(MENAFN- Daily Forex) Fundamental Analysis & market Sentiment
I wrote on 16th June that the best trade opportunities for the week were likely to be:
Long of the
nasdaq 100
index . This produced a gain of 0.54%.
Long of the
S&P 500 Index . This produced a gain of 0.62%.
Long of the CHF/JPY currency cross . This produced a gain of 1.09%.
Long of the NZD/JPY currency cross . This produced a gain of 1.16%.
The overall result was a net gain of 3.41%, resulting in a loss of 0.85% per asset.
Last week's key takeaways were:
Falling inflation in the UK, with CPI coming in as expected at only 2.0% annualized, finally reaching the Bank of England's inflation target. However, this rate was widely expected by the market, so it had no dramatic impact upon the value of the British Pound, although the Pound did lose ground last week. This was almost certainly helped by a feeling eh CPI data makes earlier rate cuts possible.
The Swiss National Bank held a policy meeting and announced a cut in its policy rate from 1.50% to 1.25%. This was unexpected, and it sent the Swiss Franc lower.
The Bank of England voted exactly as expected to leave rates on hold, so the market reacted little to this policy meeting. The relative value of the Pound seemed to be affected more by declining inflation.
The Reserve Bank of Australia held a policy meeting at which it left its Cash Rate unchanged. However, the Bank left the possibility of a further rate hike open within the near to medium term, which seems to have firmed up the Aussie somewhat.
Another key event is the continuing strong showing by far-right parties in polls concerning the general election in France following the far right's victory there in the European Parliament elections. Although the major far right party is no longer in favour of exiting the European Union, the Euro is looking weak partly due to concerns over the political outcome here.
Other important data releases last week were:
US Retail Sales – this came in lower than expected, showing a month-on-month increase of only 0.1%, suggesting a trend that US consumer demand is weakening.
US, German, UK, French Flash Services & Manufacturing PMI – the US data was a little higher than expected, while the European data was worse than expected, suggesting output is stronger in the USA.
US Empire State Manufacturing Index – slightly better than expected, reinforcing my point in 1. above.
New Zealand GDP – a fraction better than expected, showing a quarterly growth of 0.2%.
UK Retail Sales – the data was surprising, showing much stronger growth than was expected.
US Unemployment Claims – this came in almost exactly as expected.
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The Week Ahead: 24th – 28th June
The most important item over this coming week will be the release of US Core PCE Price Index data, which is the Fed's favourite inflation indicator and is therefore closely watched. It is expected to show a month-on-month increase of 0.1%. If the actual data release lower, that could see a lower Dollar and higher stock markets, and vice versa if higher. Also in the USA, there will be a release of Final GDP data which is expected to show annualized growth of 1.4%. A different number at the actual release could move the Dollar and stocks to some extent.
There will also be significant releases of Canadian and Australian CPI data, both of which are expected to show declines.
Other major data releases due this week are:
US CB Consumer Confidence
US Revised UoM Consumer Sentiment
Canadian GDP
US Unemployment Claims
US Pending Home Sales
Thursday will be a public holiday in New Zealand Forecast June 2024
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 did this month, and I again made no monthly forecast this month Forecast 23rd 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 fell fractionally last week, with 30% of the most important currency pairs fluctuating by more than 1%.
Last week, the Australian Dollar showed relative strength, while the Japanese Yen showed relative weakness.
You can trade these forecasts in a real or demo Forex brokerage account .Key Support/Resistance Levels for Popular Pairs
Technical AnalysisUS Dollar Index
The US Dollar Index printed a bullish near pin bar candlestick last week which closed just above the previous week's high. The price managed to get established above the former resistance level at 105.28. 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. This trend is now looking more solid. However, bulls really need to generate a sustained breakout beyond 106.00 before we will see truly strong 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, a bit below 106.00. 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 the Swiss Franc.
GBP/USD
The GBP/USD currency pair declined again last week, dragged lower by a general decline in European currencies such as the Swiss Franc after its surprise rate cut, and the Euro which is suffering from opinion polls suggesting that the far-right parties may take power in the forthcoming French Parliamentary election.
Technically, the price chart below shows topping price action, with the price clearly rejecting the big quarter-level at $1.2750 over the previous weeks. The large bearish engulfing pin bar two weeks ago dominates the price chart below. Last week saw a continuing decline, but there is an area of strong support based on the round number at $1.2600 which could halt the move lower.
We may well see a further decline if the price can get well established below $1.2600.
USD/JPY
The USD/JPY currency pair printed a strongly bullish candlestick last week which made a record high weekly close, closing right on the high of its range. The closing price was only about 30 pips below the multi-decade high price we saw in April.
The Japanese Yen has been showing a real long-term weakness as the Bank of Japan continues to stall on really changing its ultra-loose monetary policy.
The US Dollar has become a better currency to use on the long side to exploit the Yen's weakness, as the US Dollar has broken beyond a key resistance level over the past week. However, there are other Yen crosses which it may be better to be long of.
Long trades may work out well here over the coming week. However, bulls need to beware potential sudden intervention by the Bank of Japan, or profit taking when the key psychological levels such as ¥160.00 or the high at ¥160.21 are reached.
As a trend trader, I am very happy to be long of this currency pair.
AUD/JPY
I expected that the AUD/JPY currency cross would have potential support at ¥103.73.
The H1 price chart below shows how this support level was rejected right at the end of last Monday's Tokyo session by an engulfing bar , marked by the up arrow in the price chart below, signaling the timing of this bullish rejection.
This can be an excellent time of day to enter a trade in a currency cross involving the Japanese Yen such as this one. The AUD/JPY currency pair is one of the most volatile Forex pairs , so trading can offer a lot of pips in profit.
This trade has been nicely profitable, giving a maximum reward to risk ratio of approximately 4 to 1.
There is strong bullish momentum here, as the two currencies were respectively the largest gainer and loser last week. It may be wise to be long here as the price is trading at a long-term high, and the price rose by almost 2% over the past week showing momentum.
CHF/JPY
The CHF/JPY currency cross rose firmly during the week, continuing its strong long-term bullish trend as it reaches new long-term high prices. However, it is worth noting that due to fresh weakness in the Swiss Franc following the SNB's surprise rate cut, the price ended the week somewhat off its high.
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, it might be better to do that with other currencies than the Swiss Franc right now.
NZD/JPY
The NZD/JPY currency cross rose firmly last week to reach a new multi-year high price. The price ended the week only slightly below its high, which is a 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.
This currency cross could be a good vehicle to use to take advantage of any Yen weakness over the coming week, although the Australian cross looks even better. However, we see a symmetrical bullish price channel here, which is another bullish sign of reliability of the trend. We also see the start of a bullish breakout above this channel, which is another bullish sign.
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.
A long trade above last week's high price could work well over the coming week.
USD/ZAR
The USD/ZAR currency pair broke down last week to reach a new 10-month low. The weekly candlestick in the price chart below is quite large and the price ended the week near the low of its range – these together are bearish signs. Technically, the price is showing bearish momentum and looks likely to continue lower to at least 17.60.
The reason for the strong performance by the South African Rand is mostly the new South African government which for the first time since democracy in 1994 includes parties other than the ANC, all of which have economic policies preferred by the markets. The market is now hoping for a somewhat different economic approach and less corruption in government, leading to a stronger Rand.
I see a potential short trade opportunity here targeting 17.60 if we get a bearish reversal at 18.18 to 18.25, which is likely to be an area of firm resistance.
NASDAQ 100 Index
The NASDAQ 100 Index reached a new all-time high last week above the huge round number of 20,000. However, the price fell towards the end of the week as the US Dollar advanced.
The weekly candlestick looks quite bearish, as it is a bearish pin bar rejecting the 20,000 area. This suggests there was strong profit-taking at this level, before the price fell by about 300 points or so. However, this is not a large drop, and the price remains relatively close to the high made earlier in the week.
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. However, it will be prudent to wait for a daily close above 20,000 to prove that bulls truly seem to be in control.
I therefore see the NASDAQ 100 Index as a buy following a daily close above 20,000.
S&P 500 Index
The S&P 500 Index reached a new all-time high last week. However, the price fell towards the end of the week as the US Dollar advanced.
The weekly candlestick looks bearish, as it is a semi pin bar rejecting the high price. However, this was not a large drop, and the price remains relatively close to the high made earlier in the week.
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. However, it will be prudent to wait for a new record high daily close above the round number at 5,500 to prove that bulls truly seem to be in control.
I therefore see the S&P 500 Index as a buy following a daily close above 5,500.
Bottom Line
I see the best trading opportunities this week as follows:
Long of the USD/JPY currency pair.
Long of the AUD/JPY currency cross.
Long of the NZD/JPY currency cross following a daily close above ¥97.79.
Short of the USD/ZAR currency pair following a rejection of the resistance area at 18.18 to 18.25, targeting 17.60.
Long of the NASDAQ 100 Index following a daily close above 20,000.
Long of the S&P 500 Index following a daily close above 5,500.
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