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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HKG33 D1 05 26 2020 2224

The Hang Seng Index sits in a precarious spot following the worst one-day price drop since 2015 on Friday as tensions between China and Hong Kong intensify. Friday’s drop was largely the result of Beijing announcing it would quickly move forward with an anti-sedition law aimed at stemming ongoing protests in Hong Kong. The semi-autonomous country has seen mass protests since 2019 when Hong Kong’s security Bureau attempted to pass extradition laws that were met with grave concern over China’s increasing grip on the country.
Wednesday will mark a critical point for tensions in the country as protestors plan to hold a mass demonstration, expected to be the largest in months, in opposition to a controversial national anthem bill. Furthermore, tensions between China and the United States are moving back into the spotlight.
Given the political turbulence expected in the weeks ahead along with the planned mass protests, volatility in the Hang Seng index could continue for the near future. However, a spillover effect into the broader macro landscape is possible, especially if the protests in Hong Kong draw more international attention and condemnation towards China.

EUR USD 20200525 18.13

The Euro may face higher selling pressure following the publication of German IFO data. Preliminary forecasts for the business climate component are estimated to show a 78.3 print, slightly higher than the prior 74.3 reading. The current conditions and expectations statistics are also anticipated to show an improvement in sentiment as Germany eases its lockdown measures.
However, final prints for Q1 GDP data on a year-on-year and quarter-on-quarter basis may dampen sentiment as all figures are anticipated to show a negative figure. Data out of Germany has a tendency to elicit higher-than-usual volatility relative to its neighbors’ statistics due to it being the largest economy in the region. Consequently, its economic trajectory has larger implications for Europe as a whole and by extent, the Euro.
EUR/USD has for a third time been rejected at a stubborn resistance range between 1.0981 and 10989. The pair may now limp back to another equally-obstinate support level at 1.0783. These price parameters have kept EUR/USD range-bound for over a month, suggesting an underlying ambiguity in regards to a directional bias

EURUSD D1 05 26 2020 1837

The ECB may well pick up the Bundesbank’s PSPP commitments if a German court rules that the current quantitative program is not legal and appropriate. According to a Reuters report, the ECB would take up the Bundesbank’s PSPP allotment and in a worst-case scenario also launch legal action against the German central bank to bring it back into the fold. While there is a possibility or one or both of these actions occurring, it is likely that the Bundesbank will prove to the German court that the ECB’s actions are appropriate. If however the German court rule against additional bond buying, the Euro would come under heavy pressure and talk of the demise of the single currency would increase. The German court ruling is expected in early August.
A positive risk backdrop Tuesday helped push EUR/USD back towards 1.1000 and levels last seen in late-March. Risk sentiment has been buoyed by the gradual unwind of COVID-19 lockdowns across Europe, falling fatality and infection rates and reports of various ongoing drug trials.
EUR/USD has rallied the best part of one big figure so far today and nears important resistance around the 1.1000/1.1020 area. If the pair are going to move higher still, they will need to break 1.1000 big figure resistance, the 200-day moving average at 1.1010 and two recent highs just below 1.1010 and 1.1020. Above here lies the 50% Fibonacci retracement level of the recent sell-off at 1.1066. To the downside, there is short-term support between 1.0885 and 1.0895.

 

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AUD USD 20200525 12.56

The Australian Dollar may face higher-than-usual selling pressure in the week ahead as economic data continues to underline the impact of the coronavirus pandemic. As a major commodity exporter, shifts in sentiment frequently impact the cycle-sensitive AUD. In addition to an unfavorable global backdrop, the export-oriented country is now experiencing growing tension with China – its largest trading partner.

This week, Prime Minister Scott Morrison will be giving a speech at the National Press Club where he is expected to discuss the state of the economy as the government eases lockdown orders. However, the topic investors will be most eagerly tuning in for will be commentary on the current state of Australia-Sino relations.
Amid the spread of Covid-19, Australia has called for an investigation along with other members of the international community into Beijing’s handling of the pandemic. However, unlike other countries, Australia does not have the luxury of being able to critique its largest trading partner without severe, wide-ranging implications.

In response to commentary by Australian officials, China banned the importation of meat from four key slaughterhouses and imposed tariffs on other products, like barley. The Ambassador to China even suggested recently that Chinese tourists and students may decide to boycott Australia, further dampening economic activity in an already-unstable environment.

Beijing is reportedly considering targeting more Australian exports including dairy, wine, seafood and fruit. Actions may include not only tariffs, but also stricter quality checks and custom delays. China has denied any relationship between criticism of its handling of the pandemic and these measures.

Australia has managed to avoid slipping into a recession for 30 years – even dodging the 2009 global downturn – but this time it may not be so lucky. The China-dependent economy only just recently was offered some respite from the US-China trade war, but now it may have a direct economic conflict with Beijing. An escalation there could further deepen Australia’s economic slowdown and subsequently hammer AUD.

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