Daily Briefing

G7, Euro Inflation and NFP to Drive FX Markets Next Week

Price Action, Swing & Short Term Trade Setups

Connect via:

Talking Points:

- This is a holiday-weekend for the U.S. with Memorial Day on Monday, and a G7 meeting over the weekend brings the potential for gap risk. Be careful of exposure going into the close today.

- Next week brings another series of relevant data points, and the bullish theme in the Euro will be in the spotlight as Euro-Zone and German inflation data are released in the first half of the week.

- If you’re looking for trading ideas, check out our Trading Guides. And if you’re looking for ideas that are more short-term in nature, please check out our IG Client Sentiment Indicator.

To receive James Stanley’s analysis directly via email, please SIGN UP HERE

This week has brought a series of drivers to markets, and we’re not yet out of the woods as a G7 meeting will carry on through the weekend, and this opens the door to the potential for gap risk on exposure held going into today’s close. As always with such meetings, it’s impossible to tell what economic pain points might be flushed out, if at all, and this can raise the possibility of risk aversion or even another wave of ‘risk on’ around the conclusion of that meeting.

Monday is a holiday in the United States, but on Tuesday morning markets get right back to matters of importance as German CPI is released at 8 AM ET. More pivotal Euro data is released on Wednesday, and Thursday and Friday bring a couple of pieces of key U.S. data when we get ISM Manufacturing numbers and then Non-Farm Payrolls for the month of June.

Below, we look at three of the more interesting price action themes as we go into a key set of data points for next week.

Bullish Theme in Euro Moves into the Spotlight

As mentioned above, Tuesday morning opens with the release of German CPI data, and this has become somewhat of an issue in Europe as German CPI remains elevated with annualized inflation already at the ECB’s 2% target threshold. With inflation at the 2% target, many in Germany are looking forward to the end of QE and this, of course, is helping the bullish theme in the Euro as investors try to get in-front of any inevitable taper.

Wednesday brings more high-impact Euro data, as we get German employment numbers followed by Euro-Zone CPI and, again, each of these can be push points for that bullish theme being seen in the Euro.

Speaking of that bullish theme, we have seen a bit of congestion build after EUR/USD perched up to a new six-month-high at 1.1268. The lower-highs that have come-in after that top was set combined with the horizontal resistance around 1.1169 give us a short-term descending wedge formation in EUR/USD.

G7, Euro Inflation and NFP to Drive FX Markets Next Week

Chart prepared by James Stanley

Has the U.S. Dollar Set a Low?

On the polar opposite end of that bullish move in the Euro is the bearish move in the U.S. Dollar. The Greenback has had a difficult time of recent, wrestling with a variety of issues. But as we move into a month in which markets are fully prepared for another interest rate adjustment from the Federal Reserve, we might finally find some motivation for bulls to return. The formation in DXY is still bearish as we remain below pre-election levels, and the descending channel that’s governed a large portion of USD price action in 2017 is still in-tact:

G7, Euro Inflation and NFP to Drive FX Markets Next Week

Chart prepared by James Stanley

But after another fresh low was set on Monday of this week, traders have continued to come-in to offer support at slightly higher levels – giving the appearance that bears are waning as prices approach prior lows while bulls get a bit more aggressive on taking on exposure at current levels.

G7, Euro Inflation and NFP to Drive FX Markets Next Week

Chart prepared by James Stanley

Are Oil Prices Going to Become a Macro Issue Again?

In the first part of 2016, not much was going right for markets. The Fed had just hiked rates for the first time in over nine years, and as markets opened up to the New Year of 2016, troubling declines in Chinese markets had gotten the world’s notice; and global equities took a swan dive for about six weeks until Janet Yellen’s Humphrey Hawkins testimony on February 11th of last year. That helped to mark a bottom in the ‘pain trade’ and for the next few months ‘risk on’ rallied like it was going out of style.

But at the center of this chaos was Oil. Oil prices had put in a troubling decline, dropping by as much as 76% when we hit that February 2016 low. This was driven by a combination of factors, key of which was the supply increases being driven by the ‘shale revolution’ in the United States. As rates stayed lower in the post-Financial Collapse environment while Oil prices stayed high, above $70/barrel, there was a lot of incentive for producers to figure out how to get more Oil out of the ground. But as Oil prices began to turn-lower, moving below break-even levels for many of these producers, some very major problems came to light given that many banks were levered-up on debt to Oil producers. If Oil prices had stayed low, there was a very real risk that many of these producers would face liquidity issues; and given that many major banks were extended to Oil producers, this had the potential to produce a contagion effect.

G7, Euro Inflation and NFP to Drive FX Markets Next Week

Chart prepared by James Stanley

What makes this an issue of importance for next week is the reaction to yesterday’s extension of production cuts from OPEC. After a 9-month extension was announced, as was widely expected, Oil prices put in a bearish move that broke-below a key psychological support level at the $50-handle. After support at $50 gave way, we saw buyers step back-in around $48.25, but given the lower-high with trend-line resistance from yesterday combined with this break of $50 after yesterday’s extension of production cuts, and we’re seeing what could be the initial stages of bearish price action.

G7, Euro Inflation and NFP to Drive FX Markets Next Week

Chart prepared by James Stanley

If we do see a continued sell-off in Oil, this could become a pain factor for the global economy that could become problematic. We’re not quite there yet given that we’re still in the initial stages of reaction after yesterday’s announcement, but if Oil prices don’t find support soon, this could become an issue for the continuation of ‘risk on themes’. Below, we look at four support levels of relevance in WTI.

G7, Euro Inflation and NFP to Drive FX Markets Next Week

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

To receive James Stanley’s analysis directly via email, please SIGN UP HERE

Contact and follow James on Twitter: @JStanleyFX




As EUR/USD & GBP/USD Rally, Look to Commodity Currencies

News events, market reactions, and macro trends.

Connect via:



Talking Points:

- As US Dollar dives, both EUR/USD and GBP/USD have seen their rallies carry them to fresh 2017 highs.

- With commodities under pressure, the British Pound and Euro are well-suited for further gains against the Australian and New Zealand Dollars as well.

- Retail crowd positioning shows traders buying AUD and NZD while selling EUR and GBP.

See the DailyFX Webinar Calendar for all upcoming strategy sessions.

The drama surrounding the Trump administration has enveloped the US Dollar as hopes fade for fiscal stimulus coming down the pipeline any time soon. As markets price out healthcare reform and tax reform in 2017, the implication of fewer drivers pushing inflationary pressures up has laid waste to market expectations for an aggressive Fed rate hike path: only one hike is priced in for the rest of 2017. The flattening yield curve bodes poorly for the US Dollar.

As the greenback has sold off, the retail crowd has been quick to pile into short EUR/USD and GBP/USD positions. We use the IG Client Sentiment data as a contrarian indicator, given that the retail crowd shares the same key characteristic as commercial hedgers in the futures market: fading the predominant trend.

Yet the crowd isn't buying US Dollars everywhere: traders have staked out long AUD/USD and NZD/USD positions as well. Implicitly, then, this combination of being net-short EUR and GBP and net-long AUD and NZD means that we should focus on the crosses: EUR/AUD, EUR/NZD, GBP/AUD, and GBP/NZD.

Chart 1: EUR/AUD Daily Chart (August 2016 to May 2017)

As EUR/USD & GBP/USD Rally, Look to Commodity Currencies

While the issue hasn't gotten the same attention that developments in European (French and British elections) or American (the Trump/Comey saga) politics have, commodities and their associated currencies have been under a great deal of pressure the past few weeks. In particular, base metals like Copper and Iron Ore have been decimated since mid-March. Perhaps this is a canary in the coal mine about under the radar developments in China; but regardless of the reasoning, weaker commodity prices don't bode well for the Australian or New Zealand Dollars.

Chart 2: GBP/NZD Daily Chart (July 2016 to August 2017)

As EUR/USD & GBP/USD Rally, Look to Commodity Currencies

Pairs like EUR/AUD, EUR/NZD, GBP/AUD, and GBP/NZD normally get little fanfare, but their strong uptrends recently deserve more attention - buying dips against the daily 13- and 21-EMAs has proven profitable since the end of March. Certainly, they will be influenced by themes across FX markets like political risk in Europe, but they won't be hostage to the daily newsflow currently weighing down the US Dollar.

See the above video for technical considerations and levels to watch for in EUR/USD, GBP/USD, AUD/USD, USD/JPY, EUR/AUD, GBP/AUD, AUD/JPY, and DXY Index.

Read more: Trump is the USD’s Albatross, Gains from Election Wiped Out

--- Written by Christopher Vecchio, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form




Yen May Extend Gains on G7 Rancor as US Dollar Falls on GDP Data

Fundamental analysis, economic and market themes

Connect via:

Talking Points:

  • Yen may extend gains as G7 rancor weighs on risk appetite
  • US Dollar may drop as revised Q1 GDP data disappoints
  • British Pound falls as Tories’ lead shrinks before election

The Yen outperformed in Asian trade as most regional stock exchanges suffered, boosting the perennially anti-risk Japanese currency. Energy and raw materials shares plunged in a move that probably echoed yesterday’s dramatic drop in crude oil prices. That seemed to reflect profit-taking after the extension of an OPEC-led output cut scheme offered nothing that was not already priced in.

The British Pound fell after a YouGov poll – the first since the terrorist attack in Manchester – showed ebbing support for the ruling Conservative party. The Tories’ lead shrank to 5 percent, the smallest since mid-July 2016 when Prime Minister Theresa May just took the reins after the Brexit referendum. The specter of uncertainty a mere two weeks before an election sent capital fleeing from GBP-denominated assets.

The absence of top-tier European economic data will put the spotlight on a meeting of G7 leaders in Taormina, Sicily. Disagreement about international trade norms is likely to be of greatest interest to investors. US President Trump is a vocal free trade skeptic, putting him at odds with his counterparts. Signs of growing tension may dent risk appetite, compounding Yen gains.

A revised set of first-quarter US GDP figures then comes in focus. The annualized growth rate is expected to be upgraded to 0.9 percent from the initially reported 0.7 percent. A steady string of disappointing US news-flow over the past two months opens the door for a disappointment that may cool Fed rate hike speculation, weighing on the US Dollar.

What are the DailyFX team’s favorite trade ideas for 2017? Find out here!

Asia Session

Yen May Extend Gains on G7 Rancor as US Dollar Falls on GDP Data

European Session

Yen May Extend Gains on G7 Rancor as US Dollar Falls on GDP Data

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To receive Ilya's analysis directly via email, please SIGN UP HERE

Contact and follow Ilya on Twitter: @IlyaSpivak




Advertisement