Last week saw risk-off sentiment grow following hawkish comments from a Fed member, but risk recovered on Friday with the release of lower-than-expected US Core PCE Index data.
Fundamental Analysis & Market Sentiment
I wrote on 26th May that the best trade opportunities for the week were likely to be:
- Long of the NASDAQ 100 Index. This produced a loss of 1.48%.
- Long of Silver following a bullish bounce rejecting $30.00 and $29.85. This did not set up.
- Long of the GBP/JPY currency cross following sustained bullish price action above last week’s high price at ¥200.06. This would have produced a small win of 0.15% if the logical entry on Monday was taken.
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The overall result was a net loss of 1.33%, resulting in a loss of 0.44% per asset.
Last week’s key takeaway was the lower-than-expected US Core PCE price Index data, which showed a decline in its month-on-month increase from 0.3% to 0.2%, when it had been expected to hold steady at 0.3%. The Core PCE Price Index is the Federal Reserve’s preferred inflation indicator, and this data shows that inflation is probably cooling. This will be excellent news for the Fed and for stock markets and other risky assets, almost all of which gained firmly on Friday following the release of the data.
Markets had been more in risk-off mode earlier in the week following hawkish comments by Fed member Kashkari. Another major data release was US Preliminary GDP showing annualised GDP data revised downwards from 1.6% to 1.3%, although it was expected to have slowed even further to 1.2%.
Finally, German Preliminary CPI came in slightly lower than expected, which is good news for the global fight against inflation.
Other important data releases last week were:
- Australian CPI – instead of falling to 3.4%, it climbed to 3.6%, giving a minor hawkish tilt on the Aussie.
- US CB Consumer Confidence – this was higher than expected.
- Canadian GDP – this showed no economic growth last month, as expected.
- US Unemployment Claims – as expected.
- US Pending Home Sales – considerably worse than expected.
- Chinese Manufacturing PMI – slightly worse than expected.
The Week Ahead: 3rd – 7th June
The most important items over this coming week will be the release of US Non-Farm Payrolls data, Swiss CPI (inflation) data, and policy releases from the European Central Bank and the Bank of Canada.
Non-Farm Payrolls are expected to increase slightly from last month, while Swiss inflation is expected to show a month-on-month increase of 0.4%. Both the European Central Bank and the Bank of Canada are expected to cut rates by 0.25% this week.
Election results in India seem to show that the ruling government has been re-elected with a landslide majority, and this result is pleasing Indian stock markets. It is not clear what this may mean for the Indian Rupee.
Election results in South Africa show that the ANC has lost its majority for the first time since democracy began there in 1994, although it will surely be able to continue governing albeit in a coalition. It is not clear what kind of coalition will be formed, although markets will probably react best to a coalition with the Democratic Alliance, which would likely strengthen the Rand. The other major alternative partner is the largely Zulu Umkhonto We Sizwe party. It would be very difficult for the ANC to form a coalition with left wing parties, so South African stock and currency markets will probably start this week higher.
Other major data releases due this week are:
- US Average Hourly Earnings
- US JOLTS Job Openings
- US ISM Services PMI
- US ISM Manufacturing PMI
- Australian GDP
- US Unemployment Claims
- Canadian Unemployment Rate
Monday is a public holiday in New Zealand.
Monthly Forecast June 2024
In Forex, I follow the US Dollar’s long-term trend to make monthly forecasts. However, just as last month showed no clear trend in the US Dollar, so does this month, so I again make no monthly forecast.
Weekly Forecast 2nd June 2024
Last week, I made no weekly forecast, as there were no unusually large swings in any Forex currency crosses, which is the basis of my weekly trading strategy. I again make no weekly forecast, as this situation is unchanged.
Directional volatility in the Forex market rose last week, with 27% of the most important currency pairs fluctuating by more than 1%.
Last week, the Swiss Franc showed relative strength, while the Euro showed relative weakness.
You can trade these forecasts in a real or demo Forex brokerage account.
Key Support/Resistance Levels for Popular Pairs
Technical Analysis
US Dollar Index
The US Dollar Index printed an indecisive doji candlestick last week which closed within the lower half of its range. The support level at 104.00 again held and produced a small bullish bounce. There is also a very weak bullish long-term trend as the price is above its levels from 3 months ago and its price of 6 months ago. However, this trend looks extremely questionably as support and resistance levels bunch up near the price action and produce a choppy consolidation.
It may make sense to trade the US Dollar long now, but I will feel much more comfortable doing that once we start getting daily closes of this Index above 105.80. I see the Dollar as stuck in the mud, with the Forex market currently driven by long-term weakness in the Japanese Yen, and movement in certain other currencies such as the Swiss Franc.
USD/JPY
The USD/JPY currency pair rose slightly last week after the support level at ¥156.59 managed to hold after being tested a couple of times.
The Japanese Yen has been showing a real long-term weakness as the Bank of Japan remains trapped with a very dovish monetary policy it does not want to implement and declined again a little last week in line with this long-term trend.
Despite this, the US Dollar has not been the best currency to use on the long side to exploit the Yen’s weakness, as the US Dollar, despite having a slightly bullish long-term trend technically, is effectively mired within a tightening consolidation. There are other Yen crosses which it may be better to be long of.
Long trades from bullish bounces off support levels may work out here over the coming week.
CHF/JPY
The CHF/JPY currency cross rose strongly during the week. The price ended the week very close to its high, which is a bullish sign. The Swiss Franc was the strongest currency last week, and last week’s high was not too far away from the multi-year high price, which is another bullish sign.
There is weakness in the Japanese Yen which is the major defining feature of the Forex market right now. This is a good reason to be short of the Japanese Yen. However, most of last week’s rise was due to strength in the Swiss Franc, which is a bit mysterious – I have no good reason to explain that.
This currency cross could be a great vehicle to use to take advantage of any Yen weakness over the coming week.
When trading this cross, it helps to check support and resistance levels in the USD/JPY and USD/CHF currency pairs to be sure the price can rise or fall relatively easier.
I think a long trade following a firm breakout beyond last week’s high would be the best signal for a long trade entry.
AUD/JPY
I expected that the AUD/JPY currency cross would have potential support at ¥103.42.
The H1 price chart below shows how this support level was rejected right at the end of last Thursday’s Tokyo session by an engulfing bar, marked by the up arrow in the price chart below, signaling the timing of this bullish rejection. Note how strong the fall and bounce were.
This can be an excellent time of day to enter a trade in a currency cross involving the Japanese Yen such as this one. The AUD/JPY currency pair is one of the most volatile Forex pairs, so trading can offer a lot of pips in profit.
This trade has been profitable, giving a maximum reward to risk ratio of more than 2 to 1.
Silver
The price action in Silver last week was very similar to what happened the week before – it rose to test or approach the major quarter-number at $32.50 last week, before falling more sharply. The other major precious metal Gold also took a hit. I argue that Silver, technically, looks more bullish than Gold, or at least has a better chance than Gold of recovering soon to make new highs again. This is because the price got a bit of a bullish bounce just above the big round number at $30.00 two weeks ago, and it is now again approaching this area.
Just below $30, there is a key support level at $29.85. I think this will very likely be next week’s pivotal point, so a bullish bounce which rejects both $30.00 and $29.85 could be an excellent entry signal for a new long trade. If the price gets below $29.85, we could see a much stronger fall triggered by that.
Bulls do need to be aware that the price action’s clear printing of new lower resistance levels is a bearish sign/
As we see risk-on sentiment having recovered during Friday’s New York session, assuming nothing happens to change that sentiment, we are likely to see this coming week begin with Silver rising.
NASDAQ 100 Index
After five straight weeks of gains, including a new record high reached last week, the NASDAQ 100 Index fell last week, initially falling quite strongly. However, it bounced back hard after better-than-expected Core PCE Price Index data was released on Friday, as this is the Fed’s preferred inflation indicator and it suggested that inflation is weakening, opening the door potentially to an earlier rate cut. The next rate cut is now widely expected at the Fed’s September meeting.
Bulls should be encouraged by the strong lower wick which rejected two key support levels. However, a concern for bulls could be that the S&P 500 Index looks to be outperforming this Index a little.
It makes sense to be bullish on this major stock market index when it has recently made a new record high. Historic precedent shows this tends to produce further gains quickly.
I therefore see the NASDAQ 100 Index as a buy, but only after we get a new record high daily close, which would be above 18898.
Bottom Line
I see the best trading opportunities this week as follows:
- Long of the NASDAQ 100 Index following a daily close above 18898.
- Long of Silver following a bullish bounce rejecting $29.85.
- Long of the CHF/JPY currency cross following sustained bullish price action above ¥175.00.
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