EURUSD 17.11.2022

Medium-term trend: Bullish

The bull market is continuing. The price has already reached the target zone №1 1.03871-1.03659 and it is going to the target zone №2 1.05991-1.05779. Any price reduction is considered like corrective. The best prices to try to have a long position are the control resistance zone 1.02692-1.02480. In case of the price is fixed below the control resistance zone the medium-term trend will be changed to the bear market and all long positions should be closed.

Trading recommendation: 

It’s recommended to try to have a long position near the control resistance zone 1.02692-1.02480 (230 points from current minimum) with using the pattern «Head&Shoulders» at least on timeframe M15.

The control resistance zone is constructed from the current maximum. If this maximum changes by n points the zone should also be shifted n points up. The risk/reward ratio for every order should be at least 1/3.

All zones are constructed on the basis of data from the CME futures market.

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Top Market Opportunities 13.06.2022 – 19.06.2022

As investors had started to think that the Fed might take a softer stance on hiking, inflation happened. Last week we saw the US CPI breaking to 40-year highs, and of course, sentiment reversed again as the Fed gets another slap for expressing that inflation had peaked. The ECB has finally joined the club, verbally. But if there’s one bank apart from BOJ that has to go it more aggressive and it doesn’t, that’s the one. Here’s what we shall remember from last week:

  1. US10Y back above 3% after impressive 7% week-on-week surge following 40-year record US inflation read
  2. DXY pops over 2% after CPI reverses less-hawkish sentiment as it proves the Fed continues to fail to stop inflation running hot
  3. EUR/USD down 2% as ECB’s stance showed the bank’s members are not taking heightening inflation seriously on one hike per month
  4. Gold reclaims safe-haven status 1% higher as more hedging seems to be becoming a little more popular
  5. Oil trades indecisive at $120/bbl as weak demand from covid-inflicted China is offset by Libyan disruptions
  6. SP500 records worst week since before covid after slushing 5.5% off gains

Anyway, we are not done with the bankers just yet. The week ahead is looking to be quite eventful, with plenty of economic data releases and central bank announcements on the calendar.

FOMC critical for market direction

The Fed is widely expected to hike rates twice at their June meeting this week and the real focus will be on the accompanying statement and press conference. The statement will be closely watched for any changes in language with regards to the outlook for rates and where the Fed sees inflation peaking this time following a 40-year high last Friday. In particular, investors will be looking for any clues on the size of the next rate hike in July, and beyond of course, and whether there has been discussion of larger increases for September as the month was portrayed as the one the Fed would pause the hiking cycle.

Overall, the FOMC meeting is likely to be less volatile than many expect as the Fed is likely to stay on course with its 50-basis rate hike plans, and not surprise with a 75-basis. Which means it is already priced in.

If the Fed provides a less aggressive message, the USDJPY might even fall for a well-needed breather, as markets would see this as dovish after the CPI print. The RSI and MACD indicators point to bearish price action too. Since there’s no major support between now and 131.35, a few weeks of downside could be seen unless the BOJ surprises us with a stimulus on Friday. In the interim, the 23.6% and 38.2% Fibonacci retracements at 133.20 and 131.86 might react.

Inversely, breaking past 135.20 – a 20-year high- could set the pair up for 136.00 and 137.25, taking us back to Q4 of ‘98.

SNB to stay put, but when will it hike?

The Swiss National Bank (SNB) is widely expected to leave rates unchanged at -0.75% on Thursday, but there’s a chance that the event will be seen as dovish should the statement provides no clues about future policy tightening since the ECB will be hiking in July; the SNB is expected to follow the lead.

The SNB has been one of the most active central banks in recent years in terms of its interventions in the foreign exchange markets, and it is unlikely to stop supporting the economy now. Especially since it works; Swiss inflation is at 2.2%, and GDP is up 0.5%.

1.0500 has become quite a level on EURCHF as it keeps the pair below its 2-year range, but we can observe both recent attempts have overlapped the resistance. One might think ‘so what, we had a false break in February too’, but this time prices are above the 200-day and 50-day averages. These two make short-term resistance/support. 

On the top side, re-entering the range would open up the room to 1.0700, whereas on the bottom side, 1.0250 becomes a major level for sentiment. It’s the 50% Fibonacci of the 0.9971-1.0514 leg. Obviously, the lower the levels are important too, but will we get there after getting two hidden bullish divergence signals on the RSI and MACD?

BOE is unlikely to push the brake now

The Bank of England is expected to raise rates again this week as inflation is expected to rise further. The move would be the fifth consecutive hike and thanks to pre-financial crisis interest rates, it is back up to its old self.

There are concerns that higher interest rates could put a brake on consumer spending and business investment, which could, in turn, lead to even slower economic growth, which could explain why the bank continues to raise rates gradually. 

Before Thursday’s event, the UK releases wages and growth data, both of which are critical in adding conviction that MPC members are handling the situation well. Another contraction in GDP is unlikely to be taken out of context.

Against the Canadian dollar is where the pound might reverse, short or medium term. GBPCAD displays a double divergence signal, and it appears on both MACD and RSI. But losing the support at 1.5725 opens the road to 1.5250. Between now and there, if the divergence signals are not invalidated, any round level such as 1.5700, 1.5650 et cetera, might offer the very same reversal. 

With momentum weakening (notice MACD histogram), it is not much likely we see much more downside. A move to RSI 30% is probable. Once the ‘new’ low is in (if, that is), prices could soar to the 50-day average near 1.6000 and beyond, but bulls will need to recapture and hold 1.5890.

How much more will BOJ let the yen fall?

The Bank of Japan is very likely to leave interest rates unchanged at its meeting on Friday despite mounting pressure for more stimulus to revive one of the world’s largest economies. The central bank’s nine-member policy board is set to convene for a two-day meeting starting Wednesday, with the release of its decision scheduled for Friday morning in Tokyo.

There has been speculation that the BOJ might take ultra-easing measures to keep its yield target despite inflation rising. But many economists say the BOJ is unlikely to act now because the Japanese yen has fallen to 20-year lows against the dollar and weakened across the board overall, and inflation is above target at 2.1%, offsetting dovishness – perhaps.

If there’s one pair the yen is less weak against, that’s the kiwi dollar. NZDJPY has started to fall after retracing 90% of the 87.34-79.47 drop near 86.60 but recovered its 50-day average around 84.00. Without a divergence printed on the chart though, how strong of a signal is this, if it is? Another leg up above the recent top could form the ‘missing’ signals.

After a multiyear print, the potential upside leg could extend to 90.00 ever, but when the inverse Fibonacci of the downward leg to the 200-day average is used, 88.44 and 89.46 are evident resistance levels. Looking down, the 53% near 83.40 is important for sentiment. If we lose it, the drop towards 80.00 is not going to be that hard.

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Top Market Opportunities 06.06.2022 – 12.06.2022

The week ahead in the forex markets looks set to be a busy one, with several key economic data releases and central bank policy decisions on the calendar.

Before we head there, let’s dive into last week’s key takeaways:

  1. SP500 soared 10% on risk appetite improving as Nonfarm payrolls supported the weekly close
  2. US continued to poke 3% as Jamie Dimon warns of incoming “hurricane” amidst US rates and elevated commodity prices
  3. Tesla wiped 10% off weekly gains after Musk said he’ll lay off 10% of its staff due to the global economy state
  4. WTI accelerates as EU’s ban on Russian oil only partial
  5. Euro’s upside based on faster-than-expected normalization as ECB economists hint at July hike as inflation reaches record highs

And here’s a look at some of the most important events that are taking place this week.

Will RBA surprise again?

The Reserve Bank of Australia (RBA) is scheduled to announce its interest rate decision on Tuesday.

The bank is widely expected to hike interest rates from 0.35% to 0.6%. However, given the recent price surge, there is a possibility that the RBA could exceed expectations once again to support the Australian economy.

Investors will be closely watching the RBA’s interest rate decision and accompanying statement for any clues as to whether another interest rate hike could be on the cards soon as Australia’s inflation and wages have been picking up. 

In May, the committee rose interest rates for the first time since 2010, and it did it more aggressively than economists had forecasted.

AUDCAD has reached resistance at its 50-day average near 0.91440, where the 38.2% Fibonacci lies. Below its 200-day equivalent, the pair hints at a downward continuation. Breaking 0.9050 would lead to 0.9000 and perhaps 0.89165 next.

On the flip side, if the RBA is dovish the 200-day near 0.7195 is major resistance. If bears lose it, 0.9216 and 0.9287 are the next firm levels of expected rejection. But with the RSI and MACD pointing at bear price action, we could see fresh lows before highs.

All eyes on ECB’s taper

The ECB will announce its interest rate decision on Thursday and it is widely expected that they will leave rates unchanged. However, with inflationary pressures persisting in the Eurozone, investors will be looking for any clues about when the central bank might start to tighten its policy.

There is a possibility that the ECB could begin to taper in July or August as net purchases under the APP will be gradually reduced to 20 billion in June, faster than expected before. If the statement provides similar forward guidance with a QE end in Q3, the market will likely consider the event hawkish.

EURGBP shifted to a bull market following the recent 50/200-day cross near 0.8420.  With no apparent bearish indications a fresh high above the 0.8619 swing could open the room to 0.8647 and 0.8700 next even after a bearish correction.

If the pair falls below its 20-day average near 0.8422, traders will focus on 0.8389 support next. Below there, 0.8325 will play a critical role in the pair’s outlook as it could shift the market back to bearish.

Canadian jobs focus on wages

On Friday, the Canadian economy is expected to show it has added another 24,000 jobs in May, following 15,300 in April. Canada has to deal with the same issue as the US; larger job openings but a low number of workers as wages are not moving up as fast as inflation, albeit improving. 

The figure could provide some signals for the BOC, which has been under pressure in recent months like any other central bank.

CADJPY has over-extended price action despite printing two bearish divergences subsequently. Although a strong signal from a technical perspective, the RSI and MACD show that short-term price action could see more upside. 104.90 and 106.13 make near-term resistances, whereas 108.00 is a major reversal level. 

If the signals start taking effect during the week, traders will turn to the 200-day average near 100.77, but only once the 102.94 low weakens. In between, 100.10 is where sentiment changes, so, it might offer a bounce of not a rejection and further continuation to the upside.

Has US CPI really peaked?

Inflation has been a key metric for Fed’s aggressiveness as it hasn’t stopped rising. Many analysts do expect that the US CPI will remain unchanged at 8.3% YoY, but MoM to rise from 0.3% to 0.7%. 

Core inflation, which excludes energies, is expected to slow from 60.2% to 5.9% YoY and from 0.6% to 0.5% MoM due to energy prices decreasing from 32% to 30.3%. 

But food prices are not falling back at all, they rose to a 40-year high of 9.4%, offsetting decreases in energies and suggesting inflation components are becoming more critical.

GBPUSD has stopped at its 50-day average of 1.2665 and reversed down to the 38.2% Fibonacci of 1.2474. Lossing 50% might shift short-term dynamics, with 1.2668 making a top and 1.2157 a bottom. 

The RSI and MACD both hint at bearish price action which suggests we might see 1.2157 sooner than the swing top, but we are much closer to 1.2668 that another attempt to fresh local highs can be made. 1.2770 is the golden level of the price action in divergence.

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Top Market Opportunities 30.05.2022 – 05.06.2022

Last week saw a slew of good and bad events. The good news was that risk is back on as the FOMC minutes showed that the Fed might have to be less aggressive going forward. The bad news was that Snap’s stock price plummeted after its CEO unexpectedly warned investors that the firm will report disappointing earnings. Several advertising stocks tumbled amidst a spillover.  So, it was a pretty mixed bag for the markets last week, but the following headlines should be carried over as a guide:

  1. US10 falls to 7-week low during the FOMC minutes week as they reveal Fed’s stance could soften going forward
  2. Euro continues its ascend and reaches 1-month high as risk appetite for the euros increase as yields converge
  3. The Swiss franc maintains flight-to-safety status as investors count on the currency after nearly all gold’s gains were lost by week’s end
  4. Oil struggles to get past $115/bbl but a breakout is coming, either way, this week as OPEC + meets
  5. SP500 records best-second week in 2022 after gaining 7.5%

So, whatever your trading strategy, this is how you can stay up to date with all the latest news and developments in the forex markets:

German and EU CPI in focus

German CPI continued to print record highs in April as it rose from 7.3% to 7.4% mainly due to rising costs in energy prices. Economists expect Monday’s figures to hit yet another record at 7.6% as MoM CPI is relatively higher when harmonized against other EU countries, in addition to having increased by 0.7%.

On Tuesday, traders should see how much Eurozone’s Flash CPI is about to change though and whether April’s downgrade from 7.5% to 7.4% will hold firm. Markets forecast the index to come out at 7.7% on Tuesday as the inflation crisis spills over to more generalized components.

EURCAD crossed above its 50-day average last week and should bulls maintain 1.36169 the pair could move higher to the 38.2% Fibonacci at 1.38610. Bullish divergence on both RSI and MACD indicators has been showing upward bias for weeks. The next level above there lies at the 50% Fibonacci of 1.40105, where medium-term sentiment could shift. On the flip side, 1.33874 makes weekly support.

BOC lags RBNZ, but it’s likely to follow the lead

The Bank of Canada (BOC) is markedly expected to raise rates to 1% when it announces its interest rate decision on Wednesday. This will be BOC’s third consecutive interest rate hike in decades and a second consecutive 50bps rise. 

Canada’s inflation stands at 6.7% YoY, but CPI is expected to drop down to 6.1% as the bank embarked on quantitative tightening back in April.  Some guidance will be provided via Tuesday’s GDP growth. Canada is far from recession.

GBPCAD failed to get past its 50-day average at 1.61874 (now 1.61600) last week with the rejection causing prices to slide lower down near the round 1.6000 handle. The resistance is a cluster between the MA and the 23.6% Fibonacci; hence, it is a major level for bulls as it also produced double bearish divergence. The signal revealed from both the RSI and MACD indicators suggests 1.57697 is back on the books. In the interim 1.59028 might offer an inverse head and shoulder low.

OPEC sees market “balanced”

OPEC+ members, including Russia, will meet in Vienna on Thursday to discuss a resolution to the oil prices, but continue to express no changes in production plans despite recent calls from G7 countries. The pact announced a 432k production in early May and it’s unlikely to deviate from that as it plans to stick to its policy.

Despite the lack of a clear resolution to the prices, OPEC’s reasoning that prices are high due to geopolitics shows that it is “still in control” of the market. However, without a significant supply increase, OPEC might be taking a cautious approach amidst China’s expected deterioration in economic and oil demand.

WTI oil continued to trade in a bull market above its 50-day average at 104.75 but it also widened its range from the dynamic support following a slight bullish divergence on the RSI indicator. The MACD has not printed a divergence as momentum has been dismal, however, above the zero line and with a fast-slow cross appearing, it provides necessary bias. Above 113.14 prices could reach 122.59 next, but if the attempt is abandoned the break of the 50-day and 102.95 supports will probably lead the commodity below the 100 barrier once again.

NFP: All eyes on wage growth

Nonfarm Payroll NFP jobs for May are expected to fall from 428k to 320k on Friday. The job count somewhat moderated in April along with the unemployment rate remaining at 3.6%. Despite economists expecting a drop, the good news is that wage growth was sluggish at 5.5% YoY with average hourly earnings falling 0.2% compared to the previous month. Although this is generally not good for workers, risks of stagflation have at least taken a step back. If wage growth moderates or falls, it may suggest inflation may continue to cool off while the labor market remains robust.

Before the big event, the US ISM Manufacturing PMI, and particularly the employment component, will give traders early hints of what to expect. Last month, the index rose from 54.5 to 55.4. This suggests that economic growth is not slowing down although there is still some uncertainty surrounding the future course of the economy as GDP does not produce matching signals. The US will also report on its ISM Non-Manufacturing on Friday post-NFP, but the print will be overshadowed by payrolls. 

USDCHF broke its 50-day average at 0.96355 last week and formed a swing low at 0.95346. The pair can face major rejection at 0.94755 support, potentially offering a bounce. The drop would coincide with the RSI reaching oversold territories, creating an appropriate signal for –at least– a bounce. The MACD shows a tiny divergence already, but if the slow line crosses below zero, 0.93726 becomes the next reasonable activity zone, then the 200-day average at 0.93307. If the bounce initiates sooner and is strong, the 38.2% Fibonacci retracement is resistance.

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Top Market Opportunities 23.05.2022 – 29.05.2022

The forex markets are always in a state of flux, and this week is no different. Here’s a rundown of some of the key events that happened last week, and what you need to know in order to prepare for the week ahead:

  1. US10 slides below 3% despite Fed’s aggressive hiking cycle expected to continue
  2. Euro reverses against the dollar and other counterparts but after hitting a 5 ½ – year low versus the greenback
  3. Swiss franc finds strength on Gold’s moderate gains as flight-to-safety trade comes back online
  4. Oil continues to trade firmly while EU members remain undecisive on Russia’s embargo
  5. Stocks don’t seem like they are preparing to stage a comeback after closing near multi-month lows

So whatever your trading strategy, this is how you can stay up to date with all the latest news and developments in the forex markets:

UK PMI Manufacturing and Services

The UK PMI Manufacturing and Services Indexes are released on Tuesday morning in the UK and will provide insights into the current state of the economy. Both PMIs are expected to remain strictly in growth territories at 55.1 and 57.3, but a slowdown due to China’s downturn is forecasted. 

In March, the UK’s economy contracted, contrary to wide MoM expectations. The main driver of the contraction was wholesale and retail trade and the repair of motor vehicles and motorcycles. If the PMIs fall below expectations, the numbers may be due to another downward revision. But most importantly, traders will likely focus on whether economists’ forecasts remain in line with markets.GBPCAD appears to be turning for a change but faces major resistance at the 50-day average near 1.62. Above there lies the 1.63 resistance of the May 4th swing low. Breaking that would expose 1.66 but it is highly unlikely. Inversely, if the MA holds firm, or if prices never get there, the nearest support is down at 1.5759. In the interim, however, 1.59 could form support should the price see a correction.

RBNZ interest rate decision

The Reserve Bank of New Zealand (RBNZ) is widely expected to raise the Official Cash Rate (OCR) to 2% when it announces its interest rate decision later on Wednesday. The RBNZ has hinted at an aggressive policy now than later with market speculation suggesting that the significant move is likely given the fragile global economy and the rising inflationary environment. The NZD maintains strong support at 1.0946 against the AUD. However, expectations that the RBNZ will hike interest rates again have weighed on AUDNZD prices with the support coming back into the spotlight. It’s a cluster with the 50-day average anyway, making a solid case for a bounce, or a break. In the latter case, 1.0820 is the April 25th support. But in the former, 1.11 is the top.

German GDP and inflation

German GDP contracted by 0.3% in the last quarter of 2021, which was better than the 0.7% estimated by economists. This release confirms that the German economy is slowly recovering from recessionary figures as the YoY and MoM expectations suggest 3.7% and 0.2%. The main drivers behind the slowdown in German GDP were weak exports and imports amidst the war in Ukraine. However, higher capital formation staged a recovery.

Inflation is also expected to slow down MoM to 0.2% on Friday, in contrast with economic analysts expecting a rise of 0.8%.  The Ifo and Gfk on Monday and Wednesday, respectively, could provide early hints to investors trading the euro.

EURUSD is making an attempt at the 50-day average near 1.0710 with 1.0801 making a strong case for rejection and reversal. Breaking that could be a reversal of the 5-year lows of 1.0352, which is major support. In the interim, a potential inverse right-shoulder formation exposes a correction low at 1.0468.

FOMC Minutes

The minutes of the Fed’s last meeting will be published on Wednesday. The record is expected to show whether the Fed plans to raise interest rates twice again in June and their path to quantitative tightening. Markets expect the Fed to hike twice, according to Fed’s watch tool, and they’ll likely stay the aggressive course until soaring inflation is tackled. 

Several other data reports will reveal how the US economy fares against odds. On Tuesday, PMIs will likely show a sustained expansion, but Michigan’s sentiment is expected to drop from 65.2 to 59.1. hinting at a slowdown in spending. With GDP expectations already at recessionary territories, investors will patiently wait for Thursday’s second QoQ GDP estimate, and it’s not looking good at -1.4%.

USDCHF is falling sharply and the 50-day average at 0.96 could weaken down at April’s 21 low of 0.9475 sooner than traders expect. There is a case for relief closer to the 0.9835-0.9922 correction zone, but at this pace, the pair resembles a falling knife more than it does a rising wedge. 0.9693 is interim support, anyway, but it’s unlikely to hold firm.

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Top Market Opportunities 16.05.2022 – 22.05.2022

The markets continue to move in interesting directions, with news and events impacting stocks, currencies, and commodities around the globe. Here are some of the key stories from the week just passed:

1. The US Index hit a 10-year high as investors continue to respond to Fed’s aggressiveness.

2. The S&P 500 posted its biggest single-week percentage decline since August 2020 as confidence about global economies deteriorates.

3. The yield on 10-year Treasury notes hit 3.25%, its highest level in three and a half years as investors price in more hikes.

4. Gold prices continued to slide as investors weighed risks from hiking expectations. Now below the 200-day average.

5. Euro prices dropped to a five-and-a-half-year low after slipping 3% last week against the greenback on hints of economic slowdown.

UK employment and inflation data in the spotlight

The employment data released last month caught the attention of markets with fewer jobs being created in March. The unemployment rate remained at 3.8%, which is a 3-year low, but it has to remain at pre-pandemic levels in April to assume progress. Average earnings came out in line with expectations but not when adjusted to inflation as this print showed a 1.7% drop to a 9-year low.

UK inflation rose to 7% in March from 6.2% in February, pushing the annual rate to a 30-year high. The uptick is owed to energy prices rising, but even when we look at the core figures, they haven’t been at 5.7% since 1997.

The British pound hit the 50% Fibonacci retracement of the downward 2.0527-1.8709 leg against the New Zealand dollar last week. 1.9618 has now turned into a major resistance as its break would shift sentiment from bearish to bullish. The hidden divergence might have played out already, and with a weak bearish divergence appearing on GBPNZD, prices could slide to 1.94, then 1.9128. On the flip side, 1.98 and 2.01401 are major resistances.

European GDP growth and inflation in focus

The EU’s latest quarterly GDP data were in line with expectations but not good as they fell from 1% to 0.5%. The Commission expects the euro area to contract now contract by 0.3% when it releases its second Q1 estimate on Tuesday. Despite the gloomy forecast, the Commission also expects inflation to peak at 7.5% this year, only 0.1% above the March reading.

One reason for inflation’s pace expected to ease is that global commodity prices started to fall, which is affecting the prices of many goods and services throughout Europe. Also, the Ukrainian war is sitting on the backburner. If yearly CPI rises above forecast on Wednesday, it could impact the euro positively, but only if GDP sees an improvement. 

The EURJPY pair is trading near its 50% Fibonacci and look poised to move there in the short term. A break of the support would open up the room to the golden ratio at 130.37, and although unlikely, even 127.71. There is interim resistance at the 38.2% Fibonacci of the 100-140 upward leg, and it must hold for bears to take over again. Otherwise, 136.46 becomes next week’s resistance.

US retail sales to give a glimpse of consumer spending

The US retail sales report for April is set to be released on Tuesday and it is expected to show that consumer spending declined in March. This news could provide some support to the case made by the Federal Reserve, which has been arguing that the current tightening cycle is necessary to maintain sustainable economic growth. 

The report will also show whether or not retailers added more items to their inventories. If they did, it would indicate that demand from consumers was still strong, despite fears about the future of the economy due to lockdowns. Core figures are expected to remain unchanged, but had a massive run up to 1.1% in March, from a revised 0.6% increase the month prior.

USDJPY exhaustion last week has played out fairly well following a bearish divergence by both the RSI and MACD. If the decline continues this week, 125.91 becomes the first stop for bears. From there, new levels are the 120 round support and 119.88 as the 38.2% Fibonacci of 101.18 to 131.34. If the support at 125.91 (or above) holds firm, 131.34 becomes a bullish target again.

South Africa’s interest rate decision takes center stage

The South Africa interest rate decision will take center stage this week as the Reserve Bank of South Africa (RBS) is due to release its decision on whether to be kept unchanged at 4.25% or raised. The decision is widely expected and it leaves the rand relatively volatile against the dollar as markets expect a single or double hike.

This week’s focus on the South Africa interest rate decision comes as the country continues to face significant challenges. Inflation is currently running above targets due to the war in Ukraine, and concerns over growth continue to somewhat weigh on sentiment despite improving – normalisation is projected to occur through 2024. The RBS Board has warned that hikes could be necessary as inflation is expected to trend upwards.

The South African rand failed to revisit the previous top at 16.3644 for a few points but this does not mean bulls will give up as we remain fairly near the resistance. Falling lower would expose 15 and 14.3975 as the event is expected to create some volatility. If any of the retracement levels suddenly turn strong, 17 is back on the table. Will the long-term bearish divergence play out in the bears’ favor?

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Top Market Opportunities 09.05.2022 – 15.05.2022

Last week the Fed, BOE, and RBA hiked interest rates as inflation continues to rise, with recent PMI data showing that inflation is set to rise even more. Central banks are faced with the difficult task of balancing the control of inflation while minimizing the potential damage from tightening as risks of an economic downturn rise. An array of data around the world’s economies will provide the first signal of that damage this week.

German ZEW and CPI not looking good

On Tuesday German ZEW economic sentiment is expected to worsen. Last month the indicator showed an improvement from -41 to -40.4 while Eurozone’s rose from -43 to -41. The positive readings were not as significant to signal optimism over the outlook and more respondents continued to have a pessimistic view of the current situation. The ZEW institute said that the report is projected to be equally bad as at the start of the pandemic. With high inflation and a weak currency, it is unclear whether the private sector can be depended on to power the economy. As the inflation rate increases, there is a greater chance of a recession.

EURUSD near breakdown point

EURUSD has fallen to the bottom of the decelerating base channel initiating a bear move in February 2018. A break of the channel might see the pair finding a bottom at a 5-year low of $1.03318. A bounce might be seen during the week but due to the slope of the channel, a fresh low could still occur without a channel breakout. There is major resistance at the $1.06320 swing low even if a decent upside effectuates.

US inflation expected to slowdown

On Wednesday US’s CPI is expected to show that the inflation rate for April was slightly lower than in previous months. Economists expect that there will be a slowdown to 8.1%, down from 8.5%. The last time it slowed down was in the summer of 2021. Core inflation, on the other hand, which excludes the impact from prices of goods such as food and gas, is expected to have slowed to April 2018 levels. However, housing data may still push inflation up; household budgets make up 40% of the CPI, and with rent increases already causing damage, there will be even more difficulty if food and energy costs stabilize.

A deviation from the CPI forecast could change the Federal Reserve’s path of raising interest rates by 50% at its June meeting as April’s print will be used by the FOMC to decide on policy.

USDCHF has more room upward

USDCHF has soared above 1.0000 for the first time since December 2019 after printing a sixth consecutive week of gains. Although the streak’s continuation is questionable, there are several indications of trend exhaustion closer to 1.0100 than now; the descending channel starting in December 2011 meets the 161.8% Fibonacci expansion of the 0.8753-0.9474-0.8923 points. If the attempt to recapture 1.0000 fails this week, we could see a correction down to 0.9759.

UK GDP is somewhat stagnant

The BOE expects the UK economy to have grown by 1% in Q1 (though it flopped in February) on Thursday. Growth is expected to be driven by services industries, which are doing well despite a poor performance in manufacturing and construction. Covid-19 restrictions were lifted at the start of January, and while GDP is expected to have grown by 0.1% MoM, not only growth points at stagflation but on a quarterly basis that is 0.3% below last quarter.

GBPUSD near rejection zone

GBPUSD has dropped nearly 1000 pips over the past four weeks, from a $1.3100 high down to a low of $1.2260. At this rate, no one expects the pound to start moving higher. However, there is decent trendline support close to $1.2180-$1.22, starting in June 2014. This is unlikely to offer a reversal, but a bounce could be seen as a relief rally towards its golden pocket of $1.2475. Breaking the diagonal would lead to the 79% Fibonacci retracement below $1.20.

BABA impacted by layoffs

Alibaba Group Holding Ltd (BABA) is scheduled to announce its Q4 2021 earnings on May 11. Wallstreet estimates an EPS of $1.17 and revenue of $31.84 B in the upcoming results. Historically, the company beat EPS estimates 68% of the time in previous quarters. Analysts predict that layoffs and budget cuts have impacted the firm’s growth.

BABA can’t come out the trend

The Baba price action has not shown any significant patterns for a reversal as of yet. A recent sideways formation might be the beginning of at least a short-term relief. Bullish attempts to break above the descending channel starting at the all-time high have not been fruitful, however, they are more frequent. $72 and $108 are range top and bottom levels, whereas $140 and $56 make major resistance and support that could establish or destroy the future of the stock.

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Top Market Opportunities 02.05.2022 – 08.05.2022

A lot is happening in world economies this week, with employment and inflation on the mind of most investors. Expect to see new updates in upcoming jobs reports and decisions on interest rates — lots of important economic data!

RBA prepares to hike after 10 years

The Reserve Bank of Australia is expected to raise interest rates for the first time in more than a decade on Tuesday. The rate increase comes after a surge in inflation last quarter that led economists to rethink the policies of the RBA. They now forecast an increase in interest rates at an even faster pace than before. Economists say the RBA will increase interest rates to 0.5% in June and then again to up to 0.75% or higher in June.

If RBA raises interest rates it will burden local borrowers who already have a record amount of mortgage debt and are struggling to keep up with rising living costs, which is a major issue for PM Morrison.

AUDNZD overbought on weekly TF

AUDNZD looks primed for a 1.10 cross, but the upside is limited by the 1.1042 resistance. The RSI is overbought on the weekly timeframe, and the MACD histogram started to wane. Moving higher in the near term could form a bearish divergence on the daily or even 4H timeframes. For the formation, we might see prices move past the said level and head to the next major resistance of 1.1178 – although it is unlikely. 1.080 and 1.0616 are near term supports.

FED ready for 22-year-long hike increase

The Federal Reserve is meeting from 3-4 May to decide how to increase rates, which will be likely adjusted by 50 bps following the 25bps adjustment implemented in March. The CME Fed Watch tool indicates that its target hike has been fully priced in, and we expect five or six more hikes within the year.

Updates for expansions in US economic projections will also be discussed (but won’t likely change); the US government is tightening its belt with increased spending, which is creating more inflation. War-torn Ukraine continues to add to inflation levels, as does continued economic unrest in China.

EURUSD momentum remains bearish

EURUSD price action hints at further downside despite the RSI being oversold. A reversal can be expected, even in the short-term, however, below 1.0626 it is more likely we reach 1.0324 than the other way around. Should we see a relief above there, 1.0804 becomes a major handle for bulls.

MPC members might start to rethink policy

The Bank of England has been hiking interest rates steadily this year. It’s the fourth time in a row they will have raised rates, adding another 25bps to 1%. April’s flash PMI showed that inflation was on the rise–which means that interest rates should be raised as well. There is some concern about economic shrinkage–interest rates may not be good for slowing or stopping that process.

According to Citi, the cost-of-living crisis may lead to no action in interest rates but only from two BoE committee members. If the BoE continues to lag behind the Fed, then the pressure on the pound may continue. It is already at its weakest point against the US dollar in more than two years.

GBPCHF shows mixed signals

GBPCHF slid lower after a bearish divergence formed on the MACD histogram. More signals appeared on the weekly. Since the move has already somewhat played out, we need to look at fresh indications. Since the same indicator shows a stronger hidden divergence signal upward, a correction may be seen, up to 165.00, where the golden ratio is. A break of the level could see an acceleration up to 168.42, but if we receive a rejection, 158.24 becomes a major support.

Tighter Canadian labour markets pose economic risks

The labour market forecast for Canada will be one of the more closely watched reports next week. Job growth is expected to slow down to 25,000 after a surge over the last two months. A significantly larger supply of available workers is needed at this point. Tightening labour markets will push employers to offer higher wages, which could increase inflation.

CADCHF reveals major divergence

CADJPY shows a major bearish divergence on the weekly chart after an attempt to break 0.7640 failed, forming a double top. Although the RSI is not yet overbought and we could see another leg up, it is more likely it is a false break than a legitimate breakout. 0.7720 becomes the fake it or break it level. On the flip side, should the divergence trigger a downward move, 0.7200 is1 major support in the medium term. In the interim, traders should focus on 0.7367.

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Hawkish Fed expected to ‘double down’

In the past few weeks, Fed officials started to take inflation more seriously. Fed Chair Jerome Powell has pretty much said that the Committee will hike a half-point at the May 3-4 FOMC meeting. The Fed is not only expected to hike the benchmark interest rates; it is also expected to start quantitative tightening. The Fed has not been that hawkish in decades.

The details

The Fed will release its statement on Wednesday the 4th at 2 p.m EST. Essentially, it is releasing a report detailing what their policy will be. It will be followed by a press conference by Powell at 2:30 p.m EST where he will give his thoughts on the developments of the policy and answer questions from the press.

With the market expecting a hike, the fed-funds futures have given investors a 96% chance of a half-point increase at the FOMC meeting on Wednesday.  Investors are expecting for rates to rise next month, which would bring the key rate up to 2%, as well as 2.25%. This represents 84% odds for a rate hike in the following month. Markets will be anxious to know if a three-quarter point hike in rates could come this summer.

Recent market moves contrast with the minimal action by the Fed to change its policy stance, despite a pandemic emergency level. The Fed plans to announce at its next meeting how it plans to reduce its $8.9 trillion debt to reduce inflation. The last time the Fed tried to unwind its balance sheet, high inflation wasn’t a problem.

And the markets?

When Fed Chair delivered his remarks last week, the markets for U.S. stocks fell sharply and then continued to pretty much decline since. Investors are trying to figure out how strongly reactions may change as a result of this. The stock market is having a bit of a hard time digesting the notion that half-point increases could be coming in July and maybe even June. The Dow, the S&P 500, and the Nasdaq all lost 2.5%. The Dow has fallen for four consecutive weeks, while the S&P 500 and Nasdaq saw their third week of declines in a row. This week isn’t looking any better either.

A faster pace of interest rate increases by the Fed could bring the federal funds rate to 2.25% to 2.5% by the end of 2022, potentially sooner than investors had been estimating. This will be bearish for stocks. Markets might be overestimating in terms of expectations for tightening, however. This may cause financial conditions to tighten before the central bank acts.

If markets continue to lead rates due to pricing in, we might see the impact of the Fed in the indices ahead of the event, and relief rallies post-event.

Rising inflation

Fed Chair Jerome Powell recently said that the central bank is not counting on inflation having peaked in March. Instead, it is appropriate to be moving a little more quickly. He also said that a 50 basis-point movement for the next Federal Reserve meeting was “on the table.” Well, that says it all about the Fed. The hiking cycle does not simply stop here. The yield of the 10-year Treasury note is down to 2.82% from around 2.88%, whereas the 30-year yield is down to 2.89 from 2.97. On April 18, the 10Y crossed above the 30Y for a day. Then again, this reoccurred on the 28th. The 10Y vs 2Y printed identical crosses. It has been uncommon for the yield curve to invert near the end of a tightening cycle. Yield inversion has been accurately a predictor of recessions.

What to watch out for

Although the headline rate will matter and QT has been largely discussed, investors might look past it and instead focus on other economic indicators until the Fed’s monetary policy becomes restricted and growth is slacking off more seriously. The event might have been priced in fully.

During corporate earnings reports, trades Investors will want to watch closely for reports from large tech and consumer companies, including Apple, Pepsi Co., Microsoft, General Motors, and Google. This week we will also see data on new home sales, U.S. home prices, consumer sentiment, and consumer spending.

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Top Market Opportunities 25.04.2022 – 01.05.2022

This week we will get releases on the US and EU GDP figures, inflation data from EU countries, and the bank of Japan’s central banking meeting.

Last week’s corporate earnings was badly performed by Netflix. There is now concern on whether Meta, Alphabet and Amazon will be able to beat expectations this week as IMF cut growth forecasts.

BOJ to hold

Japan’s Bank is expected to keep its policy unchanged on April 28 – likely maintaining rates at -0.10% and its QQE with yield curve control to flexibly target 10yr JGB yields at 0.0%. Most analyst will still focus on the Fed meeting on May where a 50bps rate hike is expected along with the start of QT.

Traders will be attentive to any possible changes in growth and inflation forecasts though due to effects from the Ukrainian war.

NZDJPY reversed at 87.32 last week, and broke the 85 level following divergence signals from both the RSI and MACD indicators. 84.25 is the near-term support should the decend continues. However, a bounce could be seen there. If traders are caught by a surprise, 82.53 is a major support. On the flip side. Interim 5esistance to the top lies at 86.30, Friday’s open.

Fed gets PCE

United States’ GDP is expected to show that the rate of economic growth slowed in the first quarter to 1% percent on Thursday. However consumer spending is expected to remain strong as both business investment and residential investment are expected to continue improving.

The Fed’s favorite inflation indicator is expected to show that prices are increasing by 3% in March. While the annual rate is only rising by 0.6%, this is not much less than what analysts predicted. The Fed uses the March report as an estimate of how inflation will change during the next month.

AUDUSD has been weakening since the 76.6c top a couple of weeks ago, finding golden support near 0.7230 after the indicators printed bearish divergence. Due to its bearishness, it is more likely it reaches 0.71 than 0.7363 (last Friday’s open) now, however, support can be observed at 0.72 too. Breaking 71c might lead prices below the 70c. Although unlikely, upward price action exposes resistance at 0.7458 as well.

EU inflation unstoppable

On Friday, Eurozone Q1 GDP will be updated in addition to Germany’s flash Q1 GDP figures. Q1 has been closely watched because of the spillover effects from the Russia-Ukraine conflict. March PMI data showed that growth continued at a slow pace even as business sentiment slumped and prices on average rose.

In addition, CPI figures will be provided. Inflation March data saw HICP soar to 7.4% from 5.9%, driven primarily by surging energy prices. Furthermore, pressure was also seen in the core reading following a pick-up in goods and services. Food prices will also contribute largely to the headline inflation rate.

DAX reached a critical support at 14k and could see a relief rally up to 14371 – the 23.6% Fibo retracement. Above there, 14589 is the next resistance. However, losing 14k will likely take the index to 13884, and if that gives in, the 50% Fibo can be marked as the next big support. Both indicators look bearish as the RSI is below its 50% and the MACD has pulled of a crossover.

Big 4 Report

The top 4 biggest companies by market capitalization are due to report earnings during week in the S&P 500 index. The latest earnings report comes amid increased fears the economy will take a turn for the worse due to the uncertainties of raised rates and inflation.

NASDAQ has reached the 61.8% Fibo extension at 13344, and if proven to be a false break, traders might see a relief rally towards 13471, 631 or even 14k if bulls make a decent attempt to recapture the round level. Should they let prices slide, however, the index risks to plummet down to 13k. Will this be easy, though, given the indicators are somewhat oversold?

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