Analyst Articles – Forex News 24

Gold Price Eyeing Support, Silver Price Rebound Fading
US Dollar (DXY) Soft Ahead of US Durable Goods Data
Theresa May Announces Resignation, GBPUSD Heading Lower
GBPUSD Rate Susceptible to Dismal UK Retail Sales Report
EURUSD May Rise on US Durable Goods Orders After Painful PMI Data
19-Year Rising Trend May Come Undone
Gold Prices Rise as US Dollar Fails to Capitalize on Market Selloff
S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear
Oil Prices Slide – IMF Fires Warning Shot for US & China Consumers
Bearish Outlook Ahead of CPI Data, Trade Wars

Gold Price Eyeing Support, Silver Price Rebound Fading

Posted: 24 May 2019 04:51 AM PDT

Gold (XAU) and Silver (XAG) Price Analysis and Charts.

Gold (XAU) – Will 200-dma bounce hold?
Silver (XAG) – Lower highs and lower lows.

DailyFX Q2 Forecasts and Top 2019 Trading Opportunities.

Gold (XAU) Price Respecting Lower Highs

The price of gold is currently trading just below a series of lower highs initiated off the February 20 peak at $1,346/oz. after bouncing off support from the 200-day moving average on Tuesday this week. The narrowing of the recent trading range may provoke a break-out in the coming days with $1,287/oz, the 61.8% Fibonacci retracement level and this week's high the first level of resistance. To break the series of lower highs, gold needs to trade above the May 14 high at $1,303/oz, a level that will need a strong fundamental driver to be breached. To the downside, the 200-day moving average is currently around $1,270.5/oz. This technical indicator held and prompted a reversal on Tuesday this week, although the rebound was short-lived. Below here, $1,266/oz. stands in the way of a re-test of 50% Fibonacci retracement at $1,262.8/oz.

How to Trade Gold: Top Gold Trading Strategies and Tips

Gold (XAU) Daily Price Chart (May 2018 – May 24, 2019)

Silver (XAG) – Bear Channel Still in-Play

Silver bounced off a six-month low at $14.38 earlier this week and pushed marginally higher but the move still looks weak as a new lower low and a lower high were put in place. Silver continues to respect the downtrend and a re-test of this week's low is possible if bearish momentum continues. Silver has also been respecting the 20-day moving average since late-March, while both the shorter-dated moving averages fell through the longer-dated (200-day) ma recently, adding to bearish sentiment. A break lower would target, $14.05, the November 30 low, psychological support at $14.00 before a full re-trace back to the November 14 low at $13.89.

Silver (XAG) Daily Price Chart (August 2018 – May 24, 2019)

Gold Price Eyeing Support, Silver Price Rebound Fading

Trading the Gold-Silver Ratio: Strategies and Tips.

IG Client Sentimentshows that retail traders are 78.8% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts however give us a mixed trading bias.

— Written by Nick Cawley, Market Analyst

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

Follow Nick on Twitter @nickcawley1

2019-05-24 10:40:00

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US Dollar (DXY) Soft Ahead of US Durable Goods Data

Posted: 24 May 2019 04:15 AM PDT

US Dollar News: USD Price Analysis and Charts.

US dollar strength fades as US durable goods data nears.
US release expected to be weak, but data set can be volatile.

DailyFX Q2 Forecasts and Top 2019 Trading Opportunities.

US Dollar (DXY) Fades Recent Rally

The greenback's next move will be likely predicated by upcoming US durable goods data with the volatile release at 12.30 GMT expected to show a sharp downturn from last month's multi-month high. Expectations center around -2.0% against +2.6% in the prior month, a wide spread that leaves room for the US dollar to move higher if expectations are beaten to the upside. All this ahead of a long weekend which may add extra volatility to any beat or miss.

The DailyFX Calendaris a comprehensive guide to all market moving data releases and events.

The US dollar index fell sharply Thursday after US PMIs missed expectations and hit multi-year lows with the manufacturing reading of 50.6 – expectations 52.5 and prior 52.6 – just above the expansion/contraction level of 50 and highlighting the weakest pace of manufacturing expansion since September 2009. The DXY has retraced out of oversold territory, and from its highest level in two-years, but will need a strong beat to re-test Thursday's 97.88 print.

US Dollar (DXY)Daily Price Chart (August 2018 – May 24, 2019)

IG Client Sentimentshows how retail traders are positioned in a wide range of asset classes and how daily and weekly sentiment changes can help drive momentum.

— Written by Nick Cawley, Market Analyst

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

Follow Nick on Twitter @nickcawley1

2019-05-24 11:08:00

Theresa May Announces Resignation, GBPUSD Heading Lower

Posted: 24 May 2019 02:26 AM PDT

GBP Analysis and Talking Points

Theresa May Announces Departure Date
New Leader Expected by Mid-July

See the DailyFXQ2 FX forecast to learn what will drive the currency throughout the quarter.

Theresa May Announces Resignation

Theresa May has announced that she will resign on June 7th but will remain in office until a new Tory leader is found, which will begin the following week and is expected to be concluded by mid-July.

MARKET REACTION

The initial reaction saw the Pound jump above 1.2700 against the USD, before quickly retracing back to pre-announced levels. While in the following 5-minutes, the Pound is heading lower.

Most likely Next Conservative Leader, according to UK bookmakers

Boris Johnson (6/4)
Dominic Raab (6/1)
David Lidington (8/1)
Andrea Leadsom (10/1)
Jeremy Hunt (11/1)
Michael Gove (12/1)
Sajid Javid (22/1)

GBP Bears Beware: Boris as UK Prime Minister Might be Good for Sterling

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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2019-05-24 09:15:00

GBPUSD Rate Susceptible to Dismal UK Retail Sales Report

Posted: 24 May 2019 12:35 AM PDT

Trading the News: U.K. Retail Sales

The U.K. Retail Sales report may keep GBP/USD under pressure as the headline reading for household spending is expected to contract 0.4% in April.

Signs of a less robust economy may produce headwinds for the British Pound as it encourages the Bank of England (BoE) to retain a wait-and-see approach for monetary policy. The central bank may come under pressure to abandon its rate hike bias as 'quarterly growth is expected to slow to around 0.2% in Q2.'

With that said, a decline of 0.4% or greater may trigger a bearish reaction in GBP/USD, but a positive development may curb the recent decline in the Pound Dollar exchange rate as Governor Mark Carney & Co. insist that 'were the economy to develop broadly in line with its Inflation Report projections, 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.'

Keep in mind, headlines surrounding the Brexit negotiations may produce increased volatility in GBP/USD as Prime Minister Theresa May struggles to secure a deal.

Impact that the U.K. Retail Sales report had on GBP/USD during the last print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2019

04/18/2019 08:30:00 GMT

-0.3%

1.1%

-35

March 2019 U.K. Retail Sales

GBP/USD 10-Minute Chart

Image of gbpusd 10-minute chart

The U.K. Retail Sales report showed an unexpected expansion in household consumption, with private-sector spending increasing 1.1% in March after expanding a revised 0.6% the month prior. A deeper look showed the better-than-expected print was generate by a 4.2% rise in 'non-store retailing,' with the volume of retail sales increasing 6.7% from the previous year to mark the fastest pace of growth since 2016.

The initial reaction to the above-forecast print was short-lived, with GBP/USD struggling to hold above the 1.3000 handle as the exchange rate closed the day at 1.2979. Learn more with the DailyFX Advanced Guide for Trading the News.

GBP/USD Rate Daily Chart

Keep in mind, the broader outlook for GBP/USD is no longer bullish as the exchange rate snaps 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).
As a result, the advance from the 2019-low (1.2373) may continue to unravel as the Relative Strength Index (RSI) highlights a similar dynamic, with the oscillator now tracking the bearish formation carried over from March.
A break/close below the 1.2610 (23.6% retracement) to 1.2640 (38.2% expansion) region opens up the Fibonacci overlap around 1.2370 (50% expansion) to 1.2440 (50% expansion), which largely lines up with the 2019-low (1.2373).
Will keep a close eye on the RSI as the oscillator pushes into oversold territory, but a move back above 30 may foreshadow a rebound in GBP/USD as the bearish momentum abates.

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.

2019-05-24 07:30:00

EURUSD May Rise on US Durable Goods Orders After Painful PMI Data

Posted: 23 May 2019 11:20 PM PDT

EURUSD may get a lift from US durable goods orders as the US economy continues to show weakness, especially in light of recent developments in the US-China trade war.

2019-05-24 06:00:00

19-Year Rising Trend May Come Undone

Posted: 23 May 2019 10:42 PM PDT

NZDUSD Technical Strategy: BEARISH

NZD cautiously drifts to eight-month low near 0.65 figure vs. US Dollar
Daily close above near-term trend line needed to neutralize bearish bias
Monthly chart reveals prices are challenging 19-year trendline support

See our free trading guide to help build confidence in your NZDUSD trading strategy!

The New Zealand Dollar has drifted to an eight-month low against its US counterpart. Prices are now testing support in the 0.6476-0.6501 area, with a break below that confirmed on a daily closing basis opening the door for a challenge of the October 2018 swing bottom at 0.6425.

Resistance is marked by a falling trend line guiding NZDUSD lower since late March, now at 0.6546. A sustained break above this may neutralize near-term selling pressure, setting the stage for a retest of support-turned-resistance in the 0.6591-0.6619 zone.

Staid day-to-day price action masks the pivotal moment at hand however. Zooming out to the monthly chart reveals prices to be sitting squarely at support marking an almost 19-year rising trend. With just over a week left in the month, the threat of a breach confirmed on a closing basis seems acute.

Needless to say, this would mark a tectonic shift in the long-term NZDUSD trajectory. The next major inflection point is found just below the 0.60 figure, with subsequent weakness beyond that opening the possibility of a descent all the way to decade lows below the 0.49 threshold.

NZDUSD TRADING RESOURCES:

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

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

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2019-05-24 05:00:00

Gold Prices Rise as US Dollar Fails to Capitalize on Market Selloff

Posted: 23 May 2019 09:28 PM PDT

GOLD & CRUDE OIL TALKING POINTS:

Gold prices rise as yields drop in risk-off trade, US Dollar slips on PMI data
Crude oil prices see largest daily drop yet in 2019 on growth, trade war fears
Corrective risk recovery may struggle for momentum, US durables data due

Gold prices rushed higher as bond yields dropped amid deterioration in market-wide risk appetite, boosting the comparative appeal of non-interest-bearing alternatives. Haven-seeking demand for the US Dollar has constrained similar moves recently but the benchmark currency was unable to capitalize this time around as disappointing PMI data stoked Fed rate cut speculation.

Crude oil prices plunged, recording the largest one-day drop so far this year. The bellwether WTI contract fell alongside S&P 500 futures throughout the trading day, pointing to a dour turn in prevailing sentiment trends as the catalyst at work. That followed from swelling worries about the impact of a prolonged US-China trade war on global economic growth and – by extension – oil demand.

SOFT DURABLES DATA, US-CHINA TRADE WAR AND EU PARLIAMENT ELECTION FEARS MAY DERAIL MARKET RECOVERY

April's US Durable Goods Orders data takes top billing on an otherwise quiet economic calendar through the end of the trading week. The markets' violent reaction to yesterday's soft PMI results may portend more of the same if this reading disappoints. As it happens, US data outcomes have tended to undershoot forecasts recently, warning about the elevated probability of just such an outcome.

Signs of weakness may sustain the risk-off drive into the weekly close, pushing oil lower still while gold extends upward. The miss will probably need to be substantial to overcome corrective flows as investors rebalance portfolios toward neutral ahead of a weekend prolonged by the Memorial Day holiday in the US. That is likely to degrade liquidity, amplifying already elevated kneejerk volatility risk.

Tellingly, futures tracking Wall Street equity benchmarks are pointing firmly higher in late Asia Pacific trade, reinforcing the sense that a retracement of yesterday's moves is in the cards. Still, another batch of worrying headlines on the US-China trade war front, signs of eurosceptic triumph in on-going European Parliament elections, or an especially downbeat US durables report might revive liquidation.

Did we get it right with our crude oil and gold forecasts? Get them here to find out!

GOLD TECHNICAL ANALYSIS

Gold prices bounced at rising trend line support set from August 2018. Buyers now face resistance capping the upside since late February. A daily close above its outer layer – now at 1297.50 – exposes the 1303.70-09.12 area. This is followed by the 1323.40-26.30 zone. Alternatively, a move below the 1260.80-63.76 region would hit at bearish trend change and set the stage to test the 1235.11-38.00price band.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices sank to support in the 57.24-88 area, setting a three-month low along the way. A daily close below this boundary targets the 55.37-75 zone next. Near-term resistance is in the 60.39-95 region, with a break above that eyeing a dense block of overlapping barriers starting at 63.59 and running to 67.03.

COMMODITY TRADING RESOURCES

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

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

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2019-05-24 03:30:00

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

Posted: 23 May 2019 08:47 PM PDT

Risk Trend Talking Points:

An inevitable S&P 500 break Thursday seemed to strike a nerve in global sentiment, threatening more than just its own H&S pattern
Concern over trade wars, sputtering growth and political fracturing is starting to coalesce into a true threat to systemic complacency
There is a potentially seismic fundamental shift afoot for the Euro and the Pound, but at least one will wait for resolution to move

See how retail traders are positioning AUDUSD, EURUSD, S&P 500 along with the other FX majors, indices, gold and oil intraday using the DailyFX speculative positioning data on the sentiment page.

Risk Aversion Threatens a Tide Change Just Before a Liquidity Drain

There was no mistaking the smell of fear across the capital markets this past session. We have been floating through treacherous fundamental waters for some time amid the escalation of trade wars, a slowing in economic activity and a more obvious state of political instability around the world; but it seemed investors decided to finally pause and take notice of their predicament this past session. What we should be evaluating now is whether this was just a temporary pang of self-awareness that leaves the real resolutions to the indeterminant future or if it is the unstoppable spark of a self-sustained immolation of speculative excess. While I think there are various measures that can speak to the intensity and to certain originations of any collapse in sentiment, I will start with the S&P 500.

Equities are the most common asset class in global portfolios and the US market is the largest in the world. As such, the S&P 500 – which channels the heaviest derivative trading through ETFs, futures, etc – is an appropriate single-source reflection of ‘risk’. It was therefore noteworthy this past session when a terminal wedge (one essentially running out of room) finally found its resolution with a stiff break lower. While the technical jog was inevitable, the intensity of the move was still a surprise. The slump through intraday lows was a significant contrast to what we have seen these past few weeks’ of measured movement. While this and other US indexes were end well off their respective session lows, there is still anxiety owing to the market’s proximity to a pivotal technical support level. Just above 2,800, there is a ‘neckline’ to a multi-week head-and-shoulders pattern that threatens to turn 2019’s bullish ambitions.

Chart of S&P 500 with 20-Day and 100-Day Moving Average (Daily)

While we can pick a single measure to reflect speculative intent across the entire financial market for ease, it is far more useful to evaluate sentiment across regions and asset classes to establish conviction. The bigger picture perspective renders the same signals for caution. Global equity indices suffered the same drop on the day and many have nearby support levels to contend with. Emerging market assets, junk bonds and carry trade were all under pressure even at a steeper discount to the uniquely inflated US stock market. Breadth and depth to fear dramatically increases the potential of a genuine. That said, an escalation would have to overcome a natural market constraint in liquidity. We are heading into the end of the week when liquidity drains off and this is further a holiday-weighted weekend for the US and UK which will act to dampen rampant speculative fires. In other words, if risk aversion persists through Friday; it won’t just take out serious technical levels, it will raise the threat of a full bear swing temporarily interrupted.

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

The Convergence of Trade War Pain, Economic Stagnation and Political Instability

As we keep tabs on the technical milestones, it is the fundamental charge that will eventually cast the die on our speculative fate. Global growth received an important update through various sentiment assessments and data this past session. The ECB’s transcript from its last monetary policy meeting was one such milestone with a voiced concern amongst its members for the Eurozone economic pace moving forward. In more traditional lines, the global economy received a troubling health check via Markit’s May PMI activity reports. Aside from Australia’s improvement, the Japanese activity report turned to contraction (a reading below 50) while the Eurozone and US measures slowed but held above the critical growth/contraction mark. A related but substantially more abstract theme causing ripples through sentiment is political stability. The EU Parliamentary election and breakdown in Brexit negotiations on the UK side are pressing risks, but the headlines in the US stole the headlines this past session. US President Donald Trump walked out on Congress’s Democrat leaders yesterday after saying an infrastructure deal couldn’t be worked on at the same time that investigations into his administration were ongoing. That $2 trillion fiscal stimulus may prove essential for keeping the US and global economy upright if the world acts on its many overriding risks.

Keeping track of the most disruptive features of our future, the trade war – concentrated back on the United States and China – is the storm that keeps blowing. Following the past week’s upgrade in the tariff rate on the United States’ $200 billion in imports and China’s retaliation on $60 billion in goods, we have seen more measured but nonetheless provocative moves made to raise the barriers to compromise between the two countries. Chinese officials said that they would not return to talks until the United States changed its “wrong actions”, but it did not state clearly what those actions were. The United States blacklisting Huawei and consideration for the same of 5 surveillance firms likely qualifies. In the meantime, the White House’s announcement of a $16 billion aid package to farmers juxtaposed to China’s tax holiday for local chipmaker and software companies reflects moves meant to weather a protracted engagement. While USDCNH’s 7.0000-mark is critical in this assessment, AUDUSD will be the more sensitive measure. For local market performance, the contrast between China’s Shanghai Composite and the FXI China ETF will reflect on the often unclear pressure on domestic markets.

Chart of Shanghai Composite and FXI China ETF in Red (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

Where is the Dollar Taking Its Beating, Can the Euro and Pound Mount Serious Moves Now?

Against the backdrop of volatility in the broader capital markets, we would see a surprise standout in activity for the Forex market in the US Dollar. Lately, the benchmark currency has deviated from its most liquid counterparts to drift through a non-descript course, drifting gradually higher. That underlying bullish bias was on display through the morning session Thursday, seemingly catering to the currency’s safe haven status. Yet, shortly after notching a two-and-a-half year intraday high, the Greenback pitched lower on its way to the biggest single-session loss in three weeks. The intraday reversal in the meantime would result in the biggest bearish tail since February 15th – a strong signal of speculative intent. Yet, a technical turn alone is not enough to secure a true trend. Fundamental drive make or break any true runs. Clearly the USD is not aligning to its deep haven status nor is it likely that interest rate speculation – which dropped further Thursday – suddenly carries full weight. A fading carry trade status and growing appreciation of trade war blowback may retain control. That is of course so long as a collective wave in the most liquid currencies doesn’t force the Greenback into a counterpart role.

Chart of DXY Dollar Index and 'Tails' (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

From the US Dollar’s most liquid counterparts, we are generally in a state of wait-and-see. For the world’s second most liquid currency, the Euro, we have seen its activity level grind to a halt. The 20-day ATR on an equally-weighted measure of the EUR has collapsed to levels only comparable to that baseline of complacency back in Summer 2014. The focus of course is on how the EU Parliamentary elections play out. There is considerable consequence to this political event as a strong showing for the generally anti-Euro nationalists could signal a systemic threat to the world’s second most liquid reserve currency. There is no faster way to sharply and permanently devalue a currency than to undermine its absolutely utility. Given we won’t know the outcome of this election until the end of the weekend, it follows that the Euro will tread water until then.

Chart of Equally-Weighted Euro Index and 20-Day ATR (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

As for the British Pound, the fundamental compass setting remains overtly bearish. Brexit still weighs on the minds of Brits, British business leaders and foreign investors. There is still critical negotiation that needs to be hashed out between UK and EU representatives in the divorce proceedings but there isn’t even a whiff of a clear position from the United Kingdom. That places all the focus on Prime Minister Theresa May’s ability to work out a clear plan. On that front, it was reported that May had decided not to publish her Withdrawal Agreement bill on Friday as previously intended due to a ‘mutiny’ in her cabinet. Rumors of the PM’s impending resignation – forced or voluntary – refuse to die. The Sterling can extend its record-breaking 14-day tumble versus the Euro against this backdrop, but it could just as readily stall. We discuss all of this and more in today’s Trading Video.

Chart of EURGBP and Consecutive Candle Count (Daily)

S&P 500 Leads a Global Risk Aversion That Threatens Critical Mass in Fear

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

2019-05-24 03:31:00

Oil Prices Slide – IMF Fires Warning Shot for US & China Consumers

Posted: 23 May 2019 07:33 PM PDT

Oil Price Talking Points

Oil fails to retain the upward trend from earlier this year as it snaps the monthly opening range, and the weakening outlook for global growth may continue to drag on the price of crude amid the ongoing trade dispute between the U.S. and China, the two largest consumers of oil.

Oil Prices Slide – IMF Fires Warning Shot for US & China Consumers

Image of daily change for oil prices

Oil prices remain under pressure following the warning shots from the Organisation for Economic Co-operation and Development (OECD), and it remains to be seen if the Organization of the Petroleum Exporting Countries (OPEC) will respond to the weakening outlook for global growth as the U.S. and China struggle to reach a trade deal.

Image of IMF forecast

The ongoing shift in U.S. trade policy may become a growing concern as the International Monetary Fund (IMF) insists that 'consumers in the US and China are unequivocally the losers from trade tensions,' and the group goes onto say that 'failure to resolve trade differences and further escalation in other areas, such as the auto industry, which would cover several countries, could further dent business and financial market sentiment, negatively impact emerging market bond spreads and currencies, and slow investment and trade.'

With that said, OPEC and its allies may come under pressure to boost production at the next meeting on June 25 as the rise in tariffs are expect to curb the purchasing power for U.S. and Chinese households, but the ongoing alliance may keep oil prices afloat in 2019 as the producers pledge to keep 'inventories under control.'

Nevertheless, the recent price action in crude raises the risk for a larger correction as the price of oil snaps the monthly opening range, with the downside targets now on the radar as crude prices fail to preserve the upward trend from earlier this year.

Crude Oil Daily Chart

Keep in mind, a 'golden cross' formation appears to have taken shape as the 50-Day SMA ($61.10) crosses above the 200-Day SMA ($60.39), but the difference in slope undermines the potential for a bullish signal.
Crude has taken out the monthly opening range following the failed attempt to break/close above the $62.70 (61.8% retracement) to $63.70 (38.2% retracement) region, with a move below $57.40 (61.8% retracement) opening up the Fibonacci overlap around 54.90 (61.8% expansion) to $55.60 (61.8% retracement).
Will keep a close eye on the Relative Strength Index (RSI) as it quickly approaches oversold territory, with a break below 30 raising the risk for a further decline in the price of oil as the bearish momentum gathers pace.

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.

2019-05-24 02:00:00

Bearish Outlook Ahead of CPI Data, Trade Wars

Posted: 23 May 2019 05:42 PM PDT

TALKING POINTS – TRADE WAR, IBGE INFLATION IPCA-15, BRL, IBOVESPA

Fading optimism over US-China trade resolution nauseating markets
Brazil inflation data may skew inflationary risks and monetary policy
Pension reform progress remains a headline risk to economy outlook

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

The Brazilian Real may find itself under pressure after local inflation data is published. Month-on-month price growth is expected at 0.41 percent, slightly lower than the previous report at 0.72 percent. The Brazilian economy at this time is in a fragile state by virtue of the uncertainty caused by the US-China trade war and local structural reforms. The latter is arguably one of the biggest drivers of price action in Brazilian markets.

Earlier this month, the Brazilian central bank announced that it was going to hold the benchmark Selic rate at 6.50 percent – as expected. Policymakers noted that while local economic activity was weaker, inflationary risks remain broadly "symmetrical". This has allowed monetary authorities the luxury of holding rates while local pension reforms talks continue, though external headwinds and local CPI may derail their neutrality.

Additional risks to inflationary pressure include the current state of Brazil-China relations. Yesterday marked the first day of investment negotiations between Brazilian Vice President Hamilton Mourao and high-level Chinese officials. If the negotiations between the two emerging market giants go well, it could boost sentiment in the Brazilian economy and provide a tailwind for inflation.

However, whatever deal is achieved between China and Brazil will likely be offset by souring relations between Beijing and Washington. Both sides appear to be digging their heels in with US President Donald Trump now adding additional measures involving Chinese tech-leviathan Huawei. Finding a resolution now against what is an already-unhospitable backdrop will likely only continue to sour global sentiment.

BRL PRICE CHART ANALYSIS

The Brazilian Real has been rapidly falling against the US Dollar, with USD/BRL recently puncturing the 4.000 landmark. The last time the pair reached this level was back in October of 2018. The pair appear to be hovering just above what may be a new psychological floor. The long wicks on both sides of the short-bodied daily candles indicates indecision.

USDBRL reaching October 2018-highs… But for how long?

It appears that only a favorable – or unfavorable – fundamental development in either the pension reforms or US-China trade relations will be a key force in determining the pair's bearish or bullish trajectory. Looking ahead, monitoring these crucial factors will be essential to maintaining a well-informed trading strategy. To learn more about Brazilian assets, you may follow me on Twitter @ZabelinDimitri.

FX TRADING RESOURCES

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

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

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2019-05-24 00:30:00