Market Wrap
The London session close is proving to be a mixed bag of results with no clear risk-on or risk-off scenario. Today’s Tier 1 data was largely round Trade Balances from Australia, Canada, and the USA, with the UK printing the Final Markit/CIPS Manufacturing PMI for April. There was also the Reserve Bank of Australia staying unchanged on the Cash Rate and QE policy with the US Factory Orders for March coming in worse than expected.
The USA’s trade balance deficit increased to US$-74.4Bln from a revised US$-70.5Bln which will effectively crush the US dollar a bit more in the long run, though looking at the US dollar index at the London close, the direction of travel currently is higher for the greenback as it finds support just below $91.00 but with overhead resistance from the 50-day ema at $91.44.
US Treasury Secretary Yellen is putting the thumbscrews on Fed Chair Powell by saying rate “might have to rise for the economy to stop overheating”, adding “expects to be in an environment of low-interest rates for some time but still need to make sure deficits remain manageable.”
In a couple of days, the Bank of England will announce their monetary policy decision, in which they are expected to keep rates and asset purchases unchanged. Though there is a growing feeling that it may be better if they signal changes to come earlier as the Bank of Canada hinted at, rather than allowing the current inflationary pressures to overheat the economy as the Fed seems to be allowing.
The ActivTrader sentiment indicator shows that 60% of traders on the platform are bearish of the EURUSD, with a similar amount bearish the GBPUSD. This has the effect of putting the EURGBP cross basically evenly matched with the bears pipping the bulls by 52% to 48%.
If the US dollar index does decide to trade higher, the EURUSD is well placed for a decline with some clear targets at previous balance areas below 1.1600 and the year's lows.
US Treasury Yellen’s comments have not helped the US equities reverse their US session losses and at the London close, the Nasdaq 100 is currently down -2.64%, with US 10-year yields lifting off their day’s lows with 1.560 currently acting as support.
The energy sector today is doing better with WTI up currently at 1.45%, whereas the precious metals are declining against the US dollar with silver down the most by -1.81%.
Of the commodity forex pairs, the AUDUSD has declined the hardest at the London close down -0.83%. The intraday 30-minute chart clearly shows that the Aussie has swept some recent swing lows and is now contending with a rising trendline originating from the start of April ‘21. If the US rate versus the Australian rates were to diverge more then we could see the AUDUSD coming off a lot harder, with a daily topping Head and Shoulders pattern comes into play. That would put a 1st take profit target down around the 0.742 level with a TP2 at the double bottom around the 0.700 psych level.