(MENAFN- Daily Forex) Fundamental Analysis & market Sentiment
I wrote on 2nd June that the best trade opportunities for the week were likely to be:
Long of the nasdaq 100 index following a daily close above 18898. This produced a loss of 0.26%. Long of Silver following a bullish bounce rejecting $29.85. This did not set up. Long of the CHF/JPY currency cross following sustained bullish price action above ¥175.00. This did not set up.
The overall result was a net loss of 0.26%, resulting in a loss of 0.09% per asset.
Last week's key takeaway was the lower-than-expected US CPI data, which unexpectedly declined from an annualized rate of 3.4% to 3.3% after month-on-month data showed no inflation at all. This was quickly followed by a policy meeting at the US Federal Reserve, which struck a more cautious tone on inflation and rate cuts, leaving markets still expecting only one rate cut in 2024, probably at the Fed's September meeting. The Fed left rates unchanged as was expected nearly universally. The US Dollar regained much of the ground it had lost following the lower CPI data after the Fed's message, but major US stock market indices continued to rise to make new record highs over the rest of last week.
Another key event last week was the surprise calling of a general election in France following the far right's victory there in the European Parliament elections. This is a huge gamble by President Macron who has little to lose without any majority in the French Parliament, as polls suggest it will probably put the far right in power in France for the first time since 1944. Although the major far right party is no longer in favour of exiting the European Union, the Euro lost ground last week on this political development, and it continues to look weak.
The Bank of Japan held a policy meeting at which it stated it would begin to reduce its bond purchase operations but not until next month, which caused the Yen to weaken slightly. The Policy Rate was left unchanged as expected at 0.10%.
Other important data releases last week were:
US PPI came in significantly lower than expected, showing a monthly decline of 0.2% when an increase of 0.1% was expected. This is a strong hint that inflation in the US is really declining. UK GDP – exactly as expected. US Preliminary UoM Consumer Sentiment – worse than expected, which has been happening in US consumer data lately. US Unemployment Claims – slightly worse than expected. UK Claimant Count Change – worse than expected. Australian Unemployment Rate - exactly as expected.
The Week Ahead: 17th – 21st June
The most important items over this coming week will be the release of UK CPI data, which is expected to show a decline in annualized inflation from 2.2% to 2.0%, finally reaching the Bank of England's target. There will also be central bank meetings this week at the Bank of England, the Swiss National Bank, and the Reserve Bank of Australia. None of these three central banks are expected to make any changes to their interest rates.
Other major data releases due this week are:
US Retail Sales US, German, UK, French Flash Services & Manufacturing PMI US Empire State Manufacturing Index New Zealand GDP UK Retail Sales US Unemployment Claims
Wednesday is a public holiday in the USA Forecast June 2024
Currency Price Changes and Interest Rates
In Forex, I follow the US Dollar's long-term trend to make monthly forecasts. However, just as last month showed no clear trend in the US Dollar, so does this month, so I again made no monthly forecast this month Forecast 16th June 2024
Last week, I made no weekly forecast, as there were no unusually large swings in any Forex currency crosses, which is the basis of my weekly trading strategy. I again make no weekly forecast, as this situation is unchanged.
Directional volatility in the Forex market rose last week, with one third of the most important currency pairs fluctuating by more than 1%.
Last week, the Swiss Franc showed relative strength, while the Euro showed relative weakness.
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Technical Analysis
US Dollar Index
The US Dollar Index printed a fairly large near pin bar candlestick last week which closed within the upper half of its range. The resistance level at 105.28 again held after being tested. There is a bullish long-term trend as the price is above its levels from 3 months ago and its price of 6 months ago. However, this trend looks questionable as it is clear that the price is near two strong resistance levels. Bulls really need to generate a sustained breakout beyond 106.00 before we will see real technical bullishness here.
It may make sense to trade the US Dollar long now, but I will feel much more comfortable doing that once we start getting daily closes of this Index above 105.80. I see the Dollar as a bit of a sideshow right now, with the Forex market currently driven by weakness in the Japanese Yen and in the Euro, and movement in certain other currencies such as the Swiss Franc.
EUR/USD
The EUR/USD currency pair fell sharply last week after the shock election call by President Macron, which is likely to put the far right into power in France within a few weeks. Although this is extremely unlikely to lead to an exit of France from the European movement, the prospect of such a political earthquake in France caused the Euro to sell off.
Turning to the US Dollar, the lower-than-expected US CPI data briefly weakened the Dollar, but after the Fed remained cautious later at its policy meeting, the greenback went on to gain ground at the end of the week, sending the price of this currency pair lower.
This current downwards movement is not driven by technical factors but by political risk. The Euro will almost certainly decline further unless French opinion polls show a surge against the far right, so short trades this week are likely to be productive. Entering after rejections of resistance levels is usually a great approach with this currency pair.
USD/JPY
The USD/JPY currency pair printed a doji candlestick over the past week. This typically signifies indecision, but due to the strong long-term bullish trend and the fact that the bulk of the week's price action was based above the support level at ¥156.42, this looks bullish
The Japanese Yen has been showing a real long-term weakness as the Bank of Japan continues to stall on really changing its monetary policy, announcing on Friday that it would wait another month to cease its bond purchasing program.
The US Dollar may not be the best currency to use on the long side to exploit the Yen's weakness, as the US Dollar, despite having a bullish long-term trend technically, is a bit consolidative. There are other Yen crosses which it may be better to be long of.
Long trades from bullish bounces off support levels may work out here over the coming week or entering following a daily close above ¥158.50.
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CHF/JPY
The CHF/JPY currency cross rose strongly during the week. The price ended the week right on its high, which is a bullish sign. The Swiss Franc was the strongest currency last week, and last week's high was a new multi-year high price, which is another bullish sign.
There is weakness in the Japanese Yen which is the major defining feature of the Forex market right now. This is a good reason to be short of the Japanese Yen. However, most of last week's rise was due to strength in the Swiss Franc.
This currency cross could be a great vehicle to use to take advantage of any Yen weakness over the coming week.
When trading this cross, it helps to check support and resistance levels in the USD/JPY and USD/CHF currency pairs to be sure the price can rise or fall relatively easier.
However, a long trade above last week's high price could work well over the coming week.
NZD/JPY
The NZD/JPY currency cross rose during the week. The price ended the week a bit off its high, which is a bullish sign as that high was a multi-year high price.
There is weakness in the Japanese Yen which is the major defining feature of the Forex market right now. This is a good reason to be short of the Japanese Yen.
This currency cross could be a good vehicle to use to take advantage of any Yen weakness over the coming week, although the Swiss Franc cross looks even better. However, we see a symmetrical bullish price channel here, which is another bullish sign of reliability of the trend.
When trading this cross, it helps to check support and resistance levels in the USD/JPY and NZD/USD currency pairs to be sure the price can rise or fall relatively easier.
However, a long trade above last week's high price could work well over the coming week.
NASDAQ 100 Index
After a new record high was reached during the previous week, the NASDAQ 100 Index made a strong gain last week, due mainly to lower-than-expected US CPI data which makes an earlier rate cut a bit more likely. Strong earnings by major tech companies are also helping the Index.
Bulls should be encouraged by the fact that this Index is trading in blue sky at a record high, and that last week's close was right on the week's high, with strong momentum showing over both the short and long term.
It makes sense to be bullish on this major stock market index when it has recently made a new record high. Historic precedent shows this tends to produce further gains quickly.
I therefore see the NASDAQ 100 Index as a buy.
S&P 500 Index
After a new record high was reached during the previous week, the S&P 500 Index made a strong gain last week, due mainly to lower-than-expected US CPI data which makes an earlier rate cut a bit more likely.
Bulls should be encouraged by the fact that this Index is trading in blue sky at a record high, and that last week's close was quite near the week's high, with strong momentum showing over both the short and long term.
It makes sense to be bullish on this major stock market index when it has recently made a new record high. Historic precedent shows this tends to produce further gains quickly.
I therefore see the S&P 500 Index as a buy. Bottom Line
Long of the NASDAQ 100 Index. Long of the CHF/JPY currency cross. Long of the NZD/JPY currency cross.
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