The US dollar has rallied again during the trading session on Monday against the Brazilian real, as we continue to see a lot of concerns around the world affecting emerging market currency such as this one.
All things being equal, this is a market that I think will continue to see a lot of upward pressure, and I think at this point in time it does make a certain amount of sense that short-term pullbacks will continue to be buying opportunities.
Technical Analysis
AC several support levels that are excellent buying opportunities if you do in fact get the opportunity. Keep in mind that this is a pair that will be extraordinarily volatile at times because it is somewhat thinly traded during certain times of the day. That being said, I believe that the 5.30 level has now offered itself a bit of support, as it previously had been resistance. With that being the case, I like the idea of buying dips in bits and pieces and taking advantage of value any time, it shows up. After all, the US dollar is backed up by an economy that has seen a lot of bullish pressure due to the idea of jobs coming out hotter than anticipated.
People believe that the Federal Reserve will continue to stay tight with monetary policy, and that of course will continue to favor the US dollar as Brazil is considered to be a “risky economy”, despite the fact that the interest rate situation in Brazil is quite robust. However, when traders are not willing to take on a lot of risk in the emerging markets, Brazil is one of the first places they leave.
The 50-Day EMA is closer to the 5.17 level and is rising. I think it will offer a short-term floor if we do get some type of correction, but right now looks more likely that we go reaching to the 5.50 level above, as there is so much momentum. I have no interest in shorting this market and believe that any time we pull back its to be looked at as a buying opportunity.
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EURUSD was not triggered, as there was no bullish price action when the support level at $1.0863 was first reached.
Today’s EUR/USD Signals
Risk 0.75%.
Trades may only be taken prior to 5pm London time today.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.0784, $1.0834, or $1.0856.
Place the stop loss 1 pip above the local swing high.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.0758, $1.0722, or $1.0709.
Place the stop loss 1 pip below the local swing low.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
EUR/USD Analysis
In my previous analysis of the EUR/USD currency pair on 20th May, I wrote that the technical picture had become more bullish, with the Euro one of the strongest major currencies. I thought that there may be a chance for a long trade from a bounce at the support level at $1.0863 but this did not set up. I also said there were better assets to trade that day, and that certainly turned out to be true.
The technical picture now is more bearish, but not decisively so. The price was basically consolidating within a predictable range until the shock of Sunday’s calling of a general election in France following terrible EU Parliament election results for President Macron’s party. Macron has no majority in the French Parliament, so he is gambling that the far-right’s very strong showing last weekend might galvanise more centrist voters into voting for Macron again. However, the polls show the far right as likely to assume power, which would be a major political earthquake in France and the EU and will impact the Euro negatively if it happens.
These political events caused the Euro to plummet yesterday, before finding some support above $1.0700 and especially at the key support level at $1.0758 which seems to be holding as the first higher low. The key thing to watch for now is whether this level, let’s call it $1.0750 as that is a confluent major quarter level, holds up over the course of the day. The longer it holds, the more likely we are to see a continued recovery.
The Euro will now come into focus as a currency over the next few weeks and will probably show a higher level of volatility. Although the major far right party in France no longer support an exit from the EU, the Euro will likely trade lower the more polls show it on course for victory.
I think we will eventually see more downwards movement here, although that may be determined over the short term by the US Dollar and its key CPI and FOMC data coming tomorrow.
I think the best approach here is to look for short trades from and failed tests of key resistance levels, and to hold for a swing or even position trade if possible.
There is nothing of high importance scheduled today concerning either the EUR or the USD.
BTC/USD Forex Signal: Inverse Head and Shoulders Pattern Forms
Bullish view
Buy the BTC/USD pair and set a take-profit at 73,650.
Add a stop-loss at 67,000.
Timeline: 1-2 days.
Bearish view
Set a sell-stop at 69,000 and a take-profit at 67,000.
Add a stop-loss at 72,000.
Bitcoin price continued to consolidate in the evening session as investors waited for the upcoming Federal Reserve decision. The BTC/USD pair has been stuck below the key resistance point at 70,000 in the past few days.
BTC/USD technical analysis
Bitcoin bottomed at $56,450 in May and has crawled back in the past few weeks. It rebounded and moved to the crucial resistance point at 70,000. The BTC/USD pair has moved above the 50-day and 25-day moving averages.
Most importantly, it has formed an inverse head and shoulders pattern and is now sitting near its neckline. The inverse H&S pattern is one of the most bullish signs in the market.
Also, the Awesome Oscillator has moved above the neutral point at zero. Therefore, the pair will likely have a bullish breakout in the next few days or weeks. If this happens, the initial level to watch will be last week’s high of 71,870. A break above that level will see it rise to the YTD high of 73,650.
GBP/USD Forex Signal: Ripe for a New Bearish Wave
Bearish view
Sell the GBP/USD pair and set a take-profit at 1.2650.
Add a stop-loss at 1.2765.
Timeline: 1-2 days.
Bullish view
Set a buy-stop at 1.2735 and a take-profit at 1.2800.
Add a stop-loss at 1.2650.
Fed and BoE rates
The GBP/USD pair tilted upwards ahead of the upcoming UK jobs numbers, which will provide more information about the country’s wage growth. According to Bloomberg, analysts expect the data to show that the country’s unemployment rate remained at 4.3% in April while wage growth, including bonuses jumped by 5.7%.
A higher wage growth figure than expected will complicate the BoE’s rate cut outlook by signalling that the tight labor market was stirring inflation. That would make it difficult for the BoE to start easing interest rates, which sit at the highest level in 16 years.
The Bank of England is expected to start cutting rates as soon as in its July meeting since inflation has dropped recently. However, a rate cut may be complicated by the upcoming election in July where the Tories are expected to lose big.
There will be no other economic event in the UK on Tuesday. Therefore, focus among traders will be on the upcoming Federal Reserve decision. In it, the bank is not expected to slash interest rates.
Instead, the committee will provide more color on when the first cut will happen. This meeting will come at a time when the US is sending mixed signals. On the one hand, a report showed that the country’s manufacturing sector has moved into a deep contraction.
At the same time, the labor market is strong, with the economy adding over 272k jobs in May last year. Wage growth also continued accelerating, risking more inflation trends in the country.
GBP/USD technical analysis
The GBP/USD pair has rebounded from last week’s low of 1.2688. This rebound happened after the pair formed a morning star on the four-hour chart. It has moved above the lower side of the ascending channel shown in red.
The pair has also jumped above the 23.6% Fibonacci Retracement point level. However, the 25-period and 50-period moving averages are about to form a bearish crossover, which is a popular bearish sign.
Therefore, the pair will likely resume the bearish trend as sellers target last Friday’s low of 1.2688. A move below that level will point to more downside as sellers target the key support at 1.2650.
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Market Morning Briefing: Pound Seems To Be Holding Above 1.36
STOCKS
Dow trades higher after the FOMC and looks bullish for the near term. A rise above 35000 is needed to prevent further fall towards 33000. Dax is also bullish and needs to sustain above 15500 to move up further. Nikkei looks bearish while below 30000. Shanghai has risen well from support and looks bullish. Nifty and Sensex can see a steady rise in the near term.
Dow (34258.32, +338.48, +1%) has risen back above 34000 and while it holds strong, we may expect a rise back towards 34500-34750. However, in the medium term it needs to rise above 35000 and sustain higher to prevent any vulnerability to fall back towards 33000.
DAX (15506.74, +158.21, +1.03%) has risen well too but needs to rise and sustain above 15500 to indicate bullishness towards 15700/800 in the medium term.
Nikkei (29639.40, -200.31, -0.67%) continues to fall over the last few sessions and the view is bearish while below 30000 to see a dip towards 29250-29000 followed by a rise towards 30500-3700 eventually in the longer run. Japan markets are closed today.
Shanghai (3648.57, +20.08, +0.55%) rose sharply from support near 3560 and while that holds, view is bullish on the shanghai.
COMMODITIES
Commodities have risen well. Crude prices have risen and are heading towards resistances. Brent needs to hold below 77-78 while WTI can test 73-74 before coming off from there. Any break above the mentioned resistances can take them higher towards 80 and 75 respectively which are crucial in the medium term. Gold has dipped and needs to sustain above 1740 to move up again soon. Else a fall to 1725/00 cannot be negated in the longer run. Silver can fall towards 22-21.50 but before that it can attempt to rise towards 23.50. Copper tested 4 and has bounced back well from there. It can now rise back towards 4.30/40.
Brent (76.44) has risen well breaking above 75 and could now head towards interim resistance at 77-78 above which there is crucial resistance at 80. The broad 77-80 zone is likely to be tested before a sharp fall towards 70 is seen in the medium term.
WTI (72.41) has risen well as expected and could test 73-74 in the near term.
Gold (1763.90) has fallen as expected from resistance zone of 1780/90 and while that holds, a dip to 1740 cannot be negated. We would have to watch price action near 1740 to see if the price bounces from there or falls further down in the medium term. While correlation with Euro remains strong, a possible bounce in Euro from 1.1665 can help Gold bounce back too.
Silver (22.55) has risen a bit and has scope to rise towards 23.50 before falling off from there. Any break below 22 if seen in the near term would prove contrary to our view and lead to a sharp fall towards 22-21.50. .
FOREX
FED announced that it would start tapering by end of this year and stop purchases by mid-2022. It also signaled 3-rate hikes in 2023. Dollar Index rose sharply but needs to sustain above 93.40 to trade higher else a decline towards 93 is possible soon. Euro has broken below 1.17 and may test 1.1665 support which needs to hold to prevent further dip to 1.16. Aussie and Pound have bounce well from immediate supports. USDCNY is holding below resistance zone of 6.47/48. USDINR can test 74 on the upside but has 50% chance that it would come off from there back to 73.80/60. Watch price action near 74.00
Dollar Index (93.44) rose sharply to 93.4150 yesterday as FED announced starting of tapering by end of this year and signaled 3-rate hikes in 2023. Although the index has come off a bit it needs to break below 93.40 and sustain lower to avoid any further rise towards 93.60-93.80 in the near term. Watch price action near 93.40.
Euro (1.1697) fell to test 1.1684 yesterday before rising slightly from there. Note support near 1.1665 which needs to hold in order to keep some room on the upside intact. Else a fall towards 1.16 cannot be neagted.
EURJPY (128.50) has bounced well from support near 128 and while it holds, there is scope for a rise to 129 in the near term.
Dollar-Yen (109.88) rose sharply along with the rise in Dollar Index. But note that the pair still trades within 109-110.40 range which could hold for some more time.
Aussie (0.7226) has paused its fall near 0.7220-0.7200 and a bounce looks possible from current levels towards 0.7250-0.73 eventually.
Pound (1.3625) seems to be holding above 1.36 and while that holds, a bounce back to 1.3650-1.37 cannot be negated in the near term. Only a break below 1.36 if seen will force to look for lower levels.
INTEREST RATES
The US Federal Reserve left the rates unchanged at 0%-0.25%. It had said that the stimulus taper will begin soon. The PCE and Core PCE inflation projections have been revised higher to 4.2% and 3.7% respectively from its earlier projection of 3.4% and 3% respectively. The US Treasury yields have risen at the near-end (2Yr and 5Yr) while the far-end (10Yr and 30Yr) yields have seen a dip. A break below the immediate supports can drag the far-end yields further lower from here. The German yields remain stable and are likely see a fresh fall from here and resume the broader downtrend. The 5Yr and 10Yr GoI have risen-back yesterday. However, they have key resistances ahead that can cap the upside and keep it pressured for a further fall going forward.
The US 2Yr (0.24%) and 5Yr (0.85%) Treasury yieldshave risen while the 10Yr (1.30%) and the 30Yr (1.81%) have dipped after the Fed meeting outcome. A fall below 1.28% on the 10Yr and 1.8% on the 30Yr can drag the yields to 1.2%-1.18% (10Yr) and 1.7% (30Yr) in the coming days. It will also negate the chances of seeing 1.4%-1.45% (10Yr) and 2% (30Yr) on the upside. We will have to wait and watch the follow-up movement in the coming sessions.
The German 2Yr (-0.72), 5Yr (-0.64%), 10Yr (-0.33%) and 30Yr (0.16%)yields continue to remain stable below their key resistances. Our view remains the same. We expect the yields to resume the broader downtrend and see a fresh fall from here. The 10Yr can fall to -0.5% while below -0.25% and the 30Yr can test 0% while it sustains below 0.2%.
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