Daily Market Report

[FOREX.com]

AUD/USD holds 64c ahead of AU jobs, crude oil slips 3%: Asian Open April 18, 2024​

The US dollar snapped a 6-day winning streak to allow AUD/USD to rebound from 64c in line with yesterday’s bias. And if AU employment figures perform today, it could extend its gains for a second day.

By : Matt Simpson, Market Analyst

• US treasury yields were lower a day after Powell effectively dashed hopes of a Fed rate cut this year
• Fed’s Mester also commented on the “strong labour market” and desire to be “pretty confident inflation is on its downward trajectory” before easing on Wednesday
• Whist these comments could have been seen as bullish for yields, investors seem to be stepping back into the bond market as the Fed are now seen to be taking the fight against inflation a tad more seriously (bond prices move inversely to yields, and inflation is generally bad for bonds)
• Fed fund futures now imply a 54.8% chance of rates remaining steady until July, and any bets of a cut are steadily lower from September’s 46.6% probability
• Lower yields saw the US dollar snap its 6-day winning streak, EUR/USD rose in line with yesterday’s bias and helped USD/JPY retrace slightly towards 154
• All eyes remain on the 155 for USD/JPY – as 155 is the level Japan’s ex-FX diplomat warned could be the threshold for the BOJ to intervene a couple of weeks ago
• Separately, Japan’s Finance Minister Suzuki flashed a fresh warning to yen speculators by saying “we will respond appropriately to excessive FX moves” on Wednesday
• Soft earnings and hawkish comments weighed on Wall Street, sending the Nasdaq 100 and S&P 500 to a 2-month low
• The DAX managed an early bounce in line with yesterday’s bias to meet the 4-hour bullish target, although weak sentiment to global stock markets ultimately weighed and sent it lower by the close
• A rise in US commercial inventories saw crude oil prices tumble overnight and outweigh any concerns over Middle East supply risks. WTI crude oil fell over -3% by the close, invalidating my bullish bias with a break beneath $84 and settling just below $83 on trend support.

Click the website link below to get our exclusive Guide to AUD/USD trading in 2024.

https://www.forex.com/en-us/market-outlook/

Economic events (times in AEST)​

• 09:50 – Japan’s foreigner stock/bond purchases
• 11:30 – Australian employment report
• 11:30 – BOJ board member Noguchi speaks
• 14:30 – Japan’s tertiary activity index
• 17:15 – ECB's De Guindos Speaks
• 20:00 – China foreign direct investment
• 22:30 – US jobless claims, Philly Fed manufacturing
• 23:05 – Fed Bowman speaks
• 23:15 – FOMC member Williams speaks
• 01:00 – FOMC Member Bostic Speaks

AUD/USD technical analysis:

​

There is not a lot of to update from yesterday’s analysis. But for those that missed it, a head and shoulders pattern projects a downside target just beneath 63. Yet AUD/USD’s ability to hold above 63c last year despite a slew of negative sentiment, I remain doubtful that it will simply break beneath this level if revisit – unless the wheels fall off of the global or Australian economy.

AUD/USD bounced from 64c in line with Wednesday’s bias, and if AU employment data beats expectations or even comes in around them (which are decent anyway) then I see the potential for AUD/USD to extend its rally and head for the 0.6475 – 0.6500 resistance zone. At which point I will reassess its potential to continue higher or form a swing high.

Crude oil technical analysis:​

It was the second worst day of the year for crude oil, which despite showing signs it wanted to hold above $84 earlier in the European session, was quick to break key support levels when inventory data arrived. Crude oil saw a daily close beneath trend support, which might provide a dynamic area for bears to fade into should we see prices retrace higher in today’s Asian session.

$80 is the next major support level which is near the 50-day average, but also take notice of the monthly pivot point at 81.11 that could spur profit taking should prices continue lower.


However, something for bears to keep in mind is that daily trading volumes are lower and RSI (2) is oversold. Therefore, whilst the near-term bias is bearish to the $80 - $81 area, I am also on the lookout for evidence of a swing low.



-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

 

[FOREX.com]

US dollar taps 106 as US 2yr eyes break of 5%, gold rangebound: Asian Open April 19, 2024​

The US dollar index recouped some of Wednesday's losses and is now tapping 106, whilst the US 2-year yields considers a break above 5%.

By : Matt Simpson, Market Analyst

• FOMC member Bostic said on Thursday that a rate cut is not likely until the end of the year. This makes sense given the strength of US data with elevated interest rates, and likely lands conveniently after the election that the Fed do not want to be seen interfering with by changing policy a couple of months before it.
• Backing up the sentiment, Kashkari said that “once inflation is heading back to 2%, we can cut rates”.
• The ECB continued to prime markets for a June cut, with Kazaks saying “the path for rates in down” and “the probability of a June rate cut is quite high”.
• Just in case someone out there may be expecting any monetary policy excitement from the BOJ this year, Noguchi said “it’s short-term policy rate adjustment is likely to be slow”.
• The US, Japan and Korea released their first trilateral dialogue on Wednesday and agreed to consult closely on FX markets following the rapid depreciation of the Japanese yen and Korean won.
• Australia’s unemployment rose to 3.8% and 28.5k jobs were added in March, which likely changes nothing in regards to the RBA likely retaining their cash rate at 4.35% over the foreseeable future
• Morgan Stanley are retaining their call that the Bank of England (BOE) could begin cutting rates in May, which is against the consensus of September among other banks.
• US yields were higher on Thursday, sending the US 2-year just below 5% within a potential bullish pennant pattern
• Higher yields allowed the US dollar to recoup some of Wednesday’s ‘bearish engulfing day’ losses and retrace to 106, a key level for bulls and bears to scrap over today.
• I noted in yesterday’s report that US bonds are nearing support levels on the weekly chart which could cap yields in the coming weeks, but that still allows for some bullish wriggle room over the near term.

Economic events (times in AEST)​

• 09:30 – Japan’s inflation report
• 16:00 – UK retail sales
• 16:00 – German PPI
• 19:00 – IMF meetings
• 00:15 – BOE Breeden speaks, MOC member Ramsden speaks
• 00:30 – Fed member Goolsbee speaks

Click the website link below to get our exclusive Guide to gold trading in 2024.

https://www.forex.com/en-us/market-outlook/

Gold technical analysis:​

Gold is currently on track for a fifth consecutive bullish week, and at current level it would close at a record high on the weekly chart (even though it trades beneath last week’s high). However, it is also on track for an inside week, which shows a loss of momentum from the bull camp. A bullish inside day also formed on Thursday, further suggesting gold remains rangebound between 2355 – 2400 with diminishing volatility. And looking at the calendar there is a reasonable chance gold could remain rangebound today.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

 

[FOREX.com]

AUD/USD weekly outlook: Geopolitical risks, AU and US inflation in focus​

Whilst it appears that tensions in the Middle East have receded, headline risks remain a threat that traders need to keep in mind this week. And if sentiment is allowed to recover, economic data such as the key inflation reports for Australia and the US will be allowed to make their mark on AUD/USD.

By : Matt Simpson, Market Analyst

Headline risks from the Middle East could direct sentiment​

We head into this coming week with the potential for Middle East headlines to dominate sentiment. Reports of Iranian missiles striking a location in Iran of Friday saw oil and gold prices spike, safe-haven flows move into the Swiss franc and indices fall alongside the Australian dollar. Sure, AUD/USD rebounded recouped all of its losses once it was confirmed that the missile strike had not hit a nuclear facility, but it serves as a clear reminder that markets can move quickly during bouts of risk off, and usually driven by panic as the worst is assumed until told otherwise. Therefore, headline risks should be at the front of every traders mind this week.

Flash PMIs​

As for data, flash PMIs will provide a forward look at growth expectations for global regions, Australia included. Unless of course geopolitical tensions rise – in which case economic data will be quickly ignored. But if sentiment allow, traders will look for any signs of growth or inflationary pressures in the PMI reports. Traders can pair the respective regions against respective currency pairs and look for divergences between the reports. For example, stronger-than-expected PMIs from Australia and weaker-than-expected from Europe could weigh further on EUR/AUD given ECB members are becoming increasingly vocal about a June cut.


Click the website link below to get our exclusive Guide to AUD/USD trading in 2024.

https://www.forex.com/en-us/market-outlook/

Australian CPI, PPI​

Wednesday’s inflation report will garner a lot of attention from the RBA and traders in general, as it is the quarterly release which tends to carry more weight then the monthly equivalent. We saw last week that New Zealand’s inflation levels remained elevated at 4% y/y and 0.6% q/q and given that Australia’s quarterly CPI tends to trend in the same direction than its Kiwi trade partner than it may be a reasonable to not expect miracles from Australia’s report.

Q3 saw CPI at 4.1% y/y and 0.63% q/q, and unless we see a noteworthy drop with these figures next week then the RBA are likely to continue referring to inflation as “too high” in the upcoming meetings. Furthermore, there’s very little for doves to get excited about in Australia’s latest jobs figures. Jobs are still being added and 3.8% unemployment remains low by historical standards and remains a key reason as to why expect the RBA to remain at a cash rate of 4.35% for much (if not all) of 2024.

For context, Bloomberg is pricing in just a 7% chance of 21bp of cuts this year.

US PCE inflation​

With Fed members including Jerome Powell himself aggressively pushing back on rate cuts, it would take quite the soft inflation report next week for markets to regain confidence of even a single cut this year. And as PCE inflation tends to not be volatile (and headline CPI was hotter than expected) then I see little chance of a soft PCE report next week. Whether this results in a stronger US dollar and yields (to the detriment of AUD/USD) remains debatable, as the US dollar and yields were actually lower following hawkish comments from Powell. One theory is that if the Fed are perceived to be taking inflation more seriously with higher for longer rates, bond investors are stepping back into the market on the bet inflation will come down in future (and weighing on yields, and therefore the US dollar now). We’ll simply have to assess how markets respond next week to confirm this theory.

​

AUD/USD futures – market positioning from the COT report:​

• Net-short exposure to AUD/USD futures rose $0.35 billion for the week, as of last Tuesday
• Large speculators increased net-short exposure at the fastest weekly pace in 14 years
• Net-short exposure among large speculators and asset managers rose by 8.7k and 13.3k contracts respectively
• However, net-short exposure for both sets of traders are nearing their record high set in March, which leaves the potential for a sentiment and extreme (and bullish reversal)

AUD/USD technical analysis​

The Australian dollar reached the 64c downside target, and even briefly traded beneath it on Friday. Yet reports that Iran did not intend to retaliate against Israel helped markets reverse their earlier risk-off moves and send AUD/USD back above 64c by Friday’s close. Assuming there are no further surprises from the Middle East, the bias is for AUD/USD to build on its false break lower and head for at least 0.6450 in the first half of the week, with the potential for a move towards 0.6500. Beyond that it becomes murky – and likely down to the US PCE inflation report as to whether AUD/USD can truly rally. At this stage, my assumption is for a limited bounce and a potential swing higher to form next week.

AUD/JPY technical analysis:​

An elongated bullish pinbar formed on Friday due to Middle East headlines (as AUD/JPY is a classic barometer of risk for FX, it was the most volatile AUD pair of the day). Yet notice how the 50-day EMA sits perfectly near the 98.63 support level, so any pullback towards it early this week could be tempting for bulls to seek dips – assuming there are no gaps lower on Monday or sentiment-ruining headlines incoming. 100 marks available initial target for bulls, a break above which likely requires a fresh bout of risk on (which seems debatable for now).

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge


The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

 

[FOREX.com]

Gold’s worst day in two years, Crude oil eyes bounce above $80: Asian Open April 23, 2024​

There has been a shakeup at the top for gold, which opened the week at the high and closed the day at the low during its worst day in two years. We also look at a potential swing trade long on WTI crude oil.

By : Matt Simpson, Market Analyst

• ECB remain on track for multiple rate cuts this year, despite the likelihood of no cuts from the Fed and an expansive Middle Eastern conflict. Whilst there is division among the ranks of ECB officials between two or three cuts this year, Christine Lagarde has kept the door open for a June cut.
• A Reuters poll saw 59 of 97 economists estimate 75bp or less of ECB cuts this year, or 38 or 100 at 100bp or less. A June cut is almost fully backed by 97 or 97 economists.
• Regardless, EUR/USD remains flat on Monday and formed a small inside day whilst the US dollar ponders its next move (but to my eyes looks like it wants to pop higher over the near term, towards the 1.07 area).
• GBP/USD fell to a fresh YTD low on bets the BOE will now cut twice this year, beginning in August
• Wall Street indices were a touch higher allowing the S&P 500 to snap a 6-day losing streak, the Dow Jones rise to a 5-day high and the Nasdaq hold above 17k and form an inside day / spinning top doji
• USD/JPY trades less than 20-pips from 155, a level not tested since 1990. The question now is if we’ll see a clean break or the market will naturally selloff if this key level is tested.
• AUD/USD formed a small bullish engulfing day after Friday’s false break of 64c left a bullish pinbar – the bias remains for a bounce towards 0.6470 – 0.6500
• Crude oil looks comfortable above $80 and I suspect a bounce towards $84 could be on the cards (see below for today’s chart)
• Gold prices suffered their worst day since March 2022 to suggest we may have entered the early stages of a retracement.

Click the website link below to get our exclusive Guide to gold trading in 2024.

https://www.forex.com/en-us/market-outlook/

Economic events (times in AEST)​

• 09:00 – Australian flash PMIs (manufacturing, services)
• 10:30 – Japan’s PMIs (manufacturing, services)
• 15:00 – Singapore inflation
• 17:15 – France flash PMIs (manufacturing, services)
• 17:30 – Germany flash PMIs (manufacturing, services)
• 18:00 – Euro area flash PMIs (manufacturing, services)
• 18:30 – UK flash PMIs (manufacturing, services)
• 21:15 – BOE member Pill speaks
• 22:00 – US building permits
• 23:45 – US flash PMIs (manufacturing, services)

Gold technical analysis:​

Just one day down, gold is already on track for a bearish engulfing week which opened at the high and closed the day at the low. The weekly RSI (14) had reached its highest overbought level since August 2020 with a reading of 80. And, as noted in the weekly COT report, managed funds and large speculators trimmed long exposure last week with managed funds increasing their short exposure for a second week.

The daily chart shows that the nice bullish trend from the $2000 area has seen a shakeup at the highs. Monday’s bearish engulfing candle was its worst day in nearly two years, forming a bearish Marabuzo candle (no upper or lower wicks). Whilst this could spook more bulls into booking profits and potentially sending gold lower, support has been found around the 20-day EMA and 38.2% Fibonacci level. Should prices bounce, I’d be looking for evidence of a swing high around 2355 – near the centre of the Marabuzo candle, in anticipation of a break lower and move towards the 50% and 61.8% retracement levels (the latter sits near the lower Keltner band) around $2240.

WTI crude oil technical analysis:​

The retracement from the April high has seen crude oil prices hand back nearly 8%, which alone is enough to suspect a bounce higher could be due. And this seems more likely than not, given support has been found around a previous consolidation area, high-volume node, $80 and 50-day MA. Furthermore, a small bullish divergence has formed on the RSI (14) within the oversold zone, hence the hunch for a swing low and bounce towards $84.

Beyond that, things become murky. On one has managed funds are increasing their short bets against crude oil and on the other the potential for Middle East headlines to at least support (if not boost) oil prices. For now, I’ll stay in my lane and seek some bullish mean reversion form a technical perspective.



-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

 

[FOREX.com]

US dollar correction kicks in, AUD/USD firm ahead of CPI: Asian Open April 24, 2024​

The US 2-year bond yield remains support, which is capping the yield at 5% and weighed on the US dollar. And that helped AUD/USD rise for a second day ahead of a key AU CPI report.

By : Matt Simpson, Market Analyst

The British pound was the strongest FX major on Tuesday after BOE’s chief economist said he’d “err on the side of caution for cutting bank rate”, sending GBP up against all of its major peers. Pill also warned that the latest official data showing a large fall in unemployment should not be taken at ‘fade value’, which is why the central bank is placing greater emphasis on service price inflation and wage growth over unemployment.

The pound had come under increasingly bearish pressure in recent days on bets of two rate cuts, beginning in August. Yet Pill’s comments allowed mean reversion to kick in and saw GBP/USD rise 0.8%, in line with my bullish, countertrend bias on Tuesday.

The US dollar began to retrace lower after failing to hold above 106. Which is encouraging as I have flagged a couple of times over the past week that the US 2-year bond found support at a historical level, which seemed to be capping yields at 5% and therefore raised the risks of a US dollar pullback.

• WTI crude oil rallied in line with Tuesday’s bias and closed above $83, thanks to a weaker US dollar
• Gold formed a bullish hammer at a 50% retracement level to suggest bullish mean reversion may kick in (but as for now, the bias is not for a break to new highs)
• Wall Street indices rose for a second day ahead of earnings from big Tech
• USD/JPY cautiously rose to a fresh 34-year high yet, for now at least, remains hesitant to tap the 155 handle ahead of a key US inflation report and BOJ meeting

Economic events (times in AEST)​

• 11:30 – Australian quarterly and monthly CPI report
• 18:00 – German Ifo business survey
• 19:30 – US durable goods orders
• 22:30 – Canadian retail sales

Australia’s inflation report is the biggest event for currency traders in today’s APAC session. The RBA pay very close attention to the quarterly report given its established history, and as it is perceived to be more robust than the monthly report it is assumed more likely to prompt any policy action from the RBA.

Clearly what most want to see is a softer set of inflation figures to warrant a cut from the RBA sooner than later. Let looking through the data for CPI q/q, odds slightly favour a miss with 43.5% higher than estimates and 46.4% lower than estimate. Only 0.94% of the CPI q/q reads came in on estimate according to the data.

Click the website link below to get our exclusive Guide to AUD/USD trading in Q2 2024.

https://www.forex.com/en-us/market-outlooks-2024/q2-aud-usd-outlook/

• This has seen AUD/USD post negative average returns on CPI day, T+1 and T+2.
• The strongest negative returns are T+2
• Yet T+1 is the strongest negative median returns
• The ASX 200 has averaged flat returns on CPI day and T+1
• Although the ASX 200 has produced positive median returns on CPI day, T+1 and T+3

AUD/USD technical analysis:​

The two-day rally for AUD/USD has seen the pair reach my upside target zone in the first half of the week, as anticipated. How much higher it climbs from here is now down to whether CPI data comes in stronger than expected and if the US dollar continues to correct. Given NZ inflation remains sticky and it tends to move in lockstep with Australia’s inflation, there’s a chance that today’s CPOI report won’t be enough to replenish dovish bets to materially weaken AUD/USD.

And with AUD/USD sitting in a resistance zone, my bias is neutral until the data arrives and we get a better feel for the US dollar’s direction. Ultimately, a soft CPI report coupled with USD strength could prove to be the high for AUD/USD and another crack at breaking below 64c. But unless we are treated to a broad risk-on environment, I suspect the upside potential for AUD/USD could be limited. And if AUD/USD does top out around current levels, it keeps the head and shoulders top in play which brings a move down to 63c onto the agenda.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

 

[FOREX.com]

U.S. Dollar Builds Bull Flag Ahead of Core PCE Data, FOMC Ahead​

The U.S. Dollar has held resistance at a key spot while building a bull flag formation. The driver to how that resolves will likely have some drive from tomorrow’s Core PCE data, which is the last inflation print before the FOMC rate decision next Wednesday.

By : James Stanley, Sr. Strategist

U.S. Dollar Talking Points:​

• There’s a couple of different technical items around the USD at the moment. From the daily chart, there’s a bull flag formation with support showing at a Fibonacci level. But, from the weekly, the U.S. Dollar is threatening an evening star formation after last week’s spinning top has been followed by a pullback of the early-April breakout. Tomorrow’s USD performance is important for continued development.
• The major data release on this week’s docket is tomorrow’s Core PCE print. This is often called the Fed’s ‘preferred inflation gauge’ and it was instrumental in their dovish outlay earlier in the year. This will be the last piece of inflation data ahead of next Wednesday’s FOMC rate decision, and it’s been more friendly to the Fed’s dovish push so far this year than what’s shown in Core CPI.
• I’ll be discussing these themes in-depth in the weekly webinar. It’s free for all to register: Click here to register.

Click the website link below to get our exclusive Guide to central banks and interest rates in 2024.

https://www.forex.com/en-us/market-outlook/

It’s been a strong start to 2024 for the U.S. Dollar and the major driver behind the theme has been continued strength in the U.S. economy. Even with the Fed retaining a dovish posture at the March rate decision, highlighting the potential for three rate cuts this year, the USD has continued to charge-higher as inflation data has largely remained above-expectations and the labor market has continued to show strength through NFP reports.

There is a fundamental item that I’ll get to later but, for now, the technical backdrop behind the USD remains of interest as tomorrow’s outing could be telling for follow-through price action.

From the daily chart, there’s a bull flag formation as the pullback from last week’s highs has remained orderly. The low for today in DXY has come in at a Fibonacci level of note, the same 105.51 that I had highlighted in the Tuesday webinar. The bull flag is often approached with aim of bullish continuation, and this would expose the resistance zone sitting above price that stalled the move last week; and that runs from 106.50 up to 106.88, as this was the gap produced from the November FOMC rate decision when the bank started to sound very dovish.



U.S. Dollar Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

U.S. Dollar Weekly Chart​

Taking a step back to the weekly chart, and the same range that’s been in-play for 15 months remains of consideration. The high from last week is very near range resistance and, so far, that’s stalled the bullish run. As I had highlighted last week, the U.S. Dollar had flashed overbought conditions on the daily chart which isn’t all too common, and that’s further reinforced the pullback theme that’s built-in that bull flag looked at above.

But, if buyers fail to hold the lows we may soon be looking at a very different picture, and it ties directly back to the fight against inflation as tomorrow’s Core PCE data could have a large bearing on how this plays out.

From the weekly chart, taking last week’s indecision which showed as a spinning top, bearish follow-through this week could produce an evening star formation and that’s often approached in the exact opposite manner of the bull flag above. Evening stars are usually looked at as ‘topping’ formation, and it’s a three-bar sequence looking for A) a strong upside move followed by B) indecision, followed by C) a retracement of at least 50% of A.

That shows around 104.99 by my calculation, so if we see tomorrow’s DXY bar close below that level, the bull flag would be negated, and the evening star would be confirmed. But, for that to happen, we would likely need to see a Core PCE print come below expectations.

Otherwise, the current zone of support could function as a higher-low as bulls drive into that November gap, and even a bit lower, from around 104.77-105.00, there’s continued higher-low support potential.

U.S. Dollar Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

The Core PCE Driver​

This is something that can have wide-ranging connotations. The Fed’s fight against inflation has been a key driver in markets and the boost that was seen in stocks last Q4 was very much emanating from a dovish lean at the FOMC. That helped to soothe rates which in-turn drove stocks, and that pushed-down the U.S. Dollar after a strong bullish run last summer.

The Fed’s argument for rate cuts has grown opaquer, however, as inflation data has started to show signs of entrenchment while the labor market has remained strong. The unemployment rate has remained below 4% for the longest stretch since the Vietnam war, and Core CPI has now printed within a 0.2% band of 4% for seven consecutive months; both of which suggest the Fed should probably be looking at hikes rather than cuts.

But as discussed in these articles, CPI isn’t the only measure of inflation in the U.S. and the Fed’s ‘preferred inflation gauge’ of Core PCE has been a bit more encouraging until the past couple of months. This data point was falling fast last year but has started to show similar signs of entrenchment over the past few months.

That’s at least partly what’s compelled Fed-speakers to take a step back from commentary regarding rate cuts and, in-turn, we’ve seen Treasury yields jump higher and that’s added some strain to stocks. And so far in Q2, stocks are showing a very different outlay than what we saw in Q1, very similar to what I had discussed in the Q2 trading forecast for equities, which you can access from the link below:

Click the website link below to get our exclusive Guide to index trading in 2024.

https://www.forex.com/en-us/market-outlook/

For tomorrow, the expectation for Core PCE is to come in at 2.6%, and if that prints, it would be a sign that inflation continues to cool per that data point and that can keep probabilities of rate cuts this year on the table. But – if it beats, and prints at 2.8% or higher, there could be a fast re-shuffling of those rate expectations and that could lead to more USD strength, higher yields and possibly even more pressure in equities.



Core PCE (orange) and Core CPI (blue) Since January, 2021

Chart prepared by James Stanley



--- written by James Stanley, Senior Strategist



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