Daily Briefing

Oil Tags the Psychological $50 Level as USD Slips Below Support

Price Action, Swing & Short Term Trade Setups

Connect via:

Talking Points:

- Oil just intersected with a major psychological level at $50 for the first time in seven months. These rounded, whole numbers will often have a tendency to show support/resistance.

- The US Dollar has posed a tenuous break below the price action box that we looked at yesterday. And EUR/USD has moved up to a pivotal area of support/resistance. Should USD find support today, this short EUR/USD setup could be attractive.

- If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator. If you’re looking at opening a trading account, FXCM has a contest at the beginning of next month for certain account holders. Click here for full details.

Oil Touches $50 for the First Time in Seven Months: This is the headline move of the day, and you’ll likely be reading more about this over the next 24 hours. While lower Oil prices had essentially become a foregone conclusion in Q1 of this year, a screaming comeback after Chair Yellen’s Congressional testimony on February 11th has brought prices back above to the psychological $50-handle.

What’s so significant about the price of $50? Nothing really: It’s merely a flat, rounded number, and many human beings think in terms of round numbers. As in, if I ask someone how much they paid for their car, they’re probably going to say ’35,000’ as opposed to an exact figure like ’34,976.34.’ This is just practical ease of simplicity in thinking and communication, and this also takes place in markets where traders will use these rounded values for sitting orders (such as stops, limit-entries, etc.), and this can in-turn shape price action as these sitting orders become executed as prices trigger through significant levels. For a full description behind psychological support and resistance levels, please read our article, ‘The Hidden Patterns of Support and Resistance in the Forex Market.’

We’re currently seeing this take place with the $50-handle on Oil prices. For traders that want to load up on the long side of the move, triggering long so near a potential resistance level would likely be unattractive. A bit lower at $48.61 is the 38.2% Fibonacci retracement of the recent major move, taking the May 2015 high to the February 2016 low; and this is a level that had provided the most recent short-term swing high.

On the chart below, we’re looking at the current price action setup in Oil. After the $50-handle, there are three interesting areas to watch for potential resistance until the prior swing high at $62.56 comes into play; at $50.90 we have the October 2015 swing high, and currently projecting to approximately $53.20 we have a projected trend-line that can be found by connecting the December 1999 low to the November 2001 low. Then at $53.94 we have the 23.6% retracement of that most recent major move (taking the $62.56, May 2015 high down to the February lows).

Oil Tags the Psychological $50 Level as USD Slips Below Support

Created with Marketscope/Trading Station II; prepared by James Stanley

USD Slipping, but Intermediate Term Still Bullish Until This Gives Way

In yesterday’s article we wrote about the box formation that had built in the US Dollar over the previous five trading days. As we mentioned, with multiple Fed speakers on the docket combined with some US Data, it was likely we would get a break of that box in one direction or the other rather soon. That break finally came in, albeit tenuously, and this was despite the fact that rate expectations out of the United States have continued to rise. So this bearish move may be fleeting in nature: The longer-term move is still bullish and will remain as such until support breaks at the 11,898 level, which is the 50% Fibonacci retracement of the prior major move. Until that support shows, traders can look to sell USD against strong currencies like the British Pound. But, once support does show up, traders can look to do the opposite by buying USD against weak currencies, like the Euro.

On the chart below, we’re looking at the updated setup in USD, and a bit below that we’re looking at the updated EUR/USD chart that we had investigated yesterday.

Oil Tags the Psychological $50 Level as USD Slips Below Support

Created with Marketscope/Trading Station II; prepared by James Stanley

As we mentioned yesterday, the move in EUR/USD had proffered a break through a pivotal support level at 1.1212, as this is the 61.8% Fibonacci retracement of the ‘lifetime move’ in EUR/USD. This is also a level that’s provided significant support/resistance over the recent past. Traders can watch price action today to ensure that resistance will, in fact, hold. If it does, this could be an attractive way of getting long USD after a quick burst lower.

Oil Tags the Psychological $50 Level as USD Slips Below Support

Created with Marketscope/Trading Station II; prepared by James Stanley

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

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

Contact and follow James on Twitter: @JStanleyFX




AUD/USD, EUR/USD Ride Daily 8-EMAs Ahead of GDP, Yellen

News events, market reactions, and macro trends.

Connect via:



Talking Points:

- AUD/USD, EUR/USD hold below respective daily 8-EMAs.

- Incoming data could help dispel concerns about US growth in 2016.

- Higher volatility in FX markets should have implications for your trading strategies.

The USDOLLAR Index continues to struggle with the fact that June rate hike expectations have stalled in their upward climb, with the Fed funds futures contract now pricing in a 28% chance of a hike in June. The lack of improvement in front month pricing has been holding back the buck, even as rate expectations for July and September continue to be dragged forward.

However, the lack of improvement in pricing odds is an affront to recent economic data momentum: the Citi Economic Surprise Index for the US just hit its highest level (-20.4) in over a month (-21.9 on April 18); and the Atlanta Fed's GDPNow Q2'16 growth forecast has improved to +2.9% SAAR. Any improvement in the headline Q1'16 US GDP reading released today reduces pressure on forthcoming quarters to produce above-trend growth in order to achieve the Fed's +2.2% end of year growth rate.

Even though Fed Chair Janet Yellen is speaking today (and supposedly on interest rates in a discussion with Harvard professor Greg Mankiw), she has a major policy speech planned for June 6, and as such, it seems unlikely that she would pre-announce any significant changes to her outlook. With traders winding down for a three day weekend in the US and the UK, the reduced liquidity environment offers the potential for an exacerbated response around today's data and commentary.

See the above video for technical considerations in EUR/USD, AUD/USD, GBP/USD, USD/JPY, GBP/JPY, EUR/GBP, and the USDOLLAR Index.

Read more: Fed Rate Expectations Rising but USDOLLAR Breakout Losing Steam

If you haven't yet, read the Q2'16 Euro Forecast, "EUR/USD Stuck in No-Man’s Land Headed into Q2’16; Don’t Discount ’Brexit’," as well as the rest of all of DailyFX's Q2'16 quarterly forecasts.

--- Written by Christopher Vecchio, 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 Falls as Stocks Rise, Canadian Dollar Tracks Crude Oil Lower

Fundamental analysis, economic and market themes

Connect via:

Talking Points:

  • Yen drops as risk appetite firms overnight, US Dollar gains on Fed outlook
  • Canadian Dollar drops alongside crude oil prices ahead of OPEC meeting
  • Euro unlikely to find direction in German CPI data on limited ECB impact

The Japanese Yen underperformed in overnight trade, falling against all of its top counterparts. Swelling risk appetite appeared to be behind the selloff, with the anti-risk currency falling inversely of gains in S&P 500 futures and Japan’s benchmark Nikkei 225 stock index.

Meanwhile, the US Dollar continued to push higher as comments from St. Louis Fed President James Bullard appeared to reinforce a cautiously hawkish tone from Fed Chair Janet Yellen last week. Bullard said global markets appear well-prepared for a possible US rate hike, suggesting fears of triggering a panic many not hold back the resumption of stimulus withdrawal.

The Australian and New Zealand Dollars bore the brunt of the greenback’s advance as the threat of on-coming tightening exerted outsized pressure on currencies whose primary appeal is their yield-bearing properties. The Canadian Dollar declined alongside crude oil prices in a move that may reflect pre-positioning for this week’s OPEC meeting.

Looking ahead, German CPI figures headline the economic calendar in European trading hours. The headline year-on-year inflation rate is expected to rise to 0.1 percent. The report seems unlikely to generate a strong response from the Euro considering the outcome’s limited implications for near-term ECB policy trends as the central bank waits to evaluate the impact of a suite of stimulus measures unveiled earlier.

Check out the latest standings for the FXCM $10k trading contest HERE.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Retail Trade (YoY) (APR)

-0.8%

-1.2%

-1.0%

23:50

JPY

Retail Sales (MoM) (APR)

0.0%

-0.6%

1.5%

23:50

JPY

Dept. Store, Supermarket Sales (APR)

-0.7%

-1.2%

-1.2%

00:35

USD

Fed's Bullard Speaks in Seoul

-

-

-

01:00

AUD

HIA New Home Sales (MoM) (APR)

-4.7%

-

8.9%

01:30

AUD

Inventories SA (QoQ) (1Q)

0.4%

0.0%

0.0%

01:30

AUD

Company Operating Profit (QoQ) (1Q)

-4.7%

0.4%

-3.6%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

06:00

EUR

German Import Price Index (MoM) (APR)

0.4%

0.7%

Low

06:00

EUR

German Import Price Index (YoY) (APR)

-6.2%

-5.9%

Low

06:45

EUR

French GDP (QoQ) (1Q P)

0.5%

0.5%

Medium

06:45

EUR

French GDP (YoY) (1Q P)

1.3%

1.3%

Medium

07:00

CHF

KOF Leading Indicator (MAY)

102.7

102.7

Low

07:00

CHF

Total Sight Deposits (MAY 27)

-

493.6b

Low

07:00

CHF

Domestic Sight Deposits (MAY 27)

-

420.2b

Low

09:00

EUR

Eurozone Economic Confidence (MAY)

104.4

103.9

Low

09:00

EUR

Eurozone Business Climate Indicator (MAY)

0.17

0.13

Low

09:00

EUR

Eurozone Industrial Confidence (MAY)

-3.5

-3.7

Low

09:00

EUR

Eurozone Services Confidence (MAY)

11.3

11.5

Low

09:00

EUR

Eurozone Consumer Confidence (MAY F)

-7

-7

Low

12:00

EUR

German CPI (MoM) (MAY P)

0.3%

-0.4%

Medium

12:00

EUR

German CPI (YoY) (MAY P)

0.1%

-0.1%

Medium

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0962

1.1052

1.1084

1.1142

1.1174

1.1232

1.1322

GBP/USD

1.4471

1.4555

1.4589

1.4639

1.4673

1.4723

1.4807

--- 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




Free Demo Account Free Trading Guides
Real Time News Open FXCM Account
Trading Signals Live Trading Room