FUNDAMENTAL ANALYSIS ON USD
The U.S. dollar ticked higher this week amid heightened trade war tensions. The trade tensions escalated as Trump signed an order Wednesday to restrict Huawei and fellow Chinese telecommunications company ZTE from selling their equipment in the U.S. Meanwhile, on the economic data front, retail sales declined by 0.2%, after a substantial gain of 1.6% in March. Core retail sales also posted a small increase of 0.1%, falling short of the 0.7% estimate. The weak retail sales, together with previous soft CPI and PPI numbers, could spur the market’s speculation that an interest cut from the Fed looms.
USD could edged lower as the recent weak data has spurred speculation of a need to adopt an easing monetary policy to boost economic growth. Many economists suggest that the 2% inflation rate may no longer be valid since the import tariffs that President Trump imposed recently is likely to push prices higher. Fed might need to accept a slight overshoot of its 2% inflation target for a while. With the market pricing in increasing expectations of Fed cutting interest rates to boost economic growth, the USD could tick lower.
Next Wednesday will see the release of FOMC minutes, while the monthly core durable goods orders will be released on Friday. As the consumption remains weak, factory orders data could fall short of expectations, which could put more downward pressure on USD.
FUNDAMENTAL ANALYSIS ON GBP
This week, Pound extended its decline on fading optimism of a cross-party Brexit deal, with a senior Labour official indicating that the Labour party would not back May's Brexit deal in its current form. Meanwhile, May's position is also being threatened as she is faced with repeated calls to resign, a move that could open up the prospect of an election to break the deadlock, increasing risks of a hard Brexit in November.
Elsewhere, the global outlook looks gloomy while trade tension between US and China escalated as Trump sign an order to restrict Huawei and ZTE from selling equipment in the US, declaring it a national emergency. Meanwhile, China cuts its US treasury holdings by $10.4 billion, bringing the position down to a 2 year low of $1.2 trillion amid the trade disputes. The recent downbeat economic data cast further doubts on a much-anticipated rebound in the global economy with April readings for China and US coming in lower than expected.
Next week will see the release of the CPI and PPI data where an increase from the previous month can find some support for the currency. However, given the current outlook and increasing risks of Theresa May being ousted from her position along with heightened trade tensions, the market feels there is a possibility of a further slide in the currency.
KEY TECHNICAL LEVELS ON GBPUSD
This week GBPUSD has a 1st support at 1.2764 which is a 61.8% Fibonacci retracement and a horizontal swing low support. This corresponds with the Stochastic (34,5,3) support at 4.48%. 1st resistance is at 1.2972 which is a horizontal overlap resistance.
PRICE JOURNEY ON GBPUSD
Based on PsyQuation, GBPUSD was hit hard at the start of the day, losing almost -0.1%. Since then it has posted a small recovery to losing -0.05%. The overall journey since the start of the day has been bearish for GBPUSD. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
FUNDAMENTAL ANALYSIS ON EUR
EUR plunged at the start of the week amid rising transatlantic tensions with Trade Chief Cecilia Malstrom indicating that EU is finalizing a list of American goods to target retaliatory levies in an event Trump imposes auto tariffs. Trump has previously threatened to impose auto tariffs on the region based on national security grounds; the same reason that was given for Aluminium and foreign steel tariffs imposed previously. However, these auto parts will mark a significant escalation of transatlantic tensions because the value of EU automotive exports to the America market is about 10 times greater than that of the bloc's steels and aluminum exports combined.
Elsewhere, Italian 2 year yield rose sharply while the currency plummeted on as Italy Deputy Prime Minister Matteo Salvini said the nation is ready to break EU fiscal rules if necessary to boost employment. While the market feels that EUR might find some support in the delay of auto tariffs, it is short-lived as EU would have to restrict imports of automobiles and parts into the US which could hurt their economic growth in the long run.
Next week will see the release of CPI, PMI, GDP and Economic sentiment data where missing estimates could rattle investors' confidence that the worst is over especially since the recent data from US and China shows a slowdown in growth as well.
KEY TECHNICAL LEVELS ON EURUSD
EURUSD has broken an ascending support-turned-resistance line with the next support at 1.1130. This level is a 61.8% Fibonacci extension, horizontal swing low and a 100% Fibonacci extension. 1st Resistance is back up at 1.1254 which is a horizontal overlap resistance level.
PRICE JOURNEY ON EURUSD
Based on PsyQuation, EURUSD started the day weak, dropping to a loss of almost -0.04% before rallying up strongly to +0.035%. The majority overall journey of EURUSD since the day opened has been bullish. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
FUNDAMENTAL ANALYSIS ON JPY
JPY benefited from growing risk aversion as the trade war between the U.S. and China escalates. The trade tensions escalated as Trump signed an order Wednesday to restrict Huawei and fellow Chinese telecommunications company ZTE from selling their equipment in the U.S.
Moving forward, while Trump claims that he will meet President Xi at June’s G20 summit and Mnuchin says a talk between the two sides will be held before the summit, China denies of any travel plans from the American delegation. Given that there is no signal of a concession made from either side, the trade tensions could have a prolonged impact on the market.
Domestically, next Monday will see the release of GDP data, which the market feels might show the economy shrinking by at least 2% in the first quarter. This along with the recent appreciation of JPY could drive Abe to postpone a scheduled sales tax hike, which appears too risky in escalating trade tensions. JPY could extend its rally if the trade tensions intensify next week.
KEY TECHNICAL LEVELS ON USDJPY
USDJPY has a 1st support at 109.70 where a double bottom could have completed too. There is also a bullish divergence versus Stochastic which is correspondingly bouncing off 1.56% support. The next resistance level is at 111.01 which is where the price gap occurred and is also a 100% and 61.8% Fibonacci extension.
PRICE JOURNEY ON USDJPY
Based on PsyQuation, USDJPY started the day strongly, rallying to a gain of 0.15% before losing some steam and dropping back down to a gain of 0.103%. The majority overall journey of USDJPY since the day opened has been bullish. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
FUNDAMENTAL ANALYSIS ON AUD
The AUD is under siege from an upcoming election, a trade war and a faltering economy.
Over the past week, the AUD was battered down badly and investors have become more bearish on the AUD than any other G-10 currency as the risk sensitive asset suffers from a sudden escalation in US-China trade tension and a slowing economy. Just yesterday, a highly watched over employment data printed softer than expected at 5.2% instead of 5%. Investors are pricing around a 60% chance that the RBA will cut interest rates in June.
Support for the AUD is being further eroded by softness in the Chinese economy. On Wednesday this week, China's factory output, fixed asset investment and retail sales all missed estimates in April raising questions over demand for Australia's commodities.
Coming up, adding to Aussie's conundrum is rising political risk ahead of a electoral vote that occurs tomorrow. Incumbent Prime Minister Scott Morrison and his party are trailing the Labor party in the polls. A labor win may lead to a "fractious political climate" which could weigh on consumer and business sentiments and in turn, the AUD.
FUNDAMENTAL ANALYSIS ON NZD
Over the past week, heightened trade tension and softer than expected China data weighed heavy on the NZD.
Early this morning, New Zealand released its manufacturing PMI of 53 as opposed to 52 in March, showing expansion in the manufacturing sector picked up pace in April, however still missing the estimates of 54.5. Also, four out of five sub-indexes declined, therefore failing to lift the NZD.
Next week, New Zealand will release its retail sales and trade balance data. There is a possibility that numbers could still print soft as its economy has shown signs of economy slowdown.
KEY TECHNICAL LEVELS ON NZDUSD
NZDUSD has continued to drop and is now above intermediate support at 0.6522. This level is a swing low support. There continues to be bearish momentum from the descending channel and with price below the Ichimoku cloud. The next support is at 0.6485 which is a 61.8% and 100% Fibonacci extension.
PRICE JOURNEY ON NZDUSD
Based on PsyQuation, NZDUSD started the day dropping strongly to a loss of almost -0.15% and has since rebounded strongly to a gain of +0.052%. It has still spent the majority of the day in the bearish region. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
FUNDAMENTAL ANALYSIS ON CAD
Over the week, CAD remained vulnerable to oil prices and heightened trade tension however performed better than other commodity currencies. CAD strengthened against most of its G-10 peers as oil rose for a third day amid tensions in the Middle East and falling US gasoline stockpiles and upbeat domestic data from its ADP employment report and manufacturing shipments. Although it is worth nothing that BoC Governor Poloz's comments last night seemed to have no influence on price.
Next week, consumer spending as represented by its core retail sales data will be released. This will give us the latest health check on the Canadian economy. CAD remains vulnerable to any news on trade wars and oil and in this volatile environment which could see it whipsawing.
KEY TECHNICAL LEVELS ON USDCAD
USDCAD is in a range between the 1st resistance at 1.3525 which is a swing high resistance, 61.8% Fibonacci extension and 76.4% Fibonacci retracement. At the other end of the range is the 1st support at 1.3362 which is a 100% Fibonacci extension, 61.8% Fibonacci retracement and a horizontal swing low support level.
PRICE JOURNEY ON USDCAD
Based on PsyQuation, USDCAD started the day strong, rallying to a gain of almost +0.1% before losing steam and dropping back all the way down to a small gain of +0.019%. The majority overall journey of USDCAD since the day opened has been bullish. Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies