GBPUSD Choppy, Theresa May Resigns, What Next?


MARKET DEVELOPMENT – GBPUSD Choppy, Theresa May Resigns, What Next?

DailyFX Q2 2019 FX Trading Forecasts

GBP: The Pound has traded in choppy fashion after Theresa May announced her resignation. In an immediate reaction to the news GBPUSD had saw a modest lift higher towards Wednesday high at 1.2720, before quickly retracing, while EURGBP tested the 0.88 handle. (Full story)

What Next?

  • Theresa May will step down on June 7th, however, will remain in office until a new leader is found.
  • The Tory Leadership contest will begin on June 10th and as is expected to be finalised by the end of July.
  • Next PM Odds: Boris Johnson (11/8), Dominic Raab (4/1), Michael Gove (10/1), Andrea Leadsom (14/1), Jeremy Hunt (14/1)

Whoever the next Prime Minister is, the divided opinion in the political landscape remains the same and while it is difficult to predict the near term outcome in UK politics, there is an increased risk of a general election by the autumn, potentially leading to another extension to A50 (currently set to expire by October 31st). At the time, the risk of a no deal has been increased once again.

GBP Bears Beware: Boris as UK Prime Minister Might be Good for Sterling

Oil: Following yesterday’s plunge in the energy complex, oil prices are set for its largest weekly loss in 2019 as concerns over a global slowdown raises fears over reduced demand. However, given the overextended drop in yesterday’s price action, Brent and WTI crude futures have recouped some losses. Alongside this, the backwardation (typically a bullish signal) in the oil curve has steepened, which in turn places the focus on potential supply outages stemming from rising geopolitical tensions.

GBPUSD Choppy, Theresa May Resigns, What Next? - US Market Open

Source: DailyFX, Thomson Reuters

DailyFX Economic Calendar: – North American Releases

GBPUSD Choppy, Theresa May Resigns, What Next? - US Market Open

IG Client Sentiment

GBPUSD Choppy, Theresa May Resigns, What Next? - US Market Open

How to use IG Client Sentiment to Improve Your Trading

WHAT’S DRIVING MARKETS TODAY

  1. Gold Price Eyeing Support, Silver Price Rebound Fading” by Nick Cawley, Market Analyst
  2. Theresa May Announces Resignation, GBPUSD Heading Lower” by Justin McQueen, Market Analyst
  3. USDJPY Price Outlook: Sell-Off May Not be Finished Yet” by Nick Cawley, Market Analyst
  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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Gold Price Eyeing Support, Silver Price Rebound Fading


Gold (XAU) and Silver (XAG) Price Analysis and Charts.

  • Gold (XAU) – Will 200-dma bounce hold?
  • Silver (XAG) – Lower highs and lower lows.

DailyFX Q2 Forecasts and Top 2019 Trading Opportunities.

Gold (XAU) Price Respecting Lower Highs

The price of gold is currently trading just below a series of lower highs initiated off the February 20 peak at $1,346/oz. after bouncing off support from the 200-day moving average on Tuesday this week. The narrowing of the recent trading range may provoke a break-out in the coming days with $1,287/oz, the 61.8% Fibonacci retracement level and this week’s high the first level of resistance. To break the series of lower highs, gold needs to trade above the May 14 high at $1,303/oz, a level that will need a strong fundamental driver to be breached. To the downside, the 200-day moving average is currently around $1,270.5/oz. This technical indicator held and prompted a reversal on Tuesday this week, although the rebound was short-lived. Below here, $1,266/oz. stands in the way of a re-test of 50% Fibonacci retracement at $1,262.8/oz.

How to Trade Gold: Top Gold Trading Strategies and Tips

Gold (XAU) Daily Price Chart (May 2018 – May 24, 2019)

Gold Price Eyeing Support, Silver Price Rebound Fading

Silver (XAG) – Bear Channel Still in-Play

Silver bounced off a six-month low at $14.38 earlier this week and pushed marginally higher but the move still looks weak as a new lower low and a lower high were put in place. Silver continues to respect the downtrend and a re-test of this week’s low is possible if bearish momentum continues. Silver has also been respecting the 20-day moving average since late-March, while both the shorter-dated moving averages fell through the longer-dated (200-day) ma recently, adding to bearish sentiment. A break lower would target, $14.05, the November 30 low, psychological support at $14.00 before a full re-trace back to the November 14 low at $13.89.

Silver (XAG) Daily Price Chart (August 2018 – May 24, 2019)

Gold Price Eyeing Support, Silver Price Rebound Fading

Trading the Gold-Silver Ratio: Strategies and Tips.

IG Client Sentimentshows that retail traders are 78.8% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts however give us a mixed trading bias.

— Written by Nick Cawley, Market Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1



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Euro Potentially Underpricing the Impact of the EU Election


Currency Volatility EUR Talking Points

  • Option markets imply little in the way of volatility for EURUSD
  • Downside Premium Muted for EURUSD

Top 10 most volatile currency pairs and how to trade them

For a more in-depth analysis on FX, check out the Q2 FX Forecast

Currency Volatility: Euro Potentially Underpricing the Impact of the EU Election

Source: Thomson Reuters, DailyFX

G10 FX Risk Reversals

Currency Volatility: Euro Potentially Underpricing the Impact of the EU Election

Source: Thomson Reuters, DailyFX

EURUSD| Weekly Range (1.11101.1265)

This weekend will see focus on the results of the upcoming EU elections, in which results will be released by Sunday evening. Of particular interest will be the support for Salvini’s League party, which is expected to win around 30% of the votes. Despite this being down from 37% in recent weeks, it is still a strong performance from the 6.2% they received in the prior EU election. As such, a strong performance from Salvini does pose concerns over a snap-election in Italy.

However, according to option markets for the Euro, implied volatility is relatively subdued with ATM overnight vols (captures EU election) at a rather muted 4.273, which in turn sees break-even straddles at 35pips for EURUSD. 1-week option expiries for the pair alsoimplies that spot EURUSD volatility will be low with the break-even straddles at 51pips. Alongside this, options markets have not added further premium to Euro puts over calls with risk reversals on the overnight and 1-week residing at -0.225 and -0.325 respectively.

EU Election Preview – by Dimitri Zabelin

EURUSD Price Chart: Weekly Time Frame (Jul 16 – May 19)

Currency Volatility: Euro Potentially Underpricing the Impact of the EU Election

— 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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Sell-Off May Not be Finished Yet


USDJPY Price, Chart and Analysis

  • USDJPY eyes a fresh four-month low.
  • US durable goods data may be the catalyst for the next move.

Q2 2019 JPY and USD Forecasts andTop Trading Opportunities

USDJPY Bear Candle Stokes Negative Sentiment

USDJPY price action Thursday, when the pair fell nearly 1 big figure, has left the daily chart looking negative and on-course to attempt lows seen at the start of February. Fundamental drivers aiding the move include collapsing risk sentiment and weaker global growth fears.

The USDJPY rebound off the May 13 interim low at 109.02 all the way back to 110.67, hit a sharp reversal yesterday on a perfect mini-storm off a heightened risk sentiment – aiding the Japanese Yen – and a poor set of US PMIs which hit multi-year lows. The US dollar was breaching a two-year high ahead of the data, but post-release fell sharply and currently trades below Thursday’s close. Ahead US durable goods data at 12.30 GMT will be closely watched for any further signs that the US economy is slowing down. Market are expecting a headline reading of -2.0% in April, compared to a prior month’s +2.6%.

US PMI Figures Miss Pushing Treasury Yields to 2019 Lows

The daily chart highlights a series of horizontal support levels as the pair slip lower Friday. Initial support is at the May 13 low at 109.02 followed by the January 31 swing-low at 108.50. A break and close below here would confirm the bearish turnaround and suggest sub-108 price action. To the upside the area between 109.75 and 109.81 ahead of 110.02.

IG Client Sentiment data also paints a negative picture for the pair with 68.1% of traders long USDJPY, a bearish contrarian bias signal. In addition, recent daily and weekly positional changes give us a stronger negative USDJPY sentiment.

USDJPY Daily Price Chart (June 2018 – May 24, 2019)

USDJPY Price Outlook: Sell-Off May Not be Finished Yet

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on USDJPY – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.





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GBPUSD Rate Susceptible to Dismal UK Retail Sales Report


Trading the News: U.K. Retail Sales

The U.K. Retail Sales report may keep GBP/USD under pressure as the headline reading for household spending is expected to contract 0.4% in April.

Image of DailyFX economic calendar

Signs of a less robust economy may produce headwinds for the British Pound as it encourages the Bank of England (BoE) to retain a wait-and-see approach for monetary policy. The central bank may come under pressure to abandon its rate hike bias as ‘quarterly growth is expected to slow to around 0.2% in Q2.

With that said, a decline of 0.4% or greater may trigger a bearish reaction in GBP/USD, but a positive development may curb the recent decline in the Pound Dollar exchange rate as Governor Mark Carney & Co. insist that ‘were the economy to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.

Keep in mind, headlines surrounding the Brexit negotiations may produce increased volatility in GBP/USD as Prime Minister Theresa May struggles to secure a deal.

Impact that the U.K. Retail Sales report had on GBP/USD during the last print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2019

04/18/2019 08:30:00 GMT

-0.3%

1.1%

0

-35

March 2019 U.K. Retail Sales

GBP/USD 10-Minute Chart

Image of gbpusd 10-minute chart

The U.K. Retail Sales report showed an unexpected expansion in household consumption, with private-sector spending increasing 1.1% in March after expanding a revised 0.6% the month prior. A deeper look showed the better-than-expected print was generate by a 4.2% rise in ‘non-store retailing,’ with the volume of retail sales increasing 6.7% from the previous year to mark the fastest pace of growth since 2016.

The initial reaction to the above-forecast print was short-lived, with GBP/USD struggling to hold above the 1.3000 handle as the exchange rate closed the day at 1.2979. Learn more with the DailyFX Advanced Guide for Trading the News.

GBP/USD Rate Daily Chart

Image of gbpusd daily chart

  • Keep in mind, the broader outlook for GBP/USD is no longer bullish as the exchange rate snaps the upward trend from late last year after failing to close above the Fibonacci overlap around 1.3310 (100% expansion) to 1.3370 (78.6% expansion).
  • As a result, the advance from the 2019-low (1.2373) may continue to unravel as the Relative Strength Index (RSI) highlights a similar dynamic, with the oscillator now tracking the bearish formation carried over from March.
  • A break/close below the 1.2610 (23.6% retracement) to 1.2640 (38.2% expansion) region opens up the Fibonacci overlap around 1.2370 (50% expansion) to 1.2440 (50% expansion), which largely lines up with the 2019-low (1.2373).
  • Will keep a close eye on the RSI as the oscillator pushes into oversold territory, but a move back above 30 may foreshadow a rebound in GBP/USD as the bearish momentum abates.

Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.



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EURUSD May Rise on US Durable Goods Orders After Painful PMI Data


TALKING POINTS – EURUSD FORECAST, US DURABLE GOODS ORDERS, PMI DATA

  • EURUSD falls on Eurozone PMI – recovers during US session
  • US durable goods orders may spark volatility in USD-crosses
  • SEK, NOK shrug on better-than-expected unemployment data

See our free guide to learn how to use economic news in your trading strategy!

APAC RECAP: TRADE WARS, RISK AVERSION

Prior to the start of APAC trading hours, crude oil prices and S&P 500 futures plunged after news crossed the wires that US-China trade relations had taken a turn for the worse. Compounding the risk aversion was disappointing Eurozone PMI data that sent EURUSD lower, though the pair recovered after US PMI fell short of expectations. During most of the APAC session, equities found themselves broadly swimming in red.

Trade war concerns may now carry greater weight after officials at the Fed – more specifically, James Bullard – stated that the economic spat between Beijing and Washington may soon begin to impact monetary policy. Economic data out of the US has been tending to underperform relative to economists’ expectations, and if trade relations worsen, this trend may not only continue but would likely accelerate.

VOLATILITY AHEAD OF US DURABLE GOODS ORDERS

Prior to the release of US PMI, overnight index swaps were showing a 50 percent probability of a cut by the Fed’s meeting in October. After the data was published, that number shot up to 62 percent. The upcoming publication may therefore carry greater weight insofar that it will provide market participants on the projected demand in the US economy. If the data falls short of estimates, rate cut bets will likely only increase.

European trading hours have no major event risk scheduled, so it is likely that most of Euro price action will be driven by counter-currency risks and ongoing fundamental themes e.g. trade wars and Brexit. European parliamentary elections that are currently underway may spark some volatility if preliminary results are showing Eurosceptic parties making significant gains in this year’s election.

NORDIC UPDATE: SWEDEN, NORWAY UNEMPLOYMENT RATE

Swedish and Norwegian unemployment data came in better-than-expected, though surprisingly the impact on NOK and SEK was relatively limited. However, during the bout of risk aversion, the oil-linked Krone suffered as Brent plummeted to $67 per barrel. This in large part has to do with the structure of Norway’s economy. To learn more about the Swedish Krona and Norwegian Krone, you may follow me on Twitter @ZabelinDimitri.

CHART OF THE DAY: EURUSD FALLS ON EUROZONE PMI – RECOVERS DURING US SESSION

EURUSD Price Chart

FX TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter





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19-Year Rising Trend May Come Undone


NZDUSD Technical Strategy: BEARISH

  • NZD cautiously drifts to eight-month low near 0.65 figure vs. US Dollar
  • Daily close above near-term trend line needed to neutralize bearish bias
  • Monthly chart reveals prices are challenging 19-year trendline support

See our free trading guide to help build confidence in your NZDUSD trading strategy!

The New Zealand Dollar has drifted to an eight-month low against its US counterpart. Prices are now testing support in the 0.6476-0.6501 area, with a break below that confirmed on a daily closing basis opening the door for a challenge of the October 2018 swing bottom at 0.6425.

Resistance is marked by a falling trend line guiding NZDUSD lower since late March, now at 0.6546. A sustained break above this may neutralize near-term selling pressure, setting the stage for a retest of support-turned-resistance in the 0.6591-0.6619 zone.

NZDUSD chart - daily

Staid day-to-day price action masks the pivotal moment at hand however. Zooming out to the monthly chart reveals prices to be sitting squarely at support marking an almost 19-year rising trend. With just over a week left in the month, the threat of a breach confirmed on a closing basis seems acute.

Needless to say, this would mark a tectonic shift in the long-term NZDUSD trajectory. The next major inflection point is found just below the 0.60 figure, with subsequent weakness beyond that opening the possibility of a descent all the way to decade lows below the 0.49 threshold.

NZDUSD chart - monthly

NZDUSD TRADING RESOURCES:

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the Comments section below or @IlyaSpivak on Twitter





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Euro at Resistance In Brexit-Fueled Uptrend


EUR/GBP Technical Analysis

  • EUR/GBP uptrend testing next critical psychological barrier
  • 4-hour chart reveals early warning sign of a bearish reversal
  • EP Elections, Brexit deal to be key fundamental drivers next

Just started trading EUR/GBP? Check out our beginners’ FX markets guide!

Following the emergence of a Bullish Harami candlestick pattern, the Euro launched an impressive rally against the British Pound with EUR/GBP rising about 3.75% over the course of almost three weeks. Along its path, it encountered a bearish reversal warning which was overturned with relative ease. Fundamentally, broad weakness in Sterling was as a consequence of heightened uncertainty over a Brexit deal.

This leaves EUR/GBP facing the next critical psychological barrier after it ascended into a range between 0.8811 and 0.8838 in its rising channel from early May. This area initially acted as support back in November before re-establishing itself as resistance in February. If broken, this would open the door to extending the dominant uptrend, placing the next area of resistance between 0.8923 and 0.8953.

EUR/GBP Daily Chart

EURGBP Chart Analysis: Euro at Resistance In Brexit-Fueled Uptrend

Chart Created in TradingView

EUR/GBP Upside Momentum Tested

Zooming in on the EUR/GBP 4-hour chart to get a better look at how it may behave at resistance shows a sign of caution. Negative RSI divergence has accompanied the pair’s ascent into key resistance. This shows fading upside momentum and with confirmation, via further closes to the downside, this may precede a turn lower in the medium-term. As such, we may get a test of the floor of the rising channel just under 0.8811.

If there is a major turnaround to come and the rising channel falls apart, the pair may eventually make its way back to the former psychological barrier between 0.8698 and 0.8668. Fundamentally, the Euro could succumb to selling pressure if more eurosceptic parties gain seats from the European Parliamentary Elections. But, this will have to compete with the future of Brexit negotiations.

EUR/GBP 4-Hour Chart

EURGBP Chart Analysis: Euro at Resistance In Brexit-Fueled Uptrend

Chart Created in TradingView

FX Trading Resources

— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter





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S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear


Risk Trend Talking Points:

  • An inevitable S&P 500 break Thursday seemed to strike a nerve in global sentiment, threatening more than just its own H&S pattern
  • Concern over trade wars, sputtering growth and political fracturing is starting to coalesce into a true threat to systemic complacency
  • There is a potentially seismic fundamental shift afoot for the Euro and the Pound, but at least one will wait for resolution to move

See how retail traders are positioning AUDUSD, EURUSD, S&P 500 along with the other FX majors, indices, gold and oil intraday using the DailyFX speculative positioning data on the sentiment page.

Risk Aversion Threatens a Tide Change Just Before a Liquidity Drain

There was no mistaking the smell of fear across the capital markets this past session. We have been floating through treacherous fundamental waters for some time amid the escalation of trade wars, a slowing in economic activity and a more obvious state of political instability around the world; but it seemed investors decided to finally pause and take notice of their predicament this past session. What we should be evaluating now is whether this was just a temporary pang of self-awareness that leaves the real resolutions to the indeterminant future or if it is the unstoppable spark of a self-sustained immolation of speculative excess. While I think there are various measures that can speak to the intensity and to certain originations of any collapse in sentiment, I will start with the S&P 500.

Equities are the most common asset class in global portfolios and the US market is the largest in the world. As such, the S&P 500 – which channels the heaviest derivative trading through ETFs, futures, etc – is an appropriate single-source reflection of ‘risk’. It was therefore noteworthy this past session when a terminal wedge (one essentially running out of room) finally found its resolution with a stiff break lower. While the technical jog was inevitable, the intensity of the move was still a surprise. The slump through intraday lows was a significant contrast to what we have seen these past few weeks’ of measured movement. While this and other US indexes were end well off their respective session lows, there is still anxiety owing to the market’s proximity to a pivotal technical support level. Just above 2,800, there is a ‘neckline’ to a multi-week head-and-shoulders pattern that threatens to turn 2019’s bullish ambitions.

Chart of S&P 500 with 20-Day and 100-Day Moving Average (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

While we can pick a single measure to reflect speculative intent across the entire financial market for ease, it is far more useful to evaluate sentiment across regions and asset classes to establish conviction. The bigger picture perspective renders the same signals for caution. Global equity indices suffered the same drop on the day and many have nearby support levels to contend with. Emerging market assets, junk bonds and carry trade were all under pressure even at a steeper discount to the uniquely inflated US stock market. Breadth and depth to fear dramatically increases the potential of a genuine. That said, an escalation would have to overcome a natural market constraint in liquidity. We are heading into the end of the week when liquidity drains off and this is further a holiday-weighted weekend for the US and UK which will act to dampen rampant speculative fires. In other words, if risk aversion persists through Friday; it won’t just take out serious technical levels, it will raise the threat of a full bear swing temporarily interrupted.

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

The Convergence of Trade War Pain, Economic Stagnation and Political Instability

As we keep tabs on the technical milestones, it is the fundamental charge that will eventually cast the die on our speculative fate. Global growth received an important update through various sentiment assessments and data this past session. The ECB’s transcript from its last monetary policy meeting was one such milestone with a voiced concern amongst its members for the Eurozone economic pace moving forward. In more traditional lines, the global economy received a troubling health check via Markit’s May PMI activity reports. Aside from Australia’s improvement, the Japanese activity report turned to contraction (a reading below 50) while the Eurozone and US measures slowed but held above the critical growth/contraction mark. A related but substantially more abstract theme causing ripples through sentiment is political stability. The EU Parliamentary election and breakdown in Brexit negotiations on the UK side are pressing risks, but the headlines in the US stole the headlines this past session. US President Donald Trump walked out on Congress’s Democrat leaders yesterday after saying an infrastructure deal couldn’t be worked on at the same time that investigations into his administration were ongoing. That $2 trillion fiscal stimulus may prove essential for keeping the US and global economy upright if the world acts on its many overriding risks.

Keeping track of the most disruptive features of our future, the trade war – concentrated back on the United States and China – is the storm that keeps blowing. Following the past week’s upgrade in the tariff rate on the United States’ $200 billion in imports and China’s retaliation on $60 billion in goods, we have seen more measured but nonetheless provocative moves made to raise the barriers to compromise between the two countries. Chinese officials said that they would not return to talks until the United States changed its “wrong actions”, but it did not state clearly what those actions were. The United States blacklisting Huawei and consideration for the same of 5 surveillance firms likely qualifies. In the meantime, the White House’s announcement of a $16 billion aid package to farmers juxtaposed to China’s tax holiday for local chipmaker and software companies reflects moves meant to weather a protracted engagement. While USDCNH’s 7.0000-mark is critical in this assessment, AUDUSD will be the more sensitive measure. For local market performance, the contrast between China’s Shanghai Composite and the FXI China ETF will reflect on the often unclear pressure on domestic markets.

Chart of Shanghai Composite and FXI China ETF in Red (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

Where is the Dollar Taking Its Beating, Can the Euro and Pound Mount Serious Moves Now?

Against the backdrop of volatility in the broader capital markets, we would see a surprise standout in activity for the Forex market in the US Dollar. Lately, the benchmark currency has deviated from its most liquid counterparts to drift through a non-descript course, drifting gradually higher. That underlying bullish bias was on display through the morning session Thursday, seemingly catering to the currency’s safe haven status. Yet, shortly after notching a two-and-a-half year intraday high, the Greenback pitched lower on its way to the biggest single-session loss in three weeks. The intraday reversal in the meantime would result in the biggest bearish tail since February 15th – a strong signal of speculative intent. Yet, a technical turn alone is not enough to secure a true trend. Fundamental drive make or break any true runs. Clearly the USD is not aligning to its deep haven status nor is it likely that interest rate speculation – which dropped further Thursday – suddenly carries full weight. A fading carry trade status and growing appreciation of trade war blowback may retain control. That is of course so long as a collective wave in the most liquid currencies doesn’t force the Greenback into a counterpart role.

Chart of DXY Dollar Index and ‘Tails’ (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

From the US Dollar’s most liquid counterparts, we are generally in a state of wait-and-see. For the world’s second most liquid currency, the Euro, we have seen its activity level grind to a halt. The 20-day ATR on an equally-weighted measure of the EUR has collapsed to levels only comparable to that baseline of complacency back in Summer 2014. The focus of course is on how the EU Parliamentary elections play out. There is considerable consequence to this political event as a strong showing for the generally anti-Euro nationalists could signal a systemic threat to the world’s second most liquid reserve currency. There is no faster way to sharply and permanently devalue a currency than to undermine its absolutely utility. Given we won’t know the outcome of this election until the end of the weekend, it follows that the Euro will tread water until then.

Chart of Equally-Weighted Euro Index and 20-Day ATR (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

As for the British Pound, the fundamental compass setting remains overtly bearish. Brexit still weighs on the minds of Brits, British business leaders and foreign investors. There is still critical negotiation that needs to be hashed out between UK and EU representatives in the divorce proceedings but there isn’t even a whiff of a clear position from the United Kingdom. That places all the focus on Prime Minister Theresa May’s ability to work out a clear plan. On that front, it was reported that May had decided not to publish her Withdrawal Agreement bill on Friday as previously intended due to a ‘mutiny’ in her cabinet. Rumors of the PM’s impending resignation – forced or voluntary – refuse to die. The Sterling can extend its record-breaking 14-day tumble versus the Euro against this backdrop, but it could just as readily stall. We discuss all of this and more in today’s Trading Video.

Chart of EURGBP and Consecutive Candle Count (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

If you want to download my Manic-Crisis calendar, you can find the updated file here.



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Oil Prices Slide – IMF Fires Warning Shot for US & China Consumers


Oil Price Talking Points

Oil fails to retain the upward trend from earlier this year as it snaps the monthly opening range, and the weakening outlook for global growth may continue to drag on the price of crude amid the ongoing trade dispute between the U.S. and China, the two largest consumers of oil.

Image of daily change for major financial markets

Oil Prices Slide – IMF Fires Warning Shot for US & China Consumers

Image of daily change for oil prices

Oil prices remain under pressure following the warning shots from the Organisation for Economic Co-operation and Development (OECD), and it remains to be seen if the Organization of the Petroleum Exporting Countries (OPEC) will respond to the weakening outlook for global growth as the U.S. and China struggle to reach a trade deal.

Image of IMF forecast

The ongoing shift in U.S. trade policy may become a growing concern as the International Monetary Fund (IMF) insists that ‘consumers in the US and China are unequivocally the losers from trade tensions,’ and the group goes onto say that ‘failure to resolve trade differences and further escalation in other areas, such as the auto industry, which would cover several countries, could further dent business and financial market sentiment, negatively impact emerging market bond spreads and currencies, and slow investment and trade.

With that said, OPEC and its allies may come under pressure to boost production at the next meeting on June 25 as the rise in tariffs are expect to curb the purchasing power for U.S. and Chinese households, but the ongoing alliance may keep oil prices afloat in 2019 as the producers pledge to keep ‘inventories under control.’

Nevertheless, the recent price action in crude raises the risk for a larger correction as the price of oil snaps the monthly opening range, with the downside targets now on the radar as crude prices fail to preserve the upward trend from earlier this year.

Crude Oil Daily Chart

Image of oil daily chart

  • Keep in mind, a ‘golden cross’ formation appears to have taken shape as the 50-Day SMA ($61.10) crosses above the 200-Day SMA ($60.39), but the difference in slope undermines the potential for a bullish signal.
  • Crude has taken out the monthly opening range following the failed attempt to break/close above the $62.70 (61.8% retracement) to $63.70 (38.2% retracement) region, with a move below $57.40 (61.8% retracement) opening up the Fibonacci overlap around 54.90 (61.8% expansion) to $55.60 (61.8% retracement).
  • Will keep a close eye on the Relative Strength Index (RSI) as it quickly approaches oversold territory, with a break below 30 raising the risk for a further decline in the price of oil as the bearish momentum gathers pace.

For more in-depth analysis, check out the 2Q 2019 Forecast for Oil

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.



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