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EUR/USD, Gold Drive to Resistance as USD Falls Through the Floor

Talking Points:

- It’s been a heavy week of data. The big takeaway has been even more USD-weakness; and with NFP on the docket for next Friday, we’re not likely done with USD-volatility in the near-term.

- We look at two markets below in EUR/USD and Gold that traders can look to in order to focus upon this theme of continued USD-weakness.

- If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.

It’s been a huge week of data. The announcement that many were looking for to get some volatility in the US Dollar produced little (Wednesday’s FOMC announcement); and the announcement that many were afraid of actually brought no additional information but produced some outsized moves anyways (the Bank of Japan’s hold to policy at their Thursday meeting), and the data point that many already had low expectations for came in even lower than feared (US GDP).

Add to that a dizzying set of corporate earnings with a strong frame of fear coming out of Apple’s earnings highlighting the risk of ‘macro headwinds’ while both Facebook and Amazon came in well-above expectations. With so much news in the environment, it can be difficult to deduce which themes or data points produced which moves; so in today’s Market Talk, we’re going to look at two of the more pronounced themes to have come from this week’s price action, along with what to watch for in the week ahead, in which high-importance US Data is to be delivered on Monday, Wednesday and Friday (NFP).

USD Weakness

Probably one of the more pronounced moves from this week came out of the Greenback, and this was likely more driven by that anemic GDP figure rather than FOMC or any other single factor. Wednesday’s FOMC statement helped to drive USD up to near-term resistance. But the statement lacked any concerted language about what the bank might do in June, and seemingly, this statement merely left the door open for a hike without putting the bank in a committed-stance.

But Thursday’s GDP disappointment brought the Dollar lower to support, and this morning’s follow-thru price action has staged a break through that as USD sits at a 10-month low.

We had looked at a Fibonacci retracement on the US Dollar two weeks ago after the dollar had set a new short-term low, and those levels played out well. We’ve updated the chart below with recent price action to look at how this might be approached in the weeks ahead.

As we said two weeks ago, be careful of chasing a down-trend while we’re so near support (or chasing an up-trend whilst at or near resistance). The same confluent level of support that we discussed in that last article can be used to look for new resistance now that new lows have come into play. Traders can look for resistance to develop at the 11,836-11,837 region next week to look for resumption plays in the US Dollar.

EUR/USD, Gold Drive to Resistance as USD Falls Through the Floor

Created with Marketscope/Trading Station II; prepared by James Stanley

EUR/USD Just Broke out of a Bull Flag Formation

As usual, this exuberantly weak US Dollar has produced reverberations throughout the currency world. EUR/USD has staged an extremely strong weak, with a bounce off of the Fibonacci support level that we had outlined last Friday in the article, EUR/USD and USD/JPY Setups Ahead of a Heavy Week of News. The level of interest that we had outlined came in as support early this week, and the drop in the US Dollar took care of the rest.

The current issue with the setup in EUR/USD is that we’ve run up to a really well-tested and fairly well-defined level of resistance that capped the pair’s advance throughout the month of April. Just as we mentioned on the US Dollar, be careful of chasing these types of moves. The level of interest currently showing resistance is the 23.6% retracement of the most recent major move in the pair (shown below) at 1.1417. Traders can look for EUR/USD to pullback, looking for support from the 1.1291-1.1350 (outlined with a green box below) neighborhood before investigating top-side re-entries.

EUR/USD, Gold Drive to Resistance as USD Falls Through the Floor

Created with Marketscope/Trading Station II; prepared by James Stanley

Gold is Near a Huge Resistance Level

Another beneficiary of this USD weakness has been a continued surge in Gold prices. As the Fed backed down from the median expectation of four rate hikes for this year, Gold prices surged up to new highs after breaking out of a 2-year-plus down-ward sloping channel. The big level in Gold is at $1,283.82, which is the 38.2% retracement of the ‘big picture’ move in Gold, taking the low from the year 1999 to the highs set in 2011. This price had also set the high in Gold prices before the near-term range began to build. So, this is somewhat of the apex of near-term resistance.

This level can be useful in a couple of ways. Given that we’re in a zone of resistance, traders would likely want to be cautious of buying here, instead, electing to buy if price action can drop down into the support zone of $1,200.41-$1,217.26; but given the potential efficacy of this Fibonacci retracement, traders may be able to use this level to peg breakout approaches, or even trend-resumption entries.

As in, if prices can break above $1,283.82 early next week, there are two more resistance levels just a bit higher at $1,301.61 and again at $1,307.49. Traders can look for the ‘higher-high’ to come in around this vicinity, and then can look to buy if prices can find support on this prior (which is current at the moment) batch of resistance at $1,283.82. The longer-term or the more traders that may be watching a level, the more usable it can become; and given the aggressive reaction we saw in the middle of March, it would appear as though this is a widely-followed level at the moment.

EUR/USD, Gold Drive to Resistance as USD Falls Through the Floor

Created with Marketscope/Trading Station II; prepared by James Stanley

— Written by James Stanley, Analyst for DailyFX.com

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Contact and follow James on Twitter: @JStanleyFX

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AUD/USD Retail FX Flip Ahead of RBA Meeting; Rate-Cut on Tap?

Talking Points:

- AUD/USD Retail FX Flip Net-Short Ahead of RBA Meeting; Rate-Cut on Tap?

- USDOLLAR Holds April Low Despite Mixed 1Q GDP Report, Core PCE in Focus.

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the Traits of Successful Traders series.

AUD/USD

AUD/USD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • The 2016 rally in AUD/USD appears to be getting exhausted ahead of the next topside target around 0.7860 (61.8% expansion) as a bearish divergence continues to take shape in the Relative Strength Index (RSI).
  • Following the marked slowdown in Australia’s Consumer Price Index (CPI), 13 of the 24 economists polled by Bloomberg News forecast the Reserve Bank of Australia (RBA) to cut the official cash rate by 25bp to 1.75% at the May 3 interest-rate decision.
  • Expectations for additional monetary support may produce near-term headwinds for the aussie, with a break/close below 0.7580 (50% expansion) to expose the next downside region of interest around 0.7490 (61.8% retracement) to 0.7500 (61.8% expansion).

AUD/USD SSI

  • The DailyFX Speculative Sentiment Index (SSI) shows a bit of back and forth in retail positioning, with the FX crowd flipped back net-short AUD/USD going into the end of the month.
  • The ratio stood at -1.04 as of April 28, with 49% of traders long AUD/USD, while open interest stands 8.2% below the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

AUD/USD Retail FX Flip Ahead of RBA Meeting; Rate-Cut on Tap?USDOLLAR Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • The USDOLLAR struggled to retain the range carried over from the previous week, with the index coming into a near-term region of interest around 11,745 (50% retracement) to 11,759 (23.6% retracement).
  • Despite signs of stronger wage-growth, the weakness in household spending may encourage the Federal Open Market Committee (FOMC) to further delay its normalization cycle as it undermines the central bank’s expectation for a ‘consumer-led’ recovery in 2016.
  • The ongoing series of lower highs & lows continues to favor a bearish outlook going into May, with the next downside region of interest coming in around 11,623 (100% expansion) to 11,646 (61.8% retracement).

DailyFX Calendar

Click Here for the DailyFX Calendar

Read More:

Emotions Run High in Silver Trade

SPX500 Technical Analysis: Higher-Low Ahead of US Earnings

US DOLLAR Technical Analysis: Who’s Happier? Bears or Central Bankers

AUD/USD – Will the Real Trend Please Stand Up?

Get our top trading opportunities of 2016 HERE

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David’s e-mail distribution list, please follow this link.

Trade Alongsidethe DailyFX Team on DailyFX on Demand

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Yen Hits 18-Month High, US Dollar Seeks Lifeline in PCE Data

Talking Points:

  • Japanese Yen continues to push higher, hits 18-month high vs. US Dollar
  • Eurozone GDP data a non-event for the Euro but may boost risk appetite
  • Upbeat US PCE reading may rekindle June FOMC rate hike speculation

The Japanese Yen continued to strengthen in overnight trade, rising to the highest level in 18 months. The move played out alongside a decline in S&P 500 futures, pointing to risk-off sentiment as the driver behind price action. The Australian Dollar tracked gains in the S&P/ASX 200 stock index, which diverged from an otherwise downbeat mood across major Asian bourses. Energy and raw materials shares led the way higher, following a recovery in crude oil prices.

The greenback declined against all of its major counterparts in a move that may reflect ebbing Fed rate hike bets following yesterday’s disappointing first-quarter GDP print. The world’s largest economy grew at an annualized pace of 0.5 percent in the three months through March, falling short of expectations calling for a 0.7 percent increase. The priced-in probability of a June rate hike has dropped to 12 percent, down from 21 percent yesterday.

Eurozone CPI and GDP figures headline the economic calendar in European trading hours. The headline inflation rate is expected print at -0.1 percent year-on-year in April, unchanged from the prior month. Output growth is expected to rise 0.4 percent in the first quarter, marking the largest increase since the three months to June 2015.

News-flow out of the common currency area has increasingly improved relative to consensus forecasts over the past two months, opening the door for upside surprises. While such results are unlikely to be materially supportive for the Euro considering the ECB’s steadfast commitment to aggressive monetary stimulus, they may boost confidence in global growth dynamics and encourage an improvement in risk appetite. That could prove supportive for the sentiment-sensitive commodity-bloc FX and cap Yen gains.

Later in the day, the spotlight turns to US PCE figures. The Fed’s favored inflation gauge is expected to show the core price growth rate edged down to 1.6 percent in March after hitting a three-year high at 1.7 percent in the prior month. Measures of cost pressure have increasingly improved relative to expectations since mid-2015, hinting that analysts’ models may be understating reality and opening the door for an upside surprise. Such a possibility is reinforced by the quarterly PCE gauge released within yesterday’s GDP report, which unexpectedly surpassed the FOMC’s long-run objective to register at 2.1 percent.

An upbeat result may go a long way toward pushing back on dovish policy bets among investors. Indeed, the Fed’s mandate explicitly targets employment and inflation, not overall growth. Having secured healthy progress on the jobs front, Janet Yellen and company have struggled to deliver a recovery in price growth. Signs of a meaningful turnaround on this front may reignite June tightening bets, driving a broad-based recovery in the US Dollar.

FXCM traders are net buyers of the US Dollar. What does this mean for the trend? Find out here!

Asia Session

European Session

Critical Levels

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

To receive Ilya’s analysis directly via email, please SIGN UP HERE

Contact and follow Ilya on Twitter: @IlyaSpivak

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Slowing Euro-Zone GDP, CPI to Cap EUR/USD Advance

- Euro-Zone 1Q GDP to Expand Annualized 1.4%- First Slowdown Since 2Q 2014.

- Core Rate of Inflation to Slow to Annualized 0.9%.

For more updates, sign up for David’s e-mail distribution list.

Trading the News: Euro-Zone Gross Domestic Product (GDP)

A downtick in the Euro-Zone’s Gross Domestic Product (GDP) accompanied by signs of weaker price growth may undermine the near-term advance in EUR/USD as it fuels speculation for additional monetary support.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:Even though the European Central Bank (ECB) sticks to its current policy in April, fears of a slowing recovery may push the Governing Council to further embark on its easing cycle in 2016 as President Mario Draghi and Co. struggle to achieve their 2% target for inflation.

Expectations: Bearish Argument/Scenario

Waning business outputs paired with the slowdown in global growth may generate a dismal GDP report, and a marked slowdown in the growth rate may dampen the appeal of the single-currency as market participants boost bets for additional ECB support.

Risk: Bullish Argument/Scenario

Nevertheless, the pickup in household spending along with the ongoing expansion in private-sector lending may foster a better-than-expected growth figure, and a positive development may prompt the Governing Council to carry a wait-and-see approach into the second-half of the year as the economic outlook improves.

How To Trade This Event Risk(Video)

Bearish EUR Trade: GDP & CPI Report Highlight Slowing Recovery

  • Need red, five-minute candle following the policy statement to consider a short EUR/USD trade.
  • If market reaction favors a bearish Euro trade, sell EUR/USD with two separate position.
  • Set stop at the near-by swing high/reasonable distance from cost; need at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is met, set reasonable limit.

Bullish EUR Trade: Growth , Inflation Figures Exceed Market Expectations

  • Need green, five-minute candle to favor a long EUR/USD trade.
  • Implement same strategy as the bearish euro trade, just in the opposite direction.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • The recent series of higher highs & lows may continue to take shape in the days ahead as it threatens the triangle/wedge formation from earlier this month, while the Relative Strength Index (RSI) largely preserves the bullish formation carried over from March 2015.
  • Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the Traits of Successful Traders series.

Impact that the Euro-Zone GDP report has had on EUR/USD during the last release

4Q 2015 Euro-Zone Gross Domestic Product (GDP)

EUR/USD Chart

The Euro-Zone’s 4Q Gross Domestic Product (GDP) report showed the growth rate slowed to an annualized 1.5% after expanding 1.6% during the three-months through September, while a separate survey revealed a 1.0% contraction in Industrial Production during December amid forecasts for a 0.3% increase. Indeed, signs of a slowing recovery may encourage the European Central Bank (ECB) to further embark on its easing cycle in 2016 as the Governing Council struggles to achieve its one and only mandate for price stability. EUR/USD struggled to hold its ground despite the in-line print, with the exchange rate extending the decline during the North American trade to end the day at 1.1248.

Get our top trading opportunities of 2016 HERE

Read More:

Emotions Run High in Silver Trade

SPX500 Technical Analysis: Higher-Low Ahead of US Earnings

US DOLLAR Technical Analysis: Who’s Happier? Bears or Central Bankers

AUD/USD – Will the Real Trend Please Stand Up?

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David’s e-mail distribution list, please follow this link.

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USD/CAD FX Sentiment Hits Extremes as Pair Slips to Fresh 2016 Low

Talking Points:

- USD/CAD Retail Sentiment Hits Extremes as Pair Slips to Fresh 2016 Lows.

- USDOLLAR Holds April Low Despite Mixed 1Q GDP Report, Core PCE in Focus.

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the Traits of Successful Traders series.

USD/CAD

USD/CAD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • USD/CAD may continue to track lower in May as it largely preserves the bearish trend from earlier this year and searches for support; would like to see the Relative Strength Index (RSI) push into oversold territory to favor a further decline following the failed attempts from earlier this month.
  • Nevertheless, Canada’s Gross Domestic Product (GDP) report may temper the recent strength in the loonie as the growth rate is expected to contract 0.2% in February, while the annualized reading is expected to hold steady at 1.5% for the second-consecutive month.
  • Downside targets remain in focus, with a break/close below 1.2510 (78.6% retracement) to 1.2520 (38.2% expansion) raising the risk for a move back towards the 1.2300 handle.

DailyFX SSI

  • The DailyFX Speculative Sentiment Index (SSI) shows retail FX remains caught on the wrong on the side market, with the crowd net-long since April 8, with the ratio pushing to fresh 2016 extremes going into May.
  • The ratio currently stands at +2.13 as 68% of traders are long, with long positions 16.2% higher from the previous week, while open interest stands 12.1% above the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

USDOLLAR(Ticker: USDollar):

USD/CAD FX Sentiment Hits Extremes as Pair Slips to Fresh 2016 LowUSDOLLAR Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • Despite the weaker-than-expected headline reading for 1Q GDP, the USDOLLAR bounces off the monthly low (11,784) amid the 1.9% expansion in Personal Consumption, while the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, marked the highest reading since the first three-months of 2012.
  • With Personal Incomes & Spending anticipated to pick-up in March, a positive development may generate a larger rebound in the greenback as signs of stronger price growth put increase pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate sooner rather than later.
  • The failed attempt to test the next downside targets around 11,745 (50% retracement) to 11,759 (23.6% retracement) may spur a move back towards 11,898 (50% retracement), with a break/close above the region opening up the next topside region of interest around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).

DailyFX Calendar

Click Here for the DailyFX Calendar

Read More:

Emotions Run High in Silver Trade

SPX500 Technical Analysis: Higher-Low Ahead of US Earnings

US DOLLAR Technical Analysis: Who’s Happier? Bears or Central Bankers

AUD/USD – Will the Real Trend Please Stand Up?

Get our top trading opportunities of 2016 HERE

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David’s e-mail distribution list, please follow this link.

Trade Alongsidethe DailyFX Team on DailyFX on Demand

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Yen, Nikkei Strategy after the BoJ Hold

Talking Points:

- The Bank of Japan held policy at last night’s rate decision, and this is a case of ‘no news’ becoming news in-and-of-itself.

- Signs of risk aversion have begun to show, but traders will likely want to approach such a situation with prudence. It’s still far too early to prognosticate that January-like moves will continue after last night’s ‘hold’ from the BoJ.

- If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.

The big news over the past 24 hours hasn’t been the Fed’s hold at their April meeting; instead, it was another decision to hold policy by a different Central Bank on the other side of the world, and the result was markedly different.

While markets remained relatively quiet in the wake of the FOMC statement yesterday, the Bank of Japan rate decision overnight produced some outsized moves that may still be in the process of getting priced-in across markets. The Bank of Japan elected to make no changes to policy, and this is a situation where ‘no news’ is actually news, in and of itself. Many economists were expected some type of change out of the Bank of Japan, and after last week’s rumor that the bank may be investigating negative rate bank loans, in a similar vein as the ECB’s recently unveiled policy, many began to expect the bank to take further action. Further to that point, Yen strength had been a fairly pervasive theme and the move to negative rates in January did little to quell that.

However, for the Bank of Japan’s position of already lessened flexibility, it made sense to wait. The Bank made an aggressive move in January that didn’t work out too well; only increasing the threat of further risk aversion at the end of January. The prospect of negative rate bank loans is still very new and untested, and it’s far too early in the European program to be able to say definitively that this is a plan that will bear results.

The Bank of Japan likely isn’t done tweaking policy yet. The next BoJ rate decision is on June 15th and 16th (coincidentally, the next FOMC meeting is June 14th and 15th, so we will have another iteration of BoJ following FOMC within 24 hours), and this is likely where traders attention will begin to turn for that next move out of the Bank.

But don’t rule out the prospect of intervention in the spot market should Yen strength remain a persistent theme. Governor Kuroda has already said that the Bank of Japan is watching Yen spot prices; and this was widely inferred to mean that they would step in should matters of Yen strength begin to get out of hand. This means to be careful of getting too comfortable in long Yen positions, as further drops to fresh support levels could elicit reversals. In the past, whenever these accusations of BoJ intervention took place in the spot market, it would often be around psychological support and resistance levels; much like the 107.50 neighborhood that set the low earlier in April.

Moving forward, traders will likely want to pick their spots with re-entry in long Yen trends. The currency has put in a significant move so far after this announcement. The Nikkei, however, may be a little more constructive with near-term price action. We take a look at both below.

USD/JPY Near 18-Month Support, Be Careful of Getting Caught Selling at Support

The move in USD/JPY over the past 12 hours has been significant, with the pair running down to 18-month support just above the psychological level of 107.50. Traders would likely want to be cautious here as chasing the move lower could produce some adverse results. And perhaps more to the point, recent support and resistance structure may not be as usable given the fact that prices have moved down 350+ pips on the day.

Yen, Nikkei Strategy after the BoJ Hold

Created with Marketscope/Trading Station II; prepared by James Stanley

Traders can plot re-entry into USD/JPY by applying a Fibonacci retracement over the major move of the March 29th high to the April 11th low; and then looking for price action to resist at each of these intervals. The chart below has that Fib retracement applied based upon that most recent major move in the pair.

Yen, Nikkei Strategy after the BoJ Hold

Created with Marketscope/Trading Station II; prepared by James Stanley

The Nikkei May Be Working on a Higher-Low, Let Price Break to Prove Continuation Potential

As mentioned earlier the Nikkei may have a more usable structure given current price action, and the reason for that is the fact that we’re not sitting at a near-term high or low. This means we can use recent price action to plot approaches, and the current batch of support after today’s move is a critical level for forward-planning.

Today’s low comes in right at the 38.2% Fibonacci retracement of the prior major move (February 2016 low to the March 2016 high). This level had also provided a strong bounce earlier in April, and current price action is testing this zone again. Of considerable note is the fact that this batch of support is above the prior point of support in the 15,368 region.

Traders can wait for a break of support on the Nikkei to prove that the short-side continuation theme may continue; and if this happens, traders can then look to sell resistance at or around prior points of support (such as the current zone in the 16,337 neighborhood. This is a price action tell as old support often becomes fresh resistance in a down-trending market. But if the break doesn’t take place, the trader stands aside.

Yen, Nikkei Strategy after the BoJ Hold

Created with Marketscope/Trading Station II; prepared by James Stanley

— Written by James Stanley, Analyst for DailyFX.com

To receive James Stanley’s analysis directly via email, please SIGN UP HERE

Contact and follow James on Twitter: @JStanleyFX