The central bankers have done their best to show that they are serious about rate hikes to combat inflation, but it is currently a battle they cannot win. Supply chains are still disrupted, and demand is still strong. UK retail sales showed that this won’t carry on indefinitely and at some point, higher prices destroy the demand. The US dollar rising to nearly touching 101.50 sets up for another 100 points move to 102.50 and the 2.618 Fib extension that I have been calling for. Whether traders can muster enough momentum to get there before profit-taking occurs ahead of the FOMC will become apparent next week.
Some very bullish economic data and rhetoric came out of the USA today. US factory activity growth came in at 7-month highs and US Treasury Secretary and formal Fed Chair, Janet Yellen said the US would sidestep a recession due to a labor market and solid personal finances. The IMF predicted the USA would have a GDP of around 3.7% growth, which the Treasury Secretary was good.
One of the strongest USD crosses is the USDCHF, which today breached a 1.618 Fibonacci extension, which I believe will mark an interim top in this US dollar bull move. If the USDCHF is in a 5-wave impulsive move, I’d expect the next move to be a retracement back to 0.938, or a protracted sideways range. The SNB has been looking to weaken the Swiss franc and April’s price action has certainly gone some way to achieving that goal.
The biggest gains in the US dollar came against the Canadian dollar after the USDCAD rose by over 1% and up to the 1.27200 level.
With the war in Ukraine adding to higher energy prices and persistent inflationary worries, the USDCAD should become lower as the price of oil resumes its up move. In the video today I highlighted that China when it comes back from the COVID lockdowns will need oil, and if it cannot get it easily from Russia, it will buy from whoever will sell. This means there will be less for everyone else unless the OPEC+ countries and the USA up their production.
USDCAD appears to have completed an ABC corrective pattern and I would predict we see 1.2400 and below in the future. The economic data out this afternoon showed producer prices in Canada jumping by 4% month-over-month in March of 2022, which marks the seventh consecutive monthly increase, and the largest monthly change on record since the series began in 1956.
Over the last week, the Australian dollar has fallen -by 2.10% against the US dollar, which is closely followed by the losses in the New Zealand dollar and Japanese yen. Amazingly the euro has held up relatively well, though the daily price action has been a rollercoaster ride for anyone trying to trade it.
Precious metals have continued to feel the weight of the bullish US dollar and today gold came down to test the rising trend line which has now been tested 3 times. If this support level were to break, we would be on the lookout for a break, retest, and continuation trade. Looking left the recent significant low and high are the upper and lower bounds of a range, so a close below the swing low that is being used as one of the points along the trend line would open lower prices all the way back to $1800/oz and possibly beyond.
Along with the fall in the precious metals complex, the other commodities didn’t fair very well either. Brent and WTI were down -1.93% & -1.67% respectively and UK natural gas was down -15.19%.
The euro is going to be quite volatile at the start of next week as we have the next leg of the French Presidential Election, where the market will have a better idea of how well Macron is doing against Le Pen. If the National Rally leader looks to have made gains against the incumbent, we could get a serious sell-off.
The rest of the week looks relatively quiet so the big trending days that we have seen could be backfilled as the price action has left a fair number of imbalances. Plus, traders will start to position themselves for the May NFP and FOMC meeting.