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Bank of America Merrill Lynch FX Strategy Research discusses its trading strategy for the EUR noticing that this week’s ECB meeting was a non-event for the EUR and focus now shifts to the French Parliamentary elections next week.

“Investors went into the meeting with a relatively light position in our view, looking for an opportunity to buy any EUR dip. We have to wait for this fall to get the details on the future of QE after this year. 

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EURGBP important levels are displayed in the chart above.

Recommendation:

Buy between 0.8660-0.8680

SL below 0.8548

Target 1 around 0.8730

Target 2 around 0.8772

Please avoid 0’s and 5’s while placing stops and count spreads and set the values accordingly.

Best of Luck!!!

USDCAD important levels are displayed in the chart above.

Recommendation:

Buy above 1.3383

SL below 1.3309

Target 1 around 1.3503

Target 2 around 1.3577

Please avoid 0’s and 5’s while placing stops and count spreads and set the values accordingly.

Best of Luck!!!

Gold has reemerged on the bid since the double bottom on the 18th May, relishing within the broad-based weak dollar environment and DXYdropping back below the 97 handle.

A multi-year downturn in the dollar in the making? – Nomura

Gold has been better bid since DXY lost the 99 handle in a strong offer from 9th May 99.65 highs. The markets are trading on a good mix of political and economic challenges that world leaders are facing and the general risk tone is weighted more negatively. This enables the gold to run higher in times of risk aversion. The key scenario unfolding, however, is that the dollar is losing its safe haven status currently on both the political and economic front. While markets are pricing in rate hikes still this year, there are some doubts as to whether the Fed can sustain the optimism in the wake of weaker than expected key data of late. The 10-year treasuries are showing signs that the 2.3% psychological level is becoming a bit of a ceiling of late and that too is weighing on the greenback.

Gold levels

In terms of levels, Gold is back to 1,260 and made a high of 1,262.79 today. A continuation through 1,265 opens the avenue for 1,270. 1277, 1288 and finally 1292 are the key resistance n the way to the April highs. To the downside, a loss of the 1260 level opens 1255 and the 20 4hr sma as a key support level.

Reserve Bank of Australia (RBA) deputy governor Guy Debelle crossed the wires, via Reuters, suggesting that an increase in the cross currency basis may not be a sign of stress and can be consistent with functioning markets.

Key points (via Reuters):

  • More comfortable with the idea that increase in cross currency basis is not always a sign of market stress
  • Increase in the basis can be consistent with functioning markets
  • Wouldn’t lose sleep over higher basis the “way that I literally lost sleep over it in 2008”
  • RBA’s return enhancement offered by the basis is “highly beneficial”
  • RBA can swap A$ into yen for domestic liquidity management, can earn “substantial return” by swapping various reserve currencies it holds in yen

Analysts at UOB Group explained the Central Bank outlook for the week ahead.

“The Bank of Canada (24 May) is the only G7 central bank with a monetary policy decision this week while the focus of the Fed Reserve is the 2-3 May 2017 FOMC minutes (on 25 May, 2am SG time).”

“We have a few senior Federal Reserve officials (voters in 2017 FOMC such as Harker, Evans and Kashkari) & BOJ Gov Kuroda (24 and 27 May) speaking in public forums.”

Analysts from Danske Bank, point out that next week looks quiet in terms of the economic calendar. Reports include the PMI index.

“In the US, we have a quiet week ahead of us. On Monday, we get Empire manufacturing  PMI and Thursday brings the Philly Fed Index – both for May. In recent months, we have seen a divergence between regional manufacturing PMIs and overall PMI/ISM. However, the gap between ISM and PMI has started to close and we expect regional PMIs to fall from their current extremely high levels. Although we have recently argued that we expect confidence indicators within the manufacturing sector to decrease, we do not expect to see a significant slowdown in actual manufacturing activity when we receive numbers on manufacturing production and industrial production (both for April) on Tuesday.”

“The coming weeks also bring speeches by FOMC members James Bullard (non-voter, dove) and Loretta J. Mester (non-voter, hawk), which are not that important given that we have already heard from both of them recently.”

After rising for two straight days, crude oil prices struggle to extend this move on Friday, with the barrel of West Texas Intermediate moving sideways in a tight range below $48. As of writing, the barrel of WTI was trading at $47.65, losing 0.38% on the day.

In its latest report, the oilfields-services giant Baker Hughes revealed that the number of active oil rigs in the United States increased by 9 to a total of 712, which is the highest largest number since the week of April 17, 2015. Despite the rising number of oil rigs, this data hasn’t been able to move the oil prices in the last few weeks. Including this week, the total number increased for 17 weeks in a row and investors continue to ignore the data as it brings no surprises. A drop in the total number could potentially push the oil prices higher but we are yet to see that.

  • Goldman Sachs: A potential US border-adjusted tax could send WTI to $ 65
  • IEA to review oil demand outlook after China, India signal auto policy shifts – RTRS

On a weekly basis, the barrel of WTI is headed for a higher closing after dropping for three straight weeks and refreshing its five-month low last week at $43.76. As the end of the OPEC’s output cut deal is coming closer each day, rumors surrounding a possible extension to the deal could drive the price action for crude oil in the short-term.

Technical outlook

The initial hurdle for the barrel of WTI aligns at $47 (psychological level) before $47.75 (May 4 high) and $48.25 (May 3 high). To the downside, supports are located at $45 (psychological level), $44.25 (Nov. 10 low) and $43.75 (May 4 low).

Philadelphia Fed President Patrick Harker crossed the wires in the las minutes, via Reuters, arguing that the U.S. economy was now “normal” and its labor market was roughly “at full health.”

Key quotes (via Reuters):

  • Harker repeats support for two more rate hikes in 2017
  • Harker expects U.S. unemployment to fall to 4.2 percent by end 2018

According to analysts from Wells Fargo, the rebound seen today in April CPI data confirms that March’s unexpected decline was “transitory”. They see the data as a return closer to trend performance, that keeps the Federal Reserve on track for a June interest rate hike.

Key Quotes: 

“Extending the theme we have witnessed this week with gains in both headline and core measures of import and producer prices, consumer inflation, as measured by the Consumer Price Index (CPI), also revealed a rebounding performance during the month of April. Admittedly a lower than expected rebound, headline CPI increased 0.2 percent in April from the 0.3 percent decline in March. Energy prices, which tend to be a significant factor in the monthly headline performance, rose 1.1 percent on the month, as all three major components—gasoline, natural gas and electricity—increased. Crude oil prices have fallen substantially in recent weeks and will likely influence next month’s headline CPI performance.”  Continue reading

 

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