The USD/CAD has continued to move lower since last week when the currency pair was traversing near the 1.37625 ratio on the 8th of May.
As of this morning’s trading the USD/CAD is showing that financial institutions are leaning into their weaker USD centric positions.
The gradual downturn in the USD/CAD the past week has now put the currency pair near interesting mid-term support levels.
The USD/CAD is near the 1.36340 ratio as of this writing, the currency pair challenged these lows on Friday of last week and yesterday too.
Although the U.S printed a stronger than expected Producer Price Index yesterday, financial institutions continue to show a desire to maintain their bearish positions in the USD/CAD. Support levels should be watched carefully; on the 3rd of May the currency pair did approach 1.36050 before producing a buying surge.
USD/CAD and Today’s U.S Consumer Sentiment Report Data
While the USD/CAD is technically intriguing because it is bouncing up against rather strong support levels in the short-term, today’s CPI numbers from the U.S will deliver a definite impetus into Forex and volatility should be expected. The stronger than expected inflation numbers yesterday in the U.S did not dampen the enthusiasm of bearish traders who seem to be once again taking on the perspective the U.S Federal Reserve will need to cut its interest rate at some point.
However, if the Consumer Price Index numbers come in with a stronger than anticipated outcome today in the U.S, this could provide an additional shockwave into Forex. Perspective will certainly get tested later today depending on the readings from the U.S inflation reports. Traders with open positions in the USD/CAD before the CPI release should be extraordinarily careful regarding their risk taking tactics.
Reactions and Speculation to Come in the USD/CAD
If the U.S produces weaker than expected inflation numbers today this would seemingly help traders with a weaker USD centric perspective. Yesterday’s PPI data caused a short-term wicked storm in the USD/CAD and broad Forex market, but within about half an hours volatility subsided and the USD returned to its weaker stances against many major currencies. However, if the CPI statistics today are stronger than expected (on top of yesterday’s outcome) this could rattle the confidence of financial institutions which may need to reconsider their mid-term outlooks regarding the Federal Reserve.
Traders need to be ready for volatility today and the use of stop loss and take profit orders are urged for speculators without deep pockets.
Traders should anticipate the price range of the USD/CAD to widen before and after the release of the U.S CPI data.
The 1.36000 ratio is certainly within the sights and goals of bearish USD/CAD traders, but they will likely need weaker U.S inflation numbers to attain this lower level in a sustained manner.
Canadian Dollar Short Term Outlook:
Current Resistance: 1.36455
Current Support: 1.36310
High Target: 1.36920
Low Target: 1.35970
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The annual wholesale price inflation in Saudi Arabia edged down to 3.4% in April 2024 from 3.8% in the previous month.
Prices slowed for other transportable goods except metal products, machinery & equipment (8.1% vs 9.2% in March), while remained unchanged for food products, beverages, and tobacco & textiles (2.4% vs 2.4%) and agriculture & fishery products (0.2% vs 0.2%).
Additionally, costs dropped for metal products, machinery & equipment (-0.6% vs -0.7%) and ores & minerals (-2.2% vs -2.2%). On a monthly basis, wholesale prices decreased by 0.4% in April, after a 0.4% rise in March.
Saudi Arabia Wholesale Inflation Advances in March
The annual wholesale price inflation in Saudi Arabia advanced 3.8% in March 2024, up from 3.1% rise in the previous month, driven by a faster increase in the prices of other transportable goods except metal products, machinery & equipment (9.2% vs 7.5% in February).
At the same time, costs continued to rise for food products, beverages, and tobacco & textiles (2.4% vs 2%). In contrast, prices slowed for agriculture & fishery products (0.2% vs 0.6%), while declined further for ores & minerals (-2.2% vs -2%) and metal products, machinery & equipment (-0.7% vs -0.6%). On a monthly basis, wholesale prices rose 0.4% in March, rebounding from a 1.2% fall in the prior month
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The US dollar initially fell a bit during the early hours on Monday against the Brazilian real, but ultimately looks as if it is very well supported underneath.
We have been in an uptrend for some time, and of course with the world on edge when it comes to so many moving parts, I believe at this point in time we are going to have to favor the greenback, despite the fact that the interest rate differential is fairly wide.
In fact, the Brazilian interest rate is 10.75%, much higher than the US interest rate. However, there are a lot of concerns when it comes to global politics right now, and of course the Brazilian economy itself is suffering. As long as that’s going to be the case, it makes more sense that the US dollar rises, if for no other reason than to rush toward safety. Traders are not very strong with the risk appetite at the moment, at least not worldwide, but there are pockets of risk-taking out there. As things stand right now, South America is not part of that.
Technical Analysis
The USD/BRL pair continues to look very bullish, and you can even make an argument that we have formed some kind of really ugly bullish flag recently. The 5.10 level underneath seems to be an area of focus, as it has seen a gap a couple of times in the past in this region. The 50-Day EMA is also sitting near the 5.09 level and is rising so that could offer a significant amount of support. In general, I think this is a market that continues to see buyers and could go looking toward the recent high near the 5.29 BRL level. This is an area that I think would attract a lot of attention, mainly due to the fact that we have the 5.30 BRL level just above, and that of course could offer a certain amount of psychological resistance.
This pair more likely than not will remain “buy on the dips”, as traders continue to flood toward the higher interest rates offered in the United States and the relative safety. Furthermore, the US economy is most certainly performing better than many others right now, so that also has inflows into America.
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Last week’s key takeaway was the souring of risk-on sentiment due to expectations in the USA of higher inflationary pressure over the short-term as well as US Consumer Sentiment data which came in at a six-month low. This souring did not come until the end of the week, and it is unclear how negative it is, as most assets over the entire week showed a risk-on rally.
It is unclear what sentiment will be like as the new week gets underway. It is likely that markets will be so fixated on the upcoming US CPI data release that nothing much will happen in the market before that.
The two major data releases last week were policy meetings at two central banks: the Bank of England and the Reserve Bank of Australia. Both central banks kept their interest rates unchanged, but the Bank of England vote was a little more dovish than expected. The RBA stated that inflation risk remains to the upside but that on balance they considered another rate holding to be the correct action. However, both banks effectively indicated a rate hike was out of the question.
Other important data releases were:
US 30-Year Bond Auction – this produced a slightly lower yield, which should be slightly bullish for risk.
UK GDP – this came in notably better than expected, with a month-on-month increase of 0.4% instead of the expected 0.1% increase.
US Unemployment Claims – this was slightly worse than expected.
Canadian Unemployment Rate – this was better than expected, with the unemployment rate remaining unchanged at 6.1% due t the creation of more net new jobs than was expected.
The Week Ahead: 13th – 17th May
The most important item over this coming week will be the release of US CPI (inflation) data on Wednesday. Apart from that, there are several other important releases scheduled, listed in order of likely importance:
US PPI
US Retail Sales
US Empire State Manufacturing Index
US Unemployment Claims
Australia Wage Price Index
New Zealand Inflation Expectations
UK Claimant Count Change
Australia Unemployment Rate
Monthly Forecast May 2024
Weekly Forecast 12th May 2024
Last week, I forecasted that the Japanese Yen would decline against the Euro, Pound, New Zealand Dollar, Swiss Franc, Canadian Dollar, and Australian Dollar. All of these were excellent winning trades, giving a large overall gain of 10.45%, as outlined earlier.
Directional volatility in the Forex market decreased last week, with 27% of the most important currency pairs fluctuating by more than 1% last week.
Last week, the Australian Dollar showed relative strength, and the Japanese Yen showed relative weakness.
Key Support/Resistance Levels for Popular Pairs
Technical Analysis
US Dollar Index
The US Dollar Index printed a small inside candlestick last week which closed slightly higher with a relatively large upper wick, signifying indecision. The candlestick is close to being a bearish pin bar. There is no true long-term trend here, as the price is above its level from 3 months ago but remains below its price of 6 months ago, making the US Dollar relatively unreliable to trade on a trend basis.
The weekly price chart below shows that the dollar has been swinging but has been in a consolidation pattern for quite a while, and the consolidation seems to be getting stronger and constricting.
However, it is worth noting that there is a confluence of a bearish descending trend line and a key horizontal resistance level at 105.81 which is not far from the current price. If the Us Dollar can get established above that level, it could be a significant bullish breakout. It could happen this week if the release of US CPI (inflation) data is notably higher than expected.
USD/JPY
The USD/JPY currency pair was active this week, as were all the Yen crosses. This is due to volatility remaining within the Japanese Yen after its recent massive price movements, with the volatility goosed by two suspected interventions from the Bank of Japan.
The Yen is weakening everywhere, and so of course it also weakened against the US Dollar. However, several other currencies gained even more against the Yen last week.
Technically we see the bullish momentum starting to evaporate into a consolidation below ¥156.00.
Yen weakness is quite likely to persist over the coming week. Whether this is the best pair to use to be short of the Yen is debatable. However, if the Yen does stay weak, long trades from bounces at support levels in this currency pair are likely to be good trades.
Gold
The price of Gold rose quite firmly last week, printing a bullish engulfing candlestick of good size, although Friday saw Gold give up some of its gains through a short-term topping out. The weekly price chart below shows some upper wick on the weekly candlestick. However, the price closed notably higher, and is not very far from making a record high weekly close, which was last made 4 weeks ago at $2392.
We do not yet have bullish breakout conditions, but long trades do look more likely to succeed than short ones, and there is certainly a long-term bullish trend here.
I think we could see a good point to enter a new long trade if we get either:
A daily close above $2400, or
A retracement to any of the support levels above $2290.
Silver
The price of Silver rose quite firmly last week, printing a bullish engulfing candlestick of good size, although Friday saw Silver give up some of its gains. The weekly price chart below shows some upper wick on the weekly candlestick. However, the price closed notably higher, and is not very far from making a record multi-year high weekly close, which was last made 4 weeks ago at $28.69.
We do not yet have bullish breakout conditions, but long trades do look more likely to succeed than short ones, and there is certainly a long-term bullish trend here.
I think we could see a good point to enter a new long trade if we get either:
A daily close above $29, or
A retracement to either of the support levels at $27.72 or $27.46, with $27.46 looking especially strong due to its confluence with $27.50.
S&P 500 Index
After major US equity indices dropped quite sharply 4 weeks ago after making new all-time highs, US stock markets have been rising slowly but surely, and last week saw quite good performances, especially here in the broad, benchmark S&P 500 Index. It is worth noting that this Index outperformed the NASDAQ 100 Index, which is unusual in a bear market and suggests that the tech sector currently has some vulnerability.
The weekly price chart below shows a bullish candlestick that closed quite near its high. There was some upper wick, but nothing unduly large for bulls to worry about.
There is clearly a long-term bullish trend coupled with mostly bullish short-term momentum. The issue for bulls here is likely to be that the price is near the recent record highs which could provide resistance and trigger another bearish reversal if reached.
For this reason, I will only consider entering a new long trade here if we see a new record high daily close. I prefer a daily close above 5265 which would be a new record high.
We have seen renewed risk-on sentiment in recent days, which is benefiting stocks and precious metals. Gold and silver are positively correlated with stock market performances historically.
USDMXN :
The US dollar gap lower against the Mexican peso the kickoff the trading week, only to turn around and show signs of strength and fill that gap, only to turn right back around and start selling off. Ultimately, this is a market that I think is doing everything he can to break down below the 16 pesos level, but we have a long way to go. In general, this will be an interesting pair to watch due to the fact that it is an emerging market currency that is extraordinarily important. I think this still remains a market that you are looking to fade rallies in.
CAC
The French index was very positive this week, although it’s worth noting that Friday was little bit of a letdown. The market has struggled at the previous high, but this simply means that we will probably pull back only to find more buyers. Underneath, we have the €7900 level that is likely to offer quite a bit of support. Even if we were to break down below there, I think there’s even more support near the €7600 level as the 50-Week EMA comes into the picture.
Bottom Line
I see the best trading opportunities this week as follows:
Long of the S&P 500 Index following a daily close above 5265.
Long of Gold following a daily close above $2400.
Long of Silver following a daily close above $29.00.
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The US dollar has rallied a bit against the Mexican peso during the early hours on Wednesday, as we continue to see a lot of volatility overall.
Keep in mind that the interest rate differential actually favors Mexico in this equation, and that’s part of why we had seen such a strong downtrend for so long.
That being said, we are in between the 50-day EMA and the 200-day EMA indicators, and that, of course, is an area you normally see a lot of volatility in. This is mainly due to a lot of technical traders placing trades in one direction or the other. More importantly, we’re around the 17 pesos level, which has a certain amount of psychology attached to it, and then you also have to keep in mind that there’s probably options barriers in that neighborhood as well.
Risk Appetite Continues to Matter
Because of this, I think we’ll have to pay close attention to how things play out because there is a risk appetite component in the USD/MXN pair. Keep in mind, people generally run to the US dollar in times of trouble and away from emerging market currencies regardless of the interest rate that you get paid. Beyond that, Mexico is highly levered to the US economy as it is now the number one exporter to the United States.
And obviously there’s a major influence on Mexican corporations and factories, et cetera, depending on what’s coming out of the U.S. With all of that being said, it does look like there is a large amount of clustering above that could cause some issues. And therefore, I think it’s going to be difficult to rally from here significantly. However, if we were to rally above 17.30 pesos then you have to think that perhaps the trend change is in the cards. It could be a difficult move, but it’s worth noting that if we do rally at this point in time, it could lead to not only the Mexican peso struggling, but also quite a few emerging markets as well.
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Buy the AUD/USD pair and set a take-profit at 0.6650.
Add a stop-loss at 0.6500.
Timeline: 1-2 days.
Bearish view
Sell the AUD/USD pair and set a take-profit at 0.6500.
Add a stop-loss at 0.6610.
The AUD/USD exchange rate remained under pressure as traders assessed the recent actions by the Federal Reserve and Australia’s central bank. The pair was trading at 0.6580 on Thursday, down from this week’s high of 0.6650.
Fed and RBA decisions
The AUD/USD pair has been in the spotlight after the recent actions by the Federal Reserve and the RBA. In its decision last week, the Fed decided to leave interest rates unchanged between 5.25% and 5.50%. It also hinted that it will cut rates later this year if inflation continues falling.
The Federal Reserve noted that inflation has remained stubbornly high above its 2% target while the economic growth is slowing. Recent data showed that the economy expanded by just 1.6% in Q1, a sharp reversal from Q4’s 3.2%. Economists expect the Fed to start cutting rates in Q4 of this year.
The Reserve Bank of Australia also left interest rates unchanged at 4.35% as it continued focusing on the country’s inflation, which has remained higher than expected. Analysts at several banks expect it to cut rates later this year. On the other hand, some of them believe that it will even hike rates later this year.
There will be no major economic data from Australia and the US on Thursday. The only report to watch from the US will be the initial and continuing jobless claims numbers. Economists polled by Reuters expect the report to reveal that the initial claims rose by 212k last week from the previous 208k.
Continuing claims are expected to come in at 1.79 million, higher than the prior week’s 1.7k. While these are important numbers, their impact on the AUD/USD pair will be limited.
AUD/USD technical analysis
The Australian dollar peaked at 0.6650 last week as the US dollar weakened after April’s nonfarm payrolls (NFP) data. That was a crucial price since it failed to move above that level on March 8th and April 9th. It was also the neckline of the inverse head and shoulders pattern.
It pulled back this week after the RBA interest rate decision and has found a support at 50-period moving average. It is also trading between the 38.2% and 50% Fibonacci Retracement level.
Therefore, the pair will likely bounce back as buyers target last Friday’s high of 0.6650. On the flip side, a drop below the support at 0.6540 will provide more downside.
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