The US$ and risk appetite: now, how’s this gonna play out?

I’m back from a one month holiday and so might take a while to get back to full speed but have posted a few charts and a couple of thoughts for consideration this w/e.

Firstly, the US$ and risk appetite: recent years with QE has been a period where any ‘risk-on‘ market behaviour has generally been accompanied by a weaker US$. However, the landscape is shifting to one where good economic news is now supportive of increasing US rates and, thus a higher US$. So my question is this: are we in for a new paradigm where ‘risk-on’ markets are characterised by an increasing US$? If so, this will have implications for currency pairs like the AUD/USD, NZD/USD, GBP/USD and EUR/USD, to name just four, that usually tag along higher with stocks in a classic style ‘risk-on’ environment. I wrote yesterday, however, that the US$ still some technical hurdles to get through before I’ll be calling this recent bounce move a full on reversal but it is certainly making for interesting watching….for peeps like me at least!

Secondly, Europe: The second thought I’d like to put out for consideration is the case with Europe. I am not an economist but, like many, I read the economic reports about Europe, its debt situation and current QE efforts. It was therefore with some surprise that we encountered a busy, bustling, optimistic and thriving Europe as we moved through parts of France, Portugal, Spain and briefly to the UK. There seems to be a huge disconnect between the reality and the rhetoric and this got me thinking that the worst may be over for Europe and all of the QE efforts over recent years may finally be bearing results as we certainly saw signs of this. All comments welcome here.

On to the few charts for this week. It is a busy week for economic data and this could help define whether the US$ continues to bounce higher.

  • Mon 30th: GBP and USA holiday.
  • Tue 31st: AUD Building Approvals. CAS GDP. USD CB Consumer Confidence.
  • Wed 1st: CNY Manufacturing and Non Manufacturing PMI & Caixin Manufacturing PMI. AUD GDP. GBP Manufacturing PMI. USD ISM Manufacturing PMI. (lots of 2nd tier EUR PMI data too!)
  • Thurs 2nd: NZD GDT Price Index data. AUD Retail Sales and Trade Balance. GBP Construction PMI. OPEC Meetings. USD Private NFP. EUR Interest Rate & Press Conference. USD Oil Inventories & Weekly Unemployment Claims.
  • Fri 3rd:  GBP Services PMI. USD NFP & ISM Non- Manufacturing PMI.

S&P500: a huge barometer for general risk appetite:

Many of you probably wonder why I post about stocks in a predominantly Forex post. It is because risk appetite across all of the markets is broadly connected and the S&P500 is a behemoth of an index and, thus, one to watch to gauge the general mood for ‘risk appetite’. This index is currently up testing major resistance at the psychological 2,100 level and a recent Flag bear trend line. Traders would be wise to watch and see how this index trades at this level in coming sessions and whether there will end up being a breakout higher or respect of this resistance and a bounce back down from this region.

The question for me is how will the risk FX pairs (A/U, Kiwi, E/U and Cable) react IF this index does breakout higher BUT the US$ keeps strengthening? If you know please tell me!

S&P500 weekly: Is this one huge Bull Flag in the making or will price retreat again?

S&Pweekly

S&P500 daily: currently testing a huge S/R level at 2,100 and the bear trend line:

S&Pdaily

S&P500 monthly: the month closes after Tuesday:

S&Pmonthly

Forex:

EUR/USD: this has weakened as the US$ has rallied. Note how price is down testing a weekly triangle trend line. I have just received a new TC signal to SHORT here BUT I am wary given the potential support from this trend line. Also, there is a lot of EUR data this week with ECB and lots of EUR PMIs to possibly impact here.

As mentioned above, I struggle to see how this pair can collapse IF the S&P500 moves higher. Of course, however, both of them could retreat together so keep an eye on both of them. One thing I’d also watch out for is how the monthly candle closes after Tuesday. Any close back above 1.12 would offer a huge psychological boost to this pair and I’d urge caution with any SHORTs if this evolves:

E/U monthly:

EUmonthlyCloud

Price is below the daily and 4hr Cloud now which is bearish.

Any close and hold below the triangle trend line will have me looking for a test of the 1.045 S/R level.

  • There is a new TC signal to SHORT here but watch for any support from the weekly triangle trend line.

EUmonthly EUweekly EUdaily EU4

AUD/USD: this is suffering a bit like the EUR/USD and is weaker, in part, from the stronger US$. This pair looks bearish at the moment as it closed the week below the key 0.72 level and below a recent daily chart 61.8% fib and has also triggered a new TC signal to SHORT. However, price action is holding up near a longer-term monthly chart 61.8% fib and any move back above 0.72 for the monthly close on Wednesday, like with the E/U, would offer a huge psychological boost here so I would urge caution shorting here just now too.

Price is below the daily and 4hr Cloud which is bearish.

There is a lot of data to impact this pair in the coming week with AUD and CNY data as well as US NFP.

  • There is a new TC signal to SHORT here.

AUmonthly AUweekly AUdaily AU4

GBP/USD: The Brexit situation remains an issue for this pair and is certainly a hot topic in Europe as we found out in our travels. We weren’t surprised to hear UK folk wanting OUT but other Europeans wanting them IN.

I don’t have any new TC signal here and note the Cable closed the week above the 1.46 threshold and I’m still seeing a bullish-reversal descending wedge despite all of the bearish Brexit related rhetoric.

There is a bit of GBP data out this week so watch how the Cable reacts to these items and to NFP as well:

  • Any close and hold below the 1.46 level would have me looking for a test of the 4hr chart’s wedge trend line and, after that, the 1.40 level.
  • Any hold above 1.46 would have me watching the weekly chart’s wedge bear trend line and, after that, the 1.50 level.

GUmonthly GUweekly GUdaily GU4

USD/CAD: I’ve just got the monthly chart posted for this pair but it’s a big week for the USD/CAD due to NFP and US data impacting the US$ component and OPEC, for one, impacting the CAD$ part. The pair is sitting on the major S/R ‘fence’ level of 1.30 whilst it waits for this data.

It is worth noting that if this pair closes above 1.3002 after Tuesday then the monthly candle will essentially be a bullish-engulfing candle. However, the OPEC meetings aren’t until Thursday and so that may not curry much advantage here. I still think 1.30 is the level to watch in coming sessions for any make or break reaction:

LoonieMonthly

EUR/AUD: just one chart here too as I watch to see where this closes the month after Tuesday. Any monthly close below 1.55 would be bearish; IMHO that is:

EAmonthly

Oil: There is a lot of data to impact Oil this week but a couple of levels are worth watching:

  • $50: this is the next big level to watch here and any weekly close and hold above this would support a move up to the next S/R level near $60.
  • $65: this would be the next big level after $60 as it is previous S/R and also near the 50% fib of the most recent swing low move.

CLmonthly

CLweekly

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