Analyst Articles – Forex News 24

GBPUSD Brushes off UK GDP Growth, US CPI May Offer Guidance
Upbeat U.K. GDP Report to Curb GBP/USD Losses
Most Asian Stocks Hold Up Despite US Tariff Move, Trade Talks Eyed
Dollar, Yuan, S&P 500 and Emerging Markets Hold Breath for Trade Wars
Australian Dollar Drifts Upwards Despite RBA GDP, CPI Downgrades
Bullish Momentum Abates Ahead of OPEC Meeting
AUD/USD, NZD/USD, GBP/JPY Trends Await Final Hour of Trade Talks
Dow Jones, S&P 500, Nasdsaq 100 Price Outlook
Trade War Tension and the Impact on the FX Carry Trade
Stocks Rebound After Trump Comments Spur US-China Trade War Optimism

GBPUSD Brushes off UK GDP Growth, US CPI May Offer Guidance

Posted: 10 May 2019 01:59 AM PDT

GBP Talking Points

Sterling fails to find support as Brexit remains as the main driver
US CPI key figure to watch

DailyFX Q2 Forecasts and Top 2019 Trading Opportunities.

The UK's Gross Domestic Product (GDP) growth rate for the month of March has increased to 1.8% from 1.4%, in line with expectations.

The reaction on Sterling has been muted mostly das markets are focusing on cross-party talks around possible Brexit outcomes and the Bank of England's hesitance towards any key rate decision until there is more political clarity.

GDP growth rate for the first quarter of 2019 is 0.5%, up from 0.2% in the last quarter of 2018. The figure is not surprising after GDP grew solidly in January and February, likely supported by companies stockpiling and making preparations for Brexit.

Manufacturing and industrial production have both beat expectations after the strong numbers reported in February meant figures for March were likely to be revised downward. The figures for Industrial and Manufacturing production for March are 0.7% (Exp. 0.1%) and 0.9% (Exp. 0.0%) respectively. Trade deficit for the month of March has come in at 5.4bn

The focus for GBPUSD traders will now shift towards US CPI figures being released later today. Yearly inflation is expected to increase to 2.1% from 1.9% in March while monthly core inflation is expected to be 0.2%, up from 0.1%.

GBP Eyes UK GDP – EUR/USD Watches EU Industrial Data, US CPI – Dimitri Zabelin, Junior Currency Analyst

GBPUSD ONE-MINUTE PRICE CHART (MAY 10, 2019)

EURGBP ONE-MINUTE PRICE CHART (MAY 10, 2019)

Please add a description for the image.

KEY TRADING RESOURCES:

— Written by Daniela Sabin Hathorn, Junior Analyst

2019-05-10 08:45:00

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Upbeat U.K. GDP Report to Curb GBP/USD Losses

Posted: 10 May 2019 12:05 AM PDT

Trading the News: U.K. Gross Domestic Product (GDP)

Updates to the U.K. Gross Domestic Product (GDP) report may spark a near-term rebound in GBP/USD as the growth rate is expected to increase 1.8% after expanding 1.4% per annum during the last three-months of 2018.

Signs of a resilient economy may push the Bank of England (BoE) to further embark on its hiking-cycle as 'the Committee continues to judge that, were the economy to develop broadly in line with its Inflation Reportprojections, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.'

In turn, a GDP reading of 1.8% or higher may spark a bullish reaction in the British Pound as it boosts bets for a BoE rate-hike, but a below-forecast print may keep GBP/USD under pressure as it puts pressure on Governor Mark Carney and Co. to drop the hawkish forward-guidance for monetary policy.

Impact that the U.K. GDP report had on GBP/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

4Q P

2018

02/11/2019 09:30:00 GMT

1.4%

1.3%

-20

-66

4Q 2018 U.K. Gross Domestic Product (GDP)

GBP/USD 15-Minute Chart

Image of gbpusd 15-minute chart

The U.K. economy grew 1.3% during the last three-months of 2018 after expanding 1.5% during the previous period, with the gauge for Private Consumption increasing 0.4% for the second consecutive quarter. A deeper look at the report showed business investments contracting 1.4% to mark the biggest decline since 2016, while Government Spending climbed 1.4% in the four-quarter amid forecasts for a 0.5% rise.

The British Pound struggled to hold its ground following the below-forecast GDP print, with GBP/USD slipping below the 1.2900 handle to close the day at 1.2853. Learn more with the DailyFX Advanced Guide for Trading the News.

GBP/USD Rate Daily Chart

Keep in mind that the broader outlook for GBP/USD is no longer constructive as both price and the Relative Strength Index (RSI) snap the upward trend from late last year after failing to close above the Fibonacci overlap around 1.3310 (100% expansion) to 1.3370 (78.6% expansion).
It seems as though former channel-support is offering resistance as GBP/USD stages a failed attempt to test the April-high (1.3196), with a break/close below the 1.2950 (23.6% retracement) to 1.3000 (61.8% retracement) region opening up the Fibonacci overlap around 1.2880 (50% retracement) to 1.2890 (23.6% expansion), which largely lines up with the April-low (1.2866).

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.

Are you looking to improve your trading approach? Review the 'Traits of a Successful Trader' series on how to effectively use leverage along with other best practices that any trader can follow.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

2019-05-10 06:30:00

Most Asian Stocks Hold Up Despite US Tariff Move, Trade Talks Eyed

Posted: 09 May 2019 10:15 PM PDT

Asian Stocks Talking Points:

Equity bourses remained mostly in the green although the Nikkei did wilt
The US increased tariffs on Chinese imports even as more trade talks were set to start
Headlines form these will drive the rest of Friday's market action

Find out what retail foreign exchange investors make of your favorite currency's chances right now at the DailyFX Sentiment Page

Asian equity mainboards remained mostly in the green Friday despite the apparent ratcheting-up of trade tensions between the US and China even as negotiations are set to start again in Washington DC.

The US has allowed a threatened tariff increase on a further $200 billion of Chinese imports to kick in at midnight Eastern Time. China for its part has promised countermeasures but these for the moment remain unspecified.

President Donald Trump has said that a deal is possible between the two global titans, but the optimism on this with which the month began has clearly faded. Still, the Nikkei 225 was the only regional stock index to slide on this news. It was down 0.3% as its Friday close loomed. Shanghai was up by more than 1% with Australia's ASX 200 flat.

Market focus will remain on trade headlines, especially as the planned negotiations get under way.

The Australian Dollar made gains following the release of a monetary policy statement from the Reserve Bank of Australia which was perhaps slightly less dovish on interest rates than the market is. Still, diminishing, trade-related risk appetite saw those gains erased as the session went on.

AUD/USD remains very close to this year's lows, however. Increased trade tensions and a lack of domestic interest rate support will be a toxic cocktail for Aussie bulls.

Elsewhere in the currency space the Swiss Franc and Japanese Yen were unsurprisingly in demand. Gold prices were also supported while crude oil also managed to remain up despite the likely demand hit which will be taken if a trade deal can't be reached.

The leading scheduled item still left on Friday's economic list is the official US inflation release for April, but it's not alone on the ticket by any means. Canada's employment stats are coming up too, as is a plethora of numbers out of the UK from trade through industrial production and Gross Domestic Product.

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!

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2019-05-10 04:39:00

Dollar, Yuan, S&P 500 and Emerging Markets Hold Breath for Trade Wars

Posted: 09 May 2019 08:53 PM PDT

Trade Wars Talking Points:

The US has given China until 12:01 Eastern Time to offer concession on the trade impasse or it will raise tariffs from 10 to 25%
Risk trends have come under serious pressure, but what happens if a speculative bid doesn’t return on a trade breakthrough?
Other key event risk to watch includes growing political risks, Eurozone stability tension, UK GDP and Canadian employment data

What do the DailyFX Analysts expect from the Dollar, Euro, Equities, Oil and more through the 2Q 2019? Find our forecasts for the quarter in the DailyFX Trading Guides page.

A Moment of Truth on Trade Wars…Before the Next Moment of Truth

The tension around the US-China trade wars has been built steadily through the week, and now we are coming to a crossroads for one of the greatest encumbrances for global growth and sentiment we’ve experienced in decades. At the end of last week, it seemed the world was on course for a breakthrough in the trade dispute between the two largest economies in the world. Official and unofficial sources on both sides of the table were leaking optimistic remarks suggesting a compromise was close to being struck. Then, on Sunday, US President Donald Trump tweeted that China was reversing course on its commitments and that a new ultimatum was set for Friday morning at 12:01 AM Eastern Time. If the Eastern giant’s leadership would not reverse course, the US would raise the tariff rate on the $200 billion in Chinese goods already being taxed from 10 percent to 25 percent and the remaining $325 billion in “untaxed” imports could also be slapped with the same crushing tab. Since then, we have seen rhetoric oscillate wildly at times, but the general course seems towards a game of chicken from which neither side seems willing to back down. President Trump has stated openly that the fallout is the result of China’s backtracking. His remarks earlier Thursday that Chinese President Xi sent him a “beautiful letter” suggests progress, but Chinese state-run media made clear the country’s position was the hard line.

Twitter Poll on US-China Trade War Outcome

Raising the tab on trade wars will carry a significant economic and financial impact, but this isn’t exactly new territory for which the world would be venturing. The real question is at what point does escalation capsize the seeming unending enthusiasm of the speculative rank. Though the language surrounding negotiations between the two powerhouses has changed abruptly in the past week, a jump in the tax rate for $200 billion in goods would not be much of a surprise. That said, the shaky hold of complacency over the financial system could prove unbearable with the market already in a tentative state of retreat. If the White House follows through on the threat to spread the higher rate of tariffs to all of the imports from China, the burden would equate to a nearly 650 percent increase in the burden. It would be hard to overlook the pain this would inflict. And, even if the markets managed to shrug off the threat at first, the unmistakable ignorance would hit critical speculative mass of its own. The greatest risk in my view remains a scenario where the end of the US-China trade war is finally spelled out and the market still collapses under its own excessive weight. As we pass the milestone on the most overt front on the trade war, a market participant would do well to remember this is not the only beachhead for promoting growth at the expense of others. Among various other threats, President Trump is due to decide on whether to apply duty to all auto imports or not by May 18th. How much fundamental weight can the world stand?

Chart of USDCNH (Daily)

Dollar, Yuan, S&P 500 and Emerging Markets Hold Breath for Trade Wars

Risk Trends Are Flailing and the Dollar Must Chose its Principal Motivation

As we weigh the market’s appreciation for the fundamental tide, it is difficult to miss the threat growing across the speculative landscape. The S&P 500 has struggled to truly ignite, but the progression of the benchmark’s reversal is impossible to miss. The reversal of rising wedge immediately after hitting a record high has been followed by four consecutive gaps lower. And, this hasn’t be an isolated case of faltering sentiment. Rest-of-world equities have dropped lower, emerging markets have suffered sizable dives lower and even the disconnected carry trade (Yen crosses) is following suit. A potential sea change is in the air if only there is proper motivation – or the strategic lack of interference. Trade wars are not the only source of unease across the financial system. Economic forecasts are starting to drop again after the temporary boost following the US GDP report and there is temporary distraction from the shortcomings of monetary policy. Political risks are gaining a head of steam on the other hand. Aside from trade diplomacy and issues like Brexit, the unity of the Euro-area has deteriorated againstpressure from Italy, a few countries are in the midst of elections (South Africa, India, Australia) and US House Leader has said the country is facing a constitutional crisis. These are not the factors that promote stability.

Chart of S&P 500 and Opening Gaps (Daily)

Dollar, Yuan, S&P 500 and Emerging Markets Hold Breath for Trade Wars

As the world struggles with stability issues, where does capital flow and what currency stands to benefit. Financial stability is a motivation very similar in impact to liquidity risk. In the event of utter crisis, there really is only one viable outlet: the US Dollar. That is not because the Greenback itself is just the most liquid currency in the world (it is), rather the world would be seeking out the safety of US Treasuries and money markets which are sought as much for their familiarity as their financial depth. This fundamental theme will likely override most other distractions for the time being. The individual strength of the US economy relative to the rest of the world has few immediate milestones for which it can distract itself. As for monetary policy, this past session’s upstream inflation reports (PPI) showed the tap is running steady; but the market’s favored consumer inflation (CPI) report is unlikely to stir any deeper intent even with a significant surprise Friday. At the moment, trade war blowback and political risks are the principal concerns; and traders would do well establish the hierarchy of concerns when it comes to the Dollar’s next move.

Chart of DXY Dollar Index and 20-day ATR (Daily)

Dollar, Yuan, S&P 500 and Emerging Markets Hold Breath for Trade Wars

‘Other’ Fundamental Charges for the Pound and Canadian Dollar

Looking outside the enormity and ambiguity of trade wars, there are certain areas of the FX market that could find some meaningful distractions of their own on which to generate volatility. From the world’s second most liquid currency, there is the threat the US will expand its trade war to include retaliations for Boeing and Harley-Davidson lost revenue and the far greater impact a global auto tariff from the US would have on European manufacturers. Yet, we should also keep tabs on internal strife. Following the EU’s downgrade of economic forecasts, Italy has made clear it intends to offset the burden by increasing spending, running afoul of debt limits. The fundamental impact for the Pound is far less amorphous. Friday brings 1Q UK GDP (sign up here to join the live webinar coverage of the event) along with monthly readings for trade balance, industrial production and construction output. At least the growth figure has proven itself more than capable of generating serious volatility, so traders should be on guard. That said, don’t hold your breath for trend development which requires the allowance of Brexit.

Chart of EURGBP (Daily)

Dollar, Yuan, S&P 500 and Emerging Markets Hold Breath for Trade Wars

If you are looking for the most focused, scheduled event risk amongst the ‘commodity bloc’; the Canadian Dollar is at the top of the list. Following the stubborn trade deficit figure from Canada this past session, we saw very little movement from either USDCAD or an equally-weighted Loonie index. That is unlikely to remain the case if there is a significant deviation from expectations for April employment figures. That indicator has a history of charging volatility. For the Australian and New Zealand Dollars, the attention is moving away from anticipation for a specific event to the aftermath of this week’s rate decisions. The RBA held rates unchanged, but that proved a surprise for the Aussie Dollar and capped market intent. The RBNZ’s rate cut was expected which gave greater emphasis to the ‘neutral’ bearing for forecasts. The hold from a previously tumbling Kiwi may stage an interesting next leg. We look at all of this and more in today’s Trading Video.

Chart of USDCAD (Daily)

Dollar, Yuan, S&P 500 and Emerging Markets Hold Breath for Trade Wars

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

2019-05-10 03:34:00

Australian Dollar Drifts Upwards Despite RBA GDP, CPI Downgrades

Posted: 09 May 2019 06:56 PM PDT

Australian Dollar, RBA Statement on Monetary Policy, Talking Points:

Growth, inflation and consumption calls were downgraded
However, the statement was not overtly dovish on near-term interest rate prospects
Rate futures suggest that the market still is

Join our analysts for live, interactive coverage of all major economic data at the DailyFX Webinars. We'd love to have you along.

The Australian Dollar market didn't move much on Friday following a monetary policy statement from the Reserve Bank of Australia which saw growth and inflation forecasts trimmed again.

The central bank cut its Gross Domestic Product growth forecast for the year through June 2019 to 1.75%, from 2.50%. The expected core Consumer Price Index rate was cut to 2%, from 2.25%, with household consumption for this year's second quarter now seen to rise 1.6% rather than 2.2%.

The RBA also said that domestic price pressures were more subdued than it had previously thought, and that trade tensions are still offering downside risks to the global economy. It said that the Australian Dollar was close to the bottom of its trading range, with local bond yields offsetting upward pressure on the currency from higher commodity prices.

All up this was undoubtedly a very restrained statement, but it was perhaps at the margins not quite as dovish as it might have been for this market, which has quite elevated expectations of lower interest rates ahead.

In any case, AUD/USD rose a little after the statement crossed the wires.

This market like all others is probably more focused on trade talks scheduled to resume later Friday between China and the US, with domestic news likely taking a backseat to headlines from Washington.

This week the RBA surprised markets by opting to leave the key Official Cash Rate at the record low of 1.50% which has endured since August 2016. Before the fact markets were pricing in a fairly high chance of a cut, based on weakness in official inflation data.

More broadly the Australian Dollar remains well within the downtrend which dominated trade since early 2018.

Local interest-rate futures markets still price in at least one and more probably two quarter-point reductions in the OCR over the next eighteen months. This abject lack of perceived monetary policy support is likely to return to weigh on the currency at any time, which makes it hard to get very bullish about its prospects.

The RBA has this week more explicitly linked the still-perky Australian labor market to its thinking. Next week's official employment numbers may therefore see the Aussie gain sharply if they come in strongly. However, the effect to which they alter that futures-market pricing, if at all, will probably be the most interesting aspect of the data.

Resources for Traders

— Written by David Cottle, DailyFX Research

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

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2019-05-10 01:49:00

Bullish Momentum Abates Ahead of OPEC Meeting

Posted: 09 May 2019 05:44 PM PDT

Oil Price Talking Points

Oil struggles to retain the advance from earlier this week even though U.S. Crude Inventories unexpectedly climb 3963K in the week ending May 3, and the price of oil stands at risk for a larger pullback as the bullish momentum abates.

Oil Price Forecast: Bullish Momentum Abates Ahead of OPEC Meeting

Image of daily change for crude oil prices

Crude appears to be stuck in a narrow range as the Organization of the Petroleum Exporting Countries (OPEC) and its allies prepare for the Joint Ministerial Monitory Committee (JMMC) meeting on May 19, and it remains to be seen if the group will continue to regulate the energy market beyond the June deadline amid the weakening outlook for global growth.

The OPEC+ alliance has certainly helped to prop up crude throughout the first-quarter of 2019 as the group scales back on production, and the coordinate effort may get carried into the second-half of the year even though the most recent Monthly Oil Market Report (MOMR) warns of 'slower-than-expected economic activity compared with the expectations of a month earlier.'

It seems as though the U.S. and China, the two largest consumers of crude, will continue to push for a trade deal as Vice Premier Liu He travels to Washington before the Trump administration boosts tariffs on Chinese goods, and the narrowing threat of a trade war may encourage OPEC and its allies to keep oil prices afloat throughout the remainder of the year.

Until then, recent price action warns of a larger pullback as crude comes up against channel support, and the bullish momentum may continue to abate over the coming days as the Relative Strength Index (RSI) falls back from overbought territory and snaps the upward trend carried over from late-2018.

CL1 Daily Chart

The advance from the 2018-low ($42.36) may continue to unravel as both price and the RSI threaten the bullish trends from earlier this year, with the lack of momentum to trade back above the $62.70 (61.8% retracement) region raising the risk for range bound prices.
Keep in mind, a 'golden cross' formation appears to have taken shape as the 50-Day SMA ($61.18) crosses above the 200-Day SMA ($60.76), but the different in slope undermines the potential for a bullish signal.
With that said, the Fibonacci overlap around $59.00 (61.8% retracement) to $59.70 (50% retracement) sits on the radar, with the next downside area of interest coming in around $57.40 (61.8% retracement).

For more in-depth analysis, check out the 2Q 2019 Forecast for Oil

Additional Trading Resources

Are you looking to improve your trading approach? Review the 'Traits of a Successful Trader' series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other markets the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

2019-05-10 00:30:00

AUD/USD, NZD/USD, GBP/JPY Trends Await Final Hour of Trade Talks

Posted: 09 May 2019 04:31 PM PDT

Asia Pacific Market Open Talking Points

All eyes on US-China trade deal? Higher tariff rate goes live around 4:00 GMT
US President Donald Trump poured cold water on negotiation breakdown fears
AUD/USD, NZD/USD and GBP/JPY awaiting trade news at key technical points

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.

US-China Trade War Fears Wax and Wane

It was another volatile day in markets, with the VIX 'fear gauge' at one point touching its highest since January 4. Heading into Thursday's Wall Street trading session, fears of a breakdown in US-China trade talks lead to another downside gap in the S&P 500 as it initially traded lower as anticipated. The anti-risk Japanese Yen and the similarly-behaving Swiss Franc were the best-performing majors.

Risk aversion then cooled later in the day after US President Donald Trump poured cold water on simmering market tensions. After receiving a letter from China's President Xi Jinping, Mr Trump noted that he has 'an excellent alternative to a China trade deal'. This comes after threatening this week to raise Chinese import tariffs on about $200b worth of goods from the current 10% rate to 25%.

While the S&P 500 reversed course, it was not enough to close the gap as it and the Dow Jones ended the day 0.3% and 0.54% lower respectively. US front-end government bond yields also somewhat recovered and so too did the US Dollar partially. The latter seemed to be battered earlier in the day as the external risks of heightened trade tensions underpin the Fed's outward concern on growth, fueling rate cut bets.

Trade Deal or No Deal?

With that in mind, US-China trade negotiations are heading into the final hour. Talks began at 21:00 GMT on Thursday and the US is still expected to raise the Chinese tariff rate (mentioned above) shortly after 4:00 GMT Friday. As such, the pro-risk Australian Dollar may struggle finding much follow-through on the upcoming RBA statement on monetary policy.

Keep in mind that the Reserve Bank of Australia surprised less dovish earlier this week, causing a sizeable spike in AUD/USD. The pair has since trimmed gains, likely owing to its vulnerability to broad market risk aversion. Thus, we may see a similar bullish reaction to the RBA statement if it underpins the central bank's stance. But a collapse in US-China trade talks can easily send the Aussie back lower, as we saw this week.

AUD/USD Technical Analysis

Taking a closer look at AUD/USD on the daily chart, we can see that the pair is sitting within a range of support between 0.6982 and 0.7012. Risk aversion may result in a downside breakout in the event of a lack of progress in US-China trade talks.

On the flip side, a positive trade outcome can not only boost Aussie from a sentiment perspective, but also gains could be compounded as the focus shifts back to monetary policy and a not-so-dovish RBA. You may follow me on Twitter @ddubrovskyFX for more timely updates on trade talks, with NZD/USD and GBP/JPY at key turning points as well.

AUD/USD Daily Chart

Chart Created in TradingView

FX Trading Resources

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

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

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2019-05-09 23:00:00

Dow Jones, S&P 500, Nasdsaq 100 Price Outlook

Posted: 09 May 2019 02:41 PM PDT

Dow Jones, S&P 500, Nasdaq 100 Price Outlook:

The Dow Jones was able to close Thursday's session slightly above key support, but now faces trendline resistance to the topside
The S&P 500 trades narrowly above a key Fib level at 2,865
Conversely, the Nasdaq finds itself distant from the nearest Fib level after a strong Thursday recovery

Dow Jones, S&P 500, Nasdaq 100 Price Outlook

After a painful week for US equities, Thursday trading offered a bright spot. After a series of comments from President Trump injected optimism into markets, a recovery effort was mounted in afternoon trading. The three major indices were able to climb considerably off their lows, but only the S&P 500 closed higher than it opened. US equities will now await trade war developments to influence price action in Friday's session. Here are the technical levels to watch.

View our Economic Calendar for upcoming data releases.

Dow Jones Price Outlook

The Dow Jones has been the worst performing major index in the year-to-date, despite its climb of more than 10.5%. Headed into Friday trading, the Average will have two nearby Fib levels to buoy price. First is the 78.6% Fibonacci retracement from the highs in October to the lows in December around 25,823. Second is the 61.8% from March's lows to April's highs at 25,774. Should those levels be breached, 25,522 – which marked the low of Thursday trading – can be looked to for subsequent support and the 78.6% retracement level.

Dow Jones Price Chart: 4 – Hour Time Frame (February 2019 – May 2019) (Chart 1)

To the topside, a trendline at 25,880 will also look to influence price followed by the 50% retracement at 25,950. The altitude at which the Dow trades offers an interesting setup. A trade war breakthrough would likely equate to a seriously bullish development that would see nearby resistance rendered obsolete. On the other hand, a breakdown would look to test the lows around 25,522 – a line in the sand before deeper selling.

S&P 500 Price Outlook

Similarly, the S&P 500 was able to surmount a Fibonacci level in Thursday trading and will look to it for support in Friday's session. Both the 38.2% and the 50% at 2,865 and 2,838 respectively should give pause to an attempted move lower. By comparison, the top side is relatively open. Resistance around 2,900 from the 23.6% Fib and psychological level will be a difficult barrier to break. That said, the path higher is relatively clear after that.

S&P 500 Price Chart: 4 – Hour Time Frame (February 2019 – May 2019) (Chart 2)

Nasdaq 100 Price Outlook

Finally, the tech-heavy Nasdaq finds itself between two Fib levels after bouncing from lows around 7,470. Those lows should now act as secondary support to the 38.20% retracement at 7,514. If the index is to attempt a move higher, it will first have to surmount minor horizontal resistance at 7,580 and 7,598. The two lines have influenced price action repeatedly in days prior and can be expected to do so again until evidence that they have been invalidated surfaces.

Nasdaq 100 Price Chart: 1 – Hour Time Frame (May 3 – May 9) (Chart 3)

Beyond horizontal resistance, the Nasdaq will have to contend with the 23.6% Fib level at 7,650 and prior highs from September and October 2018 around 7,696.

Nasdaq 100 Price Chart: 4 – Hour Time Frame (February 2019 – May 2019) (Chart 4)

An important factor to note across all three indices is how quickly they approached oversold territory. RSI is beneath 40 for each of them and Thursday's lows will effectively be a line in the sand for Friday trading. Should the trade negotiations break down, look for those lows to be tested. A break beneath would plunge the indices into oversold territory. Check back to DailyFX.com for coverage and analysis of the trade talks. In the meantime, follow @PeterHanksFX on Twitter for real time updates and price action analysis.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you're looking to improve your trading approach, check out Traits of Successful Traders. And if you're looking for an introductory primer to the Forex market, check out our New to FX Guide.

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2019-05-09 21:30:00

Trade War Tension and the Impact on the FX Carry Trade

Posted: 09 May 2019 01:27 PM PDT

Trade War and Carry Trades Takeaway:

President Trump threatens China with more tariffs has impacted the global equity market
Australian cash rate remained the same despite analyst predictions for a rate cut
AUD/JPY and NZD/JPY face negative carry trade returns

Potential Trade War Impacts Global Equity Market

President Trump threatens China with increasing tariffs on $200 billion of goods from 10% to 25% after he states that China broke their deal. This has caused unease in the market resulting in a drop in the global equity market and unwinding of carry trades.

Using the carry trade strategy works best in low volatility markets and when central banks look to increase rates. The purpose is to make profit by buying high yield currencies and selling low yield currencies. When uncertainty surrounds the market, such as the trade war between the U.S and China, this can push investors to close out their carry trade out of fear that there may be large losses.

Decrease in Carry Trade Return for AUD/JPY

High yield currencies tend to be AUD and NZD with low yields being JPY. However, the recent announcement from the Reserve Bank of Australia of a hawkish policy by keeping the cash rate at 1.50%, took investors by surprise given that analyst forecasted a rate cut. Although the RBA kept the rate the same, it is not a question of "if" there will be a rate cut, but "when". This has led investors to close out their carry trade resulting in AUD/JPY annual carry trade return to be -4.02%.

NZD/JPY Experiences a Negative Carry Trade Return

In the case for NZD/JPY, the Reserve Bank of New Zealand already made their cash rate cut on May 8th bringing the rate down to 1.50% from 1.75% resulting in an annual carry trade return loss of -3.40%. What may be worrisome for investors is generally, when interest rates decrease that means that the demand for that currency will also decrease. This can result in currency depreciation, which will create losses and exaggerate losses if leverage was used.

All this to say, keep an eye out for what happens with the U.S and China's trade dispute. This may continue to have large effects on the global economy resulting in an increase in closing of carry trades.

Written by Nancy Pakbaz, CFA

Follow Nancy on Twitter @NancyPakbazFX

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2019-05-09 20:00:00

Stocks Rebound After Trump Comments Spur US-China Trade War Optimism

Posted: 09 May 2019 12:12 PM PDT

Stocks Rebound on US-China Trade War Optimism:

President Trump says he has an "excellent alternative to China deal" one day before the arrival of a key deadline
In response, the S&P 500 climbed roughly 25 points to around 2,875
US and Chinese trade negotiators will meet in Washington at 5PM EST (21:00 GMT) to discuss the next steps

Stocks Rebound After Trump Comments Spur US-China Trade War Optimism

After gapping lower at the open for a second consecutive session, the S&P 500 looked to recoup some of the session's losses. Similarly, the Dow Jones rallied 200 points and the Nasdaq 80, but both remain below their opening levels – unlike the S&P 500. The rebound followed a series of comments from President Trump on the status of the US-China trade war.

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In a press conference outside the White House, President Trump said he has "an excellent alternative to a China trade deal" after receiving a letter from Chinese President Xi Jinping. In following remarks, the President still maintained a tough stance in the negotiations – announcing that the United States is starting the paperwork on 25% tariffs on a further $325 billion of Chinese imports. While seemingly contradictory, optimism outweighed concern as stocks rallied at the prospect of a salvaged deal.

Given that trade war concerns were the driving force behind this week's equity turmoil, optimistic remarks should command more respect than they have in the past. After a series of Tweets from the President called the talks into question last weekend, any indication that talks are still progressing amounts to a bullish development. US and Chinese trade negotiators will meet today in Washington at 5PM eastern (21:00 GMT), to continue talks.

S&P 500 Price Chart: 1 – Minute Time Frame (May 9)

Price action following the comments drove the S&P 500 nearly 25 points higher. Subsequent trading has seen the index hold onto these levels as the market close approaches. From a technical perspective, the index trades above near-term support around 2,836 to 2,840. 2,839 marks March's daily close before the index gapped higher to open at 2,848 on April 1.

To the topside, levels between 2,892 and 2,900 may provide resistance on a continued climb higher. The area offered both support and resistance in April, as well as some price indecision during Wednesday trading. As Friday's deadline approaches, all eyes will be on the trade negotiations in Washington later Thursday evening. A breakthrough would likely spur a deeper recovery rally but could be tempered until the exact details of any agreement are released.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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2019-05-09 18:35:00