AUDUSD D1 05 29 2020 2214

RBA Governor Philip Lowe’stestimony to the Senate Select Committee on COVID-19 praised the performance of the central bank’s mid-March emergency package and its assistance in ‘building the necessary bridge to the recovery’.

The success of ‘flattening-the-curve’ of COVID-19 infections in Australia has led to ‘national health outcomes better than earlier feared’ and may result in an ‘economic downturn not as severe as earlier thought’. Outlining that the path for recovery will be dependent on ‘how quickly confidence can be restored’ the Governor may be pleased by the record rebound of the Westpac Consumer Sentiment Index in May (88.1), after falling to the lowest levels recorded on the 47-year old gauge in April (75.6).

Fiscal support through the JobKeeper & JobSeeker initiatives has helped cushion the blow on the labor force resulting in the unemployment rate for April beating market expectations (8.3%), despite rising to the highest level since late-2015 (6.2%). With the participation rate falling to a 15-year low in April, the smooth re-opening of the economy will be pivotal in defining the next steps for the RBA as the central bank ‘maintains its expansionary settings until progress is being made towards full employment’.

The upbeat tone in the RBA meeting minutes for May pushed the AUD/USD back to pre-crisis levels and this push could continue if local economic data supports the ‘upside scenario’ in which ‘employment growth and spending recover more rapidly’ than established in the RBA’s ‘baseline scenario’

Headlining the economic docket for next week will be the June 2nd interest rate decision from the RBA, with the expectation that the official cash rate (OCR) will remain at the record low of 0.25%. The forward guidance provided by Governor Lowe will be intently scrutinized and could continue to spur the recent strength seen in the Australian dollar.

US Dollar Basket 20200529 15.14

The risk rally faded into the Wall Street close after President Trump announced that he will hold a press conference on US measures against China concerning the recent passing of the Hong Kong Security Bill. In turn, with sanctions against Chinese officials likely to be the main outcome, alongside a potential change to Hong Kong’s special trading status with the US. This will mark a fresh escalation in the tensions between the US and China, where the latter has already vowed to announce countermeasures if the US interferes with internal affairs. Therefore, risks are rising for a pullback in risk sentiment.
Another factor to keep in mind is month-end rebalancing. As it stands, major investment bank models have touted USD selling, given the outperformance in US equities relative to its counterparts over the past month. Signs are that month-end has already had an impact on the US Dollar, which has seen a notable pullback throughout the week. Interestingly, despite equities seeing modest softening, the typically safe-haven USD has weakened as well, which has been a rare occurrence as of late, given the increasingly negative correlation between the US Dollar and risk assets.

With that said, given that the tensions between the US and China are likely to persist, we still that risks are skewed towards the upside for the US Dollar in the mid-term.

NAS100 D1 05 28 2020 0955

The Nasdaq 100 stands in a class of its own as the tech-heavy index looks to retake all-time highs which exist just a few hundred points from the current price. Thus, it seems the Nasdaq 100 is in a strong position to make an attempt at the prior peaks in the weeks ahead as long as the ascending channel remains intact
Still, prior highs established earlier this week may prove to be first barrier in a renewed attempt higher. The level roughly coincides with the top of the channel, so the area may provide notable resistance before the Nasdaq 100 can look to target record levels around 9,752.
Initial support may reside at the lower bound of the channel, currently around the 9,150 mark. A bearish break would amount to a significant technical development for the index and may constitute a complete review of the technical landscape. Either way, secondary support may well exist at the nearby Fibonacci level around the psychological 9,000 price point.

GBPCHF D1 05 28 2020 2216

On May 18, GBP/CHF declined to an over six-week low at 1.1741 then rallied after as some bears seemed to cover. As a result, the weekly candlestick closed in the green with a nearly 0.5% gain.

Alongside this, the Relative Strength Index (RSI) rose from 34 to 42 highlighting that the bearish move was losing momentum.
Based on the analysis of the daily chart, at the start of last week, GBP/CHF rebounded from the low end of the current trading zone 1.1741 -1.2091 then rallied after. This week, price failed twice to close above the 50-day moving average indicating that bears were still in charge.
A close below the low end of the zone reflects a stronger bearish sentiment and could send the price even lower towards 1.1115. Nonetheless, the weekly support level underlined on the chart should be considered.

On the other hand, any close above the high end of the zone could trigger a rally towards the 1.2500 handle. A further close above that level may extend this rally towards 1.2915. In that scenario, the weekly resistance levels marked on the chart should be kept in focus.

 

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XAUUSD D1 05 27 2020 2215

Gold prices have plummeted more than 2.2% this week with XAU/USD under pressure after turning from long-term uptrend resistance last week. While the risk remains for a deeper set-back, the sell-off is now approaching initial support hurdles that could interrupt the current decline. These are the updated targets and invalidation levels that matter on the XAU/USD technical charts in the days ahead.
Technical Outlook: In my last Gold Price Outlook we noted that XAU/USD was, “in consolidation just below key resistance from a trading standpoint, the risk remains for a deeper setback in prices while below the 1726.” A topside breach on May 14th briefly registered a high at 1765 before reversing with price now retracing more than 61.8% of the monthly range. The decline takes gold into parallel support of the dominant slope extending off the late April lows .

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