News Commentary
We are looking forward to another busy calendar week for most assets, followed by many important readings and announcements from central banks, to see how this will affect each currency.
EUR
The German Final CPI results were not unexpected. The indicator dropped to 0.0% marking a 3-month low. The Eurozone Final CPI went to 1.2%, down from 1.3% last month. The Eurozone Final Core CPI dropped from 1.0% to 0.7. The German indicator posted a sharp drop of -8.2 for a second straight month, the first declines since July 2016. The low reading certainly doesn’t show much optimism. The ECB will have to stay with its stimulus policy program in their meeting on Thursday.
The EUR has another battle with Italy’s new leader’s elections who may propose new deficit spending that appears to tighten the EU Growth.
Further details on the formation of the new Italian government between the League and Five Star movement will be a key market focus for EUR fixed income markets.
US
The dollar found momentum as the bond yields on 10-year U.S. Treasury raised to 3.025%, the highest level in three weeks. A rise above the high of 3.035% reached on April 25 would take it to its highest since early 2014.
U.S. bond yields were enhanced by signs of trade tensions between the U.S. and China calming down after U.S. President Donald Trump promised to help Chinese technology company ZTE.
This also affected the Dow and S&P 500 who both passed the previous peak, which came almost a month earlier in what could be an indication of an ending of the correction.
All eyes will be on the FOMC meeting on Wednesday to show any hint about how many rate hikes may come this year.
GBP
The UK Average Earnings Index came in below expectations with 2.6%. This may put more pressure on sterling which will make traders concerned about any rate hike soon.
Besides, inflation fell faster than the BoE forecasted in February.
Policymakers think the effects of Brexit on sterling are likely to ease slightly faster than expected, so they now plan that inflation will return to the 2 percent target in two years, despite the delay of the next rate rise.
In the UK, the inflation report on Tuesday is expected to ease the fading impact of the GBP lowering.
With also CPI on Wednesday, there are expectations of the same as the last reading of 2.5%.
Following on Thursday will be retail sales with a forecast of 0.8%, and second estimate on GDP on Friday with an expectation of 0.1%.
All eyes will be on BOE governor Carney’s speech on Thursday and Friday, noting about an upcoming rate hike.
CAD
Inflation in Canada has been higher in recent months and rose to 2.3% in March.
Economic CPI stabilised at the forecast of 0.3%, with core retail sales falling to 0.2%.
Negotiations about the North American Free Trade Agreement (NAFTA) have reached a dilemma with no meetings scheduled among the top leaders, ahead of the month-end.
Trump’s economic adviser Kudlow linked between NAFTA and China, indicating that an agreement on NAFTA would show that the US can avoid a trade conflict with China. The NAFTA agreement would also show Trump’s tactics, and if there is trade conflict with China, then it is China’s fault.
AUD
The Australian Employment Change for April was better than expected with 22.6K, which crossed over the 19.8K estimate.
On the other hand, the Unemployment Rate rose for the fifth time since July 2017, reaching 5.6%.
The lower wage price index put more pressure on the Australian dollar with a reading less than expected of 0.5%.
All eyes will be on RBA governor Lowe’s speech to declare any notes about inflation, growth and the outlook for the economy.
JPY
The announcement that North Korea suspended negotiations with South Korea on the denuclearisation has affected the Japanese yen as a “safe haven” of the financial market.
Japan GDP ended the expansion streak for eight straight quarters of growth. Japan GDP contracted -0.2% QoQ in Q1, less than the expectation of 0.0% QoQ. On an annualised basis, GDP contracted -0.6% versus the expectation of -0.1%.
CHART ANALYSIS
US INDEX
On the daily chart, the price has bounced from the lower trend line from the high of 2017.
The price is near the key resistance of 94.15 which bounced with a pin bar.
A bat harmonic pattern boosts the continuation of the bearish momentum.
Divergent on RSI assured this possible downfall.
If the price could break beneath the key support level 92.6, it may reach 91.1 again.
AUD/USD
On the daily chart, the price had a false break beneath the support zone 0.75-0.7535. That enhances the harmonic pattern AB=CD. The pair had made a price action (pin bar) in this false break to boost the bullish bias. The pair is moving onto the support zone now. Along with divergence in RSI and breaking the lower trend line as shown, the price is ready for the next move up to 0.7635 then 0.7715.
USD/CAD
On the daily chart, the price had made its way into the resistance zone of 1.2925-1.3, with an approach from the descending trend line starting from the high of 2015. The price reversed from these levels, breaking beneath the key 1.28 support level and then, returning to it. If the daily candle closes under this level again, it will prompt the price to be bearish to the support zone 1.252-1.243.
AUD/JPY
On the daily chart, we can see that the price bounced from the support area of 80.35-81.2.
A well-noticed head & shoulders reversal pattern is shaped. The price is on the second shoulder with a breaking of the lower trend line as shown.
Followed by oversold on RSI and the breaking of the lower trend line, the price is expected to get back up again to the resistance area 84-84.35.
USD/JPY
The price is located at a very strong short-selling area, rebounding from the descending trend line from the high of 2018. Besides the broken uptrend line from the low of 2011, also reaching the top edge of the upward channel along with forming an AB=CD harmonic pattern with divergence on RSI. The price is also about to shape a double top pattern. We will wait for a bounce from these levels and break beneath the upward channel to go short to our targets of 108.1 then 104.8.
