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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You can see that the DAX did rally pretty significantly right off the bat here early Monday morning, but we are starting to see trouble in a very familiar area.
This area for lack of a better number, I’m going to call 18,250 euro.
It does look like we are essentially trying to consolidate here
With that being said, it does make a certain amount of sense that perhaps we will see a market that just bangs around between the 50 day EMA and the 18,250 euro level in the short term. But overall, it is a market that’s bullish. This consolidation makes a certain amount of sense after the recent pullback as traders have to test the waters to see whether or not the stock market is where they want to be.
DAX is the Big Market for EU
Furthermore, you must keep in mind that the DAX is the gateway to the rest of the European Union. So as the DAX goes, typically, so goes the AMX, the CAC, the MIB, et cetera. So with all of that being said, even if you’re not trading the DAX directly, this is an index that you need to pay close attention to if you have anything to do with equities on the continent.
If we can break above the 18,250 euro level on a daily close, I think at that point in time, you will have a real shot at this market trying to reach the highs again, near the 18,563 euro level. On a pullback, if we were to break down below the 50 day EMA, we could see the DAX go looking to the 17,500 euro level in area that has recently been massively supported. This area being broken below would obviously be a major turn of events, and therefore would be disastrous for not only the German stock exchanges, but for exchanges around the continent, as it is such a big player.
The EUR/USD pair could also give us an idea of how things go, as the German economy is so laden with export based companies. The euro falling against the dollar could also be a tertiary signal for where we go here as well.
S&P 500 Forecast: Continues to See Inflows
The S&P 500 rallied early during the trading session on Monday, as it looked like money was flowing back into Wall Street and stocks overall.
This does make a certain amount of sense, because people are starting to celebrate the idea that the jobs report in the United States was fairly weak, and therefore we could possibly be seeing the potential scenario setting up that the Federal Reserve could actually cut rates.
After all, this is what Wall Street cheers. They cheer unemployment. This should bring down inflation and therefore stocks should perform a bit better as rates in America drop. Speaking of rates, you will have to pay close attention to the interest rate situation which has been falling, but certainly looks as if it could turn around at any moment. If rates start to spike in America, that could very well put downward pressure on stocks.
Not Equal-Weighted
The S&P 500, of course, is not an equal weighted index. So, you have to keep that in mind. But I think ultimately as long as the top ten stocks or so are doing fairly well, you have a situation where the S&P 500 will rally. Underneath we have the 50 day EMA hanging around the 5090 level. And then underneath there we have the 5000 level which could be massive support as well, both from a structural and psychological standpoint.
It looks to me like the market is going to continue to be a buy on the dip scenario, and that we will eventually try to go looking toward the 5300 level, which is essentially where we topped out at recently. In general, this is an uptrend that had a nice correction of roughly 6 or 7%. And now those who are willing to follow the trend are starting to put money to work. That being said, you need to be very cautious about jumping in with both feet as there have been a lot of issues out there as of late, some of which have nothing to do with the stock market itself such as the geopolitical risks. Ultimately, I am bullish of this market, but I also recognize that there are a lot of exterior pressures out there that could come into the picture. Obviously, comma the fact that we are in the midst of earning season is a major issue as well.
NASDAQ 100 Forecast: Continues to Find Buyers
The Nasdaq 100 rallied a bit during the trading session on Monday, after initially pulling back the 17,850 level continues to be important as it showed itself to be support on that short term pullback.
Nonetheless, this is a market that I think does continue to go higher and eventually goes looking to reach the 18,385 level.
The market has been bullish for some time, and the fact that we have recovered so aggressively over the last couple of trading days certainly bodes well for the index.
Keep in mind that the 50 day EMA sits just below the 17,850 level as well. So that’s another reason to think that there are buyers just waiting to get involved in this environment. I just don’t have any interest whatsoever in trying to short this market because quite frankly, there’s just too much momentum. We will have to pay close attention to interest rates in the United States because quite frankly, if they start to rally, that might cause major issues for the Nasdaq 100 and some of the major technology companies.
We are in the midst of earnings season, so that could bring in a little bit of volatility. But I think at this point in time, it’s obvious that the Nasdaq 100 index wants to do everything it can to go higher. The short term pullbacks, I think, continue to be buying opportunities. The 17,000 level underneath is probably a major floor in the market, as it was the most recent swing low. This is more than likely not to be a concern, but it is a possibility if we get a sudden surge of fear in the markets overall.
The Other Scenario
If we break down below there then the 200 day EMA comes into the picture. But really at this point in time, I just don’t see an argument for shorting the market. And every time we pull back, I would have to assume that there will be buyers getting involved trying to take advantage of the Nasdaq 100 itself.
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The USD/MXN has fought once again below the 17.00000 price level and Friday’s price action produced depths not seen since the middle of April.
As of this writing the USD/MXN is trading near the 16.94820 ratio as the currency pair has been able to sustain momentum below the 17.00000 level.
Sentiment in global Forex has produced a weaker USD recently and financial institutions reacted to Friday weaker than anticipated U.S jobs numbers with more selling pressure.
The USD/MXN touched a low around 16.83000 on Friday in the midst of strong selling momentum.
While the lower depth was not able to be maintained, the reversal higher has been polite and the broad Forex market has also sustained a weaker USD centric stance today. Bearish momentum in the USD/MXN has been a solid factor over the long-term and the move above the 17.0000 which touched a high of around the 17.52000 mark (excluding the temporary spike caused by Middle East conflict concerns which touched the 18.16000 ratio) on the 19th of April has once again seen value turn lower.
USD/MXN and Support Levels as Sentiment Shifts
Bearish traders of the USD/MXN will certainly have their eyes on lower depths for the currency pair. On the 9th of April the USD/MXN traded around the 16.26250 level. Forex has been volatile over the past four months and this may continue still. However, recent U.S data may have started to create a shift once again in behavioral sentient regarding economic outlook and what the Federal Reserve will be able to do moving forward.
While inflation remains troubling in the U.S, last week’s weaker than expected earnings numbers may make financial institutions lean towards a weaker USD outlook. Now that the 17.00000 level in the USD/MXN has been proven vulnerable again and price action has been able to be kept below this mark, bearish traders may believe sentiment can take the USD/MXN back to known levels below.
Short-Term USD/MXN Bets
There will not be a lot of U.S economic data until later this week. Traders should keep their eyes on U.S Treasury yields; if these numbers stay muted through Wednesday and begin to decline it will likely help the USD become weaker.
If the 16.91000 level is broken lower and sustained in the near term it would likely ignite more selling optimism for the USD/MXN.
However traders should keep in mind the rather messy results produced in the broad Forex market the past 4 months full of reversals.
Momentum lower might be wagered on, but sustainability is still more of a hope at this juncture as the Federal Reserve outlook still remains unclear for the mid-term.
USD/MXN Short Term Outlook:
Current Resistance: 16.95100
Current Support: 16.93010
High Target: 16.97500
Low Target: 16.89200
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Buy the BTC/USD pair and set a take-profit at 66,000.
Add a stop-loss at 62,000.
Timeline: 1-2 days.
Bearish view
Set a sell-stop at 63,000 and a take-profit at 60,000.
Add a stop-loss at 66,000.
Bitcoin price staged a strong recovery in the past few days as a sense of calm returned to the market. The BTC/USD pair surged to over 64,000, which was much higher than this month’s low of 56,540.
A sense of calm returns
Bitcoin and other risk assets like global stocks have rebounded in the past few days as bad news became good news for the market. The Dow Jones index rose to over $38,800 while the Nasdaq 100 and S&P 500 soared to $17,900 and $5,130, respectively.
Meanwhile, the US dollar index (DXY) tumbled to a monthly low of $104.51 while bond yields slumped. The 10-year yield dropped to 4.50% while the 30-year and the 5-year fell to 4.66% and 4.48%, respectively.
This performance happened after the US published weak economic numbers last week, signaling that the Fed may deliver more rate cuts than expected. The first report came from the Conference Board, which revealed that consumer confidence dipped to its lowest point since 2022.
Further data by the Institute of Supply Management (ISM) revealed that the manufacturing and non-manufacturing PMI numbers retreated in April. That is a sign that the economy was slowing.
And finally, the most-anticipated jobs report revealed that the economy added fewer jobs than expected while the unemployment rate rose to 3.9%. The economy added 175k jobs, down from 315k in March. The average hourly earnings fell to 3.9%, missing the estimated 4.0%.
The implication of all this is that the Fed will start to cut interest rates in the coming months. Analysts see the bank delivering two cuts later this year. This is in line with the Fed’s meeting, in which the officials noted that they would be data-dependent.
BTC/USD forecast
The BTC/USD pair has been in a strong recovery in the past few days as some Bitcoin ETFs added some inflows. On the 4H chart, the 25-period and 50-period moving averages have formed a bullish crossover.
Bitcoin has also formed a bullish pennant pattern, which is a positive sign. The MACD indicator has moved above the neutral level while the Relative Strength Index (RSI) is approaching the overbought point.
Therefore, the pair will likely continue rising as buyers target the key resistance at 66,000. The alternative scenario is where it drops to the intersection of the 25 and 50-period moving averages at 62,000.
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The price of WTI Crude Oil went from running into headwinds and lingering within the upper realms of its three month price chart to falling below important support levels rather quickly last week.
As the price of WTI Crude Oil opens this week it will be near the 77.930 USD ratios, which had last been traded in a meaningful manner on the 13th of March.
WTI Crude Oil which has been flirting with higher prices and testing resistance on a fairly regular basis a bit over the past month suddenly found selling pressure build.
When the 82.000 price level was penetrated lower on Tuesday, momentum didn’t slow down and the 81.000 target began to come into sight and by Wednesday this level was brushed aside too.
Wednesday’s trading in WTI Crude Oil saw a fall from slightly above 81.000 to the 79.000 mark emerge. And downside pressure was not finished yet, Thursday and Friday did produce slight reversals higher, but selling continued and the 80.000 price level looked further away as traders began to close their offices for the weekend.
Supply Remains Abundant and WTI Crude Oil is Tranquil
While the media continues in many cases to shine a light on the Middle East conflict, experienced energy traders have proven they are tranquil and are paying attention to fundamentals which show Crude Oil remains abundant and no shortages are present. While peace in our time has not been achieved, developments from the Middle East didn’t stir speculative fires this past week.
The downturn in U.S GDP numbers last week may have also played a role in the ability of WTI Crude Oil to produce a price decline. Large players may be more cautious about pursuing long positions if they feel the U.S economy is about to enter a bona fide downturn.
Production Levels and Looking Ahead Technically
While inventory of WTI Crude Oil remains efficient and supply from the large producers is flowing, some analysts are pointing out that OPEC while conducting its next meetings could make changes to their production in order to combat the faltering prices. However, traders should understand the OPEC meetings aren’t until the 1st of June and until then production levels are not going to be changed dramatically. The question now for WTI Crude Oil is if it will sustain values below 80.000 USD in the coming days.
Traders with a taste for selling will have to pull out three month technical charts to observe depths last traded in the second week of March.
While the 77.000 realm below is certainly important, the price of WTI Crude Oil may start to test a choppy range between 77.000 and 79.000 over the near-term.
The ability to trade lower with rather considerable price velocity last week is newsworthy and speculators should monitor the start of WTI Crude Oil trading this week to gauge existing behavioral sentiment.
WTI Crude Oil Weekly Outlook:
Speculative price range for WTI Crude Oil is 75.200 to 82.600
If the 77.250 mark below starts to get tested and movement sustains lower depths this could set off a rather intriguing speculative battle. Any trading below the 77.000 mark could set off alarm bells and cause technical traders to consider lower values seen via six month charts. Before WTI Crude Oil traders say anything below 75.000 USD is too low, they should remember that the commodity was actually testing values below the 70.000 realm on a fairly consistent basis from mid-December until the start of the second week of January.
The trend lower in WTI Crude Oil which has been produced since the middle of April also coincides with nervousness regarding USD trading apexes and concerns about the U.S economy. Yes, reversals could certainly be seen in WTI Crude Oil, traders cannot bet on a one way direction to unfold. However, resistance above after getting tested in the coming days, may present an opportunity to sell WTI Crude Oil for speculators who manage their risk taking tactics well and believe downside pressure is stronger.
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At this point, the market is likely to continue to look at the 1.15 level as a major ceiling, and the fact that we have fallen so hard will certainly scare some traders away.
However, it’s also worth noting that we continue to knock on the door of the ceiling, and of course the interest rate differential favors the British pound, and therefore I think given enough time we eventually do break out.
Swiss National Bank
Keep in mind that the Swiss National Bank has no interest in seeing a strong Swiss franc at the moment, so you won’t have some of the noise and concerns that you have dealing with the Japanese yen at the moment. After all, the Japanese have intervened a few times, although they will end up losing. In this particular pair, the Swiss really don’t have any issue with the depreciation of their currency at this point, because it has been so strong for so long. In that sense, you do have a bit of a tailwind in this pair that you don’t have in some others.
All things being equal, I do believe that we have a situation where sooner or later the buyers come back in and take advantage of the interest rate differential, as it does pay so well at the end of each session. Remember, institutional traders pay close attention to this, and given enough time I do think that it is a main driver here. At this point, I think there is plenty of support all the way down to the 1.13 level, with the 50-Day EMA city just above there. In general, this is a pair that I’m looking for value to take advantage of.
That being said, if we were to simply turn around and rip through the upside, I think at that point you also have to consider getting long in GBP/CHF pair because at that point in time it would be very likely to see this pair reaching toward the 1.20 level over the longer term. Obviously, that would be something that would take some time to accomplish.
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The German DAX has rallied just a bit during the early hours on Thursday as it looks like we are trying to recover a bit.
The 18,000 euros level is an area that obviously will attract a lot of attention due to the fact that it is a large, round, psychologically significant figure, but it’s also an area where we have seen some noise previously.
The market at this point in time continues to see the 50 day EMA underneath as potential support.
In this type of environment, I think we continue to see a lot of consolidation as we try to sort out which direction we are going in the longer term.
Trend is Still Positive
The DAX is bullish overall, but I think also this is a situation where if we can break the candlestick from the last couple of days then we could go looking to the 18,500 euro level. Underneath the 50-day EMA there is a lot of support that we’ve seen recently so I’m not interested in shorting this market anytime soon.
That being said, the 17,500 level is an area that I think a lot of people will be paying attention to because if we were to give that up, then the uptrend could be threatened. Keep in mind the DAX is the gateway to Europe for most traders so they will look to it as a place to put money to work initially. In that sense, you can look at the DAX as a harbinger of what happens on the rest of the continent such as trading in the MIB in Italy or the AMX in Amsterdam etc. At this point it looks like we’re trying to beat back some of this negativity, but I think we’ve got some choppy and volatile days ahead
When you get this type of choppy volatility, you are better off using small positions, but given enough time I do think that we continue to see an attempt to rally. If we don’t rally in this market, and start to break down, then the real trade would be to short some of the smaller European indices.
S&P 500 Forecast: Continues to Consolidate (SIGNAL)
Potential signal: if we break above the top of the wipeout candlestick from Tuesday, near the 5140 level, I would be a buyer and go looking toward the 5275 level. Underneath, the 5000 level would be my stop loss.
Ultimately, this is a market that I do think has a lot of support underneath it, but the 5000 level is an area that I think he is psychologically important as well as potentially structurally supportive as well. In fact, I think it’s an area of support that extends down to the 4925 level.
The 50-Day EMA sits just above, offering a certain amount of resistance. If we were to break above there, then the market is likely to go looking toward the 5125 level. Breaking above that level opens up the possibility of a move toward the 5300 level, but we would need to see some type of momentum in the market. That being said, it’s probably only a matter of time before Wall Street finds a reason to start pushing a bullish narrative again.
Interest Rate Markets and Jobs
Friday is the nonfarm payroll announcement, and that of course will have a major influence on what happens next. Ultimately, which you need to watch is interest rates coming out of the 10 year note in the United States, because that’s the only thing that Wall Street cares about, whether or not it is going to get cheap money. This has absolutely nothing to do with the economy, because as an American I can tell you that things are getting rapidly more expensive. Wall Street is worried about getting cheap money to push around and take advantage of liquidity.
This is a bit ironic, considering we are in the midst of earning season, but quite frankly earnings have nothing to do with what happens with the stock. That’s like assuming that stocks have something to do with the economy. It’s a transmission of liquidity like it has been since the Great Financial Crisis. This is a market that is currently trying to sort out whether or not it has enough liquidity to support it. If it does, it will rise. If it does not, it will fall. At this point, I think the only thing you can count on is a lot of noise.
Nasdaq 100: Sandwiched, Watch US 10-Year Treasury Yield Next
Nasdaq 100 has exhibited short-term intraday wild gyrations of 3% to 4% in opposite directions since last week.
Today’s data focus will be on US non-farm payrolls and ISM Services PMI for April to offer clues on whether the stagflation risk narrative is still alive.
Macro factors such as the movement of the US 10-year Treasury yield are likely to take over the driver’s seat over micro factors (earnings results) in the next two weeks.
Key levels on the US 10-year Treasury yield to watch are 4.70% (above, likely to be bearish for Nasdaq 100) and 4.58% (below, bullish bias for Nasdaq 100).
Since our last publication, the Nasdaq 100 has continued to inch lower from its current all-time high level of 18,465 printed on 21 March 2024. It has just ended April with a monthly loss of -4.46%, its worst monthly performance since September 2023 after its prior five consecutive months of positive returns.
So far it has recorded a maximum drawdown of -8% from its current all-time high to the recent 19 April 2024 low of 16,974, and current episodes of minor rebounds in price actions have been rejected by the downward slopping 20 and 50-day moving averages; the hallmark of a potential on-going medium-term corrective decline sequence within its longer-term major uptrend phase.
On a shorter-term intraday basis, wild gyrations between a range of 3% to 4% in opposite directions have been seen on the Nasdaq 100 due to several significant risk events, and data releases that unfolded this week, two of the “Magnificent 7 group of mega-cap US stocks earnings results (Amazon and Apple), US ISM Manufacturing PMI, US Treasury refunding requirements, and the FOMC monetary policy meeting.
These events and data sets offered conflicting signals on the state of the US economy; stagflation risk is still alive but negated by the Fed’s upcoming Quantitative Tightening (QT) taper initiative to kickstart in June where the monthly amount of US Treasuries roll-off in the Fed’s balance sheet will be reduced to US$25 billion from US$60 billion.
Hence, the QT taper initiative has offered a relief to potentially cap any adverse liquidity squeeze in the US financial system that can trigger a spike in short-term and overnight interest rates as a lesser amount of banks’ reverses may be needed to fund the US Treasury general account (TGA) as the amount in the Fed’s overnight reverse repos facility (the primary source of funding for TGA replenishment since September 2023) has dwindled to almost zero (US$428.68 billion as of 2 May 2024) from a peak of US$2.55 trillion in December 2022.
Watch US NFP & ISM Services PMI for more clarity on the state of the US economy
There will be two more key pieces of economic data to digest before we end this hectic and volatile week, US non-farm payrolls for April where there may be a risk of upside surprise as consensus expectations have been lowballed to +181K jobs added after a surprise rosy print of +232K jobs in March. April’s ISM Services PMI on the health of the US services sector will be out later; still in an expansionary mode (above 50 reading) but the pace of expansion has slowed since the start of the year with last month’s March print of 51.1 versus 53.4 seen in January. If April’s number comes in below expectations of 52 and March’s 51.1, the stagflation risk narrative is likely to gain traction again.
US 10-year Treasury yield may dictate Nasdaq 100’s next intermediate moves
A clearance above 4.70% resistance on the US 10-year Treasury yield (inverted) may trigger another potential downleg in the Nasdaq 100 with its key medium-term support zone coming in at 16,560/290 (also the 200-day moving average).
On the flip side, a break below 4.58% near-term support on the US 10-year Treasury yield (inverted) is likely to see a continuation of the rebound on the Nasdaq 100 from the19 April 2024 low to expose the next intermediate resistance at 17,900
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