The Australian dollar has rallied during early trading on Tuesday to reach the 50 Day EMA but has also given back quite a bit of the gains. Because of this, the market looks less likely than ever to see any real follow-through. However, we also have the Jackson Hole Symposium going on this week, and traders will be watching to see what central bankers have to say. After all, interest rate differentials have been a major driver of markets as there is a lot of inflation globally.

The AUD/USD will not be immune to what the Federal Reserve does, so if the United States central bank continues to be aggressive, then it’s more likely than not that the US dollar will continue to pick up momentum against the Aussie. Furthermore, the Australian dollars are highly leveraged to China, so you have that problem as well. The Chinese economy is less than enthusiastic at the moment, especially as there is a major housing crisis just waiting to flare up.

Looking for a bigger move

If the market were to break above the 50-Day EMA, it will open up the possibility of a move to the 0.70 level, and then possibly even the 200-Day EMA which this just above the 0.71 level. The 0.71 level is where the 200-Day EMA is currently at, so therefore a lot of trend followers will be paying close attention to that region. On the other hand, if we break down below the bottom of the last couple of candlesticks, it’s likely that the market could drop down to the 0.68 level, perhaps down to the 0.67 level. The 0.67 level is an area that we had bounced from rather significantly, and therefore I think there would be a certain amount of “market memory” forming there. Nonetheless, this is a market that had bounced rather hard, and now looks as if it is trying to roll over for a bigger move to the downside.

At this point, it’s probably more about the US dollar than anything else.

• Pay close attention to those interest rates and what they are doing in the United States.
• If they continue to climb, especially in the face of a hawkish Federal Reserve, there’s no real reason to think that the Aussie is going to strengthen for anything sustainable.

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The USD/CAD has produced a test of its higher range the past couple of days as promised, and short term traders who enjoy speculative conditions should be braced for more.

 

The USD/CAD is producing a rather steady diet of fast paced value changes as it traverses within its upper range. Intriguingly the USD/CAD is bouncing around short term technical resistance, which if it proves durable could ignite speculative selling. Short term traders need to understand Forex conditions for the USD/CAD currency pair are under large shadows of nervous behavioral sentiment.

Volatile Mix of Fundamentals and Technical Considerations for USD/CAD

As of this writing the USD/CAD is near the 1.29775 mark, but readers are urged to compare this to the market as they contemplate wagering. A violent mixture of fundamental and technical perspectives should be considered to gain insights; strong gut instinct may prove important too, along with carefully selected risk taking tactics.

• Energy prices via Natural Gas are near highs and this could help the value of the Canadian Dollar, besides the price of Crude Oil too which remains profitable for producers such as Canada.
• Economic policy speeches via the Jackson Hole conference with the top global central bankers taking place will affect sentiment near term over the next few days.

Canadian Economic Data Remains Sketchy and USD/CAD feels Weight of Central Banks

The Bank of Canada remains under pressure to likely stay hawkish and match U.S Fed policy. Economic conditions in Canada match other major economic spheres as inflation and recession threaten. The housing data in Canada has shown some signs of distress via prices. Technically the USD/CAD remains in what can be considered overbought territory by many. Intriguingly from a fundamental consideration, the high price of Natural Gas of which Canada is an exporter, may factor into some selling pressure of the USD/CAD.

Short term traders should be prepared for more turbulent conditions and choppy results near term. Behavioral sentiment is bound to remain nervous and reactionary. Resistance levels may prove to be interesting junctures to launch selling positions with well-chosen stop losses above which are not so close. If this method of using a wider stop loss compared to a closer take profit is used in the USD/CAD it is urged that a limited amount of leverage is selected.

The USD/CAD is bound to remain volatile, but near term wagers looking for downside with quick hitting targets below may find them to be worthwhile wagers.  Traders are urged not to be overly ambitious in the near term, because sudden reversals are likely to occur which tests the willpower of positions that are not protected with risk management. Potentially aiming for the 1.29725 mark in the short term and slightly below may be intriguing for short term bearish bets.

Canadian Dollar Short Term Outlook:

Current Resistance: 1.29840

Current Support: 1.29725

High Target: 1.30425

Low Target: 1.29500

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The pair will likely continue falling as sellers target the next key resistance point at 1.1650.

Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.1650.
• Add a stop-loss at 1.1800.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.1800 and a take-profit at 1.1900.
• Add a stop-loss at 1.1700.

The GBP/USD price retreated after a series of worrying news about the UK economy and as volatility jumped. The pair dropped to a low of 1.1742, which was the lowest level since March 23rd this year. It has dropped by over 17% from the highest point this year.

Worries about the UK economy

The GBP/USD currency pair retreated sharply after some worrying economic numbers from the UK. In a report on Monday, Citigroup said that the country’s inflation will hit about 18.6% in January. If this happens, it will be the biggest increase in almost 50 years.

The investment bank attributed the sharp increase of inflation to the soaring wholesale gas prices. It estimates that the retail energy price cap will rise to 4,567 pounds in January and to 5,816 pounds in April next year. That will be a big increase considering that the current price is at 1,971 pounds.

The estimate by Citigroup is bigger than what the Bank of England (BoE), Goldman Sachs, and EY estimate. In its monetary policy meeting this month, the BoE estimates that inflation will start the year at 13.3%. Goldman and EY believe that inflation will be at least 15%.

The GBP/USD price also declined after the Office of National Statistics (ONS) revised the UK economic growth for 2020. In a report, the agency said that the country’s GDP contracted by 11% in 2020, the worst performance in the G7. It was also the worst contraction since 1,709. As a result, the growth in 2021 and 2022 will be staring at a lower point than estimated.

The pair also declined because of the broad US dollar strength. The dollar index rose to $109, the highest level in a month. Similarly, the VIX index, which is a good measure of volatility, rose by over 15% while stocks retreated.

GBP/USD forecast

The GBP/USD price has been in a strong bearish trend in the past few days as the US dollar strength continued. It managed to move below the important neckline of the double-top pattern.

The pair’s downward trend is being supported by the 25-day and 50-day moving averages while the Relative Strength Index moved to the extremely oversold level. It has also formed what looks like an inverted cup and handle pattern. Therefore, the pair will likely continue falling as sellers target the next key resistance point at 1.1650.

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The USD/CAD had a stormy day of trading on Monday and early today suggests speculative forces may be standing by for more price action.

The USD/CAD is trading near the 1.29000 mark as of this writing. Traders are urged to compare the current price of the USD/CAD currency pair as they are reading this article to view differentials. Speculative positions seemingly were ignited yesterday, as financial houses may have been trying to get ahead of the Canadian Consumer Price Index data which will be released later today.

Monday’s Early Lows Abruptly saw Plenty of Buying in the USD/CAD

Early yesterday the USD/CAD was trading near the 1.27750 ratio in a rather comfortable manner. The price action matched values seen on Friday and the USD/CAD seem situated for tranquil trading. However, within a matter of hours the USD/CAD began to challenge the 1.280000 level. When the 1.28000 mark was penetrated a strong burst of buying became evident and a high of 1.29300 was touched rather quickly.

• Inflation data via the Canadian CPI is likely being speculated on by financial houses, via their perceptions regarding the outcome and it is affecting the USD/CAD.
• Traders may choose to be cautious if they do not have positions yet in the USD/CAD, and wait for the CPI results to be published before pursuing the currency pair.

The fact the USD/CAD jumped higher may indicate financial houses are wagering on the anticipated outcome in the Canadian CPI inflation statistics today. However, traders need to be cautious, because if the number comes in higher than expected, the old adage of buy the rumor and sell the fact may come into play. In other words short term speculators should remain conservative if they have weak stomachs and limited funds. Waiting for the result of the CPI to be published could be wise.

The USD/CAD is near important Resistance but has been higher in the past month

If the CPI number meets expectations today, this still may result in choppy trading. The central bank of Canada has been hawkish and is mirroring the U.S Federal Reserve in many respects. However, traders also need to consider that the 1.29250 to 1.29500 marks may be viewed as too high by many financial houses short term.

Yes, the USD/CAD spiked to 1.32000 in mid-July, but is a return of those highs likely in the near term, likely no. If the CPI number is much higher than expected, this could actually make some analyst believe the USD/CAD could go into a selling mode, because the Bank of Canada may have to act strongly with more strident interest rate hikes. Traders should be careful today with the USD/CAD.

Canadian Dollar Short-Term Outlook

Current Resistance: 1.29240

Current Support: 1.28820

High Target: 1.29740

Low Target: 1.27840

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The pair will likely see heightened volatility after the CPI data. 

Bullish View

• Buy the EUR/USD pair and set a take-profit at 1.0300.
• Add a stop-loss at 1.0165.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0165 and a take-profit at 1.0050.
• Add a stop-loss at 1.0250.

The EUR/USD price continued consolidating while US bond yields retreated ahead of the latest American and German inflation data. It was trading at 1.0212 on Wednesday morning, which was lower than this month’s high of 1.0277.

US and German Inflation Data

The EUR/USD remained in a tight range as focus shifted to American and European inflation. Economists expect that German’s consumer price index rose from 0.1% in June to 0.9% in July. This will to a year-on-year increase of 8.5%, which will be the highest point in decades.

Meanwhile, in Italy, analysts expect that the country’s inflation dropped from 8.0% in June to 7.9% in July. This decline is attributed to some government subsidies that it implement recently.

These numbers will come a few days after the European Central Bank (ECB) decided to deliver its first interest rate hike since 2011. It hiked by 0.50% in a bid to fight the soaring consumer and producer inflation in the region.

The European bond market has managed to stabilize after the rate hike. For example, the closely watched spread of German and Spain bond yields has thinned to 2.1%. This situation is mostly because the bank has continued buying bonds from vulnerable economies like Italy and Greece.

The most important catalyst for the EUR/USD will be the latest inflation data from the United States. Economists surveyed by Reuters expect that the headline consumer price index (CPI) dropped from 9.1% to 8.7%. Core CPI, which excludes the volatile food and energy prices, is expected to have increased from 5.9% to 6.1%.

A positive inflation surprise will increase the possibility of the Fed hiking rates by 0.75% in September since the labor market is extremely tight. Such a figure will be bearish for the EUR/USD pair.

EUR/USD Forecast

The four-hour chart shows that the EUR/USD pair has been moving sideways in the past few days. It has remained between the resistance at 1.0276 and support at 1.0131. The pair is consolidating at the 25-day and 50-day moving averages while the MACD is along the neutral point. It is also between the 23.6% and 38.2% Fibonacci Retracement levels.

Therefore, the pair will likely see heightened volatility after the CPI data. In case of a strong inflation data, the pair will likely retest the support at 1.0130. On the other hand, if the CPI data disappoints, the pair will likely rise to the 50% retracement point at 1.0366.

 

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The USD/ZAR is trading near short term lows as of this writing and speculators need to take a couple of important potential factors into consideration.

The USD/ZAR currency pair is trading near the 1.61100 mark as of this writing, which is near rather intriguing lows. Speculators need to be careful today, because it is a public holiday in South Africa and trading volumes may be lighter than normal. This morning’s early price action did see the USD/ZAR currency pair drop to a depth of nearly 16.57500, which tested support levels seen on Friday before a spike higher was accomplished.

Public Holiday and Perception of a Potentially Oversold USD/ZAR Could be Dangerous

The lack of extensive transactions coming from South Africa today leaves the USD/ZAR open to the possibility of sudden moves today. And when combined with the technical perception the USD/ZAR may have been oversold yesterday and has consolidated near Friday’s support levels is intriguing. However, traders should be careful today, because while the USD/ZAR has the potential of a consolidated Forex market, the currency pair is vulnerable to value gyrations in a lightly traded atmosphere which could be whipsaw like.

Support near the 16.60000 area could prove to be interesting if sustained

Traders should use entry price orders to make sure they are not filled at a surprising ratio which is completely unexpected today.  Speculators should also be aware that a jump from 16.60100 to 16.63000 in a moment’s notice today should be expected, meaning that stop losses and take profit orders should be working, but that fast results could occur and knock traders out of positions with a blink of the eye. However, importantly what traders should also note is that today’s price action may raise false trending flags due to low volume, also meaning tomorrow’s opening for the USD/ZAR could produce fireworks if a move is overdone today and financial houses ‘correct’ the trend.

• Quick range trading may be seen today in the USD/ZAR with light volume; traders should monitor the 16.60000 to 16.64000 ratios.
• If the price range of short term technical support and resistance are broken today, traders need to be prepared for volatility tomorrow when full market action returns to the USD/ZAR.

Ambitious speculators who believe the USD/ZAR has been oversold the past day and that support levels will produce upwards mobility cannot be blamed.  However, because of today’s light trading volume a test of the ‘known’ range may be demonstrated. If a trader wants to buy the USD/ZAR and anticipate a potentially bigger move, they may have to practice patience or be willing to carry a position overnight.

USD/ZAR Short-Term Outlook

Current Resistance: 16.64250

Current Support: 16.59200

High Target: 16.67800

Low Target: 16.55700

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Pay close attention to the bond market, because if yields start to spike again, then it’s possible that we will see the NASDAQ 100 take a real beating. 

• The NASDAQ 100 Index gapped lower to kick off Friday as the jobs number in America showed that there were over 500,000 jobs added during the month of July.
• As the market got wind of this, it started to sell off as interest rates in America started to rally.
• Because of this, a lot of pressure came in on the stock markets.

Keep an Eye on 13,000

The 13,000 level underneath should be an area of interest, as it was a previous resistant barrier. However, what we will truly be paying attention to is what happens this week, because if we were to break down through that level, it could continue the run lower. On the other hand, if we break above the 13,500 level, then it’s possible that this market will go much higher. The market break above the 13,500 level would be a massive turn of events, but I don’t see that happening without some type of dovish behavior out of the Federal Reserve.

Ironically, the Federal Reserve has been trying to explain to the market how they are not dovish all week. It was not until we sold the jobs number coming as hot as it did that Wall Street started to accept this as reality. Remember, Wall Street is about getting handouts from the Fed, not trading the economy. This is a mistake that the Federal Reserve has made over the last 14 years, and now it has to deal with the addiction that they have forced upon the street. Now that they actually have to pay attention to the economy, the Federal Reserve has to convince an entire generation of traders that there are things beyond loose monetary policy that can be factored into an asset.

If we do break down, the 12,250 level will be interesting to pay attention to, due to the fact that it was previous resistant and of course the 50-day EMA is hanging around in the general vicinity. Pay close attention to the bond market, because if yields start to spike again, then it’s possible that we will see the NASDAQ 100 take a real beating. On the other hand, if yields start to fall, that should be good for this market, as it brings in more “cheap money” from the Federal Reserve, at least that’s the thinking.

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From a longer-term perspective, you can make the argument that we have a situation where we have been very noisy and have seen a lot of chop, which can be the beginning of a trend change, but we’ve got to do more work in the bond markets.

• The GBP/USD currency pair continues to chop around as it looks for some type of directionality.
• That’s been the case with almost everything I look at recently; the markets are simply grinding accounts up without driving any type of directionality on the charts.
• The British pound has been an excellent example of a place that you don’t necessarily want to put a lot of money into, because it doesn’t know where it wants to be.

Market Keeps Grinding Away

The 50-day EMA sits just above and that could cause a little bit of resistance, but at the end of the day, it does not seem very likely to be a major factor one way or the other, as the markets have simply decided to grind back and forth against each other in order to do as much damage as possible. This is the problem with so much noise out there because we have the Federal Reserve seemingly hell-bent on muddying the waters, and the result is the charts that you see here.

The Federal Reserve has lost so much credibility that people simply do not believe that it will do what it takes to fight inflation. They probably will, but right now the market does not believe that, and as a result, you are seeing the US dollar get hit. At the other end of the spectrum, you have the British pound which is a bit of a basket case itself, so it should not be a huge surprise to see that we have absolutely no clarity here. From a longer-term perspective, you can make the argument that we have a situation where we have been very noisy and have seen a lot of chop, which can be the beginning of a trend change, but we’ve got to do more work in the bond markets. The bond markets are starting to tell the world that the Federal Reserve is going to pivot, but the Federal Reserve is refusing to say so. Inflation is supposedly going down, but it is still at extraordinarily high levels. I suspect at this point the only true losers will be the American public. That being said, Wall Street is looking for its usual handout, and given enough time Jerome Powell probably will do that. They are anticipating that it’s going to happen quicker than he is likely to do. Because of this, we will continue to hear this noise.

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This is a market that will probably have to deal with gravity over the next 24 hours or so.

• The S&P 500 Index has been on fire over the last several sessions, but Monday was a little bit different.
• The area that the market is currently trading in shows signs of hesitation and significant resistance, so it is probably only a matter of time before we see a bit of selling pressure.
• Whether or not that’s anything of substance remains to be seen, but if you have been following me here at DailyForex, you know that I had suggested previously that the 4200 level has the air of being rather important.

S&P 500 Technical Analysis

The market is overstretched in the short-term, but whether or not we have reached a top would be something that remains to be seen. At this point, if we can break above the 4200 level which shows a significant amount of bullish momentum, but it looks as if the market is willing to at least give back some of the gains. At this point, a pullback to the 4000 level makes quite a bit of sense. The 50-day EMA sits underneath there near the 3930 level, so that’s also a potential target.

Keep in mind that earnings season is currently going on, so we will have to pay close attention to those announcements, but at the end of the day I think we have a situation where the market is probably more focused on the Federal Reserve than anything else. Because of this, the market is going to be focusing on the bond market, because it is currently suggesting that perhaps the Fed has already reached peak tightening. However, at the same time, Federal Reserve officials are suggesting otherwise. In other words, we have mass delusion on one side or the other yet again.

This only leads to one conclusion, that there is going to be a lot of volatility no matter what we do. The fact that we have shot straight up in the air and then finally printed a bit of a hesitation candle does suggest that perhaps Tuesday could be a bit negative, but I don’t necessarily think that it is the beginning of a massive meltdown. In other words, this is a market that will probably have to deal with gravity over the next 24 hours or so.

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I’m much more comfortable going short than trying to buy this pair which looks so negative at the moment.

• The EUR/USD pair went back and forth Friday as we continue to see a lot of noisy behavior.
• The 1.02 level is an area that a lot of people will pay attention to as a magnet for price.
• The euro has been back and forth during the course of the week or so, so I think it’s only a matter of time before we have to break in one direction or the other.

If we break above the 1.03 level, then it’s likely that we go looking to the upside. The 1.04 level is an area that has a lot of “market memory” built into it, and it’s likely that we will see sellers in that area. The 50-day EMA sits just above that area as well, so I think it’s worth paying close attention to ultimately, if we were to reach that area, I think the first signs of exhaustion would be a potential selling opportunity.

Shorting at 1.02

Markets pulling back from that area have a bit of real estate to cover, so I would be more than willing to get short. Ultimately, the 1.02 level could be a target. If we break it down below there, then it’s likely that the euro drops back down to the parity level. Speaking of breaking down, if we slice through the 1.01 level, it’s likely that we go down to the parity level as well.

The parity level is something worth paying close attention to, as it has a lot of psychology attached to it. If we can get a breakdown below the parity level, then a daily close underneath there would confirm a lot of selling pressure. At that point, it’s likely that we could go down to the 0.98 level, maybe even down to the 0.96 level. I do believe that the European Union has a whole host of issues to worry about, most of which the United States does not have to. Because of this, it is likely that we will see downward movement. The market has been sideways for a while, so I do believe that once we get that break out, it could be somewhat volatile and violent. Regardless, I’m much more comfortable going short than trying to buy this pair which looks so negative at the moment.

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