Kathy Lien
BK Asset Management
U.S. stocks started the week with a rally strong enough for market participants to hope that the panic selling is over. Between Friday's positive close and today's nearly 2% rally in the Dow Jones Industrial Average, this classic reversal structure certainly gives investors reason for optimism. Even with today's 400-point rise in the Dow, currencies failed to follow as USD/JPY ended the day unchanged, while EUR/USD and AUD/USD mustered small rallies. Some currencies like the Canadian and New Zealand dollars extended their losses, albeit modestly. FX traders were initially pleased with the budget deal to reopen the government, but they are not as encouraged by President Trump's budget proposal for 2019 that signalled a disregard for the deficit. No U.S. economic reports were released but with 10 year Treasury yields hitting fresh 4 year highs today, the equity market and the U.S. economy is still in the danger zone. While we expect equities to trade a bit higher and the yen crosses to follow suit, there will be waves of choppiness in the weeks ahead unless yields start to fall in a meaningful way.
One of our favorite currencies this week is the euro. It is finding nice support above 1.2200 and is positioned for a stronger move above 1.2300. The Eurozone economy is performing very well and while we are bearish German GDP, the risk is to the upside for this report. Let's not forget that stronger end of year growth encouraged the central bank to consider changing guidance and if the recovery in stocks is real, high beta currency pairs like EUR/USD should be a big beneficiary. Should EUR/USD break above the January 17th swing high and 20-day SMA near 1.2330, then its clear sailing to 1.24.
With consumer prices scheduled for release, Tuesday should be a busy day for sterling. Although the recent rise in the currency and decline in shop prices point to softer CPI growth, the Bank of England's hawkishness and Governor Carney's view that domestic inflationary pressures are likely to firm suggests that the risk is to the upside. Even if CPI falls more than expected, investors may look past the report after the central bank pushed the message that rates may need to rise earlier and faster than what they had seen in November. Brexit worries have kept the currency down but if data beats it could shift the focus back of monetary policy.
The best performing currency today was the Australian dollar which traded sharply higher against the greenback. As a high beta currency, it is not unusual to see AUD trade well when stocks recover, especially after the deep slide that it experienced over the past 2 weeks. Gold, iron ore and copper prices are also up across the board providing additional support to the currency. We think further gains are likely up to at least 78 cents. The New Zealand and Canadian dollars, on the other hand, ended the day lower against the greenback despite higher credit card spending in New Zealand. No data was released from Canada but an intraday reversal in oil prices (crude was up 2% before settling up only 0.19%) kept the currency hovering near 1.26.
Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.
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AUD/USD remained bid above 0.6500
AUD/USD extended further its bullish performance, advancing for the fourth session in a row on Thursday, although a sustainable breakout of the key 200-day SMA at 0.6526 still remain elusive.
EUR/USD faces a minor resistance near at 1.0750
EUR/USD quickly left behind Wednesday’s small downtick and resumed its uptrend north of 1.0700 the figure, always on the back of the persistent sell-off in the US Dollar ahead of key PCE data on Friday.
Gold holds around $2,330 after dismal US data
Gold fell below $2,320 in the early American session as US yields shot higher after the data showed a significant increase in the US GDP price deflator in Q1. With safe-haven flows dominating the markets, however, XAU/USD reversed its direction and rose above $2,340.
Bitcoin price continues to get rejected from $65K resistance as SEC delays decision on spot BTC ETF options
Bitcoin (BTC) price has markets in disarray, provoking a broader market crash as it slumped to the $62,000 range on Thursday. Meanwhile, reverberations from spot BTC exchange-traded funds (ETFs) continue to influence the market.
US economy: slower growth with stronger inflation
The dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.