Analyst Articles – Forex News 24

Trading Outlook for EURUSD, USDJPY, Gold Price & More
Bitcoin (BTC) Rally Eyes $6,000+, Litecoin (LTC) Price Building Momentum
Canadian Dollar Outlook Positive as Crude Oil Prices Head Higher
Gold Price Struggles, Silver Continues to Test Noted Support
Yen, US Dollar May Gain on Downbeat Corporate Earnings News
Gold Prices Eye Bond Yields, US Dollar Response to Earnings Reports
Brazilian Real, Ibovespa Hold Their Breath on Pension Reform Vote
USD/PHP Eyes Reversal as Crude Oil Revives 2018 Peso Selloff Fears
Bulls Drive As Septembers Highs Beckon
A Return of Liquidity Meets Earnings and a Potent S&P 500 Pattern

Trading Outlook for EURUSD, USDJPY, Gold Price & More

Posted: 23 Apr 2019 04:12 AM PDT

The Euro is positioned for lower prices, as a test of the March/April lows looks to be just around the corner; from there we will need to see if support in this low-vol environment keeps it afloat or an extended move can develop. USDJPY has been very quiet but looks poised to continue higher towards long-term resistance lines. Gold is out of a topping pattern but has a sizable line of support to break before more bearish momentum can be realized.

Technical Highlights:

EURUSD looks headed for March/April lows
USDJPY has room to run higher towards long-term resistance
Gold price is near August trend-line, last line of support

Fresh Q2 Forecasts are out for major markets and currencies. Check them out on the DailyFX Trading Guides page.

EURUSD looks headed for March/April lows

The Euro is undergoing a smallish bounce after getting hit hard on Thursday from a channel/bear-flag formation. Looking for a bit more weakness down towards the March/April lows near or under 11200 before another bounce may develop. It will require some strong momentum and a break of levels before consideration of an extended move can be taken seriously in the currently low volatility environment.

EURUSD Daily Chart (March/April lows look to be next)

Find out where our analysts see the Euro going in the coming weeks based on both fundamental and technical factors – Q2 Euro Forecast

USDJPY has room to run higher towards long-term resistance

USDJPY has been trading mostly sideways with a slight downward bias the past few sessions. This smacks of corrective and sets the pair up for another move higher. Confluent support was met in overnight trade and with the push off of it as long as the minor swing low holds, then the 11265/11335 area will be targeted from here.

USDJPY Daily Chart (supported, resistance above looks next)

Find out where our analysts see JPY heading in the coming weeks based on both fundamental and technical factors – Q2 JPY Forecast

Gold price is near August trend-line, last line of support

Gold is caught between a rock and a hard place as it broke price support recently in the ongoing descending wedge-like price action we are seeing. There is solid trend-line support rising up from August which needs to be broken next to clear the way for another leg lower. It is anticipated that it will break, but a small bounce may first develop before it does. This could be a good thing as it creates a minor swing low to operate off of with shorts on a break below trend-line support.

Find out where our analysts see Gold heading in the coming weeks based on both fundamental and technical factors – Q2 Gold Forecast

Gold Daily Chart (sitting between support/resistance)

Resources for Forex & CFD Traders

Whether you are a new or an experienced trader, DailyFX has several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

2019-04-23 11:00:00

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Bitcoin (BTC) Rally Eyes $6,000+, Litecoin (LTC) Price Building Momentum

Posted: 23 Apr 2019 03:26 AM PDT

Bitcoin (BTC) and Litecoin (LTC) Price Outlook, Charts and Analysis:

Bitcoin (BTC) price chart showing increasing bullish bias.
Litecoin (LTC) nearing a technical breakout.

IG Client Sentiment Datashows how retail are positioned in a variety of cryptocurrencies. See how daily and weekly positioning can affect our trading bias.

Bitcoin (BTC) trade data shows 80.9% of traders are net-long.

Ripple(XRP) trade data shows 97.7% of traders are net-long.

Ether (ETH) trade data shows 92.1% of traders are net-long.

Litecoin (LTC) trade data shows 92.2% of traders are net-long.

Bitcoin (BTC) Still Needs to Break $5,648 to Trigger Next Leg to $6,000+

Bitcoin continues to move higher and is setting itself up for a push at $6,000 or more with the chart continuing to highlight a bullish bias. Last week we identified a gap that needs to be filled between $5,648 and $6,111 and this remain relevant with a close above $5,648 the first stage. We also have a 'golden cross' being made – 50-day ma moving above the 200-day ma – a bullish technical sign as momentum continues to turn positive. Higher lows continue to be made along with a series of higher highs off the February 8 candle.

A Guide to Day Trading Bitcoin and Other Cryptocurrencies.

Bitcoin (BTC) Daily Price Chart (October 2018 – April 23, 2019)

Bitcoin (BTC) Rally Eyes $6,000+, Litecoin (LTC) Price Building Momentum

Litecoin (LTC) – Bullish Descending Triangle?

Another chart that is now showing a positive set-up after drifting sideways to marginally higher over the past weeks. The sharp rally on April2/3 that sent LTC from $60 to nearly $100 has formed the side of a descending triangle with the base around $73. This base has been rejected twice so far. As the price nears the downward slope a sharp break to the upside becomes more likely, especially if LTC moves back above the 20-day ma. According to the CCI indicator, Litecoin is just turning out of oversold territory, adding to the bullish hue.

Litecoin (LTC) Daily Price Chart (August 2018 – April 23, 2019)

Bitcoin (BTC) Rally Eyes $6,000+, Litecoin (LTC) Price Building Momentum

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on Bitcoin and Litecoin – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

2019-04-23 10:10:00

Canadian Dollar Outlook Positive as Crude Oil Prices Head Higher

Posted: 23 Apr 2019 02:07 AM PDT

CAD price, oil news and analysis:

The Canadian Dollar has so far failed to benefit from rising oil prices on the demand by the US that other countries halt their buying of Iranian crude.
However, the news is likely to boost CAD near-term, sending USDCAD lower.

Canadian Dollar to Benefit from Rising Crude Oil Prices

Surprisingly, perhaps, the Canadian Dollar has so far shrugged off the US demand that all other nations stop buying Iranian crude oil or face sanctions. Canada is a major oil exporter so the CAD tends to rise when oil prices climb and fall when they dip.

By contrast, USDCAD is firmer in Europe Tuesday as the Canadian currency weakens marginally; a move likely to reverse near-term if crude prices continue to advance after reaching their highest levels since late October last year.

USDCAD Price Chart, Five-Minute Timeframe (April 22-23, 2019)

Chart by IG (You can click on it for a larger image)

The US decided Monday to end exemptions allowing some countries, including China and India, to buy Iranian oil without facing US sanctions. It set a deadline of May 1 and said it was working with Saudi Arabia and the United Arab Emirates to ensure supplies. Nonetheless, the unexpected move lifted crude prices while failing to strengthen the Canadian Dollar.

While a near-term correction downwards in oil cannot be ruled out, it's now likely that the Canadian Dollar will play catch up, and that USDCAD will drift lower.

Looking further ahead, the Bank of Canada is widely expected to keep its benchmark interest rate unchanged at 1.75% Wednesday and will likely keep it unchanged for the rest of the year. As ever, traders should listen carefully to any comments by BoC Governor Stephen Poloz suggesting that a rate hike next year is on the cards.

Further resources to help you trade the forex markets:

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you:

— Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

2019-04-23 09:00:00

Gold Price Struggles, Silver Continues to Test Noted Support

Posted: 23 Apr 2019 01:30 AM PDT

Gold and Silver Price Analysis and Charts.

Gold struggles as the US dollar remains firm.
Silver – bulls and bears continue to trade blows around the 200-day ma.

DailyFX Q2 Forecasts and Top 2019 Trading Opportunities.

Trading the Gold-Silver Ratio: Strategies and Tips.

Gold Nears Strong Support Levels

Gold remains under pressure and below a previous support zone between $1,26.8/oz and $1,280.9/oz that broke at the end of last week. The market fundamentals should provide gold with a mild bid as US President Trump ramps up the pressure on Iran by ending the current oil waivers, while the US dollar continues to trade at elevated levels and is susceptible to a sell-off, especially with the first look at US Q1 GDP at the end of the week. Gold should find strong support between $1,262/oz and $1,259/oz, the 50% Fibonacci retracement level and the 200-day moving average respectively. A break above $1,280.9/oz leaves $1,287/oz the first target. The chart continues to highlight lower highs since February 20, while the CCI indicator continues to point to an oversold market.

How to Trade Gold: Top Gold Trading Strategies and Tips.

Gold Daily Price Chart (May 2018 – April 23, 2019)

IG Client Sentimentshows that retail traders are 75.1% net-long gold, a bearish contrarian indicator. In addition, recent daily and weekly sentiment shifts give us a stronger bearish trading bias.

Silver – Supported by the 20-Day Moving Average

Silver continues to test the 200-day moving average, an indicator that has been under pressure since early April. The indicator, currently at $14.96/oz has been broken but not closed below, adding short-term credibility to its support. If we do break and close below, the 23.6% Fibonacci retracement at $14,91/oz will come into play before the April 15 low at $14.85/oz. The CCI indicator shows the metal just moving out of oversold territory.

How to Trade Silver: Top Silver Trading Strategies.

Silver Daily Price Chart (July 2018 – April 23, 2019)

IG Client Sentiment shows how retail traders are positioned in a wide range of currencies, commodities and cryptocurrencies. See how recent changes in positioning affect our trading bias.

— Written by Nick Cawley, Market Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

2019-04-23 08:00:00

Yen, US Dollar May Gain on Downbeat Corporate Earnings News

Posted: 23 Apr 2019 12:55 AM PDT

TALKING POINTS – YEN, US DOLLAR, STOCKS, AUSTRALIAN DOLLAR, EARNINGS

Currency markets telegraphing anxiety as Q1 reporting season resumes
Downbeat tone may sour sentiment, boost US Dollar and Japanese Yen
S&P 500 technical positioning warns that upside momentum is ebbing

Currency markets appeared to reflect textbook signs of risk aversion: The sentiment-sensitive Australian and New Zealand Dollars fell while the anti-risk Japanese Yen and US Dollar traded higher. Asia Pacific bourses did see weakness at the open, but prices steadied quickly and recovered. Regionwide equity averages are on pace to close modestly higher on the day. The mood in G10 FX remained cautious however.

What's more, bellwether stock index futures are trading flat, hinting at indecision in near-term sentiment trends. Given the absence of major macroeconomic event risk, all this seems to point to anxiety about the resumption of the first-quarter corporate earnings reporting season. Today alone, 26 constituents of the S&P 500 are slated to publish results.

That this has markets nervous seems telling by itself. The jitters seem justified. Outcomes released thus far – for reference, about a fifth of the S&P 500 has already reported – suggest that sales and earnings growth dropped sharply, continuing a downtrend from early 2018. A backdrop of deterioration in global economic growth fits neatly with such outcomes.

If this portends a downbeat tone, the early risk-off cues in currencies may spread across financial markets more broadly. That might see JPY and USD continue to build higher while commodity bloc FX bears the brunt of selling pressure. Currencies finding themselves in the middle of the risk on/off divide – like the Euro, for example – may weaken against the anti-risk group but gain ground elsewhere.

What are we trading? See the DailyFX team's top trade ideas for 2019 and find out!

CHART OF THE DAY – S&P 500 IN A PRECARIOUS SPOT AS EARNINGS SEASON RESUMES

Technically speaking, the S&P 500 remains in a precarious position. Prices are treading water having all but fully erased the late-2018 selloff. The formation of a Rising Wedge chart pattern as well as negative RSI divergence warn that upside momentum is ebbing and a reversal might be in the works. The feedback loop from a confirmed reversal across global markets may prove to be dramatic, with potent risk-off moves triggered in major asset classes.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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

2019-04-23 06:30:00

Gold Prices Eye Bond Yields, US Dollar Response to Earnings Reports

Posted: 22 Apr 2019 09:46 PM PDT

GOLD & CRUDE OIL TALKING POINTS:

Gold prices unable to hold gains as sentiment shrugs off crude oil price spike
US Dollar, bond yields divergence eyed as Q1 earnings threaten risk aversion
Chart positioning argues for gold weakness, hints crude oil may turn lower

Gold prices were unable to sustain early-session gains, erasing its intraday advance to close Monday with a narrow loss. The metal enjoyed what seemed like reflexive support as traders scrambled to respond to news that the US will end Iran sanctions waivers.

That announcement understandably launched crude oil prices upward and stoked risk aversion as markets pondered the move's potential adverse knock-on effects. A lasting upshift in energy prices bodes ill for already shaky global growth. Trade tensions with US allies like the EU and Japan may be upset.

Oil managed to sustain most of its rise, but sentiment recovered as Wall Street came online. Bond yields rose alongside shares as haven demand for Treasuries receded, undermining the relative appeal of non-interest-bearing assets. Not surprisingly, that saw gold's gains evaporate.

INCOMING EARNINGS REPORTS MAY SOUR MARKET MOOD

From here, it seems telling that yesterday's midday upturn in risk appetite was not discernibly triggered by discrete catalyst. Rather, the rise appeared to reflect an "evening-out" of exposure ahead of a busy week on the economic and corporate earnings calendars.

With that in mind, the case for follow-through seems suspect if the collective message from 26 constituents of the bellwether S&P 500 index due to report first-quarter results today is downbeat. The trend for this earnings season so far is not encouraging.

With close to a fifth of S&P 500 companies having reported, the trend in declining sales and earnings growth from the second quarter of last year is set to continue. In fact, markets are on pace to see the first quarter of negative on-year earnings growth in two years.

On balance, this sets the stage for a broadly defensive narrative. Crude oil may weaken alongside other cycle-sensitive assets against this backdrop. The response from gold will continue to depend on the relative magnitude of divergent moves in yields and the US Dollar.

See the latest gold and crude oil forecasts to learn what will drive prices in the second quarter!

GOLD TECHNICAL ANALYSIS

Gold prices failed to sustain even a modest upswing to retest support-turned-resistance at the neckline of a bearish Head and Shoulders (H&S) chart pattern, slipping back toward the 4-month low set last week. Initial support is in the 1260.80-63.76 area, with a break below that targeting the 1235.11-38.00 zone next. The H&S setup implies a larger decline to 1215. A daily close back above the neckline – now at 1281.70 – opens the door for a retest of the $1300/oz figure.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices shot to a six-month high, testing resistance in the 66.09-67.03 area. A daily close above that puts the $70/bbl figure in the crosshairs. Negative RSI divergence warns of ebbing upside momentum however, warning a that the surge may not prove lasting. Confirming a substantive reversal from here calls for a daily close below rising trend support set from December, now at 62.16. Clearing that initially targets 60.39, followed by the 57.24-88 zone thereafter.

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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

2019-04-23 04:30:00

Brazilian Real, Ibovespa Hold Their Breath on Pension Reform Vote

Posted: 22 Apr 2019 09:07 PM PDT

TALKING POINTS – BOLSONARO, PENSION REFORMS, IBOVESPA

Brazilian Rea and Ibovespa waiting on key vote in lower house
Risk aversion in Brazilian markets may be triggered by protests
Pension reform continues to be main driver of BRL price action

See our free guide to learn how to use economic news in your trading strategy!

The Brazilian Real and Ibovespa index will be closely watching the upcoming vote by the Congressional Constitutional and Legal Affairs Committee (CCJ) on the constitutional legality of Bolsonaro's pension reforms. If it passes, it will then be moved to a special commission where it will endure another round of votes. For the time being, investors are anxiously waiting to see if any of the provisions were watered down.

The Labor and Pensions Secretary Rogerio Simonetti Marinho assured market participants that the original plan will still save approximately 1.1 trillion reais over the course of a decade. Originally, the vote was supposed to take place last week but was delayed. The postponement was negatively interpreted by markets which led to capital flight from the Real and Ibovespa.

The performance of Brazilian assets is closely linked to the developments on the pension reforms. Want to know why? See my updated Brazilian Real and Ibovespa forecast here!

Adding to the risk docket are threats of possible protests and obstructions from truckers who are expressing discontent over high diesel prices. In 2018, a trucker-led strike paralyzed the economy after protestors blocked highways and other key routes that were vital for economic activity. In an economy plagued by broad underperformance and growth rate cuts, the last thing the government needs is a fresh wave of protests.

Even if the reforms gain the constitutional stamp of approval and a potential clash between the government and truckers is avoided, Bolsonaro still faces an uphill battle. Between bribery scandals and political infighting, the outlook still remains uncertain over whether the reforms can be pushed through. Local markets will likely continue to fluctuate in complete lockstep with developments over the pension reforms.

Ibovespa Futures, USD/BRL, EUR/BRL – Daily Chart

FX TRADING RESOURCES

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

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

2019-04-23 03:30:00

USD/PHP Eyes Reversal as Crude Oil Revives 2018 Peso Selloff Fears

Posted: 22 Apr 2019 08:28 PM PDT

USD/PHP, Crude Oil, Iran Sanction Waivers Talking Points

Philippine Peso weakens as crude oil prices rise on Iran supply disruption concerns
Higher oil may fuel excess Philippine inflationary fears, reigniting 2018 PHP selloff
USD/PHP climbed above critical resistance, opening the door to further gains ahead

Trade all the major global economic data live as it populates in the economic calendar and follow the live coverage for key events listed in the DailyFX Webinars. We'd love to have you along.

The largest rise in crude oil prices since the beginning of April triggered a bout of risk aversion during the early phase of the week, and the Philippine Peso is under pressure. On Monday, US Secretary of State Mike Pompeo confirmed that the nation is planning on ending Iran sanction waivers on imports of the commodity, increasing supply disruption concerns.

This poses a risk for USD/PHP for a couple of reasons. On the chart below, Philippine CPI tends to have a close relationship to crude oil. The commodity is a key import for the Philippines and fears of higher prices could reinstate strong inflationary pressures which triggered a PHP selloff last year. CPI recently came off from its highest point since 2009 to a more manageable 3.3% y/y in March, within the central bank's target.

Philippine Economy, Peso Sensitivity to Crude Oil

In fact, the cooldown in oil towards the end of 2018 helped stem depreciation in the Peso as inflation slowed and local front-end government bond yields aimed lower. The latter is a sign of decreasing risk of holding Philippine government debt. Since then, the commodity has rebounded and if it continues doing so, we might see Philippine CPI follow suit. This comes as the Philippine central bank ponders potential rate cuts.

Keep a close eye on US energy earnings this week as well as the nation's trade negotiations with Japan. Weakening global growth forecasts might be reflected from companies such as Chevron in their outlook. Meanwhile, sentiment may be at risk due to diverging EU-US foreign policy given the aforementioned developments on Iranian sanction waivers which may increase the odds of a transatlantic trade war.

USD/PHP Technical Analysis

On the daily chart, USD/PHP rose 0.62% in its best single-day performance in over a month. This highlights the pair's sensitivity to unexpected surges in crude oil. Support held above 51.59 (May 2018 lows) as PHP broke above a descending trend line from the middle of March.

This opened the door to further Peso weakness given confirmation. Keep a close eye on what may be support-turned-resistance at 52.12. For more updates on the Philippine Peso and ASEAN currencies, you may follow me on Twitter here at @ddubrovskyFX.

USD/PHP Daily Chart

Chart Created in TradingView

Philippine Peso Trading Resources

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

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

2019-04-23 02:30:00

Bulls Drive As Septembers Highs Beckon

Posted: 22 Apr 2019 07:30 PM PDT

ASX 200 Technical Analysis Talking Points:

The ASX 200 is back in the range of its last major peak, that made in September, 2018
Its uptrend channel looks solid too, if perhaps a little overextended
Still, bulls can probably hope for more upside

Find out what retail foreign exchange traders make of the Australian Dollar's chances right now at the DailyFX Sentiment Page.

Fundamentally speaking the ASX 200 continues to reap the benefits of resilient global risk appetite and, perhaps as importantly, a rethink on global interest rate rises which sees lower base rates and investors hungry for better yields in assets such as stocks.

Technically, the Australian equity benchmark remains in its medium-term uptrend. This dogged rise has taken it up more than 1000 points from this year's lows and back into the daily-chart range which pertained at the peaks of last year.

These were also the highest levels since the pre-crisis days of 2007. Closer in, the index is right in the middle of the uptrend channel which has pertained since February 4 and which is, in itself, only an extension of the broad climb up from those 2019 lows.

That channel suggests that immediate near-term support comes in at the channel base of 6150, with another possible prop above it, at the bottom of that trading range from September last year. That comes in at 6200.

It is notable however that the index is looking perhaps a little overextended to the upside now, with even the first, 23.6% Fibonacci retracement of this year's rise quite far below the market at 6088. It's possible that we will see some consolidation in the days and weeks ahead but, even if we do, this need not be bad news for the bulls, as long as it doesn't get to far from there.

It's important to remember that the 6000 level is the psychological key to this index with forays above usually measurable in months at very best. For now. the ASX seems quite comfortable well above it, but the closer it gets on any consolidation the more fragile gains are likely to be.

For now, the channel is probably best played, albeit with protection in place below that 6088 point.

Resources for Traders

Whether you're new to trading or an old hand DailyFX has plenty of resources to help you. There's our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There's also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they're all free.

— Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

2019-04-23 02:00:00

A Return of Liquidity Meets Earnings and a Potent S&P 500 Pattern

Posted: 22 Apr 2019 06:52 PM PDT

Volatility Talking Points:

Market conditions were severely stunted Monday with Europe and APAC still offline for the holiday weekend
Though a return of liquidity doesn’t guarantee volatility, patterns like those from the S&P 500, Yen crosses and GBPUSD hold potential
Earnings will be a high profile theme with PG, HOG and TWTR ahead, but mind the noteworthy trade war headlines in Huawei and Iran

Do you trade on fundamental themes or event risk? See what live events we will cover on DailyFX this week (BOC rate decision, Australian CPI and US GDP) as well as our regular webinar series meant to help you hone your trading.

Crossing the Liquidity Threshold

Trading to start this week was understandably quiet. While US markets were back online following the extended holiday weekend, many of the other ‘Western world’ liquidity centers stretched their downtime through Monday. The effect was a further exaggeration of the already-restricted activity level of the speculative market. Even where there was official trading on the day, the limited turnover and progress was remarkable. The S&P 500 was a perfect example of the uneasy extreme in inactivity. The six-day range on the benchmark equity index is the smallest we have seen (relative to spot price) since December 2017. As for volume, conditions were remarkably restrictive even for a holiday. While it may not make the lack of traction more surprising, the proximity to record highs certainly makes a more loaded situation. The record highs set in September/October are within easy reach of a single day’s sudden exuberance, but there is remarkably little to cling to in order to justify the break – much less the follow through. That is not to say it won’t happen, but the longer it struggles to close the deal, the deeper the scrutiny and skepticism that we can sustain the recovery effort from the fourth quarter slump to justify a genuine revival of a temporarily-displaced dominant bull trend.

Chart of S&P 500 (Daily)

S&P 500.

Moving into Tuesday, most markets will be shaking off the sleep and tuned into any significant cues that markets are once again moving in a committed way. For the S&P 500, the aforementioned narrow range also takes the shape of a head-and-shoulders pattern. I wouldn’t give too much weight to the candle formation itself given how flat it is, but the environment for which it has formed is very representative of our general market conditions. This indecision has occurred noticeably just short of a record that most other risk-leaning assets are far from replicating. It has not graduated from recovery effort into reliable trend – and that three-month climb has come remarkably fast and likely with an inordinate representation of speculative interests. Even without this holiday, we were already seeing the effects of flagging conviction with participation drying up. There will be a natural expectation for the seasonal volatility decline expected heading into the Summer months (April through June) to increase the gravity on market inactivity. Yet, already pushing extremes, traders should be mindful of ‘accidents’ where by thin markets can amplify strong response to a significant systemic development and trigger a cascade in deleveraging.

Chart of Historical VIX by Month

Seasonal VIX Chart

Earnings is Top Theme but Be Mindful of Trade War Developments

While lightning can strike out of the blue in markets, it is more likely that there is a fundamental origination to the eventual restoration of sustained market volatility. The most headline-friendly theme moving into the first active hours of the trading week will be US earnings. We are due first quarter figures for a number of top American corporations over the coming days, but certain updates and groupings will speak to certain themes that run deeper than the specific bottom line in question. General growth, trade wars and speculative banners will all test the attention and conviction of global investors. For Tuesday specifically, there are three particular updates I’m watching – though they are perhaps not the ideal representatives of their respective theme. Twitter is not one of the FANG members nor top tech, but it will warm up interest for the latter released Amazon and Microsoft. Procter and Gamble is a leading consumer goods company for the US and can stir up speculation over US growth which will receive its official report on Friday. Then there is Harley-Davidson, the motorcycle manufacturer that drew the ire of President Trump last year amid trade wars. How much impact have these trade restrictions had on this company and will it once again earn unfavorable Presidential tweets?

Ratio of Nasdaq to S&P 500 Overlaid with Ratio of S&P 500 to VEU Rest of World in Orange (Daily)

Ratio Nasdaq to S&P 500 and S&P 500 to VEU

Where earnings will be an easy headline topper, it shouldn’t mean that we discount the other fundamental themes that have accounted for the majority of market volatility and trend development over the past year. The threat of recession in global growth is a persistent concern but the focus on Friday’s 1Q US GDP will restrict preemptive moves on sentiment alone. As for monetary policy, its trappings and shortcomings are matters that are less likely to arise from Bank of Canada or Bank of Japan meetings much less more ancillary means. Trade wars in the meantime are active fodder. In juxtaposition to the Harley-Davidson reflection of US earrings, Chinese firm Huawei reported quarterly earnings for the first time with a reported 39 percent year-over-year increase to just shy of 180 billion yuan. The costs of trade wars don’t seem to be flowing in the direction expected or intended. Even more remarkable on the trade front was the announcement by US Secretary of State Pompeo that the President would not extend the waivers to those that continued to import oil from Iran. Italy and Greece who had wavers reduced their imports to zero; but China, Japan, India, South Korea and Turkey were still consuming the country’s energy shipments. This will add further layer of complication to persistent trade conflicts between the US and much the world.

Cultivating a Preference Outside of the Core Majors

As we look ahead to the prospect of more meaningful swings in the markets, the promise of activity almost registers as hope that the long-sidelined progress of the FX market’s most liquid members are due for critical breakouts. For the benchmark Dollar, the indecision is clear. The measure of the 40-week range (as a percentage of spot) on the trade-weighted DXY is the smallest since Summer 2014 and before that an extraordinary period of quiet back in 1996. The milestones for a break are obvious enough, but not what would spark the commitment. Would it be a key piece of event risk like Friday’s growth update or perhaps something thematic like the recognition that trade wars are costing the US consumer dearly? That is unclear, and so long as it remains that way, the Greenback will struggle. For the Euro, the same question of targeted event risk and systemic motivator is under scrutiny. We don’t have any critical sparks this week and the upcoming consumer sentiment survey surely doesn’t qualify, while Italy’s defiance of EZ deficit targets tugs at another thread in cohesion. For the Sterling, a near-term break is inevitable but commitment on a technical cue is anything but so long as Brexit remains unresolved. That said, I would be careful of assuming such a heavy congestion vs breakout view as what retail traders evaluate of GBPUSD around 1.3100 and 1.2975.

Chart of DXY Dollar Index and 20-Week ATR as Percentage of Spot (Weekly)

Weekly Chart of DXY Dollar and 20-Week ATR

Though far less popular some of the other majors present more appealing technical and situational circumstance. The Yen crosses have established such narrow range recently that a break is certain. The connection to general risk trends can provide the backdrop for movement. If you are looking for scheduled event risk with real potential for traction, consider Wednesday morning’s Australian 1Q CPI update which exposes the most austere forecasts for rate cuts through year’s end of any major central bank. Setting it back to neutral could leverage a far greater Aussie Dollar response than the USD could leverage from a Fed shift. In similar terms, the Bank of Canada rate decision ahead could finally charge USDCAD which is working its way into a wedge – but really the indecision is universal for the Loonie. And, further off the beaten path, we have the Swiss Franc. Its tumble these past weeks/months is starting to come upon general support. That alone wouldn’t prompt much interest, but this is a currency that is unanchored from its own fundamental landscape. Consider that for pairs like EURCHF, USDCHF and AUDCHF which are drawing extreme speculative positioning. We discuss all of this and more in today’s Trading Video.

Chart of USDCHF and Retail Speculative Positioning on the Pair (Daily)

USDCHF Positioning

If you want to download my Manic-Crisis calendar, you can find the updated file here.

2019-04-23 01:22:00