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Daily Fundamental ForexTime ( FXTM )

US tax bill send equities soaring


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The Tax bill has been talked about for some time, and today was the day for it. Obviously, it cleared the US house easily enough and is now on its way to the senate; where the republicans have control as well. What does this mean for markets? Well put simply it cuts corporation tax from the current 35% to 20% - a very large jump - which means US companies are likely to record larger profits which of course will have a flow on effect for the economy. The real question here is if the republicans in the senate will be able to push it straight through or will look to make amendments. They are after all different creatures in the senate and the tend to be more heavy handed when it comes to clearing large bills like this through government. However, with a two seat advantage it looks like it may just shine through and Trump will be able to sign it all off before Christmas - giving him his first major win of his presidency.

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For equity markets the rally has been pretty sharp as a result of the tax bill. Traders are betting that in the long run this tax bill will unleash the corporate machine that is America and record profits will accordingly flow through. The S&P 500 today was a prime candidate for this as a I previously noted, and accordingly has rallied sharply. Resistance at 2580 was no match for traders looking to enjoy the rally today and now it's a case of targeting 2600 for many bulls in the market. If the senate does indeed push the bill through then 2600 may be a support level as the market will jump sharply I feel - given it's the last hurdle. With a tax reform like this the possibility of even pushing the 3000 mark becomes all the more realistic. If we see the bill struggle then we could see sharp drops on the charts to support levels at 2565 and 2545, with the potential to go further as it feels a lot is riding on this bill in the equity markets.

The Australian dollar was one I also touched on yesterday and while the unemployment rate fell to 5.4% (5.5% exp) the participation rate was lower, and accordingly the creation of new jobs only came in at 3K so it was disappointing for traders in reality. I still feel that the AUD will struggle in the long run given the pressure on the economy, and as the USD continues to find favour with traders again.

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The AUDUSD on the charts currently has been trading between resistance at 0.7462 and support at 0.7566, with market expectations of potential falls lower. The 0.7500 psychological level is currently likely to be the largest target if the trend continues. However, we could see a bounce here and a retest of resistance levels at 0.7624 and 0.7687 on the charts.

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Daily Fundamental ForexTime ( FXTM )

European currencies dip on German politics


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The Euro had a pause for concern in the evening trading session as the coalition talks in Germany fell apart leading to a political crisis in Germany. This now presents the toughest challenge Angela Merkel has felt in over 12 years of being at the top, however, she seems somewhat composed and is keen to send the parties back to the polls in order to get a majority government. So far though polls have predicted that anti immigrant parties are likely to gain more momentum than the traditional centrist parties which have dominated German politics in recent decades. And for Brexit this will certainly put pressure on the British government now that Merkel is currently off dealing with her political crisis, rather than being focused on there's. For some time many had expected her to get involved and sort out the crisis, but that's certainly not going to be the case and £40 billion bill the UK is offering to settle the bill is being put to the table.

The British governments ability to settle the bills is likely to be a game of brinkmanship and the EU does not have to blink at all. What could well be worth their time is to let it play out internally as right now a number of backbencher Tories are upset over the size of the number and could in theory force a leadership vote. While plausible I do believe that the government is likely to try and push it all through as rapidly as possible in order to get backing from business. Either way the pound is likely to encounter some rough waters over the course of this week as a result.

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On the charts the GBPUSD continues to be inching its way higher on the charts, and thus far it's been on the back of some USD weakness which has been apparent. However, the recent moves higher have shown an abrupt weakness in bullish potential and we could see bears come back into the market to tighten things up before breaking out. Resistance levels for the GBPUSD can be found at 1.3256 and 1.3339, but the band in between this is likely to see a lot of action. In the event that markets turned south they would have a tough time battling the 100 day moving average which has been acting as dynamic support, and also support levels at 1.3130 and 1.3059. A breakthrough of these support levels could send the pound tumbling though.

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The EURUSD is also looking weaker after the political news out today, and for me the focus will be playing of the political news out of Germany going forward. Key resistance levels can be found at 1.1824 and 1.1891. Support levels can also be found at 1.1719 and 1.1621, with the trend looking all the more bearish as of late. Certainly also for the euro the USD weakness will be a primary factor, but so far it' s a mixed bag.

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Global stocks rally, Sterling on standby ahead of UK budget


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The healthy combination of rising corporate profits, strong global growth and cautious optimism over U.S. corporate tax cuts, simply reinvigorated global equity bulls on Tuesday – boosting stocks across the globe.

Asian shares headed for a record close during early trading on Wednesday, following Wall Street’s robust gains overnight. European markets concluded mostly higher on Tuesday and may open on a positive note today as market players continue to shrug off the political uncertainty in Europe. With U.S. stock indexes marching to record highs yesterday as technology and health stocks rallied, it will be interesting to see if the upside momentum is maintained this afternoon.

Chancellor Philip Hammond in the spotlight

Chancellor Philip Hammond will be in the limelight today as he presents the U.K. budget statement to the House of Commons. While Hammond’s speech may revolve around managing the housing crisis, investors will be paying attention to the Office for Budget Responsibility (OBR) which is expected to trim Britain’s GDP growth forecasts. If the overall tone of the budget statement is gloomy and Brexit concerns making an appearance, Sterling is likely to find itself under renewed selling pressure.

Taking a look at the technical outlook, the GBPUSD has found light support at 1.3230. An intraday breakout above 1.3250 could encourage a further incline towards 1.3300. Alternatively, a failure for prices to keep above 1.3230 may encourage a decline to 1.3150.

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Dollar lower ahead of FOMC minutes

The Greenback weakened against a basket of currencies on Tuesday, after Yellen’s cautious remarks reinforced market expectations of the Federal Reserve raising interest rates at a gradual pace.

Yellen cautioned that raising interest rates too quickly could obstruct the Feds efforts to reach the golden 2% target and reiterated the fact that this year’s low U.S. inflation remained a mystery. With the outgoing Fed chair uncertain over the stubbornly low inflation being transitory, investors were left pondering over how this could influence the central bank’s monetary policy strategy in 2018.

Much attention will be directed towards the minutes from the latest FOMC meeting this evening which should offer further clues on the central bank’s outlook future interest rate increases. With markets widely expecting U.S. interest rates to be increased in December, investors are likely to closely scrutinize the minutes for fresh insight into monetary policy beyond 2017.

The Dollar could receive a boost if the minutes are presented with a hawkish touch, alternatively, if the minutes express concerns over low inflation and fail to bring anything new to the table, sellers may make a move. From a technical standpoint, the Dollar Index is coming under pressure on the daily charts with resistance found at 94.00. Sustained weakness below this level may encourage a further decline towards 93.50. Alternatively, a breach back above 94.15 puts this current bearish setup at risk, with the next level of interest at 94.50.

 

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Daily Fundamental ForexTime ( FXTM )

Yen bulls jump on weak FED inflation outlook

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FOMC meeting minutes are always greeted warmly by the markets, as a glimpse of the potential future direction of the FED going forward, and today didn't disappoint at all. As predicted the FED was positive about the possibility of a December rate hike before the year goes out, and the market has aptly priced this in. Markets on the other hand were caught off by certain members reluctance to actually lift rates as they felt inflation was starting to slow down and the previous large rises may not continue going forward. Now with Yellen set to resign and the new head of the FED taking over, it may be the case that we do see more hawkish movements. But the board is a democratic vote, so unless we see real movement there it becomes very unlikely at this stage and the doves could be staying on for some time.

For traders the USD sell off in safe-haven currencies was strong with the USD losing a number of points especially against the Yen. USDJPY was by far the most volatile trade of today, which surprised many given how flat it had recently been, but markets were quick to punish the FED over its dovish comments. One of the major reasons behind the sudden appreciation of the Yen is that thus far Abenomics has not been as active as expected and it continues to be at a risk of being devalued quickly. It's also a fantastic storage for traders looking for some sort of safety within the markets and a traditional one at that as well. However, for the USDJPY bears the time to jump was today and they certainly did.


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USDJPY bears crashed through the 200 day moving average ruthlessly as they looked to push the pairs to strong support levels. Support at 111.133 was able to holt the downward trend, but so far is the only thing holding back the USDJPY from storming any lower. Markets looking to swing lower further are likely to find another strong level of support at 110.202, but the market may take some breather here and give up some gains. For traders looking for a bounce higher then resistance can be found at 111.944 and 112.787. The reality for the bulls jumping back in though is slim, as this bearish trend is likely to push traders back in the water in search of blood.

After the recent failures of traders to break through resistance at 114.359 over the previous month, it's no surprise that the market has jumped on a bearish trend. The question is though will it continue to run, or will markets look to pause and take stock of the volatility we've seen today. My thoughts are that it  could potentially slow down but still trend, which would be promising for traders looking for an easy wave. 


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Stocks drop, currencies range bound & bitcoin eyes $10,000

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Most Asian indices edged lower on Tuesday, following a mixed session on Wall Street yesterday. China is becoming a key market to watch, as it’s leading the direction for other markets across Asia. Rising bond yields are threatening corporate profit margins for the second largest economy; meanwhile Chinese authorities are helping to drag equities lower, after sending alarming messages about a potential bubble being created in large-cap firms. Given that China continues to focus on quality rather than quantity growth, it’s not surprising to witness action of this nature from the Chinese government in an attempt to mitigate bubbles in asset prices. However, such actions may have a negative impact on sentiments that could spread across other Asian markets.

U.S. equity traders are in a wait-and-see mode. President Trump will meet senators today at their weekly policy lunch, to ensure that Republicans are on the same page regarding the tax system overhaul. I firmly believe that U.S. legislative tax reforms are strongly “priced in” the U.S. markets, thus if significant tax reforms do not pass, I expect a substantial decline in major indices, particularly in small caps. Given that the effective tax rate currently stands at around 27%, taxes should be brought below 25% to be effective. Republican Senator Ron Johnson said he would vote against the bill unless his concerns about the legislation are resolved. Given that other Republican Senators share Johnson worries on deficit implications, passing the bill does not seem to be a done deal yet.

Currency markets were trading in narrow ranges early Tuesday, as investors brace for UK bank stress test results, BoE’s Carney Speech and the Fed speech, including Powell’s Congressional address. On the data front, the U.S. Goods Trade Balance, and the Housing Price Index are likely to have minimal impact on the USD.

At the time of writing, Bitcoin scored a new record high of $9,886 in an attempt to break above the critical $10,000 threshold. Bitcoin has become a very hot topic and many fund managers have raised the price target for the cryptocurrency. Yesterday, former Fortress hedge fund manager Michael Novogratz commented on CNBC, that bitcoin could be at $40,000 by the end of 2018 and he expects that total market capitalization could reach $2 trillion, from $309 billion currently. I think that we will hear more skyrocket predictions, but few will provide an economic metric that supports their valuations. It will be interesting to see how the market reacts when Bitcoin breaks above $10,000.


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Pound rallies on divorce bill rumours


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It's been a crazy day on the markets and the GBPUSD has been a clear winner when it comes to movements today as the Market has reacted positively to the so called 'Divorce Bill' from the EU that Britain is meant to pay. So far people are expectong the figure to come in around 50-60 billion pounds that would be paid out over 40 years. Obviously, this is a large number for any sovereign nation, but it enables Britain to plow forth in its so called negotiations. The market is now looking for the next steps for the UK economy, as it expect to see some sort of trade negotiations come out of all of this. I do think that it might be a bit of a while off that we do see something realistic, the fact being that a) the UK has no strong leg to stand on, and b) it's always a long road to what people expect will be a result. Either way the volatility in the GBPUSD is likely to continue into the near future especially with the current pace of news and politics involved in Brexit.

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On the charts it's clear to see that the bulls are back into the market and are climbing higher. Yesterday we were talking about the 1.33 levels, and today we are in the 1.34 levels which shows the market is keen on these talks. After touching resistance at 1.3438 the market has pulled back to take a breather, but the real key level is to be found at 1.3588 which is where bullish traders will be looking to aim in this market. In the even the bears do regain control and look to push it lower then support at 1.3339 is likely to be a prime candidate for support as well as 1.3256. Traders should also be aware of the previous trend line which continues to be an obstacle for any bears in the current market.

The US also continued its stellar run today with US pending home sales m/m lifting by 3.5% (1% exp) once again showcasing the strength in the USD. On top of the traders were also somewhat bullish about the first round of the senate tax review of the Trump tax bill, which is likely to boost the US economy - even though running a deficit for a bit. One of the big losers for this has been the commodity currencies which have been bearish against the USD with all this support.

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For me the NZDUSD continues to be one of those currencies that will struggle with a resurgent USD in the current market climate. So far all the candles have shown exhaustion by bulls in the market as the NZDUSD dipped under resistance at 0.6891. The market is now looking to extend further lower to 0.6834 and 0.6802 on the charts, as the market looks to push it back into the red. For me the bulls are going to be a real threat until the USD gives up some ground as the NZ economy is still struggling in the interim while it figures out a new government.


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Daily Fundamental ForexTime ( FXTM )

Market waits on Bank of Canada


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With a US tax bill and a Brexit currently flying around in the markets it's hard not to get lost on the bigger picture for other countries as well. However, the Bank of Canada (BoC) is one that we should all be paying attention to as in the next 24 hours they will have their monthly interest rate decision, as well as follow up conference to the market. Now a interest rate is not priced in at present - in fact the odds are very low, but the BoC has a habit of surprising markets and the recent employment figures were very positive adding further weight to the potential for a rise. I don't anticipate we will see a surprise interest rate jump, however the words that will be used will be vital for the market when it comes to pricing in the next interest rate rise and of course are likely to have a big impact on the Canadian dollar. It's not always about oil for the Canadian economy, but one thing is clear there is certainly more to offer on the trading calendar than oil updates.

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So far the USDCAD has been a big mover and has held up nicely on the charts in preparation for the upcoming announcement. So far the USD has been losing ground against the CAD after traders were quick to attack on USD weakness and the strong jobs report. Any movements higher on the USDCAD were likely to struggle regardless with resistance at 1.2759 and 1.2921, but also with the 200 day moving average starting to ebb lower and showing a pattern of being respected strongly by the USDCAD. Movements lower are likely to find support at 1.2628 and 1.2516 in the current market, but I would also watch out for the oil figures as well, as a strong drawdown would put further bearish pressure on the USDCAD.

One of the key metal markets which has been moving sharply lower recently has been silver which has been reacting sharply to the boost in equities. There has been talk recently that metals could potentially be replaced by Bitcoin and the likes, but I don't believe they represent a tangible hedge like precious metals do in the current environment. What is clear that the US economy booming is starting to have a negative effect on the price of silver and the market is starting to shift lower as a response.

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I've always been a fan of silver and the trend is looking quite strong on the charts so far for the bears. Support has held up nicely at 15.996, with the potential to move event further lower to 15.556. Resistance is currently high in 16 dollar region at 16.546 and 16.863 at this stage. All in all though the bearish trend is strong and could continue in the current environment if we don't see any large hiccups. 


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CAD in focus on dovish comments

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The Canadian dollar was back in focus today as the market was looking for hawkish signs from the Bank of Canada, on the back of the recent interest rate statement. The interest rate was kept at 1% however, and the market was caught off guard by the dovish comments made by the BoC. While the economy has been adding new jobs and Fridays figures were a testament to that (+441,400), the BoC is still concerned about the NAFTA negotiations that are ongoing, as well as recent housing market developments. This came as a shock for a lot of market pundits, but more important it forced forecasts further out for future rate rises, while before the market was betting heavily on the BoC to come through and cause further positive betting on rate rises.

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The USDCAD was quick to jump on the back of the news out from the BoC, as USD bulls rushed away with all the recent gains and pushed through resistance at 1.2759. Further levels higher can be found at 1.2921 with the potential for any higher gains to the 200 day moving average - which would be very hard to push through. If the market does turn around and head back south then support at 1.2628 and 1.2516 are likely to be the prime candidates for bearish traders, with the area between these two levels likely to act as a key selling point on the market.

Crude has been one of those funny players in the market as of late with a bullish rise, which has been purely on the back of OPEC extending production cuts. Now for many this comes as no surprise as the oil market did need to stabilise but today's fall caught many off guard given that the drawdown came in stronger than expected at -5.61M (-2.5M exp). The reason for this was refined oil products with gasoline showing an increase to 6.8M barrels, beating market expectations and causing the oil market to sell-off. Selling pressure is common when you have a build up of refined products as the market might start to think it's flagging or peaked already. 

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Oil now finds itself in a weird place at present as the recent rise has struck strong resistance at 59.08 in this market, and the fall today hit the current old trend line which the market is respecting before taking a pause and stopping all together. I'm not sure if there is further potential falls on the cards given the bulls have been so strong, and this could be an excuse to unwind. However, if the trend line did break then support could be found at 55.14. If oil does indeed jump back higher, then for me resistance at 57.38 and 59.08 are the key levels traders will look to target. Expectations are though that 59.08 will be the level to beat currently.

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CAD in focus on dovish comments

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The Canadian dollar was back in focus today as the market was looking for hawkish signs from the Bank of Canada, on the back of the recent interest rate statement. The interest rate was kept at 1% however, and the market was caught off guard by the dovish comments made by the BoC. While the economy has been adding new jobs and Fridays figures were a testament to that (+441,400), the BoC is still concerned about the NAFTA negotiations that are ongoing, as well as recent housing market developments. This came as a shock for a lot of market pundits, but more important it forced forecasts further out for future rate rises, while before the market was betting heavily on the BoC to come through and cause further positive betting on rate rises.

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The USDCAD was quick to jump on the back of the news out from the BoC, as USD bulls rushed away with all the recent gains and pushed through resistance at 1.2759. Further levels higher can be found at 1.2921 with the potential for any higher gains to the 200 day moving average - which would be very hard to push through. If the market does turn around and head back south then support at 1.2628 and 1.2516 are likely to be the prime candidates for bearish traders, with the area between these two levels likely to act as a key selling point on the market.

Crude has been one of those funny players in the market as of late with a bullish rise, which has been purely on the back of OPEC extending production cuts. Now for many this comes as no surprise as the oil market did need to stabilise but today's fall caught many off guard given that the drawdown came in stronger than expected at -5.61M (-2.5M exp). The reason for this was refined oil products with gasoline showing an increase to 6.8M barrels, beating market expectations and causing the oil market to sell-off. Selling pressure is common when you have a build up of refined products as the market might start to think it's flagging or peaked already. 

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Oil now finds itself in a weird place at present as the recent rise has struck strong resistance at 59.08 in this market, and the fall today hit the current old trend line which the market is respecting before taking a pause and stopping all together. I'm not sure if there is further potential falls on the cards given the bulls have been so strong, and this could be an excuse to unwind. However, if the trend line did break then support could be found at 55.14. If oil does indeed jump back higher, then for me resistance at 57.38 and 59.08 are the key levels traders will look to target. Expectations are though that 59.08 will be the level to beat currently.

 

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Bitcoin future trading kicks off; Investors awaiting central banks decisions

 

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Trading bitcoins entered a new phase today, after Chicago’s CBOE listed the first futures contract on the cryptocurrency. The initial reaction was beyond expectations with the futures contract climbing more than 20% and triggering two trading halts. CBOE’s website experienced unprecedented traffic which may well have sent a new benchmark, the frenetic activity lead to delays and outages. So far, it seems professional investors aren’t willing to bet against the bitcoin, despite the many warnings of a bubble that will burst soon. Many traders aren’t even interested in the price direction, but the listing of the futures contract on CBOE and later next week on the CME, will provide them an arbitrage trading opportunity due to the vast pricing differences. However, the arbitrage trading will lead to improved price efficiency and probably less volatility. After volatility settles down, the focus will return to the price direction.

Central Banks Meetings

Currency markets were trading in tight ranges early Monday with the dollar slightly weaker against its major peers. Expectations of the Fed hiking rates on Wednesday, stands at 90.2% according to CME’s Fedwatch tool which means the disappointment in wage growth won’t shift the needle for US monetary policy. However, it isn’t the rate hike that will move the dollar on Wednesday, it’s the tone, economic projections and the dot plot. Given that we’re getting closer to a deal on tax reforms, the Fed might become slightly more hawkish. It remains to be seen whether this will shift up the Fed’s dots for future interest rate expectations.

The European Central Bank and Bank of England are also meeting this week. Despite no substantive monetary policy changes expected, the language might still move the Euro and the Pound.

Will the Fed support further rotation in stocks?

Tech shares have been in focus over the past two weeks after the S&P tech index plunged more than 4% between 29-Nov and 05-Dec, before recovering last week. The fall in Teck stocks wasn’t accompanied by a selloff in other sectors, particularly the financials which have been on the rise. This is a classic type of rotation with active managers balancing their portfolios before year end. Tax reforms don’t seem to be of great support to Tech firms, given that their effective tax rate is considered to be the lowest in the U.S. Meanwhile, it’s a big deal for the rest of the U.S, with financials having an effective tax rate of more than 30%. The new Fed Chair, Jerome Powell will likely speed up deregulation for the financial sector which will drive more inflows. And of course, higher interest rates for 2018 will further support the banks' profit margins. That’s why the trajectory of interest rates in 2018 will likely lead to more portfolio balancing before year end.

EU Summit

The breakthrough in Brexit talks on Friday was a great relief for policymakers, who can now move to phase-2 of the talks. Interestingly though, Sterling instead of rising sharply, dropped on the news. Investors seem reluctant to buy Sterling as they view the next phase more complicated than the first. They want to see details of the transition agreement and trade talks concluded before buying Sterling. I don’t think the EU summit on Friday will reveal much, but blessings from EU leaders might lend some support to the Pound.

 

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US retail sales beat expectations

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It's been a funny day for the USD as it slipped lower on Tax legislation worries. For the most part it has fallen around two senators who are keen to fix the current child tax credits. In reality this is something republicans are likely to help remedy in order to get this bill over the final hurdles and in front of the president to sign before Christmas. However, for me the big mover - and what might have a much more interesting impact - was of course today's retail sales which lifted sharply to 0.8% m/m (0.3% exp). This is a very strong move just ahead of the December rush season and in return we could expect to see GDP forecasts raised for the 4th quarter going forward. I would be surprised if we didn't see solid earnings this season in the equity markets as well given the huge rises in consumer and business confidence. For now it would seem the Trump effect might be still there after all heading into the new year.

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One of the key areas this was felt was on the USDCAD which was swinging heavily today, not only on the USD weakness but also Bank of Canada comments which pushed up the chances of a rate hike for March next year. For the most part the USDCAD has been ranging for some time, and it has struggled to break through the major resistance level at 1.2921, which has so far seemed like an impossibility at present. One of the main reasons also has been the 200 day moving average bearing down on that level which of course adds further pressure. At the same time the swing lower today failed to stay below support at 1.2759 which leads me to believe that the bulls are still in this market despite the Canadian recovery we've seen. If the bulls do leap back into the market 200 day moving average will be the key level to close above, and if we do close above then expectations are that we could see a move upwards to the 1.3000 level. For now though it's a case of waiting to see if the ranging does stop and the trends continue.

The other key one to watch out for is the AUD, with the market likely to be looking forward now to next week's RBA minutes on the economy and their thoughts after the most recent unemployment figures. We could certainly see the case made for a potential rate rise in the future, but for now it's a case of wait and see - even though the market is fairly bullish.

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Chart wise, and it's clear the AUDUSD bulls are back in fashion and looking to make up some ground. After the positive news yesterday and weak USD it is a surprise to see that it has failed to climb higher to the 200 day moving average and resistance at 0.7687. I still believe this is a key level to watch and if we do see further extensions it could lead to bigger things. For now though like the USDCAD it's a case of wait and see as the market looks to enter Friday trading.

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Equities reaction muted on tax breakthrough; Watch the bond market


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Asian markets woke up on Thursday to the news that Republicans had passed the long-awaited tax bill. President Trump is now just a pen stroke away from overhauling the tax code. Interestingly there aren’t any fireworks on the announcement of Trump’s Christmas gift; because as expected, the good news is already priced in.

In fact, the reaction was more evident in fixed income markets. U.S. 10-year bond yields traded above 2.5% for the first time since March 2017, allowing the yield curve to steepen after flattening for most of 2017. The spread between 2-year and 10-year treasury bonds climbed more than 12 basis points, reaching 63 basis points, after falling to its lowest level in a decade last week. The spike in long-term bond yields is supposed to be positive for the U.S. dollar, as it suggests the Federal Reserve should become more aggressive in tightening policy next year. However, the dollar’s reaction was muted because there’s another side to this story. The additional supply of U.S. bonds due to the unfunded tax cuts, will probably make U.S. treasuries less attractive in the longer run, and given that most central banks are trying to catch up with the Federal Reserve, yields in Europe and other markets are also anticipated to move higher in 2018, thus narrowing the interest rate differentials gap. 

The enormous expected increase in U.S. deficit will also put the U.S. sovereign credit rating at risk. If any of the credit agencies- Standard & Poor’s, Moody’s or Fitch downgrades the U.S. sovereign rating, yields will spike even higher. However, the impact on the dollar won’t necessarily be positive, with the opposite reaction being more likely. 

The Yen’s reaction was also muted to Bank of Japan’s monetary policy decision. As expected, the central bank kept interest rates unchanged at -0.1% and maintained its 10-year bonds yield target at around 0%. Given that weak inflation is expected to continue dominating the monetary policy outlook, I don’t expect any significant change in policy next year. Thus, the Japanese Yen will continue to take its cue from risk appetite/aversion in equity markets for the foreseeable future.

Euro traders are awaiting the outcome of today’s Catalonia’s election. Polls are suggesting that it will be a tight race between the Catalan Republican Left party, which supports independence and Ciudadanos which is in favor of a unified Spain. Given that the election is not expected to be decisive and parties may form coalitions to govern, the risk of tensions flaring with Madrid again, remain limited.

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Dollar selloff in final trading week of 2017


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With only two trading sessions remaining for 2017, liquidity dried up across the global markets. This has been obvious in U.S. and European equities, where volumes dropped significantly. However, some investors continued to tweak their portfolios slightly, leading to insignificant price action. I don’t expect equities to deviate much throughout Thursday and Friday.

Interestingly though, traders continued selling off the U.S. dollar.  One could blame Wednesday’s U.S. consumer confidence report which fell from a 17-year high, but the dollar was declining before the release. I think the best explanation for the dollar weakness is the sharp fall in U.S. Treasury yields.           

10-year bond yields dropped 7 basis points on Wednesday, to reverse almost 50% of the gains from mid-December towards last week, where yields broke above 2.5% for the first time since March 2017.

Despite appetite for risk sending Asian equities to record highs on Thursday, the safe haven Yen is outperforming its major currency peers. USDJPY dipped below 113 for the first time in six trading days after the release of Bank of Japan meeting minutes.  Some members are considering tightening monetary policy, if the economy continues to improve next year. This would be a significant shift in strategy for a Central Bank thought to be the last to exit the unconventional stimulus packages.  However, I don’t think the BoJ will move anytime soon due to subdued inflation; but, given the lack of liquidity, moves in currency markets may be exaggerated.

Commodity currencies are also enjoying a decent upside, after copper prices rallied to their highest level in almost four years.Oil prices remained close to a two and a half year high, and gold hit a one- month high. Considering that no Tier One economic reports will be released, the Aussie, Kiwi, and Loonie will continue to follow commodity prices direction.

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Daily Fundamental ForexTime ( FXTM )

Dollar selloff in final trading week of 2017


shutterstock_445523356_4.jpg


With only two trading sessions remaining for 2017, liquidity dried up across the global markets. This has been obvious in U.S. and European equities, where volumes dropped significantly. However, some investors continued to tweak their portfolios slightly, leading to insignificant price action. I don’t expect equities to deviate much throughout Thursday and Friday.

Interestingly though, traders continued selling off the U.S. dollar.  One could blame Wednesday’s U.S. consumer confidence report which fell from a 17-year high, but the dollar was declining before the release. I think the best explanation for the dollar weakness is the sharp fall in U.S. Treasury yields.           

10-year bond yields dropped 7 basis points on Wednesday, to reverse almost 50% of the gains from mid-December towards last week, where yields broke above 2.5% for the first time since March 2017.

Despite appetite for risk sending Asian equities to record highs on Thursday, the safe haven Yen is outperforming its major currency peers. USDJPY dipped below 113 for the first time in six trading days after the release of Bank of Japan meeting minutes.  Some members are considering tightening monetary policy, if the economy continues to improve next year. This would be a significant shift in strategy for a Central Bank thought to be the last to exit the unconventional stimulus packages.  However, I don’t think the BoJ will move anytime soon due to subdued inflation; but, given the lack of liquidity, moves in currency markets may be exaggerated.

Commodity currencies are also enjoying a decent upside, after copper prices rallied to their highest level in almost four years.Oil prices remained close to a two and a half year high, and gold hit a one- month high. Considering that no Tier One economic reports will be released, the Aussie, Kiwi, and Loonie will continue to follow commodity prices direction.

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FOMC minutes give some life back to dollar bulls


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The latest FOMC minutes have given the bulls something to be happy about, as the FED once again looked to keep the pace of rate hikes in the near future. There were some key takeaways from the meeting and the most pressing was that FED officials expect inflation to rise to 2% in the medium term as the Tax bill has a impact on the US economy. Expectations were also strong that pressure on the labour market as unemployment further drops would also help boost inflation expectations, and that potentially forecasting of inflation may also have been low historically. So with the FED looking forward in 2018 and Trumps man Powell about to come to the table we could potentially see some strong bullish moves from the FED with a strong US economy in front of them.

usdcaddaily_46.png?itok=zWNc9wBs

For the USD bulls it was positive across the board with large rises against all the major pairs, but mainly the European ones. For me one of the more interesting ones continues to be the USDCAD which lifted slightly, but is still lacking the momentum required to break out of the current bearish trend it finds itself in. So far traders will be watching to see if there is a bounce at support at 1.2427 to see if the bulls can come back into the market, otherwise they could be waiting until 1.2108 to see any sign of a solid bounce. If we see a push back higher 1.2628 and 1.2759 are likely to be the first key levels of resistance. However, the 200 day moving average is creeping down and likely to also act as dynamic resistance in the current market climate.

For me the main thing that keeps on going in the bullish American climate is the equity markets at present, and look no further than the S&P 500. It's getting hard to believe that there is an end, but at some point the bears will look to swipe. For now though, the Trump effect and the recent Tax reform coupled with a FED with positive forecasts is driving American companies higher than ever before and in the process lifting the S&P 500 higher than ever before. Most weeks we are seeing a new record high at present, but that being said uncertainty could be the instability that shakes the bulls off the top for a bit.

sp500mdaily_25.png?itok=rRoPMBx8

On the charts, and as previously stated, the focus would ideally be on psychological levels - as the market continues to rise it will look for these points. I would anticipate that markets will continue to look for key levels at 2725 and 2750 if the bulls look to push higher. Any swings lower are likely to get held up at 2700 as it acts as support in the current market. However, a push through would be treated with concern as generally speaking the 2600 and 2500 level were previously very good at holding back the bears.


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A critical week for the US Dollar after a fragile start


shutterstock_445523356_4.jpg[/img]

After having the worst annual performance since 2003, the dollar continued to struggle in the first trading week of 2018. The dollar index fell to a three-and-a-half-month low to trade below 92, leaving many traders wondering whether this year will be another devastating one for the greenback. When looking at the Commitment of Traders (COT) report, speculators are not showing interest in buying the U.S. dollar yet, and the latest bunch of data did nothing to support the dollar.

Friday's jobs report did not motivate the dollar bulls to return, with non-farm payrolls rising 148,000 in December versus expectations of 190,000. Although I think the numbers weren’t bad and the labor market remains healthy with unemployment at 4.1%, wages are not yet showing signs of accelerating, and this remains the key missing ingredient of the U.S. economy’s recovery.

The latest minutes of the Fed’s meeting also showed that policymakers aren’t sure whether inflation will return to the central bank’s target which is why markets believe that only two rate hikes will occur in 2018, as opposed to the three in the Fed’s dot plot. This week many Fed speakers are due to speak including the two dissenters against a rate hike in December, Neel Kaskhari and Charles Evans. Whether they have changed their mind, or still believe rates shouldn’t be hiked, remains to be seen but we’ll also tune into other Fed speakers for fresh insights.  

If the Fed speakers don’t deliver news, tier one economic releases may provide the needed clues. Consumer prices and retail sales are both due for release on Friday. Given that energy prices spiked in December consumer prices are expected to increase 0.2%. However, I think traders will be more interested in the core CPI figure, which strips out volatile items like food and energy. Any upside surprise in the inflation numbers will likely bring back the dollar bulls.

Given that the major U.S. economic releases are four days away, many traders will focus on whether any technical breakouts will occur. EURUSD failed to break above 1.2092 (2017 high) last week, but a successful breakout will likely lead to further buying of the single currency towards 1.22. Similarly, Sterling is only 100 pips short of 1.3656 (2017 High). So traders should keep a close eye on these levels.


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Daily Fundamental ForexTime ( FXTM )

A critical week for the US Dollar after a fragile start


shutterstock_445523356_4.jpg

After having the worst annual performance since 2003, the dollar continued to struggle in the first trading week of 2018. The dollar index fell to a three-and-a-half-month low to trade below 92, leaving many traders wondering whether this year will be another devastating one for the greenback. When looking at the Commitment of Traders (COT) report, speculators are not showing interest in buying the U.S. dollar yet, and the latest bunch of data did nothing to support the dollar.

Friday's jobs report did not motivate the dollar bulls to return, with non-farm payrolls rising 148,000 in December versus expectations of 190,000. Although I think the numbers weren’t bad and the labor market remains healthy with unemployment at 4.1%, wages are not yet showing signs of accelerating, and this remains the key missing ingredient of the U.S. economy’s recovery.

The latest minutes of the Fed’s meeting also showed that policymakers aren’t sure whether inflation will return to the central bank’s target which is why markets believe that only two rate hikes will occur in 2018, as opposed to the three in the Fed’s dot plot. This week many Fed speakers are due to speak including the two dissenters against a rate hike in December, Neel Kaskhari and Charles Evans. Whether they have changed their mind, or still believe rates shouldn’t be hiked, remains to be seen but we’ll also tune into other Fed speakers for fresh insights.  

If the Fed speakers don’t deliver news, tier one economic releases may provide the needed clues. Consumer prices and retail sales are both due for release on Friday. Given that energy prices spiked in December consumer prices are expected to increase 0.2%. However, I think traders will be more interested in the core CPI figure, which strips out volatile items like food and energy. Any upside surprise in the inflation numbers will likely bring back the dollar bulls.

Given that the major U.S. economic releases are four days away, many traders will focus on whether any technical breakouts will occur. EURUSD failed to break above 1.2092 (2017 high) last week, but a successful breakout will likely lead to further buying of the single currency towards 1.22. Similarly, Sterling is only 100 pips short of 1.3656 (2017 High). So traders should keep a close eye on these levels.


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FXTM Forex Market Update | 09/01/2018

New Video from #FXTM#MarketUpdate with Research Analyst ForexTime, Lukman Otunuga

Global equity bulls were in the vicinity during Tuesday’s trading session as world stocks remained at elevated levels. In the currency arena, the Dollar appreciated amid optimism over higher US interest rates. With the economic calendar relatively light today, price action may dictate where currency and commodities trade.

- The #EURUSD is pressured below 1.20 on the daily charts
- #GBPUSD bears are eying 1.3520
- #Gold remains bullish above $1300


Watch The Video @ https://youtu.be/Hrm0PybPt74

For more Market Analysis read the latest @ http://fxtm.co/marketupdate-yt

Edited by FXTM Official

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Australian dollar looks weaker on commodity falls

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The Australian dollar has been doing okay against the USD in recent times on the back of the commodity boom that has been promising. However, there have been some minor hiccups so far with iron ore prices dropping 4.4% overnight on the Asian exchanges. This in theory could present some minor problems for the Australian dollar as exporting of minerals and metals plays a significant impact on the economy. What is most interesting though is the relation to the NZD, with the AUDNZD being a key focus for traders at present. The NZ economy continues to remain robust and it's commodity based exports have seen some value in recent times with the global dairy auctions as of late. Add in the fact that the recent services PMI was also positive and you have a strong combination for the NZ economy and of course the NZD. The Reserve Bank of New Zealand is also undergoing some reforms but so far these have not frightened of the market.

audnzddaily_9.png?itok=S46jLTTC

So for the AUDNZD it's a case of the bigger neighbour struggling against the smaller one on the currency chart. So far we've got a strong trend line pushing the bears down the chart and stopping and bullish activity taking hold, add into the mix a very strong support level and it's likely we will see some volatility look to break out of the flag pattern here. Resistance can be found at 1.0933 and 1.0982 on the charts, but I would be mainly focused on the trend line which will likely stop any bulls becoming too aggressive. Support levels are looking interesting, with 1.0855 the level to beat for the market as this is a strong level, anything through this could touch on 1.0809. Going below any of these levels could be a hard mask for the market though at present as the AUD is a bigger economy, so it could dig itself out of a hole compared to its neighbour. It's also worth remembering that the AUDNZD is at a low when you look over a very long time frame.

Once again it's been another great day for US equity markets as they climbed the charts hitting record highs again. So far the S&P 500 is not looking like it will stop and the NASDAQ continues also to be a great runner as well. For the bulls it seems that the Trump effect is shining on further more in these markets.

sp500mdaily_31.png?itok=Sf_GdwwE

Looking at the S&P 500 and it has climbed up to resistance at 2850 before taking a breath. Expect markets to look to tackle the level again tomorrow if there are no curve balls. Any extension above 2850 is likely to find some further resistance at 2875. Markets will also be looking at possible support levels as well, and they can be found at 2825 and 2809 in the current market climate. 

 

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USD bears in control


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The USD took another beating today which saw nearly all major pairs and commodities climb sharply as a result. This is not surprising given the recent data which saw US existing home sales m/m fall to 5.57M (5.7M exp) from the previous high of 5.78M, showing that there may be some slowdown in the housing market. US PMI for services was also lagging expectations coming in at 53.3, still showing expansion but at the same time not coming in where analysts had expected. There could be some good news on the horizon though with Trump expected to talk up his infrastructure plan at the state of the union and lay the foundation for further spending in order to bolster the economy. However, there is a danger that it could cause it to overheat as he looks to be bold and put his front foot forward. The real story though is that right now the USD continues to come under fire, and for the market this is causing large volatility.

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One of the big movers today for me was gold which sky rocketed up the charts and pushed past the previous 2017 high. It's always ominous when gold starts becoming more and more bullish but at present this is being caused by the weaker USD and resistance at 1349 was absolutely crushed today as gold whooshed past.  The next levels of resistance can be found at 1366 and 1375, with 1375 likely to be a key target level for traders. Anything above this would suddenly get the market a little worried I feel, as gold is always the hedge for recessions and inflation. Support levels in the event the bears catch can be found are at 1349 and 1336, with further potential to dip lower to 1314 if the bears do manage to take hold. All in all though, if the USD weakness continues gold could be swinging higher in no time through no fault of its own.

The New Zealand dollar has got a large shock today on the back of a weaker than expected inflation report. NZ CPI figures for Q4 came in sharply down at 0.1%, expectations were for 0.4%. Pushing the Yearly figure to 1.6%, a large shock for the previously booming economy. This will certainly put pressure on the Reserve Bank of New Zealand to pause when it comes to thinking about pushing rates higher in the economy - despite the high level of employed and wage growth at present.

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The NZDUSD on the charts quickly pushed back from resistance at 0.7431 as the news filtered through for the CPI figures. Support levels can be found at 0.7324 and 0.7255 at present, with the market also likely to treat the 20 day moving average as support as well. If the USD does gain momentum then we could see some very serious bearish pressure, at the same time if it does remain weak then potentially the NZD could stay elevated despite the recent economic news, so the market focus will be on USD data after this with a bearish bias. 

 

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Edited by FXTM Official

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US dollar claws back some ground


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It's been a mixed day for the USD, but it has seen some respite from the relentless selling as of late. With Trump in Davos it has meant more positive than controversial from him, as he puts the gloss on with world leaders. However, economic data continued to be mixed and not necessarily positive, as US new home sales m/m dropped to 625K (675K exp) , this is a -9.3% drop on the previous month. So not positive at all. The big ray of light though, was that the US job market continues to thrive and tick over, with US jobless claims coming in at 233k (235K exp), showing that the labour market is still the major story when it comes to positivity. The consumer market though will be a key focus for the incoming chair Powell as any movements here are likely to have big impacts, but also could point to future inflation rates and the chance to lift rates higher, as 2018 is set to be the year of hikes I feel for the FED.

usdcaddaily_50.png?itok=1pfp9WBt

For me the USDCAD is still in the focus when it comes to bearish movements at present, the reason being that oil prices have risen higher and the USD continues to fall. All the while the Canadian economy is not doing so bad either on the back of stronger commodity prices. As a result the bears have been chipping away forcing it lower, and support at 1.2256 is likely to be in the cross hairs for traders drifting lower, followed by 1.2108. If the bulls do come back into the market then resistance levels at 1.2423 and 1.2585 are likely to come under some pressure. However, the recent market conditions have not warranted any serious bullish pullbacks as of late.

Meanwhile it could be more trouble in the United Kingdom, as news has come out that there might be further political revolting in Theresa Mays Tory party. This is not likely to topple the prime minister, but it does show the growing discontent within the party relating to current Brexit negotiations. The flow on effect for the pound of such events has been negative, with it taking some heat today and losing ground against the USD. It's likely that tomorrow will bring further news, but if none then the market is likely to focus on US GDP figures when it comes to moving the GBPUSD.

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The GBPUSD though is currently caught on support at 1.4117 with the market looking to find some breathing space before continuing. I would expect the bulls to either take another big run, or the bears to take a firm hold and drive it back down from the recent volatility. Resistance can be found at 1.4240 and this will be the key level at present. Support levels can be found at 1.3996 and 1.3856 is the GBPUSD continues to find itself under bearish pressure.


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FXTM Forex Market Update | 31/01/2018

New Video from FXTM Market Update with Research Analyst ForexTime, Lukman Otunuga

market-update96db7257e1e86e07.png


Global stocks were under pressure on Tuesday as investors remained cautious ahead of the Federal Reserve meeting. The Dollar struggled to hold ground against a basket of major currencies while Sterling was bruised by Brexit jitters. In the commodity arena, Gold benefitted from a vulnerable Dollar. The main event risk today will be BoE Mark Carney’s testimony and CB Consumer confidence for the United States.

- The #EURUSD remains bullish on the daily charts
- #GBPUSD is currently towards 1.4175
- #Gold bulls are eying $1360  


Watch The Video @ https://youtu.be/Ab_PJqjlVj8


For more Market Analysis read the latest @ http://fxtm.co/marketupdate-yt

Edited by FXTM Official

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Markets set to focus on non-farm payroll


fed_31.jpg


The market is currently taking a breather after the US data today as it's almost time for non-farm payroll. Markets previously have been surprised by the recent swings in the labour market, especially with wage growth not matching the pace, but analysts and economists are now expecting wage growth to pick up, and this in turn could lead to a more aggressive hawkish Fed if that is the case. The Fed has always commented on the lack of wage growth being a key factor in holding it back, but if we were to see that growth then certainly there would be a case for further future hikes at a more aggressive pace. Analysts are expecting 180k, the reality could be much lower, but whatever the case there will be some large swings.

The USDCAD has been a key one for me to watch as of late with all the USD weakness we've seen. Commodities have risen in value as a result, and none more so than oil which has lifted on the back of it. At the same time the NAFTA treaty negotiations are looking positive thus far, and the Canadian economy is positive all round about expectations for further growth. The Bank of Canada has been a little bit more neutral, but that's more to take pause and look at its southern neighbour the US more than anything else.

usdcaddaily_51.png?itok=VM86YSz0

So far the USDCAD has slipped lower to support at 1.2256 and is looking to extend even lower to 1.2108. While a bit of a slow mover it has been trending fairly reasonably so markets have taken notice and played on that accordingly. If the USD did see some strength from the bulls then resistance at 1.2423 and 1.2585 would be key targets for the market to move to. I still believe that if there were any bulls in this market that the 200 day moving average would be the real test, as the market has been quick to bounce of it and give up and bullish sentiment in the previous months.

The S&P 500 has shown another day of losses on the charts which is quite rare, so much so that people have taken a fair degree of notice. In part this has been driven by the rise in treasury yields which is starting to look like it could compete in the future with the current rates of return from equity markets. Expectations still continue to mount that the market may be slightly overbought and this may be a correction.

sp500mdaily_33.png?itok=J6Y7wqYB

For me the S&P 500 is a great technical mover and this can be seen from the levels it plays off. One of the most important things though at present is the 20 day moving average which has been a sign of bullish action lately. Support can be found at 2825, 2806 and 2775, but I would mainly focus on the moving average. Resistance can be found at 2850 and 2875 in the current market climate.

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Markets set to focus on non-farm payroll


fed_31.jpg


The market is currently taking a breather after the US data today as it's almost time for non-farm payroll. Markets previously have been surprised by the recent swings in the labour market, especially with wage growth not matching the pace, but analysts and economists are now expecting wage growth to pick up, and this in turn could lead to a more aggressive hawkish Fed if that is the case. The Fed has always commented on the lack of wage growth being a key factor in holding it back, but if we were to see that growth then certainly there would be a case for further future hikes at a more aggressive pace. Analysts are expecting 180k, the reality could be much lower, but whatever the case there will be some large swings.

The USDCAD has been a key one for me to watch as of late with all the USD weakness we've seen. Commodities have risen in value as a result, and none more so than oil which has lifted on the back of it. At the same time the NAFTA treaty negotiations are looking positive thus far, and the Canadian economy is positive all round about expectations for further growth. The Bank of Canada has been a little bit more neutral, but that's more to take pause and look at its southern neighbour the US more than anything else.

usdcaddaily_51.png?itok=VM86YSz0

So far the USDCAD has slipped lower to support at 1.2256 and is looking to extend even lower to 1.2108. While a bit of a slow mover it has been trending fairly reasonably so markets have taken notice and played on that accordingly. If the USD did see some strength from the bulls then resistance at 1.2423 and 1.2585 would be key targets for the market to move to. I still believe that if there were any bulls in this market that the 200 day moving average would be the real test, as the market has been quick to bounce of it and give up and bullish sentiment in the previous months.

The S&P 500 has shown another day of losses on the charts which is quite rare, so much so that people have taken a fair degree of notice. In part this has been driven by the rise in treasury yields which is starting to look like it could compete in the future with the current rates of return from equity markets. Expectations still continue to mount that the market may be slightly overbought and this may be a correction.

sp500mdaily_33.png?itok=J6Y7wqYB

For me the S&P 500 is a great technical mover and this can be seen from the levels it plays off. One of the most important things though at present is the 20 day moving average which has been a sign of bullish action lately. Support can be found at 2825, 2806 and 2775, but I would mainly focus on the moving average. Resistance can be found at 2850 and 2875 in the current market climate.

 

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Equity markets shake of the bears


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Markets have been hot and cold today as equities saw some intense volatility. For most, it was the beginning of the end at the start of the week, but the close of Tuesdays bell in the US has been so far fairly bullish. Many in the market had been expecting further falls, but so far most investors have been quick to push back on the basis that macroeconomic indicators are still strong, and there is no deterioration compared to 2008 which saw heavy falls as a result. I'm inclined to agree at this statement given the history of the markets and of course that for most economies they're looking to lift rates and cut back QE. There has been of course some minor wobbles with the US economy and Europe in the past, but so far it's full steam ahead and yields are looking good.

sp500mdaily_35.png?itok=a_eNRWmr

The S&P 500 had a crazy day today and it would not have been for the faint hearted as the market looked to dive deeper, pushing all the way down to the 200 day moving average before starting to make a solid recovery. The 100 day moving average was ignored on the way up, but that's not surprising given the aggressive nature of these moves, but nonetheless technical's did come into play with the market hitting resistance at 2698 to pause and breath. The next level up for the bulls if they get to continue will be at 2743. Support levels if the market were to turn can be found at 2628 and 2564, but the major one will be the 200 day moving average which has so far managed to beat back the bears on such an aggressive day of volatility. I would be surprised to not see the same sort of aggressive volatility tomorrow as markets prepare for another big day again.

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Across the Atlantic in European markets the FTSE has been hammered in the previous week, but finally clawed back some major gains in line with the rest of the globe in the evening. For a while it looked like a bullish trend line may come into play, but the Monday sell-off put that out of the question and the bears took full control. The recovery today, however, was very strong and saw the market climb back up to support at 7278 as traders looked to breath - much like the S&P 500. I would be surprised to see further gains here for the FTSE as UK equities have not been as impressive on the back of Brexit. So we could see resistance levels really push back bulls in the market. On the other hand sharp drops to 7205 and 7100 are not off the cards if the bears can really get there claws back into the equity markets at present.

All in all, at present the global equity markets present a unique opportunity, but a lot of risk when it comes to the amount of volatility. Movements like these are rare and powerful, but for traders they can come with heart palpitations. 

 

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Edited by FXTM Official

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