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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Gold and Silver are holding up relatively well despite the generally strong bearish reversals we have recently seen in commodity markets.
Silver is outperforming Gold, so traders should be more confident of being long of Silver than of Gold.
Neither precious metal looks like an immediate buy. It will probably be wise to wait for Silver to clear $27.50 or for Gold to clear $2330 before entering any new long trades.
Stock markets are generally rising again, which is probably good news for further rises in Gold and Silver.
Gold (XAU/USD): Technical Analysis
The price chart below shows that Gold is still established within a long-term bullish trend despite retreating from its record high made just a few weeks ago. Bulls still need caution as the price is not trading in blue sky and is prone to hitting resistance and swinging lower.
A few hours ago, the price made what seems to be a significant bearish reversal at the resistance level just below $2330. The price is currently sitting on the nearest support level at $2315 and looks quite likely to fall to $2308.
Silver is more bullish, but a long trade here in Gold could be a good idea if we get a bullish bounce at $2315, $2308, or even $2290. In the current technical circumstances where the price is not making any bullish breakouts, trading from bounces at support, even after a deep retracement, will likely be the best approach.
Silver (XAG/USD): Technical Analysis
The price chart below shows that Silver is still established within a long-term bullish trend despite retreating from its multi-year high made just a few weeks ago. Bulls still need caution as the price is not trading in blue sky and is prone to hitting resistance and swinging lower.
A few hours ago, the price made what seems to be a significant bearish reversal at the resistance level just below $27.50 which is a major quarter-number. The price is currently sitting on the nearest support level at $27.18 and looks quite likely to reject it, giving a possible long trade entry now.
A long trade here in Silver could be a good idea if we get a bullish bounce at $27.18, $27.00, or even $26.84. In the current technical circumstances where the price is not making any bullish breakouts, trading from bounces at support, even after a deep retracement, will likely be the best approach.
I see Silver as a better potential buy than Gold right now, but more conservative traders might prefer to wait for a bullish breakout above $27.50 instead of buying on the dip after a bounce at a key support level.
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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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Gold was all over the place during the trading session on Friday as the jobs numbers came out lower than anticipated.
Looking at the shorter term charts, the market had initially swung all the way up to the $2,323 level in the $2,275 level and then turned around to basically close in the middle of the day at the middle of the candlestick.
So, a lot of noise for no particular reason. It is interesting to note that we are right around the $2,300 level and that of course is an area that a lot of people will pay attention to as it is a large round psychologically significant figure.
That being said, if we can take out the top of the candlestick from the Friday session, I suspect that we may continue to see upward pressure. There are plenty of reasons to think that gold may continue to go higher, not the least of which, of course, is geopolitical concerns. Even if we broke down below the bottom of the candlestick for the day, then the 50-day EMA right around the $2,250 level and then eventually the $2,200 level, both could offer a significant amount of support.
External Pressures
Pay attention to interest rates, because if it looks like traders are betting on the Fed cutting rates sooner rather than later, that will also help gold. This is a chart that is very technically sound and despite the fact that we got thrown around quite a bit on Friday, the reality is, this is still a very bullish market.
Because of this, I have no interest whatsoever in trying to get short of the gold market, and most of my energy is focused on trying to find a decent entry point. Over the longer term, I would not be surprised at all to see the gold market go much higher, perhaps even reaching $2,500 given enough time. On the downside, even if we break down below the $2,200 level, I think there are plenty of buyers underneath it might jump into the market in trying to take advantage of “cheap ounces.”
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After touching lows on the 1st of May which challenged the 1.06500 level, the EUR/USD began to find buyers and a strong upwards surge developed on late Thursday and into Friday.
Speculators proved they have the desire to wager the end of last week. They might have gotten slightly ahead of their outlooks, but the EUR/USD did climb upwards from lows seen on Wednesday when the 1.06500 level was tested.
The upwards wave of buying began on Thursday and built into a powerful move Friday with the publication of U.S jobs data.
A high of nearly 1.08140 was seen on Friday before selling came into the market again and the EUR/USD went into the weekend near the 1.07583 mark.
The ability of the EUR/USD to finish at a higher level this past week compared to the value it started with will be welcome news for bullish traders of the currency pair. The values the EUR/USD closed with were last seen in the second week of April, but this was when the currency pair was actually caught in a downtrend. It hasn’t been since the 2nd of April that the EUR/USD has seen its current ratio while in the midst of an upwards climb.
Near-Term Nervous Sentiment in the EUR/USD
Trading in Forex, including the EUR/USD has been a wicked wagering landscape for a handful of months. However, last week’s U.S economic data may have been a rather important development for the outlooks of financial institutions. Gross Domestic Product came in weaker than anticipated, the falling growth numbers may slow the U.S economy and present traders with the hope that eventually weaker U.S growth will help erode inflation. The U.S Non-Farm Employment Change also came in below expectations.
While inflation remains a concern for the U.S Fed, earnings data on Friday was slightly weaker than anticipated. Rising prices in the U.S remain a concern for the Federal Reserve and they said this on Wednesday when they said they are uncertain about what inflation will do over the mid-term. It should be pointed out that WTI Crude Oil prices came down last week, which may help battle inflation too. But short-term speculative prices must turn into trends and this has not happened yet. However EUR/USD traders did show confidence and bought the currency pair in a flurry on Friday while speculating on better values. Nervous sentiment remains and this was seen as the EUR/USD couldn’t hold onto its loftier values as Friday closed. This coming week may see a wide price range too.
Starting Points for the EUR/USD This Week
German inflation numbers came in slightly below their expected results last week, which is perhaps a good sign for the European Union. However this data did not fuel a massive amount of EUR/USD buying. The ECB will conduct a virtual meeting this week, but it will not include a monetary policy decision, this will only come in June from the European Central Bank. The ability to go into the weekend above the 1.07500 mark will be looked upon favorably, but can the currency pair hold its ground and upwards momentum?
Perhaps financial institutions may start wagering on the notion that the worst of the economic news from the U.S is now in and the Federal Reserve will be able to start becoming dovish.
But betting on a change of direction from the Fed remains speculative taking into consideration inflation data from the U.S last week.
EUR/USD Weekly Outlook:
Speculative price range for EUR/USD is 1.06930 to 1.08910
Having produced a climb last week and a move above the 1.08000 level momentarily on Friday was an interesting development in the EUR/USD. However, the inability to sustain higher levels will cause nervousness for some traders as they contemplate tomorrow’s opening. If the EUR/USD can open with sustained trading above the 1.07550 level this would be seen as a positive.
Traders should also be aware that British banks will be closed tomorrow for their May holiday. This will make volumes within the EUR/USD lower than normal to start the day. Volatility might continue into Tuesday because of this, and then on Wednesday a host of European nations will be closed for a holiday. Last week’s higher finish was good news for the EUR/USD but the choppiness produced in the currency pair the past few months should serve as a reminder that outlooks remain cloudy and trading could stay speculative and without a firm trend.
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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 EUR/USD is trading near the 1.07015 mark as of this writing, which is a bullish accomplishment considering the currency pair touched a low of nearly 1.06000 on the 16th of April.
The shift in sentiment regarding a more cautious Federal Reserve has essentially been cemented over the past few weeks as inflation data from the U.S has remained sticky, and changed the rhetoric of FOMC members who have been speaking in public.
The potential of a U.S Federal Funds Rate cut in the mid-term has now almost vanished and become a hoped for interest rate cut late this summer or sometime in the fall, this if the U.S economy behaves.
As the month of May gets ready to start it will be met with a bang as the U.S Federal Reserve steps to the podium this Wednesday and delivers its FOMC Statement. Last week’s stubborn U.S inflation outcomes have brushed away any optimism that may have existed for a rate cut in June. However, intriguingly the EUR/USD has actually climbed upwards since Tuesday the 23rd of April when the currency pair was around the 1.06375 level.
Lack of Confidence in the European Central Bank to Become Proactive
The EUR/USD is now fighting near the 1.07000 mark which is important psychologically for technical traders and this may last for a bit longer. The U.S will also issue jobs numbers this Friday which will factor into the EUR/USD over the remainder of this week. Germany today published slightly weaker than anticipated Consumer Price Index numbers, but the European Central Bank is likely going to take its cue from the U.S Federal Reserve during the month of May and remain cautious.
The ability of the EUR/USD to dive lower with a rapid pace caught some speculators off guard. The largest fall occurred on the 10th of April when Consumer Price Index numbers in the U.S came in stronger than expected. These higher inflation results helped take the EUR/USD which was around the 1.08670 ratio before the CPI report was published, to the 1.07300 as the day progressed. The ECB held their monetary policy pronouncements the very next day and a low on that Thursday the 11th of April came in around the 1.07000 level, which intriguingly enough is the vicinity the EUR/USD is trading now.
Equilibrium and Nervousness in the EUR/USD
The EUR/USD has shown the ability to trade lower and looking at its one month technical chart the currency pair remains within the lower elements of its price range. The lowest depth for the EUR/USD in the month of April challenged values not seen since the 2nd of November. The 1.06850 to 1.07250 range may feature within the near-term as financial institutions await the FOMC Statement.
But here’s the thing, the Fed rhetoric this week is unlikely to deliver more clarity.
Certainly they will try to stay cautiously optimistic, but will it be enough to create equilibrium for the EUR/USD above the 1.07000 mark and launch an upwards attack on the 1.08000 level?
EUR/USD Outlook for May 2024:
Speculative price range for EUR/USD is 1.06775 to 1.07650
Speculators have seen choppy trading in the EUR/USD for the past four months and this is likely to continue during May. The value of the EUR/USD in April created a wide price range. Now that most financial institutions likely believe the Fed will remain cautious, this might create a bit of a tighter value band moving forward. However, speculators will still need to be careful. Traders who believe the EUR/USD is oversold need to make sure they aren’t simply biased against the USD.
While it may seem logical to believe the EUR/USD will gain over the mid-term and reestablish stronger values, traders looking for upside should remain realistic regarding their goals. If the EUR/USD is able to sustain value above the 1.07000 level this would be a positive sign, but bullish speculators may not jump into long positions until the 1.07500 mark proves it is durable as support. Traders looking for values below should also practice caution and moves below the 1.06775 ratio may be too far.
USD/MXN Monthly Forecast: May 2024
The US dollar has been bullish against the Mexican peso during the bulk of the month of April.
That being said, I don’t necessarily think this means anything other than we have found an area where people are willing to take profit.
When you look at the longer-term charts, the 16 pesos level is an area that is a major support level. Because of this, it should not be a huge surprise that we have seen the market bounce the way it has. Furthermore, we have a lot of questions to ask around the world right now as far as risk appetite is concerned.
We tested the 50-We EMA a couple of times during the month of April, but ultimately, we continue to see a lot of overhang as far as pressure is concerned. Because of this, I would assume that the downward pressure continues, mainly due to the fact that there is a massive interest rate differential, as Mexico has a massive amount of interest attached to its currency, in the form of 11.75%. While the US dollar does enjoy historically high interest rates as far as the last 15 years is concerned, the reality is that the Mexican peso is an entirely different world as far as interest is concerned.
Traders will continue to get paid to be short of this market, but I also believe at this point in time you also need to pay close attention to risk appetite. After all, the Mexican economy is not one that people want to throw a ton of money into in times of huge concerns. With that being said, if we were to break above the 18.50 MXN level, then I think this is a market that could truly take off to the upside. On the other hand, if we break down below the 16 MXN pesos level, then we could really start to see the US dollar unwind. In general, the market is likely to see the US dollar shrink against almost everything else, not just the Mexican peso. On the other hand, if we see a major “risk off move” in the market, emerging market currencies like the Mexican peso will get decimated. At the end of the day, I would not be surprised at all to see this market bounce around between 16 pesos and 18 pesos for the month.
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Rehana William |Financial Consultant _Forex_Gold Xauusd| Fund Manager 