls Back After Another Strong Week

It’s been another strong week in the US Dollar as the currency has made another push towards the two-year-high at 98.32. The USD has gained each day Monday-Thursday. Buyers slowed down ahead of a re-test at 98.32 and since yesterday morning, prices have started to pullback. That’s has produced another failure to breakdown in EUR/USD as sellers shied away from a re-test of two-year lows; but elsewhere, such as GBP/USD or USD/CAD, USD bulls continue to push. Next week’s economic calendar has considerable potential for a continued drive of volatility with high-impact releases due each day of the week, including Central Bank rate decisions out of Australia on Monday night/Tuesday morning and Europe on Thursday.

US Dollar Pulls Back to Support After Bulls Shy Away from the Highs

A strong week and finish to the month of May in the US Dollar is seeing a bit of retracement ahead of the June open. While the Federal Reserve remains non-committal to future policy measures, the USD has continued with a ‘cleanest shirt in the dirty laundry’ theme. The currency came into Q2 with an ascending triangle pattern, which will often be approached in a bullish fashion. The level of 97.70 had held three topside advances in the prior six months, and that level finally started to give way in April. But, once price action had ascended into that area, buying pressure slowed and DXY topped-out at 98.32. May price action saw another attempt to rally up to fresh highs. But buyers were re-buffed around that same price of 98.32.

The big question as the June open approaches is whether USD Bulls will be able to leave this area on the chart behind? At this point, prices have pulled back to find support in a confluent area that was looked at last week, spanning from 97.94-97.96.

US Dollar Four-Hour Price Chart

us dollar usd four hour price chart

Chart prepared by James Stanley

EURUSD Bears Shy Away from Support Test: Is ECB the Catalyst That They Need?

Last weekend’s European Parliamentary elections kept the potential for gap-risk in the single currency to open this week. But, after a relatively calm open, prices in EURUSD scaled-lower and made a fast approach at the two-year low around 1.1106. Similar to the mirror image of the US Dollar, however, sellers shied away from another test of the low and prices have worked back into the prior range.

Next week brings the European Central Bank for their June rate decision on Thursday. Will the ECB be able to evoke a bearish break, brought upon by a gloomy forward-looking outlook? This can keep break-down potential alive in the pair over the next week; and if prices do continue to re-trace, sellers can look to a series of levels that exhibited prior inflections in the effort of seeking out near-term resistance.

EURUSD Four-Hour Price Chart

eurusd eur/usd price chart

Chart prepared by James Stanley

GBPUSD – Cable Crushed to Fresh Five Month Lows

One area where USD-bulls have not been bashful on the final trading day of May is against the British Pound. GBPUSD is pushing down to a fresh five month low ahead of the weekend, and prices in the pair are approaching some key areas of potential support around the 1.2500-handle. This caps a brutal month in the pair in which sellers remained in-control for much of the period, driven by concerns around Brexit.

The big question here is whether sellers will be able to elicit a challenge of the 1.2500 level as the final month of Q2 nears.

GBPUSD Weekly Price Chart

gbpusd gbp/usd price chart

Chart prepared by James Stanley

USDCAD Breakout Rallies to Fresh Five Month Highs

The big item on this week’s macro calendar was the Bank of Canada rate decision on Wednesday. And while the pair avoided making any definite proclamations, the dovish tone from that rate decision helped to bring in CAD-weakness and the USDCAD pair made a topside push above the 1.3521 level that had previously functioned as the four-month-high. Near-term resistance has shown from an interesting level, taken from a batch of higher-lows that had set-in shortly after the January open. This was looked at on Tuesday as target potential for topside breakouts in USDCAD; and with this being a very clear area for buyers to have started taking profits, the door can remain open to themes of bullish continuation – particularly should near-term price action remain above the 1.3480 level that had previously helped to demarcate resistance within the month-long range formation.

USDCAD Four-Hour Price Chart

usdcad usd cad four hour price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX





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Japanese Yen Soars, Mexican Peso Plummets, Crude Oil Prices Slammed


MARKET DEVELOPMENT – Mexican Peso Plunge, JPY Soars, Euro Benefits from Month-End

DailyFX Q2 2019 FX Trading Forecasts

MXN: The Mexican Peso plunged overnight after President Trump surprised markets through announcing that the US will place 5% tariffs on all Mexican goods, further dampening risk appetite, while Mexican exposed stocks (autos in particular) had also dragged equities lower. That said, the 3% drop in the Peso looks to be somewhat stretched with the move exacerbated by heavy long positioning in the currency (net longs highest since 2014).

JPY: The Japanese Yen is the notable outperformer in the G10 space as safe-haven flows support. Subsequently, USDJPY has made a break below the 109 handle with support at 108.50 eyed.

EUR: Despite the drop in German inflation, which raises the risk of softer Eurozone inflation, the Euro is managing to hold firm as month-end buying in EURGBP provides support for the currency, while an unwind of the Euro funded carry trades in the Mexican Peso has also underpinned. Reminder, the Euro had been many traders funding currency of choice when going long EMs. However, gains in the Euro remain limit given the downside risks stemming from the uncertainty around Italy. Of note, the 5-Star party announced that it would support the tax cut plan, which is likely to see the budget-deficit target raised. Alongside this, eyes will be on next week’s ECB meeting with Draghi and Co. set to stick to the dovish script.

USD: The US Dollar has failed to find comfort from the increased trade war uncertainty with the greenback modestly lower, albeit holding onto the 98.00 handle. Elsewhere, yesterday’s speech by Fed Vice Chair Clarida has also kept gains in the USD limited after opening the door to a potential rate cut provided downside risks to the economic deteriorated further.

Crude Oil: Oil prices are once again on the backfoot as souring risk sentiment weighs on the commodity. Consequently, oil prices are now on course for its worse monthly since the November sell-off with Brent crude futures down over 14% for the month.

Japanese Yen Soars, Mexican Peso Plummets, Crude Oil Prices Slammed - US Market OpenJapanese Yen Soars, Mexican Peso Plummets, Crude Oil Prices Slammed - US Market Open

Source: DailyFX, Thomson Reuters

IG Client Sentiment

Japanese Yen Soars, Mexican Peso Plummets, Crude Oil Prices Slammed - US Market Open

How to use IG Client Sentiment to Improve Your Trading

WHAT’S DRIVING MARKETS TODAY

  1. EURUSD Regains Some Strength, Bond Yields Signal a Recession” by Daniela Sabin Hathorn , Junior Analyst
  2. Gold Price Outlook: Bullish Breakout Gathers Pace, Fed Opening Door to Rate Cut” by Justin McQueen, Market Analyst
  3. FTSE 100 Outlook – Looking to Break the 200-day, Pattern Neckline” by Paul Robinson, Currency Strategist
  4. Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX





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