Weekly Trading Support & Resistance with #Forex Forecast,Fundamental Analysis & Market Sentiment (16-20 MAY 2022)
Fundamental Analysis & Market Sentiment
I wrote in my previous piece last week that the best trades for the week were likely to be:
- Long of USD/JPY following a daily (New York) close above ¥130.80. There was no daily close above ¥130.80.
- Short of GBP/USD following a daily (New York) close below $1.2314. The price closed Tuesday at $1.2312 and ended the week 0.42% lower.
- Long of Natural Gas futures following a daily (New York) close above 700. There was no daily close above 700.
- Long of the US 10-Year Treasury Yield. Unfortunately, this fell by 6.82% over the week.
The news remains dominated by the Russian invasion of Ukraine, which is well into its third month, but seems to have become stalemated by an effective, NATO-armed Ukrainian defense. Russian forces have withdrawn from the northern part of the company, switching focus to an offensive aimed at fully capturing the eastern and southern coastal regions of Ukraine. The war initially caused quite strong movements in some markets, especially in some agricultural commodities such as Wheat and Corn, but now seems to be having a primary effect of depressing some European currencies and global stock markets, possibly because the Russian government continues to make oblique nuclear threats. Of course, there are other fundamental factors weighing on stock markets, such as the specter of stagflation, and rising interest rates. It should be noted that Wheat is rising strongly again, and this is due partially to the pressure on the crop from the war in Ukraine.
The general risk-off sentiment, although it faded towards the end of last week, is being driven by several fundamental and sentimental factors:
- Inflation continues to a major concern, as G20 economies continue to mostly report new CPI data exceeding consensus forecasts, suggesting that inflation is still accelerating. Notably, US CPI data released last week came in higher than expected, although the annualized rate fell from 8.5% to 8.3%.
- US treasury yields are relatively high, although both the 2-year and 10-year yields fell over the week after several recent weeks of making new highs.
- US PPI data came in exactly as had been expected, so it gave no real clues regarding US inflation.
- Many analysts see the current strength in the US Dollar as a drag on the global economy, as it prompts capital outflows from emerging and some developed markets.
We are currently seeing a small recovery in stock markets, especially towards the end of last week, although the S&P 500 Index closed a bit lower over the week. It is worth noting that the S&P 500 fell well below 4,000 and came very close to reaching a 20% decline from its all-time high, which would have indicated a confirmed bear market if reached.
The strongest trends over the past week were seen in the Forex markets, with the Japanese Yen and US Dollar strong – the Dollar Index made another 2-year high – but the Yen was the strongest currency over the week, attracting money flow as a safe-haven. The British Pound, Swiss Franc, and Australian/New Zealand/Canadian Dollars all reached long-term lows against the greenback. The Swiss Franc is making the longest-term low of all these currencies after reaching parity with the US Dollar, with this price not seen for almost 3 years. The British Pound was hit hard the week before last when the Bank of England forecast that British inflation will peak later this year above 10%.
Commodity markets have lost their buoyancy and are mostly declining or consolidating.
Cryptocurrency is attracting quite a lot of attention, as there have been spectacular declines in many coins, while Bitcoin has broken down below crucial support in the $30k area to trade at new long-term lows. Last week saw stablecoins come under immense pressure putting the crypto sector’s “banking” infrastructure under severe strain. Short trades in cryptocurrencies will continue to attract speculators in this environment, while margin calls will force retail liquidations.
There is increasing hope that as rates of coronavirus infection globally fall for the eighth consecutive week, the pandemic may effectively be almost over. The only significant growths in new confirmed coronavirus cases overall right now are happening in Panama, South Africa, and Taiwan.
The Week Ahead: 16th – 20th May 2022
The coming week in the markets is likely to be less volatile as there are few releases of high importance scheduled. They are, in order of likely importance:
- UK CPI (inflation) data – this will be very closely watched and is an important piece of data for global market analysts. It is expected that the annualized rate will rise from 7.0% to 9.1%, which would give the UK the highest inflation rate in the G7.
- Canadian CPI (inflation) data – this will be closely watched and is an important piece of data for global market analysts. It is expected that the annualized rate will hold steady at 6.7%.
- UK Monetary Policy Report hearings – the Bank of England will testify on monetary policy before the British parliament.
- US Retail Sales data – this will be watched as an indicator of US consumer demand.
- Australian Wage Price Index data - this will be watched as an indicator of Australian inflation.
- Reserve Bank of Australia’s Monetary Policy Meeting Minutes – this will be watched for clues about the RBA’s next moves on monetary policy.
- Australian Unemployment data - this will be watched for clues about the strength of the Australian economy.
Trading Support and Resistance
Get our trading strategies with our monthly & weekly forecast of currency pairs worth watching using support & resistance for the week of May 16, 2022.
This week I will begin with my monthly and weekly forecasts of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 years of Forex prices, which show that the following methodologies have all produced profitable results:
- Trading the two currencies that are trending the most strongly over the past 6 months.
- Trading against very strong weekly counter-trend movements by currency pairs made during the previous week.
- Carry Trade: Buying currencies with high interest rates and selling currencies with low interest rates.
Let us look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:
Monthly Forecast May 2022
For the month of May, I forecasted that the US Dollar Index (USDX) would rise in value. So far, it has risen by 0.79% this month to date.
Weekly Forecast 15th May 2022
Last week, I made no weekly forecast as there were no unusually strong counter-trend price movements in the Forex market over the previous week. I again make no forecast this week.
The Forex market saw its level of directional volatility rise slightly last week, with 51% of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to remain the same over this coming week.
Last week was dominated by relative strength in the Japanese Yen, and relative weakness in the Australian and New Zealand Dollars, and the Euro.
Key Support/Resistance Levels for Popular Pairs
I teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that can be watched on the more popular currency pairs this week.
0 comments:
Post a Comment