The FOMC meeting is scheduled for 2:00 pm EST today as the USD is stronger on the day. The stock market remains uncertain as volatility picks up hours before the meeting. We are going to hear sentiment towards monetary policy and thoughts on rate hikes going forward after the latest 50 bp hike.
It is important to listen to what they discuss regarding interest rates and what it would take for them to loosen their grip on such tight policy. If the Fed mentions a concern for the slowing of the economy, then they might take measures to let up on the aggressive hikes.
Additionally, the Fed's aggressive 50 bp hike on May 4 might have been enough for them to decide on a less aggressive stance. A problem we are facing now is the economy and jobs data. The US has missed several weeks of expectations in unemployment claims. Claims have climbed up to 218,000 from 184K a month ago.
Listening to economic projections is going to be another important thing to do. Judging by the past several weeks, projections may be weak in the short term. At least, this is what I'm expecting them to say. A major concern lies within a possible recession due to a slowing jobs market and higher costs causing less spending. Regardless, there might not be
USDJPY came down to the 50 DMA for potential support and is beginning a bounce as investors eye the upcoming FOMC news. Support lies right below around 125.025. If policy continues its aggressive stance towards interest rates, we may find more upside for the pair.
USDCAD is coming off resistance from a falling trend line on the 1D timeframe. Overall trend is still upward, but looks like price is rejecting off today's highs. Increased volatility today could make technicals irrelevant for a little while. Additional support could be below around the 50 and 200 DMA.
GU looks increasingly bullish as today's candle pushes higher today. We might see some higher highs on the day, but it is still likely that the USD will regain strength after the FOMC statements. A tighter policy seems more likely now, so more downside looks to be what's in store for this pair.
The British Pound fell sharply after an unexpected report on PMI data missed expectations by way more than what was forecasted. Most pound pairs are down as GBP/USD dropped -0.62% today. The sterling suffers one of the hardest drops in a long time.
Purchasing managers lost momentum for the month of April after a manufacturing PMI reading of 54.6 which missed estimates by 0.4, while services reported 7.1 points lower than March.
Costs in England have been the highest level in the past few decades. CPI is the highest it has ever been in history which has kept the economy from really improving at all. Businesses have been borrowing less money due recent inflationary concerns and this has caused companies to slash expectations this year. They have also had to increase wages significantly this year so a lot more money is going towards employees. Even with a much higher interest rate than in 2021, stagflation still remains a predominant issue for Great Britain.
The pound's behavior has done very poorly against the dollar as outlook continues to be weak. Year-to-date, GBPUSD is down nearly 7.5% and 12% down from the 2021 highs. The overall trend for the currency is a strong downtrend which is struggling to spark a shift in momentum. Every attempted bounce results in another sell off to new lows, so traders on the short side have been able to pick up sell positions at these opportunities.
GU is stuck at a resistance level on the 1D as it has seemed to form a lower high. It looks like the pair is set up for another sell opportunity although the pair has been performing relatively well this past week or so. Due to the strong overall trend to the downside, this bounce in price could be a chance to hop in on the short side once again.
The pound still looks bullish compared to the yen although sentiment is mostly risk-off. The pair has had some more volatile swings this year, but ends up forming higher highs and lows. Price is currently on support which could end up maintaining at this level, but if not, the 200 DMA lies right below that.
GBPCAD might have found a bottom if we zoom far out and find this bottom from September 2019. The past 4 days look promising for the pair although it is hard to tell for sure. However, this level does look heavily discounted within the past 3 years. If price can hold above 1.60927, this might be a bullish sign for the pair going forward.
Over the past couple days, the USD has retraced considerably from the highs as the dollar index is lower by another 1% today. A couple of things have signaled that dollar strength has peaked, but USD bears should not be too quick to switch sides just yet. There are still warning signs ahead for the risk-on traders.
Recent jobs data in the US suggests that the Fed may want to slow their aggressive moves for tighter monetary policy to let the economy improve. Recent unemployment claims missed the mark by 18,000 as analysts were already expecting a higher number of claims than last week.
The chart above shows actual and forecasted claims from 2021 and 2022. The past six weeks have reported a higher actual number than what was in the forecast. This could eventually lead to a push towards a more dovish stance by the Fed which will lead to less aggressive rate hikes over time. However, it's never a good idea to assume that such a change is going to happen even if signs are present.
The cost of goods and services has seen the highest increase in the past 40 years as businesses struggle to catch up to higher wages. Too many signals like the lack of Fed intervention, high inflation, war in Ukraine, higher bond yields, tighter monetary policy; they are all adding to extreme levels of volatility. The problem now is when things will begin to subside and sentiment towards expansion will continue.
It's too early to tell. I wouldn't be punching the gas on bullishness and risk-on just yet. Although we've seen a considerable retracement from the USD highs, there is still a lot in the way. If anything, it looks like another opportunity to get back into long positions on the USD. Here are a few pairs that could have potential in the dollar's favor.
GBPUSD flew up 1.30% on the day as price still hangs around the resistance level on the 1D timeframe. Recent price action may suggest a higher move, but that may only be a setup for more bearish moves to come. More resistance lies in the way around the 1.26400s and the 50 DMA right above that, but price needs to break and close above the current level for this to seem likely.
USDJPY struggles to move higher as the pair forms lower lows on the 1D. However, clean support lies just below at around the 125.100s which is also paired with the 50 DMA. For investors still long USD, this could be a decent opportunity to enter another long position on the dollar. The extremely harsh move to the upside from March suggests that price could be set to continue on this move but is only retracing for long setups.
AUD/USD is breaking above resistance and shows a strong move to the upside similar to GBPUSD. However, price is now about to face clean resistance around 0.70859. It looks like a move higher will likely happen, although it's important to watch for the same kind of volatile move back to the lows. A failed break at this current resistance level may be a sign for more downside.
GBP/USD continued its multiday rally this morning, jumping over 160 pips intraday. After finding strong support at the 1.22 level last Friday as US import prices month-over-month remained static despite expectations, bullish momentum continued Monday as net foreign investment in US securities was far lower than expected. This price action was exacerbated today by positive news for the pound as the UK’s Office for National Statistics revealed higher than expected average earnings for employees, and a national unemployment rate of 3.7%, below the anticipated 3.8%. Let’s take a closer look as we discuss how to trade GBPUSD now.
In terms of fundamentals, the UK and the US currently share a few noteworthy similarities: both countries’ central banks have benchmark interest rates at approximately 1%, and the UK’s unemployment rate is a mere 0.1% greater than the US. However, the differences are many, and significant. Gross Domestic Product in the US most recently contracted by 1.4% quarter-over-quarter compared to modest GDP growth in the UK, while US inflation year-over-year declined by 0.2% while year-over-year inflation in the UK continued to sharply rise.
These numbers are arguably something of a façade for GBP/USD bulls though, as the case for the USD against the GBP is far more compelling: a) the Federal Reserve is comfortable with more hawkish moves than the Bank of England, recently resorting to a 50 basis point rate hike rather than the more palatable 25 basis point hikes; b) inflation in the US is stronger than year-over-year data implies, because month-over-month inflation is still going strong, which is relevant considering year-over-year inflation in the US is still over 1% higher than in the UK; c) trade in the UK is still marred by post-Brexit messiness, as evidenced by recent tensions with Sinn Fein, Northern Ireland’s new ruling party, over established borders and trade relations.
Any traders on the lookout for a fundamental catalyst before entering a position in GBP/USD should keep their eye on two anticipated events: Jerome Powell due to speak about US inflation at 2 pm EDT today, and the UK’s year-over-year CPI data, due tomorrow morning at 2 am EDT.
Technical indicators are currently offering rather mixed information. On one hand, price action reversed course upon finding a powerful support level at 1.22, and has now broken out to the upside of the nearly month-long steep trend line, and corresponding moving averages, that have been serving as a resistance level. However, when we look at the bigger picture, these bullish signals are put in check by the stark reality of a year-long bearish trend that has seen the pair plummet from 1.42 to 1.25. We may well see a retest of resistance at 1.26, where I personally plan on entering a short position, with the hopes of taking profit at 1.22.
According to A1 Trading’s EdgeFinder tool, retail sentiment is rather neutral, with 52% of retail traders going long on GBP/USD while 48% go short. This contrasts with the degree of institutional sentiment in the US, as the current Commitments of Traders (COT) data reflects over 76% going long on the USD, while just over 21% are going long on the GBP. This sentiment fits the current global economic climate as well, as traders will likely continue to flock to the US Dollar as a safe haven asset as recession fears linger around the globe.
From risk-on to risk-off, it seems like market behavior is changing day to day. Investors struggle to pick a directional bias for major pairs, equities and commodities due to uncertainty in global inflation, economic crisis and a war in eastern Europe. Having said that, here are 3 pairs worth taking a look at this week that are set to make big moves in the next several days.
GBPCHF settled at a triple bottom on the 1D timeframe. If price holds up at this level, it is likely that we'll see the pair up at the 1.22770s where there is clear resistance. Unless conditions become worse in Ukraine, the pair could see some strong bullishness after hitting support. The pound closely trails the behavior of the stock market and will bounce if the market does.
Watching this pair is like watching the battle of commodities; hard swings on both sides make the losses and wins that much bigger. On this timeframe, the pair hit a golden cross and is now testing a significant resistant trend line. Institutional interest is high for both currencies although Aussie saw a huge rise in long contracts. Tomorrow, AUD's cash rate is expected to remain the same at 0.10% while CAD's jobs numbers are expected to be significantly less than last month's.
When weighing these two factors as which one is more or less dovish than the other, it can be hard. This week may be in the buck's favor as investors expect a lower change in employment which won't be reported until Friday. Retail is mostly short on this pair, although it keeps making higher highs. So, AUDCAD looks bullish from a directional and institutional standpoint this week.
The thing about this pair is that regardless of global conditions, the dollar prevails over the yen. Due to monetary policy and sentiment, USD is inherently stronger. And after last week's small retracement, the uptrend continues. There isn't a lot of technical patterns to look at other than the strong uptrend in the past month. USDJPY has over 1.5% of room to move back up to the highs (125.110) and a 1% move down to support (121.310), so it's still considerably better to stay long on this pair until the direction changes.
Amidst global uncertainty in stock markets and commodities, investors might stop trying to guess which direction to trade. Instead, they might try to just stick to the safe havens like the dollar. That being said, here are some USD pairs to watch and potentially trade for next week as we see tighter monetary policy and mixed indices.
Fundamentally, we can put a few things into perspective. One, is that a driving factor towards global uncertainty is the Russian invasion on Ukraine. If peace talks remain stalled, we will have a hard time picking direction on the indices and risk-on plays.
Another factor is US's miss in NFP today. That's been a major driver in the market and the USD. Jobless claims also saw a rise this week, so temporary bearishness on stocks and bullishness on USD looks probable.
COT is also playing a big role in institutional sentiment as big money is upping their stakes in this safe haven currency. Long contracts have increased by 3.7 million in the last week while shorts have only risen by 2.5 million.
USD is up after a mixed jobs report where the US missed on NFP but beat unemployment rate. USDCHF bounced up from the 200 DMA which would have been a very clean entry on the 1D, and price is up against resistance in the .92700s.
GU closely follows the performance of the US stock market. The pair is struggling to break above this resistance level as US equities struggle for the third day in a row. If GU can't break above this level on the 1D, we could probably see further downside towards the low of 1.30031.
The USD is not the only 'safe haven'-like currency that investors should be looking at in 2022. GBP could prove to be a vital play in the coming days or months as big changes are about to happen in the global forex market. Here is why the pound is a buy this week.
On Thursday, the Bank of England will announce the official bank rate. Expectations are that the new rate will be 75 basis points, or 25 bp higher than the current rate. If the BOE decides to go through with this, the pound will be leading the major pairs except for the kiwi in the highest interest rate. And this country is known for having low interest.
As you can see form the image above, a 0.75% interest rate will be the a 10-year high and matching that of 2018-2020 rates.
This pair has been especially volatile the past several days, and it is likely because investors are trying to form a directional bias. Price is showing hard rejection on the 1D chart after making a higher high. Resistance sits above at the 200 DMA, although it already looks like price is starting its move to the downside.
GJ has a lot going for it right now. Price broke above resistance after bouncing up from the 78% fib level. Now, it crossed and closed above the 200 DMA suggesting further highs. Clear resistance doesn't really show up until the triple top around 157.500s.
GCHF looks like a good long play if price can break and close above this resistance level on the 1D timeframe. Support lies just below in the 1.21000s at a double bottom. If price breaks resistance, we could see a test closer to the 50 DMA or the tops around 1.25560s.
CAD is mixed today after the BOC discussed their future strategy towards monetary policy and when they will cease buying bonds and raising the interest rate. Here are some reasons why the loonie is a buy right now.
Rising oil prices in the US and globally has benefitted the value of the Canadian loonie. USOil broke highs from 2014 and 2011 in what looks like a double top in the ultra-long term 1W timeframe. If price can close the week above the 155.50s, it will have made a new legitimate level above the high from 11 years ago.
Commodity resurgence is not the only thing helping out the CAD right now. The Bank of Canada has also raised rates to 50bp and plan to make more hikes this year. A more hawkish policy is bringing more attention from investors who are looking for the best places to put their money. So, a tighter policy can help kickstart the risk-off investment that investors are looking for right now.
The trailing six month performance is a general trend to the upside for the Canada 10 year government bond yields.
CADJPY is down today as price nears support from the rising trend line on the 1D timeframe and the 200 DMA. This level looks promising for a bounce which could lead to another test around the 91.182 level as the commodity-heavy currency sees oil prices surge.
GBPCAD fell under support around the 1.69500s and continues to drop lower on the 1D timeframe. It looks like the pair could see a test at the bottom around 1.66800s. This lower low suggests further downside due to recent risk-off pressure.
EURCAD is behaving the same way as GBPCAD, so it's the same trade idea. However, there is not bottom in sight until you get to 2017. That would be about another 1% drop in price to get there, so EURCAD has a ways to fall before any kind of reason to bounce.
The pound is broadly mixed when crossed with certain pairs, but for right now, GBP can be very lucrative right now if you play it the right way. Here are some GBP pairs to trade that could help your portfolio in this time of crisis.
GBP usually acts as one of the risk-on currencies regardless of the 50bp interest. So, in the short term, any kind of movement to the upside is reflecting the increase in risk appetite by investors. The pound also somewhat mirrors the performance of US equities, or at least the direction because they both behave similarly on sentiment.
GBP/CAD breaks under support to a lower low on the 1D. Canada's loonie is probably going to vastly outperform others in the short term because of the lower oil supply around the world and skyrocketing oil prices. Price could come down to 1.68400s before seeing any kind of support on this timeframe. That recent death cross is another indication that the trend is now bearish.
GBP/JPY sank to the 200 DMA before turning back to the upside on the day. The pound was likely suffering due to the trade sanctions placed on Russia, but overall there is still a long trade in the making as support in the 152.600s looks promising. GBP seems like a good long play against the yen because of the monetary measures (higher interest) the government is already taking.
GBP/AUD has fallen nearly 4.8% from the highs in January and over 3% since the conflicts in Russia-Ukraine borders. Gold has been outperforming because of this which is what is helping AUD gain demand. A close below support suggests more downside, and the pair is likely up because equities are as well.
GBP/USD is likely going lower should the fighting continue in Ukraine. Despite the more hawkish policy on the pound, this probably won't matter in the short term. The recent lower low makes the pair look bearish in the short term while investors would flock to the USD if concerns persist.
Major USD pairs opened lower before immediately pairing losses from the lows today. Europe placed harsh restrictions on trade with Russia, and it is clearly affecting the global market. We are taking a look at a couple pairs' strange activity after sanctions and potential trade setups that go with them.
Sanctions by European governments have caused the ruble (Russian currency) to plunge amidst these restrictions placed on them. As a result, US stocks have risen, UK stocks have fallen, German stocks are up, USD is mostly down, and risk-on has returned for the most part.
Bond yields in the US are off the highs today as well suggesting that risk appetite is back. There is still uncertainty everywhere which makes risky plays questionable. However, if you were to be in the stock market or short USD today, you would have positive equity.
This pair gapped lower before immediately shooting higher back above support on the 1D. Major currencies are starting to look stronger than the USD right now which is concerning given the current circumstances.
The kiwi jumped today after falling to support on the 1D. A weaker dollar today brought back a lot of risk-on sentiment in the forex market. The pair might come up to test the resistance level around 0.68637.
The euro is doing the same thing on the same timeframe as it made a lower low gapping downward before buyers stepped back in. This is causing some bullishness for the time being, but this behavior is also concerning.
These jumps in price could be a trap for the retail investor as there is still weak momentum overall after risk-on behavior returned. I would wait to see what happens this week before making any big bets against the USD or going long on the stock market.