The pound remained under pressure after a slowdown in the UK’s GDP growth in Q1. A break below the lower range (1.2260) of a brief consolidation signalled a bearish continuation. Sterling is heading towards its two-year low at 1.2100. Short-covering could be expected and in conjunction with dip-buying could drive the price up momentarily. 1.2400 is the first resistance and the bulls need to lift the recent high at 1.2640 before they could regain control. Otherwise, the psychological level of 1.2000 would be the next stop.
NZDUSD grinds lower
The New Zealand dollar tumbles as traders continue to pile into safe haven assets. The sell-off accelerated after the pair sank below June 2020’s lows near 0.6400. Downbeat sentiment may attract more trend followers after a faded rebound. 0.6100 near a two-year low would be the next target. 0.6370 is a fresh resistance and the bears may sell into strength at the next bounce. The support-turned-resistance at 0.6450 sits next to the 20-day moving average and is a major level to clear before a reversal could materialise.
US 100 may see limited bounce
The Nasdaq 100 struggles to find bottom as investors continue to flee risk assets. The index sees no sign of stabilisation yet as it approaches 11500. The price action has been capped by a falling trend line from last April. An oversold RSI may prompt sellers to take profit and possibly trigger a mean reversion trade to the upper band (13000) of the line. A break above 12400 may attract enough buying interest to make this happen, but the rebound could be limited unless the bulls succeed in pushing higher.
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This week we had a bit of a worrying sign in the markets that has gone largely unnoticed in the major financial news outlets. The yield on the ten-year US Treasury blipped above 3.0% and came back down. It might seem a bit arcane or not particularly relevant, but that bond in particular is the “benchmark” for US interest rates. It has only been above 3.0% twice in the last decade, and each time was followed by turmoil in the markets.
Of course, the past doesn’t always repeat itself in the markets. And we kind of already have enough turmoil. The bond yield rose initially because the Fed hiked rates, but then fell back after the CPI data came in hotter than expected. Basically, investors reassessed their expectations of whether the Fed will manage to complete its hiking cycle before the economy faces a major downturn.
What’s going on?
The key here is that inflation and bond yields are intimately connected, because of how the banking system works. Remember, a bond yield basically represents the annual “profit” a bondholder can expect on the asset considering its price and interest rate. So, bond yields go up when people expect interest rates to rise, and go down when people expect interest rates to be lower.
The thing is that the benchmark is used as a reference when determining the price that banks loan money. And this loaning of money is what “creates” the money in circulation. In the current monetary system, banks are the ones who “print” money by loaning it out and backing it up with debt.
How it works
Basically, when you borrow money from the bank, the bank just creates the money in your account. Separately, the bank creates a “security” that represents the value of the loan. Banks can then negotiate those securities on the market for a lower interest rate than what you are paying. That’s how banks make money.
But it also means that as bond yields rise, the interest rate charged by banks also increases. The higher cost of loans means less people can afford to borrow money. And if banks are issuing less loans, then the amount of money in circulation stops increasing and eventually starts to shrink.
Is it 2018 again?
This was the problem about four years ago when the Fed was raising rates the last time. Interest rates rose above 3.0%, and the cost of credit increased enough that loan issuance started to fall off. The Fed had to quickly reverse course to get interest rates down and prevent the economy from sputtering.
Of course, inflation is much higher now, meaning that there is a lot more money in circulation. It might take a significantly higher interest rate to slow down loan creation enough to get inflation back under control. Meaning that the dollar could be set to strengthen quite a bit, as bond yields are key drivers of the value of a currency.
The downside is that if interest rates go too high and too much money is pulled from the economy, well, that’s what we call a recession.
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As we can see in the H4 chart, after forming a Hanging Man reversal pattern close to the resistance level, USDCAD is reversing in the form of a new descending impulse. In this case, the downside target may be at 1.2965. However, an alternative scenario implies that the asset may grow to break the resistance level at 1.3120 and continue the ascending tendency without any corrections.
AUDUSD, “Australian Dollar vs US Dollar”
As we can see in the H4 chart, AUDUSD has formed a Harami reversal pattern near the resistance area. At the moment, the asset is reversing and starting a new descending impulse. In this case, the downside target may be the support level at 0.6810. After testing the level, the price may break it and continue the descending tendency. At the same time, an opposite scenario implies that the price may correct to reach 0.6955 before resuming the downtrend.
USDCHF, “US Dollar vs Swiss Franc”
As we can see in the H4 chart, after testing the resistance area, the pair has formed a Doji reversal pattern. At the moment, USDCHF may reverse in the form of a new descending impulse. In this case, the downside target may be at 0.9880. After testing the support level, the price may rebound from it and resume trading upwards. Still, there might be an alternative scenario, according to which the asset may grow to reach 1.0045 without any pullbacks.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
GBPJPY seems to be forming a large corrective trend, taking the form of a triple zigzag. On the 1H timeframe, the final actionary wave z of the cycle degree is in formation.
It is likely that the wave z takes the form of a simple zigzag Ⓐ-Ⓑ-Ⓒ of the primary degree. After the end of the correction Ⓑ, which took the form of a triple combination, prices began moving higher.
It is possible that the first four parts are completed as part of the potential impulse Ⓒ. Thus, in the next coming trading weeks, growth is likely within the intermediate impulse (5).
The completion of the entire wave Ⓒ is possible near 174.08. At that level, wave z will be equal to wave y.
Alternatively, it is assumed that the formation of an intermediate impulse (3), which is part of the primary wave Ⓒ, has come to an end near 168.43.
In the last section of the chart, we see a corrective decline in the intermediate wave (4). This correction could be a minor double zigzag.
It is possible that prices will fall to 155.15. At that level, correction wave (4) will be at 76.4% of impulse (3).
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The Australian dollar struggles as Beijing vows to support its Covid-hit economy. A drop below the psychological level of 0.7000 near this year’s low may have put the Aussie on a bearish trajectory in the medium-term. On the hourly chart, the RSI’s double bottom in the oversold area may cause a limited rebound. Selling interest could be expected at 0.7100 at the origin of the latest sell-off. A drop below the intermediate support at 0.6920 would extend losses towards June 2020’s lows around 0.6820.
XAUUSD tests demand area
Bullion steadied after the US CPI receded in April. The price action has found some support at the base of the February bullish breakout. A bullish RSI divergence indicates a slowdown in the downward momentum, a prerequisite for a reversal. 1868 is a key resistance and a breakout would confirm the demand zone and prompt sellers to cover their bets. Then 1910 is the last hurdle before sentiment would turn around. On the downside, a break below 1831 would send the precious metal to the psychological level of 1800.
USOIL bounces higher
WTI crude rallies as Russia retaliates by sanctioning European gas companies. A fall below the rising trendline near 106.00 has put the bulls on the defensive. The price has met bids at 98.50 and in conjunction with a bullish RSI divergence could attract more buying interest. Optimism may gain traction if buyers succeed in holding above this demand zone. A close above support-turned-resistance at 107.00 would put the bulls back in the game. Then a break above 111.00 could trigger an extended rally above 117.00.
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GBPUSD remains under bearish pressure; there is no good news.
The Pound sterling continues weakening against the USD on Thursday. the current quote for the instrument is 1.2205.
Today’s flow of statistics didn’t give the Pound a single chance to reach stability.
For example, it turned out that according to the preliminary report, the British economy added only 0.8% q/q in the first quarter of 2022 after gaining 1.3% q/q the quarter before and against the expected reading of 1.0% q/q. As for YoY, the GDP showed 8.7% against the expected reading of 9.0%.
The factors that slow down the British economy are quite common – the pandemic consequences, interruptions in the delivery chains, geopolitical tensions, and the necessity to adjust the country’s foreign policy. However, another thing that surfaces from time to time is Brexit, for example, the Northern Ireland issue. It’s kind of amazing that the status and the borders of such a small territory come with a high price tag. The lack of the Northern Ireland consensus might make trading operations and procedures between London and the European Union much more complicated, hurting the British business and GDP.
Industrial Production dropped 0.2% m/m in March against the expected growth of 0.1% m/m. It means that the negative tendency that started earlier is getting stronger: in February, the indicator lost 0.6% m/m. On YoY, it gained 1.9% against the expected reading of 2.3%. However, it’s not surprising – high inflation, the pandemic consequences, and interruptions in deliveries didn’t go anywhere and will continue to influence the economy in the future. in addition, there are problems with new orders. It’s bad news for the Pound.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
According to Executive Board member Isabelle Schnabel, the European Central Bank must respond to inflation, even if the factors pushing it to record levels are global in nature. The politician also added that global factors, which are largely driving inflation, do not mean that monetary policy can or should remain on the sidelines. Hence, it is necessary to act decisively now rather than act more later. At the moment, The ECB has maintained a soft stimulative monetary policy, which negatively affects the euro.
From the technical point of view, the trend on the EUR/USD currency pair on the hourly time frame is still bearish. The price is trading in a wide price corridor, and the MACD indicator has become inactive. Under such market conditions, traders can look for sell deals from the resistance level of 1.0646, but only after the additional confirmation. Buy trades can be considered on intraday timeframes from the support level of 1.0453, but only with short targets and confirmation.
Alternative scenario: if the price breaks out through the 1.0646 resistance level and fixes above, the uptrend will likely resume.
News feed for 2022.05.12:
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US Producer Price Index (m/m) at 15:30 (GMT+3);
– US FOMC Member Daly Speaks at 22:00 (GMT+3).
The GBP/USD currency pair
Technical indicators of the currency pair:
Prev Open: 1.2314
Prev Close: 1.2246
% chg. over the last day: -0.55%
The British pound continues to lose ground against the dollar and the euro, although the Bank of England has already raised interest rates three times, and the ECB will only raise the rate in the second half of the year. Analysts believe that the Bank of England failed to forecast and completely misinterpreted the reasons for inflation. At the same time, Central Bank representatives do not make any statements. UK GDP declined by 0.1% last month, with industrial and manufacturing also showing a decline of 0.2%. The UK is slowly moving towards stagflation (a slowdown in economic growth with high inflation).
On the hourly time frame, the GBP/USD currency pair trend is still bearish. The price continues to decline, but the MACD indicator shows signs of divergence. Under such market conditions, sell trades should be looked for from the resistance level of 1.2276 intraday. For buy deals, traders may consider the level of 1.2127 if the price continues to decrease after the inflation data.
Alternative scenario: if the price breaks down through the 1.2519 resistance level and fixes above, the mid-term uptrend will likely be resumed.
News feed for 2022.05.12:
– UK GDP (m/m, q/q) at 09:00 (GMT+3);
– UK Industrial Production (m/m) at 09:00 (GMT+3);
– UK Manufacturing Production (m/m) at 09:00 (GMT+3).
The USD/JPY currency pair
Technical indicators of the currency pair:
Prev Open: 130.43
Prev Close: 129.96
% chg. over the last day: -0.36%
From a fundamental point of view, there is no change. The Bank of Japan’s prolonged stimulus program is increasingly being criticized for fueling an unwanted yen drop. Investors are paying attention to the widening gap between ultra-low interest rates in Japan and rising rates in other major economies. The Bank of Japan’s ultra-soft policy allows the government to maintain huge spending despite Japan’s growing national debt. But the country’s inflation rate is already approaching the 2% target, so analysts believe that the soft monetary policy is close to ending.
Trading recommendations
Support levels: 129.42, 128.55, 127.29, 126.91, 126.00, 125.57
Resistance levels: 130.12, 130.99
The medium-term trend on the USD/JPY currency pair is still bullish. Volatility has increased, with the price continuing to trade in a wide sideways. Under such market conditions, it is best to look for buy deals, expecting the continuation of the uptrend. First of all, it is worth considering the support level of 129.42. A resistance level of 130.12 or 130.99 may be considered for sell deals, but only with additional confirmation and short targets.
Alternative scenario: If the price fixes below 128.55, the uptrend will likely be broken.
There is no news feed for today.
The USD/CAD currency pair
Technical indicators of the currency pair:
Prev Open: 1.3021
Prev Close: 1.2992
% chg. over the last day: -0.22%
The Canadian dollar is a commodity currency and is highly dependent not only on the monetary policy of the Bank of Canada but also on the dynamics of the dollar index and oil prices. Oil prices jumped by 5% on Wednesday after Russia imposed sanctions on 31 companies that imposed sanctions on Moscow after the invasion of Ukraine. That gave momentum to the Canadian dollar, but after US CPI news was released, the rise in the dollar index offset the strengthening of the Canadian dollar.
Trading recommendations
Support levels: 1.2954, 1.2838, 1.2908, 1.2774, 1.2692, 1.2644, 1.2607, 1.2521
Resistance levels: 1.3044
The USD/CAD currency pair is bullish in terms of technical analysis. The price has reached the daily resistance level. The MACD indicator has become inactive. Trade is worth it only with short targets because, fundamentally, both the dollar index and the Canadian dollar are inclined to grow. Under such market conditions, it is better to look for buy trades on the lower timeframes from the support level of 1.2954, but only with additional confirmation. For sell deals, it is better to consider the resistance level of 1.3044, but it is also better with confirmation and short targets.
Alternative scenario: if the price breaks through and consolidates below 1.2838, the downtrend will likely be resumed.
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
– Global sentiment brightened on Wednesday with equities rebounding after a rally in technology companies helped reverse most of the losses on Wall Street overnight.
We already knew this would be an explosively volatile week for financial markets thanks to speeches from numerous Fed officials, ongoing geopolitical risks, and anticipation ahead of the US inflation report. Since Monday, there have been some significant movements with the dollar rallying to levels not seen in 20 years! Oil prices closed over 6% lower on Monday while gold secured a daily close under the $1855 support! There was some action in the FX space, with commodity currencies like the Australian Dollar and New Zealand dollar depreciating across the board.
With just less than one hour until the latest US CPI report is published, here and some technical setups we have our eyes on.
Dollar Index hovers near 20 year high
King Dollar marched into the week on a high note, reaching levels not seen in 20 years on Monday as U.S Treasury yields climbed on Fed rate hike expectations. Although prices have slightly retreated, the risk-off sentiment stemming from geopolitical risks should keep the DXY buoyed. Dollar volatility could remain a key theme, especially if the pending US CPI report exceeds expectations. Bulls may shift into higher gear on hawkish comments from Fed officials.
Looking at the technical picture, a strong daily close above 104.00 could open a path towards 104.50 and beyond. Sustained weakness below 104.21 could encourage a decline back towards 103.20.
Equally weighted USD bullish
The subtitle says it all.
Prices are heavily bullish on the daily charts. There have been consistently higher highs and higher lows while prices are trading above the 50,100 and 200-day Simple Moving Average. A strong daily close above 1.1835 could encourage a move towards 1.1955. If bulls run out of steam below 1.1835, this could result in a technical throwback that sees prices trade back towards 1.1660 – 1.1600 before bulls return to the scene.
If prices sink back towards 1.1470, the equally-weighted USD index may decline back towards 1. 1300.
EURUSD on standby…
Where the EURUSD concludes this week may be heavily influenced by the US inflation data. The key levels of interest can be found at 1.0640 and 1.0500. A strong dollar could drag the currency pair well below 1.0500, opening the doors towards 1.0350. Should 1.0500 prove to be reliable support, this could trigger a rebound back to 1.0640.
Bonus: Gold glitters ahead of CPI data
A softer dollar has injected gold bugs with renewed confidence ahead of the US inflation. Prices have staged a rebound from the daily 200-day Simple Moving Average but are still below the $1855 support level. Regardless of the recent rebound, the precious metal may face headwinds in the form of rising treasury yields and expectations over the Fed maintaining an aggressive approach towards monetary policy. On the technical front, prices are bearish on the daily charts with support found at $1855. It will be interesting to see whether bulls can defend this level of bear’s drag prices even lower. Whatever the outcome, volatility is certainly on the cards.
As we can see in the H4 chart, XAUUSD has formed a Hammer reversal pattern not far from the support area. At the moment, the asset is reversing in the form of another ascending impulse. In this case, the upside target may be the resistance level at 1860.50. At the same time, an opposite scenario implies that the price may fall to reach 1820.50 and continue the descending tendency without any pullbacks.
NZDUSD, “New Zealand vs US Dollar”
As we can see in the H4 chart, NZDUSD has formed an Inverted Hammer reversal pattern close to the support area. At the moment, the asset is reversing in the form of a new rising impulse. In this case, the upside target may be at 0.6370. After that, the asset may rebound from the resistance level and resume moving downwards. However, an alternative scenario implies that the price may fall to reach 0.6235 without any corrections.
GBPUSD, “Great Britain Pound vs US Dollar”
As we can see in the H4 chart, GBPUSD has formed an Inverted Hammer reversal pattern near the support level. At the moment, the pair is reversing and may form a new correctional impulse. In this case, the upside target correctional may be at 1.2410. After testing the resistance area, the market may rebound from it and resume trading downwards. Still, there might be an alternative scenario, according to which the asset may fall to reach 1.2215 without any pullbacks.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
GBPUSD is rebounding from the resistance level. The instrument is currently moving below Ichimoku Cloud, thus indicating a descending tendency. The markets could indicate that the price may re-test Tenkan-Sen and Kijun-Sen at 1.2385 and then resume moving downwards to reach 1.1965 Another signal in favour of a further downtrend will be a rebound from the descending channel’s upside border. However, the bearish scenario may no longer be valid if the price breaks the cloud’s upside border and fixes above 1.2545. In this case, the pair may continue growing towards 1.2635. To confirm further decline, the asset must break the bearish channel’s downside border and fix below 1.2145.
USDJPY, “US Dollar vs Japanese Yen”
USDJPY is correcting within the bullish channel. The instrument is currently moving above Ichimoku Cloud, thus indicating an ascending tendency. The markets could indicate that the price may test Tenkan-Sen and Kijun-Sen at 130.05 and then resume moving upwards to reach 132.65. Another signal in favour of a further uptrend will be a rebound from the rising channel’s downside border. However, the bullish scenario may no longer be valid if the price breaks the cloud’s downside border and fixes below 128.45. In this case, the pair may continue falling towards 127.55.
XAUUSD, “Gold vs US Dollar”
XAUUSD is rebounding from the bearish channel’s downside border. The instrument is currently moving below Ichimoku Cloud, thus indicating a descending tendency. The markets could indicate that the price may test Tenkan-Sen and Kijun-Sen at 1865.00 and then resume moving downwards to reach 1775.00. Another signal in favour of a further downtrend will be a rebound from the descending channel’s upside border. However, the bearish scenario may no longer be valid if the price breaks the cloud’s upside border and fixes above 1905.00. In this case, the pair may continue growing towards 1945.00.
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
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