USD looks to start building momentum

Despite US economic data missing expectations, the USD managed to fire back as the market closed for the week, because there remains optimism that the US economy is still performing strongly. Although US economic momentum is slowing down, the data is still pretty strong and this has helped abate fears that the US economy is weakening. Going forward, it’s likely that this will be a very big week for the USD with both an upcoming Yellen speech and the NFP result at the end of the week set to polarise market attention.

Although the previous NFP showed some softening in the labour market, it should be noted that there has been huge progress made in employment data over the previous year. Investors are going to hold the NFP result in high regard and Yellen’s comments will also have an impact, especially if she appears downbeat on the US economy. Although her tone might be dovish, it is plausible that she may take this opportunity to repeat that the US interest rate rise will happen this year and this will prevent further USD selling. This is what the markets want to hear, and has also been the major factor behind the USD rally over the previous six months.

The EURUSD is starting to lose momentum as the USD begins to strengthen, and we could be about to see some heavy selling pressure come back until the markets after a week of unwinding on the EURUSD. Heavy resistance can be seen at 1.1274 and although we are likely to see a brief test on this level, any potential breakthrough would be limited to further USD weakness. The 1.1274 area is what I am looking at and any rejection could lead to the markets putting pressure back onto the EURUSD. There is an upcoming May 9th deadline for Greece and with ongoing talks failing to produce anything tangible, there is going to be potential for this to weigh on investor sentiment.

The Gold market has fallen sharply from $1207 to $1167 as traders brush away weaker US economic data and continue to bet on a US interest rate rise in the coming months. Despite the substantial USD weakness over the past couple of weeks, Gold has in many ways failed to rebuild momentum, with this suggesting that there is currently a hesitation to consider purchasing the metal. After failing to pull the bulls back into the market, and with investor sentiment still eyeing a US rate rise, Gold is continuing to look exceedingly bearish.

I feel that we could see a test back down to $1150 and in the long-term this has been seen as a key point in the markets and offers the most support. Gold is also currently trending well below the 50 and 200 moving averages on the Daily chart, with this showing that the market sentiment remains bearish.

Oil (WTI) encountered a strong rally and touched a new 2015 high at $59.86 at the end of the week, but the bulls also showed signs of losing strength as buyers looked to exit positions before the weekend. Although the bulls managed to rally strongly over the previous fortnight, there are concerns that buyers might be getting ahead of themselves when you consider that an aggressive oversupply remains in the markets.

Some might see the profit-taking at the end of the week as a sharp rejection of the $60 level, and upcoming economic data could lead to further volatility over the next couple of days. If US economic data continues its recent trend of being lacklustre, it’s likely that the WTI markets will view this negatively because a weaker economy means less consumption of oil and with stockpiles overflowing the market needs as much demand as it can get. I would expect to see further large drops in WTI if US economic data continues to get worse, and I will also be keeping an eye if EU economic pains weigh down on the overall investor sentiment.