EUR/USD Rate Tracks Monthly Range While ECB Rules Out V-Shape Recovery

EUR/USD Rate Tracks Monthly Range While ECB Rules Out V-Shape Recovery

[ad_1]

EUR/USD Rate Talking Points

EUR/USDretraces the decline from the previous week even though the European Central Bank (ECB) shows a greater willingness to support the Euro Area, and exchange rate may trade within a more defined range over the remainder of the month as the recent rebound fails to trigger a test of the May high (1.1020).

EUR/USD Tracks Monthly Range While ECB Rules Out V-Shape Recovery

EUR/USD snaps the series of lower highs and lows from the previous week despite the opposition (Austria, Denmark, Sweden and the Netherlands) to the EUR500 billion recovery fund drawn up by France and Germany, and the exchange rate may consolidate over the coming days as the European Union (EU) prepares to unveil the seven-year budget on May 27.

It remains to be seen if European officials will make a major announcement as the ECB argues that “fiscal policy also needed to play an essential role,” and the Governing Council may retain a proactive approach in combating the economic shock from COVID-19 as “growth scenarios produced by ECB staff suggested that euro area GDP could fall by between 5% and 12% this year.”

The account of the ECB’s April meeting warns that “the longer the lockdown measures were in place, the more serious the impact on activity and prices would be,” with President Christine Lagarde and Co. emphasizing that “the economic effects of the pandemic would continue for a considerable period after the coronavirus was contained, as the decline in demand owing to precautionary motives or to income losses could be expected to weigh on economic activity, leading to a slow recovery.

In turn, the ECB states that “a swift V-shaped recovery could probably already be ruled out at this stage,” and the central bank may take additional steps to support the monetary union as “strong and timely efforts were urgently needed to prepare and support the recovery.”

The comments suggest the ECB will continue to utilize its balance sheet as the Governing Council pledges to “adjust the PEPP (Pandemic Emergency Purchase Programme) and potentially other instruments if it saw that the scale of the stimulus was falling short of what was needed,” and President Lagarde and Co. may announce additional measures at the next meeting on June 4 as the central bank stands “ready to adjust all of its measures, as appropriate, to ensure that inflation moved towards its aim in a sustained manner.

With that said, the ECB’s dovish forward guidance for monetary policy may present headwinds for the Euro throughout 2020, but EUR/USD may trade within a more defined range over the remainder of the month as the recent rebound in the exchange rate fails to trigger a test of the May high (1.1020).

Sign up and join DailyFX Currency Strategist David Song LIVE for an opportunity to discuss key themes and potential trade setups surrounding foreign exchange markets.

EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in mind, the monthly opening range has been a key dynamic for EUR/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 1, with the high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.
  • The opening range for 2020 showed a similar scenario as EUR/USD marked the high of the month on January 2, with the exchange rate carving the February high during the first trading day of the month.
  • However, the opening range for March was less relevant amid the pickup in volatility, with the pullback from the yearly high (1.1495) producing a break of the February low (1.0778) as the exchange rate slipped to a fresh 2020 low (1.0636).
  • Nevertheless, EUR/USD may trade within a more defined range as the advance from the April low (1.0727) failed to produce a test of the April high (1.1039), with a similar scenario taking shape this month as the advance during the previous week failed to trigger a test of the May high (1.1020).
  • In turn, the Fibonacci overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) is back on the radar for EUR/USD as the exchange rate snaps the recent series of lower highs and lows following the failed attempt to break/close below the 1.0830 (78.6% expansion) to 1.0860 (23.6% retracement) region.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong



[ad_2]

Source link

AUD May Fall on Australia-China Tensions, Euro Eyes €500b Proposal

AUD May Fall on Australia-China Tensions, Euro Eyes €500b Proposal

[ad_1]

Australian Dollar, Euro, Australia-China Tension, EUR/AUD Analysis – TALKING POINTS

  • AUD at risk as Australia-China relations deteriorate, Beijing strikes with economic arsenal
  • Euro will be closely watching progress on 500b recovery fund as North-South divide persists
  • EUR/AUD outlook bearish as pair hovers near-three year low with layers of resistance on top

AUD Tenses up as Australia-China Relations Deteriorate

The Australian Dollar may face higher-than-usual selling pressure in the week ahead as economic data continues to underline the impact of the coronavirus pandemic. As a major commodity exporter, shifts in sentiment frequently impact the cycle-sensitive AUD. In addition to an unfavorable global backdrop, the export-oriented country is now experiencing growing tension with China – its largest trading partner.

AustraliaTotal Trade With Top 10 Partners (2018 Figures)

AUD May Fall on Australia-China Tensions, Euro Eyes €500b Proposal

This week, Prime Minister Scott Morrison will be giving a speech at the National Press Club where he is expected to discuss the state of the economy as the government eases lockdown orders. However, the topic investors will be most eagerly tuning in for will be commentary on the current state of Australia-Sino relations.

Amid the spread of Covid-19, Australia has called for an investigation along with other members of the international community into Beijing’s handling of the pandemic. However, unlike other countries, Australia does not have the luxury of being able to critique its largest trading partner without severe, wide-ranging implications.

In response to commentary by Australian officials, China banned the importation of meat from four key slaughterhouses and imposed tariffs on other products, like barley. The Ambassador to China even suggested recently that Chinese tourists and students may decide to boycott Australia, further dampening economic activity in an already-unstable environment.

Beijing is reportedly considering targeting more Australian exports including dairy, wine, seafood and fruit. Actions may include not only tariffs, but also stricter quality checks and custom delays. China has denied any relationship between criticism of its handling of the pandemic and these measures.

Australia has managed to avoid slipping into a recession for 30 years – even dodging the 2009 global downturn – but this time it may not be so lucky. The China-dependent economy only just recently was offered some respite from the US-China trade war, but now it may have a direct economic conflict with Beijing. An escalation there could further deepen Australia’s economic slowdown and subsequently hammer AUD.

Euro Eyeing Key Policy Announcements

The Institute of International Finance will be doing a live stream of the IFF European Conference titled: “The EU, Covid-19 and the Future of Financial Services” this week. ECB Chief Economist Philip Lane will be among the speakers whose commentary could elicit volatility in the Euro. On the same day, the European Central Bank will also be publishing its Financial Stability Review.

While key headlines from the latter report may not necessarily elicit notable volatility, the content of the publication could contain key trends in the financial sector and how they may affect the stability in the region. From the standpoint of employing a macro-fundamental trading strategy, this report may be a key document to monitor.

The European Commission is also scheduled to release a proposal for a recovery fund as a way to lessen the severity of the coronavirus impact. France and Germany – rather unexpectedly – recently put forward a 500 billion euro grant proposal that would distribute capital to countries and sectors hit hardest by Covid-19. The news helped bring down Italian bond yields that were rising amid growing doubt about the country’s ability to service its debt.

Euro Rallied, Italian 10-Year Bond Yields Fell After Recovery Fund Breaks Headlines

Chart showing Euro

The unifying move also helped push the politically-sensitive Euro higher. However, the rift between North and South will likely make negotiations difficult, and a prolonged period of deliberation could introduce uncertainty and undermine the Euro. Mediterranean states rejoiced at the prospect of greater fiscal unification, though their comparatively-more frugal Northern neighbors were displeased. It is this kind of friction that may damage the Euro.

EUR/AUD Technical Outlook

EUR/AUD is dangerously close to retesting the July 2017 uptrend as it trades just above familiar support at 1.6590 (gold-dotted line). If the pair is unable to break the floor, it may then seek to challenge a multi-layered ceiling with the first obstacle at 1.7115 (purple-dotted line).

EUR/AUD Technical Analysis

Chart showing EUR/AUD

EUR/AUD chart created using TradingView

From a technical perspective, EUR/AUD has a several of shelves to clear before it is able to reach a key swing-high at 1.8856, but only one layer of support between it and an almost three-year uptrend. Breaking below that could mark a tectonic shift in the pair’s trajectory.

— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter



[ad_2]

Source link

US Dollar May Rise as SGD Falls on US-China Woes, Indian Rupee at Risk

US Dollar May Rise as SGD Falls on US-China Woes, Indian Rupee at Risk

[ad_1]

Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit, Philippine Peso, Indian Rupee – Talking Points

  • US Dollar trade flat against ASEAN currencies last week
  • Bank of Indonesia intervened to support the Rupiah again
  • US-China tensions risk complicating an economic recovery
  • Indian Rupee is vulnerable, 1Q GDP may dramatically slow

US Dollar ASEAN Weekly Recap

The US Dollar experienced a broadly neutral week against its ASEAN counterparts such as the Singapore Dollar, Philippine Peso and Malaysian Ringgit. As anticipated, ASEAN currencies spent most of their time following investors’ risk appetite. Optimism for a coronavirus vaccine from Moderna earlier in the week was then overshadowed as China imposed more stringent control over Hong Kong, plunging the Hang Seng.

A notable standout was the Indonesian Rupiah, which managed to gain about one percent against the US Dollar. The Bank of Indonesia unexpectedly left rates unchanged as it reiterated the need for market intervention to defend its currency. The latter has been a key sticking point as of late, likely boosting IDR as expected. USD/IDR was also absent from trading towards the end of the week due to local market holidays.

Indian Rupee and the RBI Emergency Rate Cut

Meanwhile, the USD/INR rose after the Reserve Bank of India (RBI) unexpectedly slashed benchmark lending rates in an unscheduled meeting on Friday. Local government bond yields tumbled as the repo rate was cut by 40-basis points to 4.00%. The central bank also extended a moratorium on bank loans for an additional 3 months to help provide relief for businesses amid the coronavirus outbreak as credit spreads widen.

Last Week’s US Dollar Performance

US Dollar May Rise as SGD Falls on US-China Woes, Indian Rupee at Risk

ASEAN-Based US Dollar Index averages USD/SGD, USD/IDR, USD/MYR and USD/PHP

External Event Risk – US-China Tensions, Consumer Confidence

USD/SGD, USD/IDR, USD/MYR and USD/PHP may continue focusing on market sentiment in the week ahead. On the next chart below, you can see the inverse relationship between my ASEAN-based US Dollar index and with the MSCI Emerging Markets Index (EEM). While the 20-day rolling correlation has been becoming less inversed, US-China tension woes may reinvigorate this dynamic.

The Greenback saw steady appreciation when the US-China trade war picked up pace not long ago. If tensions escalate further and perhaps lead to a reintroduction in tariffs, this may complicate the economic recovery from the coronavirus. That may further cool expectations of a robust rebound in GDP as another 2 million Americans are anticipated to have filed for unemployment claims last week.

In the background, expansion in the Federal Reserve’s balance sheet has been noticeably slowing as of late. That could be making it increasingly difficult for equities to find further upside momentum in these uncertain times. Conference Board and University of Michigan sentiment data will cross the wires in the week ahead. Gauges of confidence in a consumer-oriented economy will be critical to watch for the trajectory of sentiment.

ASEAN Event Risk – Singapore and Indian GDP

Focusing on Southeast Asia economic event risk, Singapore and Indian GDP data will cross the wires on Tuesday and Friday respectively. The former will be a finalized revision which may show that the first-quarter contraction may have been less aggressive at -8.2% q/q versus -10.6% estimated.

Indian growth meanwhile is anticipated to drop down to +1.0% y/y in the first quarter from +4.7% prior. This could be a historical print as the RBI envisions fiscal-year 2021 economic growth to turn negative. The Rupee is looking vulnerable here, especially as India faced the threat of stagflation prior to the virus outbreak.

What are some unique aspects of trading forex?

ASEAN-Based USD Index Versus MSCI Emerging Markets Index – Daily Chart

US Dollar May Rise as SGD Falls on US-China Woes, Indian Rupee at Risk

Chart Created Using TradingView

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



[ad_2]

Source link

Crude Oil Prices May Be Plotting a Return to $40/Barrel WTI

Crude Oil Prices May Be Plotting a Return to $40/Barrel WTI

[ad_1]

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices rebuild link with broader sentiment trends
  • Technical setup hints a test above $40/bbl might be ahead
  • Gold prices edge down, struggle to make good on breakout

Crude oil prices edged up against the backdrop of a cautious improvement in risk appetite at the beginning of the trading week. The WTI benchmark paced a rise in S&P 500 index futures. The correlation between the two has been rebuilding recently, suggesting that idiosyncratic factors – notably, the recent struggle to extend the OPEC+ output cut scheme – are giving way to broader sentiment as the main driver of price action.

Gold prices likewise echoed the broader market mood. The metal inched lower as Treasury bond futures flagged higher yieldsagainst the risk-on backdrop, undermining the appeal of non-interest-bearing assets.

On balance, this seems to set the stage for sentiment to continue to drive. A dearth of noteworthy event risk hints that the pro-risk tilt already in play faces relatively few discernible roadblocks, opening the door for follow-through. True trend development may prove elusive howeveras news-flow dries up and volumes dwindle in thin holiday trade. Pace-setting markets in the UK and the US will remain shuttered.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are consolidating gains after clearing resistance at 32.81, the 50% Fibonacci retracement. This level has held up to being retested as support, suggesting the next move might be a further foray to the upside. Resistance is in the 40.56-42.40 area, with a daily close above that exposing former support clustered around the $50/bbl figure. A turn back below the 38.2% Fib at 25.07 is probably a prerequisite for neutralizing immediate upward pressure.

crude oil price chart - daily

Crude oil price chart created using TradingView

GOLD TECHNICAL ANALYSIS

Gold prices are struggling to find upside follow-through after breaking out of a bullish Symmetrical Triangle pattern. Negative RSI divergence suggests upside momentum is ebbing, which may set the stage for a reversal lower. Taking out minor support at 1715.15 exposes a seemingly more durable barrier at 1679.81, followed by the 38.2% Fibonacci retracement at 1645.40. Invalidating topping cues probably requires a daily close above the May swing top at 1765.30.

Gold price chart - daily

Gold price chart created using TradingView

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Head APAC Strategist for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



[ad_2]

Source link

US Dollar, Dow Jones, Australian Dollar, Crude Oil

US Dollar, Dow Jones, Australian Dollar, Crude Oil

[ad_1]

US benchmark stock indexes – such as the S&P 500, Dow Jones and Nasdaq Composite – aimed cautiously higher this past week. Yet, Wall Street has been struggling to find material upside follow-through since late April with the aggressive pace in gains since March noticeably ebbing. The sentiment-linked Australian Dollar and New Zealand Dollar were unable to follow equities.

Most of the upbeat tone occurred early on in the week as Moderna reported degrees of success in a virus vaccine trial. Yet investors’ confidence waned after this was critiqued and as China unveiled a national security law on Hong Kong that sent the Hang Seng tumbling 5.56% on Friday. The haven-linked US Dollar and similarly-behaving Japanese Yen cautiously rose this past week.

Growth-oriented crude oil has been on the rise, suggesting markets may be looking forward to gradual lockdown easing measures across the globe. Central bankers have been warning about the long-term impact on growth, particularly if additional virus waves unfold. Over 38 million citizens in the world’s largest economy have filed for unemployment claims. This may top 40m ahead.

Conference Board Consumer Confidence and University of Michigan Sentiment data will reveal how attitudes are shaping in a nation where 2/3 of GDP is in consumption. Australia’s Prime Minister speaks to the National Press Club in Canberra as tensions with China brew. These woes may bring back trade war fears, complicating efforts to economically recover from the virus.

What are some unique aspects of trading currencies?

Fundamental Forecasts:

Euro Forecast: EUR/USD Outlook Lifted Long-Term by Recovery Fund Plan

The long-term outlook for the Euro has been boosted significantly by a Franco-German proposal for a €500 billion coronavirus Recovery Fund, even though an agreement is not yet close.

Gold Price Outlook Bearish on GDP Data, US-China Tension and Covid-19

Gold prices may face heightened liquidation pressure as US-China tensions over Hong Kong heat up ahead of US GDP data amid the coronavirus pandemic.

Australian Dollar Faces Data Drought, RBA Silent so Covid Will Drive

The Australian Dollar market is headed for a bare domestic data cupboard which will once again leave overall market risk appetite in charge. This may well mean it remains stuck in its current range.

USD/MXN Outlook: Downside Pressure Continues as Investors Cheer Drug Hopes

The possibility of a Covid-19 cure by year end keeps market sentiment high despite ongoing political tensions

US Dollar Outlook: US-China Tensions Complicate Virus Recovery Bets

The US Dollar may find some strength if tensions between the US and China keep rising, adding an extra layer of uncertainty to the global economic outlook amid the coronavirus outbreak.

S&P 500, Nasdaq 100, DAX 30 Forecast for the Week Ahead

The S&P 500 and Nasdaq will look for developments in US-China tensions while the DAX 30 awaits a string of regional data. Possible coronavirus vaccines may also influence sentiment in the week ahead.

Technical Forecasts:

GBP/USD Forecast: Pound Weakness to Persist Amid Break of April Low

The British Pound has depreciated against all of its major counterparts so far in May, and the weakness may persist as GBP/USD takes out the April low (1.2164).

Crude Oil Weekly Outlook: Rally Runs Into Resistance as Risk-On Appetite Stalls

Crude oil sold-off Friday on news that China is looking to introduce stringent new security laws in Hong Kong, damaging global risk appetite.

S&P 500, FTSE 100 Technical Outlook For Next Week

S&P 500 faces pivotal resistance, while FTSE 100 continues to trade in rangebound fashion.

Gold Price Trend May Reverse as the Rally Loses Steam Near $1800 Gold prices

have enjoyed impressive gains in recent weeks but momentum seems to ebbing on approach to $1800/oz. A reversal downward may be brewing ahead.

US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD

US Dollar Weekly Performance vs currencies and Gold



[ad_2]

Source link

Euro Outlook Appears Bearish Ahead of German IFO Data

Euro Outlook Appears Bearish Ahead of German IFO Data

[ad_1]

Euro, EUR/USD Analysis, German IFO Data – Talking Points

  • Euro could fall if German IFO statistics underwhelm investors
  • Slower growth out of largest Eurozone economy may hurt Euro
  • EUR/USD rejected for third time at key resistance – now what?

Asia-Pacific Recap

Asia’s start to the week had a mixed reading. US equity futures pointed higher while FX markets remained broadly mixed, a similar dynamic mirrored in APAC stocks. The economically-light data docket puts the focus on fundamental trends with most investors likely watching medical metrics. Economic and monetary policy in the current environment will likely be designed based on what they show.

Euro Outlook Bearish Ahead of German IFO Data Release

The Euro may face higher selling pressure following the publication of German IFO data. Preliminary forecasts for the business climate component are estimated to show a 78.3 print, slightly higher than the prior 74.3 reading. The current conditions and expectations statistics are also anticipated to show an improvement in sentiment as Germany eases its lockdown measures.

However, final prints for Q1 GDP data on a year-on-year and quarter-on-quarter basis may dampen sentiment as all figures are anticipated to show a negative figure. Data out of Germany has a tendency to elicit higher-than-usual volatility relative to its neighbors’ statistics due to it being the largest economy in the region. Consequently, its economic trajectory has larger implications for Europe as a whole and by extent, the Euro.

Coronavirus Cases Globally

Euro Outlook Appears Bearish Ahead of German IFO Data

Source: Johns Hopkins CSSE

EUR/USD Analysis

EUR/USD has for a third time been rejected at a stubborn resistance range between 1.0981 and 10989. The pair may now limp back to another equally-obstinate support level at 1.0783. These price parameters have kept EUR/USD range-bound for over a month, suggesting an underlying ambiguity in regards to a directional bias. However, if either parts of the range capitulate, it may signal a change in the pair’s outlook.

EUR/USD Analysis

Chart showing EUR/USD

EUR/USD chart created using TradingView

— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter



[ad_2]

Source link