Here’s what we are looking for in tomorrow’s economic reports (May 2, 2019) — Good Luck Trading!
1. EZ PMIs (03:55 ET) No Trade -- Revisions are hard to predict but changes will be market moving
2. Bank of England Rate Decision & Quarterly Inflation Report (07:00 ET) No Trade -- BoE won’t be happy with continued Brexit uncertainty
*Good morning/afternoon everyone!*
The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130.
*The MAIN THEMES I see today are*
+EUR
+CHF
-CAD
-JPY
*Trading Biases*
+EUR, +CHF, +GBP,
-CAD, -JPY
mildly +AUD, +NZD, -USD
*Today’s Initial Trades*
Here’s the summary --
1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912
2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275
3. Buy AUDCAD at .9531, Stop at .9503, target .9559
4. Sell AUDCHF at .7270, Stop at .7298, Target .7242
2 New Big Trade Orders
**Since both of these orders involve NZD, if one triggers, cancel the other
GBP/NZD Order
Place Order to Sell GBP/NZD at 2.0710
Stop at 2.0910
NZD/USD Order
Place Order to Buy NZD/USD at 0.6890
Stop at 0.6690
We are finally getting a pullback in the commodity currencies that should give us the opportunity to join the uptrend in NZD. Between the surprise increase in consumer prices and rebound in dairy, the RBNZ has no reason to rush into a rate cut next week. A pullback to 69 cents would be a great place to establish a long entry for a move back to 70 cents. In an environment of extraordinarily low rates, NZ’s 2.25% yield has and will continue to make NZ attractive.
We also like SELLING GBP because data has been terrible. A larger number of people filed for jobless claims in the month of March and more importantly average weekly earnings growth slowed to 1.8% from 2.1% in February. Greater unemployment and slower wage growth is bad news for the U.K. economy and particularly for spending. Retail sales numbers are scheduled for release tomorrow and this slowdown in wage growth combined with the big drop in spending plus shop prices reported by the British Retail Consortium puts the risk to the downside for the report.
2 New Big Trade Orders
New CAD/JPY Order
Place Order to Sell CAD/JPY at 84.80
Stop at 86.80
There are 2 reasons why we like selling CAD/JPY. First oil prices are falling following the disappointment in Doha and we believe this move could put additional pressure on oil and carve out a near term bottom in the Canadian dollar. We are also bearish US dollars and the continuous cycle of earthquakes in Japan makes us worried that more damage could hit the nation. Each tremor has led to a bout of yen strength and between our bearish outlook for the dollar and bullish outlook for the yen, we believe that the Yen component of the trade should also drive CAD/JPY down.
New USD/CHF Order
Place Order to Sell USD/CHF at 0.9680
Stop at 0.9880
Between last week’s surprise contraction in retail sales and sluggish consumer price growth, the Fed has zero reasons to raise interest rates in April AND June. At this stage we need to see retail sales rise more than 0.5% in each of the next 2 months for tightening at the beginning of the summer to even be a possibility. The Fed is meeting next week and there’s a very good chance that the overall tone of the statement will be dovish -- so we are looking for additional dollar weakness ahead and on the back of this event. The dollar remains a sell on rallies.
2 New Big Trade Orders
1. EUR/USD Orders
Aggressive
Place Order to SELL EUR/USD at 1.0918
Stop 1.1118
Conservative
Place Order to SELL EUR/USD at 1.1000
Stop 1.1200
We are starting the week with our FIRST new Big Trade Order to SELL EUR/USD. Mario Draghi is speaking later today and on Thursday. We believe that he will continue to jawbone the currency and reiterate the central bank’s willingness to increase stimulus. Investors are eager to see who will ease next and the ECB is on the top of our list. The currency war is in full swing with BoJ easing and while risk appetite improved, the ECB’s dovish bias will underpin the euro.
2. USD/JPY Orders
Aggressive
Place Order to BUY USD/JPY at 120.65
Stop 118.65
Conservative
Place Order to BUY USD/JPY at 119.85
Stop 117.85
Last week’s surprise decision to cut interest rates was a major announcement for the Bank of Japan -- one that we believe will have another 200 to 300 pips of continuation. Friday’s move stopped right at the 200-day SMA so a deeper retracement is possible and we want to use that opportunity to buy USD/JPY at a lower level. The BoJ not only lowered interest rates, but also pushed out their timeline for reaching their inflation target and warned that more actions could be taken including changing the quantity and quality of asset purchases as well as cutting rates further. Since the BoJ did not increase the size of its QE program this could be the next option if the economy weakens further but adopting this radical form of monetary policy is a sign of the country’s desperation. They are finally recognizing the negative impact that volatility in the financial markets, the sharp decline in inflation and the slowdown in China will have on Japan’s economy. Looking ahead, the yen should be sold on rallies.
BK Big Trades -- 2 New Orders
1. EUR/USD
Aggressive
Place Order to Sell EUR/USD at 1.0865
Stop 1.1065
Conservative
Place Order to Sell EUR/USD at 1.0920
Stop 1.1120
2. AUD/USD
Aggressive
Place Order to Sell AUD/USD at 0.7010
Stop 0.7210
Conservative
Place Order to Sell EUR/USD at 0.7100
Stop 0.7300
It is a new trading week and we are ready to lay out some fresh Forex Big Trade orders. Nearly all of the major currencies are in play this week with AU CPI, FOMC, RBNZ, BoJ and UK GDP on the calendar. This morning’s German IFO report was also worse than expected reinforcing ECB President Draghi’s warning that more easing could be on its way in March.
We are laying out 2 sets of orders this morning -- on the back of the IFO and ahead of AU CPI. We are also actively watching USD/JPY and USD/CAD -- 2 pairs that we want to sell higher.
We still have the following pending order:
3. NZD/USD
Conservative
Order to Sell NZD/USD at 0.6560
Stop at 0.6760
1. GBP/USD
Place Order to Buy 1 lot of GBP/USD at 1.5342
Place Order to Buy 1 more at 1.5152
Stop for ALL 1.4965
2. NZD/CAD
Place Order to Sell 1 lot NZD/CAD at 0.8960
Place Order to Sell 1 more at 0.9140
Stop for ALL at 0.9330
The most tempting currency to trade right now is EURO but with our Big Trades we never like a chase a move especially when there is no reasonable level for stops. So instead we look beyond the euro to 2 other opportunities -- GBP/USD and NZD/USD.
We like buying GBP/USD quite a bit after yesterday’s HOT retail sales number. This was the strongest month for spending in 2 years, setting a sound foundation for next week’s UK GDP report. Retail sales is the most important contributor to growth. While the dollar is bid today we believe it will trade lower ahead of and after FOMC. The uncertainty in Fed policy should lead to profit taking on long dollar trades and with zero chance of a rate hike, the FOMC statement will probably disappoint.
We also like selling NZD/CAD. China’s rate cut should be positive for commodity currencies but the impact has been limited. The RBNZ meets next week and they won’t be happy with the recent rise in NZD. In the past month, NZD/USD has risen from a low of 0.6250 to 69 cents while AUD/NZD has fallen from a high of 1.1350 to a low of 1.0575. We may hear some optimism about the economy but the central bank could also express renewed concerns about the currency. There are no major economic reports from Canada so selling NZD vs. CAD is the ideal trade.
BK Big Trade -- 2 New Orders
Reload USD/CAD
Place Order to Buy 1 More at 1.2790
Stop for ALL at 1.2610
If USD/CAD retraces again, we want to be a buyer. The Bank of Canada’s monetary policy announcement is one of the biggest event risks this week and given the recent deterioration in manufacturing activity, ballooning of the trade balance, and the rise in the unemployment rate, the BoC has every reason to be dovish. At the same time, the U.S. dollar is oversold and we believe that it is due for a bounce during this quiet data week.
New AUD/USD Big Trade Orders
Place Order to Sell 1 more lot AUD/USD at 0.7480
Stop for ALL 0.7650
We also like selling Australian dollars because the market is looking for the RBA to cut interest rates when they meet next month. While last night’s Chinese data beat expectations, the sharp drop in industrial production tells us that Chinese demand remains weak. Between that and the drop in jobs experienced last month along with the slowdown in service sector activity and appreciation in the currency, the RBA has every reason to be more dovish. The RBA minutes are scheduled for release this evening and if they are more cautious than the monetary policy statement, it could accelerate the losses in AUD
Here are our LIVE Trades
1. USD/JPY
Place Order to Buy 1 lot USD/JPY at 120.32 TRIGGERED
Place Order to Buy 1 More at 118.64 TRIGGERED
AVERAGE IS 119.48
Stop for ALL at 116.72
2. EUR/USD
Place Order to Sell 1 Lot EUR/USD at 1.1370 TRIGGERED
Place Order to Sell1 More at 1.1570
Stop for ALL 1.1778
**Cancel EUR/GBP & EUR/USD Orders. 2 New Big Trade Orders
1. USD/JPY
Place Order to Buy 1 Lot USD/JPY at 119.47
Pending Order to Buy 1 More Lot at 117.70
Stop for ALL at 116.00
2. GBP/JPY
Place Order to Buy 1 Lot USD/JPY at 183.60
Pending Order to Buy 1 More Lot at 181.70
Stop for ALL at 179.70
The decline in U.S. equities this morning has taken many of the major currencies lower and we are hoping that the pullback will be extensive enough for us to reestablish our long dollar and short yen trades. While the market was disappointed by the Federal Reserve’s decision to leave rates unchanged, recent comments from U.S. officials indicate that most policymakers are still planning for a rate hike this year. We have been looking for USD/JPY to pullback and use that opportunity to reload our long dollar positions. There are no major U.S. economic reports this week but a recovery in USD/JPY could be driven by Japanese data.
Japanese markets are closed until Thursday but when they open, Japan is expected to report that core inflation fell below zero for the first time since April 2013. Between this “bad news” and S&P’s recent downgrade of Japan, a further slide in the Yen is likely. For this reason, we like SELLING JPY versus the USD and GBP. If the Fed maintains its view that rates will rise this year, the market will also maintain its view that the BoE could raise rates in early 2016. Hawkish comments from UK policymakers in the face of weaker data indicates that policymakers are are open to the idea.
BK Big Trades – 2 New Post FOMC Orders
1. USD/CAD
Place Order to Sell 1 Lot USD/CAD at 1.3127
Place Order to Sell1 More at 1.3280
Stop for ALL 1.3480
2. EUR/USD
Place Order to Sell 1 Lot EUR/USD at 1.1470
Place Order to Sell1 More at 1.1670
Stop for ALL 1.1790
We are laying out 2 Big Trade orders post FOMC. The Federal Reserve left interest rates unchanged today, citing uncertainty abroad and slightly softer inflation, which is bearish for the U.S. dollar but as Yellen indicated, recent developments have not fundamentally altered their outlook for the U.S. economy. She said every meeting is a live meeting and an unscheduled press conference could be held in October if needed. We don’t believe that will happen but December remains a strong possibility for a hike. We like selling USD/CAD in the near term because the lack of a rate hike could cause additional weakness in the dollar and lift oil prices. This “risk on” sentiment should drive USD/CAD to 1.3000 especially if Friday’s CPI report surprises to the upside like we anticipate. We like laying out orders higher to sell EUR/USD because ECB officials continue to talk of the possibility of more QE, which should limit the gains in the single currency.
