reversal

The US and UK markets were closed on Monday, but European government bond yields sharply fell, which is a direct consequence of rumors that the Biden administration and the Republican majority in Congress are close to reaching an agreement.   The removal of the US default threat contributes to an increase in risk appetite and, at the same time, a slight decrease in demand for the US dollar as demand for bonds decreases. The dollar is also facing pressure due to the upcoming meetings of the Bank of England and the European Central Bank, where further rate hikes are anticipated, and uncertainty regarding the possible actions of the Bank of Japan at the June 16 meeting.   NZD/USD The Kiwi is facing increasing pressure as the reasons that could prompt the RBNZ to raise rates above the current 5.50% are diminishing, with the main one being the threat of an almost inevitable recession.   Retail sales showed zero growth in April (forecast was +0.2%), a decline of 1.4% in the first quarter, and a decline of 1% in the last quarter of the previous year. This means that consumer activity is declining despite high migration rates. Trade indicators have also deteriorated significantly, with a 3.4% decrease in terms of trade for goods in the first quarter and an expected decline in exports.   While expectations for an increase in the Fed rate are growing and markets are anticipating another hike in either June or July, the Reserve Bank of New Zealand (RBNZ) announced a pause that is expected to last at least until November. Additionally, there is the threat of an economic slowdown amid still uncertain prospects for inflation.   Although inflation is expected to slow down in the second half of the year, it is currently only a forecast, while the threat of a recession is very real, as is the pause taken by the RBNZ.       Overall, based on the data, the demand for NZD is expected to decrease due to worsening trade indicators, pressure on the current account, and an increase in the yield spread in favor of the US dollar.   Positioning on NZD continues to balance at near-zero levels, with slight deviations in either direction. Over the reporting week, the net short position decreased by 107 million to -23 million, reaching a negligible level. The calculated price has shifted downwards.     Last week, we predicted that after the RBNZ decision, the Kiwi would move downwards towards support at 0.6020. This scenario has played out, and it can be assumed that the southward movement will continue. A probable correction will find resistance near 0.6079, where selling may resume.   We expect another test of support at 0.6020 and further movement towards the target of 0.5940/50, and then 0.5900. AUD/USD RBA Governor Lowe, as reported in the Australian media, held a "pessimistic" briefing behind closed doors with the parliamentary economics committee. Sources described the tone as "noticeably more pessimistic due to the emphasis on risks to achieving the bank's forecast targets for inflation and unemployment."   Markets are currently assessing the probability of another rate hike by the RBA and the likelihood of the bank taking a pause approximately equally. The key value will be the tone of Lowe's testimony before the Senate Economics Committee. The NAB Bank estimates the peak rate to reach 4.1%, which will be achieved in August or July.   On Friday, June 2, an important decision will be made regarding the minimum wage. Changes will be announced for two indicators - the minimum wage, which will affect around 200,000 workers, and the volume of bonus payments, which will be significant for 2.4 million workers.   Preliminarily, according to the Treasury, a 7% increase is expected for the first indicator and a 4% increase for the second, which will likely be seen by the markets as a factor fueling inflation. The net short position on AUD decreased by 323 million over the reporting week to -3.244 billion. The positioning remains persistently bearish, with the calculated price below the long-term average and directed downwards.     The bearish impulse we anticipated in the previous review has developed, although the price did not reach the stated target of 0.6466. Nevertheless, there are no grounds to expect a resumption of growth, and any potential upward retracement is likely to be halted in the 0.6560/80 zone, after which selling will resume.   The nearest target is 0.6466, followed by technically significant levels down to the local low of 0.6172.        

GBP/USD Yesterday, the British pound grew (by 0.47% compared to a 0.20% decline in the dollar index) and its upper shadow managed to reach the target level of 1.2443. As the signal line of the Marlin oscillator has already approached the boundary of the growth area, it may start to reverse downwards in the direction of the main trend.   If the reversal occurs and the price establishes itself below the MACD line (1.2400), the first target will be 1.2273 (the April 3 low and the high of February 14). If the price stays above 1.2443, it can rise towards 1.2583. However, the pound may not reach this level, and a reversal could occur from any intermediate resistance.       On the 4-hour chart, the price has settled above the balance and MACD indicator lines, and the Marlin oscillator has shown slight growth in the growth area but is now showing initial signs of a downward reversal.   Since the MACD line is located below the 1.2400 level, overcoming the support level (1.2365) will serve as the final condition for the price to reverse into a medium-term decline.  

The EUR/USD pair executed a reversal in favor of the US currency on Friday and began a new decline, closing below the corrective level of 38.2% (1.0726). Thus, the overall decline of the pair may continue toward the next Fibonacci level at 23.6% (1.0652). A rebound from the level of 1.0652 will favor the euro and lead to some growth, while a close below it will increase the likelihood of a further decline toward the level of 1.0609.     On Friday, traders closely followed the US reports. There were many important events throughout the past week, but the labor market and unemployment data always held a special place in the hearts of traders. Without going into much detail, the statistics favored the bears, but the two most important reports showed different trends. The unemployment rate for May increased from 3.4% to 3.7%, although traders expected a rise to 3.5%. Meanwhile, nonfarm payrolls in May showed a result of +339K, exceeding expectations of +180K.   Thus, the unemployment rate turned out worse, but the payrolls were better. Traders concluded that the payroll report was more important (and I fully agree with them), so the dollar rose in price again. The US currency should continue to rise, as all recent statistical data indicates a good state of the American economy. The Federal Reserve (Fed) continues to maintain a "hawkish" position, and even after raising the interest rate to 5.25%, the economy continues to show growth, unemployment remains low, and the labor market creates more jobs almost every month than the market expects. These are compelling reasons for further dollar appreciation, as it has significantly lost value over the past year. On higher charts, there is a corrective potential towards the level of 1.03.     On the 4-hour chart, the pair reversed in favor of the euro, but the growth was short-lived. The quote decline may resume toward the corrective level of 38.2% (1.0610). A rebound of the pair's rate from this level will allow traders to expect a small increase toward the Fibonacci level of 50.0% (1.0941). If the quotes close below the level of 1.0610, the chances of further decline toward the Fibonacci level of 23.6% (1.0201) will increase.   Commitments of Traders (COT) report:   During the last reporting week, speculators closed 8,253 long and 242 short contracts. The sentiment of large traders remains "bullish" but has slightly weakened in recent weeks. The total number of long contracts speculators hold is 242,000, while short contracts amount to only 76,000. For now, strong bullish sentiment persists, but the situation will continue to change soon. The euro has been falling for two consecutive weeks. The high value of open long contracts suggests that buyers may close them soon (or may have already started, as indicated by the last two COT reports). There is currently an excessive tilt towards the bulls. The current figures allow for a continuation of the euro's decline soon.     News calendar for the United States and the European Union: Eurozone - Services Purchasing Managers' Index (08:00 UTC) USA - Services Purchasing Managers' Index (PMI) (13:45 UTC)   USA - Industrial Orders Volume (14:00 UTC) USA - ISM Non-Manufacturing Purchasing Managers' Index (PMI) (14:00 UTC)     On June 5, the economic events calendar includes three entries for the USA and one for the EU. The most important among them is the ISM index. The impact of the news background on traders' sentiment today may be moderate and occur in the second half of the day. Forecast for EUR/USD and trader advice: New pair sales could be opened on a breakout from the level of 1.0785 on the hourly chart, with targets at 1.0726 and 1.0652. I advise buying the pair on a breakout from the level of 1.0610 on the 4-hour chart, with targets at 1.0726 and 1.0784.      

Black line- support trend line The USDCHF pair has been in a strong uptrend since May 3rd 2023, forming higher highs and higher lows on the 4 hour chart. The pair has also been respecting the rising trend line that connects the swing lows of the uptrend. The RSI indicator has been mostly above the 50 level, indicating bullish momentum. The pair has recently tested the 0.9146 resistance level, which coincides with the 61.8% Fibonacci retracement level of the previous downtrend from 0.9336 to 0.8818.     Today price is under pressure after making a lower high at 0.9118. If the pair breaks below the support trend line at 0.904, it may signal a reversal of the uptrend and a possible retest of the lower Fibonacci retracement levels of 0.916 and 0.8940. The RSI may also fall below the 50 level, indicating bearish momentum. Traders need to be cautious as the trading week started with a higher high than Friday's high and price is now into negative territory suggesting a possible reversal is close.  

Black line- support trend line The USDCHF pair has been in a strong uptrend since May 3rd 2023, forming higher highs and higher lows on the 4 hour chart. The pair has also been respecting the rising trend line that connects the swing lows of the uptrend. The RSI indicator has been mostly above the 50 level, indicating bullish momentum. The pair has recently tested the 0.9146 resistance level, which coincides with the 61.8% Fibonacci retracement level of the previous downtrend from 0.9336 to 0.8818.     Today price is under pressure after making a lower high at 0.9118. If the pair breaks below the support trend line at 0.904, it may signal a reversal of the uptrend and a possible retest of the lower Fibonacci retracement levels of 0.916 and 0.8940. The RSI may also fall below the 50 level, indicating bearish momentum. Traders need to be cautious as the trading week started with a higher high than Friday's high and price is now into negative territory suggesting a possible reversal is close.  

JPY: USD/JPY closing in on intervention The strong dollar environment keeps USD/JPY grinding higher and approaching the 145 area, where Japanese authorities sold FX last September. True to firm, top finance officials in Tokyo are working through their handbook of verbal intervention and look only a few steps away from being ready to pull the trigger. Last autumn's Japanese FX intervention was well timed in that it shortly preceded a turn lower in US inflation and a reversal in the strong dollar. The risk of intervention now, however, is that US inflation stays sticky and that Tokyo is drawn out into a long battle against USD/JPY in the 145/150 area. We do think USD/JPY goes lower later this year on a turn in the dollar, but over the coming month, we can see USD/JPY sharply bouncing around in a 140-145 range – suggesting that short-dated USD/JPY option volatility is priced a little too low.

EUR/USD On Monday, the euro overcame the upper band of the descending price channel colored in green. Now it's abolished, and the price continues to rise towards the nearest target of 1.1028. Overcoming this level will open the second target of 1.1085. As we remember, all the growth since July 6 is a speculative attack on the dollar, buying the single currency against fundamental data.     Such movements do not last long, we are waiting for the first signs of a reversal from the level of 1.1085. Consolidation above this level can extend the growth to 1.1155. The Marlin oscillator has slightly turned down, indicating a slowdown in the growth rate. Yesterday, the S&P 500 finally showed gains (0.24%) after a corrective drop since July 3. But we are also waiting for a reversal on the stock market. Most likely, the drop in the euro and the S&P 500 will be synchronized.   On the four-hour chart, the Marlin oscillator is creating the first sign of forming a sideways range (the gray rectangle on the chart). With this, the pair can slowly rise and will increase the risks for the bulls. Of course, the range may not be established, but the first signs of weakening growth are already there, a lot of effort was spent on such an operation.    

  UK Retail Sales (Jun) – 21/07 – retail sales in May surprised to the upside when the numbers were released just over a month ago, despite inflationary pressure rising to its highest levels since the 1990's. The two bank holidays appeared to prompt a rise in consumption spending, while the warmer weather prompted spending on holiday breaks, as well as other leisure activities as people booked tickets for music events. In April we saw retail sales excluding fuel rise by 0.8%, partially reversing a sharp -1.4% decline in March, which in turn reversed a 1.4% gain in February. May saw a rise of 0.3%, against an expectation of a decline of -0.2%. This appeared to be in line with recent retail updates which have been for the most part better than expected. Consumer confidence has also been improving despite the stickier nature of inflation, although the continued rise in mortgage rates is likely to start to act as a major drag as fixed rate mortgage deals roll off and consumers become more constrained. In some part higher savings rate have helped to boost consumer spending, given the delay in seeing the effects of the roll off in fixed rate loans. This is likely to change in the coming months, although June retail sales are expected to climb by 0.2%.     

GBP/USD On Friday, the British pound fell by 42 pips. The signal line of the Marlin oscillator has turned downwards, and the upper band of the descending price channel in green remains untested. Now the question arises - if the pound decides to reverse (or deep correction), will it proceed to test the price channel? The pound tends to test key levels, so it can rise to 1.3180. Price consolidation below 1.3034 will lower such probability.     Bringing the price back to the initial level of speculative growth at 1.2666 on July 6th, when US private sector employment data from ADP was released, will be a challenging task - a four-figure move lies ahead with strong intermediate levels (1.2847, 1.2720). It is possible that the price will reach the designated area in the first week of August (the Federal Reserve's rate decision will be on July 26th, and the Bank of England's meeting will be on August 3rd).     On the 4-hour chart, the Marlin oscillator has come close to bearish territory. Marlin encourages the price to overcome 1.3034 in the near term, but further difficulties may arise, the nearest one is the MACD line (1.2907). The rapid decline of Marlin carries the risk of divergence, in which case the price may rise towards the upper band of the daily chart's price channel.    

GBP/USD The British pound has stayed within the 1.2666-1.2720 range, but this time the exit occurred in the upper shadow. The 23.6% correction level acted as a limiting factor. The price will probably try to mark the August 3rd and 14th lows, and under favorable circumstances, consolidate below 1.2666 to reach 1.2590.   The Marlin oscillator continues to consolidate in a narrow range on bearish territory. It is possible for the price to reverse to the upside, although the chances of it are decreasing every day. In order to build a deep correction, the price needs to settle above 1.2720, then overcome the MACD line around 1.2780.     On the four-hour chart, the price failed to settle above the balance line, returning to 1.2666. The MACD line enhances this level. The Marlin oscillator helped the bears just in time - it is already in the negative territory.

GBPUSD is testing key support at around 1.2175. RSI is around 20 i.e., indicating extremely oversold  but there is no divergence suggesting lower GBPUSD levels are likely. However, a correction should be expected. We rarely see these long periods of trends as we have now seen in GBPUSD (down trend since mid-July) without a larger correction If RSI is breaking back above its falling (blue) trendline expect a correction to occur. A move up to test the 200 daily Moving Average from beneath is quite common after breaking below. However, the 1.2175 support is not the strongest support level meaning GBPUSD is likely to continue (after a likely correction) its downtrend towards 1.20 level. 21, 55  and 100 Moving Averages are alle declining and the 200 is very close to showing an underlying bearish trend and sentiment Medium-term GBPUSD is in a confirmed bearish trend after it closed last week below 1.23.Weekly RSI is currently below 40 threshold and if closing the week below it will just add to the bearish picture with medium-term downside potential to around 1.18. To reverse the bearish trend short term a close above 1.2550 is needed. To demolish the trend i.e., put it on pause a close above 1.2425        

EUR/USD In the final trading day of 2023, the euro fell by 25 pips on below-average volume, finding support at 1.1033. Since there was no significant profit-taking, we expect the uptrend to remain intact. A break above the level of 1.1076 opens up a substantial target like 1.1185, which is the November 2021 low and the March 2022 high. We could see bullish potential at 1.1280. The Marlin oscillator has also corrected lower, visually preparing for a reversal into a new upward wave.   All the price action and oscillator movements occur within an uptrend. It's worth noting that this progress is taking place within a medium-term green-colored ascending price channel. Even if there is a break below the 1.1033 support level, we will not hastily revise the main scenario.   On the 4-hour chart, the price is supported by the balance indicator line. The Marlin oscillator is in a bearish territory but may require a trigger to return to the bullish territory. Today's reports on the final estimates of the eurozone and U.S. industrial PMIs for December may serve as a catalyst. The forecasts remain unchanged (44.2 and 48.2, respectively), but tomorrow's Manufacturing ISM for December is projected to stand at 47.1, up from 46.7 in November. We can assume that today's final estimate of the Manufacturing PMI might surprise everyone and turn out to be better than expected. Such, albeit minor, optimism could sustain risk appetite and push stock markets and counter-dollar currencies into the green zone.

Trend analysis EUR/USD may pull back this week, falling from 1.1036 (closing price of the last weekly candle) to the 23.6% retracement level of 1.0975 (yellow dotted line). It may go upwards after testing the level.   Comprehensive analysis: Indicator analysis - downward Fibonacci levels - downward Volumes - downward Candlestick analysis - downward Trend analysis - downward Bollinger bands - upward Monthly chart - upward Conclusion: The indicators point to a downward movement in EUR/USD. Overall conclusion: The pair will have a bearish trend, with no first upper shadow on the weekly black candle (Tuesday - downward) and a second lower shadow (Friday - upward). Therefore, during the week, euro will decline from 1.1036 (closing price of the last weekly candle) to the 23.6% retracement level of 1.0975 (yellow dotted line), and then go upwards after testing the level. Alternatively, it could move from 1.1036 (closing price of the last weekly candle) to the 61.8% retracement level of 1.0959 (red dotted line), and then go upwards after testing the level. Read more: https://www.instaforex.eu/forex_analysis/364727