EUR/AUD broke below the April trendline with the decline now testing confluent support at 1.4800/05- looking for possible price inflection here. A break lower would keep the focus on 1.4686 level, looking for a larger reaction there for guidance IF reached. Resistance now 1.4912/25 with bearish invalidation now lowered to the April high at 1.5055.
Bottom line: Rallies should be capped by today’s high IF price is heading lower on this stretch with a break / daily close below 1.48 needed to keep the near-term short-bias viable.
On Wednesday, a survey showed the US manufacturing activity was more robust than investors expected for May pushing the dollar and subsequently USD/JPY higher. This move cooled off Thursday morning as traders took profits at the 130.00 level.
The move down today can also be attributed to the hope investors got when there was news of a possible increase in oil production by Saudi Arabia in case Russia’s output dropped. This news cooled some of the inflation fears brought on by high energy prices. Increased production would reduce global supply pressures and lower oil prices.
A significant part of the inflation experienced by many economies worldwide is a result of high energy prices pushing the cost of living higher. Lower oil prices would therefore be an essential weapon against inflation. For this reason, Thursday morning saw USD/JPY give up some of its earlier gains.
The price is currently experiencing a bit of resistance at the 130.00 critical level. At this level, the price could do one of two things. The first is that the price might bounce off the 130 level and pull back to the 20-SMA, and the second is that it might push higher to 131 before pulling back.
The euro has been boosted in recent times by rising ECB interest rate expectations as rates markets now anticipate over 100 basis points of tightening into year end, starting with the first hike in July. The timing of the ‘lift-off’, in July, has been well communicated by doves and hawks within the ECB’s governing council and so it just remains a question of by how much.
Persistent inflation keeps the Fed’s path very much on track while geopolitical uncertainty (Russia/Ukraine/China) drags on. Jerome Powell mentioned in an interview with WSJ that the Fed isn’t looking at nuanced detail in the data to suggest inflation is cooling and that a drastic decline in the level of prices is required to alter the Fed’s current rate of tightening.
EUR/USD comes up against near term resistance via the prior low of 1.0757 which coincides with the 50 SMA, currently keeping prices at bay. The next level of resistance appears at 1.0805 and the underside of the long term trendline from 2017. If prices are to turn lower from here, the 2020 low of 1.0635 comes into focus before a return to the zone of support at 1.0450.
Trade accordingly with your risk
The FTSE 100 is now close to entering a zone of prior highs after adding nearly 500 points since May 12. The rally in the FTSE 100 comes against a troubled UK political and economic backdrop, but the trend higher remains in place. The 7,635-7,688 area will provide resistance and if the FTSE is to break above here it will need a strong economic driver to spark the move. The first level of support is seen around 7,540.
Trade accordingly with your risk
As has been the case in recent months, equity markets remain the key driver for the Canadian Dollar. Therefore, with the upside in equities tentative at best and the bias very much a sell on rallies, dips in USD/CAD are likely to be supported. At the same time, USD/CAD vs rate differentials and oil prices signal that the pair is trading at fair value. Looking ahead to the near future, the economic calendar is relatively light. As such, while Canadian retail sales is on tap, this will unlikely prompt a notable move in the Loonie given that the data will not move the needle for BoC policy. As a reminder, the Bank of Canada is expected to raise interest rates by 50bps at its upcoming.
USD/CAD above 1.30 was a tough area to hold above, particularly with key resistance in the form of the 200WMA. Momentum indicators have softened as of late amid the rather stagnant price action and thus we look to equity markets for direction. On the downside, support is situated at 1.2740 and below at 1.2700.