Market Analysis: Uncertainty Drives the Markets

Market Analysis: Uncertainty Drives the Markets

by Christala Parmaxi, CFTe

Overview

The world is in chaos and the markets are following. Another terror attack in the UK, less than 140k jobs were added in May in the USA, April’s NFP was revised downwards by 37k, the UK elections are the next important event in the country; monetary policy changes are due to several major economies and the extreme volatility of the oil price is driving the commodity currencies. Of course, the uncertainty gives an opportunity to safe haven currencies since the Yen and Swiss Franc are appreciating against their major counterparties. The Yen broke the strong support of 110 against the US Dollar and Gold expanded up to session highs around the price of USD1289.

The hot topic in UK politics is the Election polls that boosted the GBP higher yesterday since they are in favor of the Conservative party. The Cable turned to session highs today reaching the level of 1.2948 while EURGBP fell as low as 0.8691 failing to break the daily high of 0.8766 and keeping the pair within a rectangle formation on this timeframe. The lower than expected economic release of May’s Services PMI did not manage to keep the Pound low as the bulls are trying to keep the pair above the psychological level of 1.29. The Services PMI was released at 53.8 units, 1.2 units below expectations and 2 units below April’s data.

In the meantime, the Canadian Dollar surged after the announcement that four Arab countries led by Saudi Arabia cut their diplomatic ties with Qatar but the gains did not hold long. Any new information on oil cut production is driving oil price, and consequently the Canadian Dollar price, higher. However, the big news will come from the OPEC negotiations on whether to cut the output or not. As long as the announcements are in favor of output cut, we expect the Canadian Dollar to reach higher and thus USDCAD to sink.

The Reserve Bank of Australia held its monetary policy meeting during the Asian session today, where it kept its cash rate stable at 1.5% as it was widely expected. The policymakers stated that they expect inflation to rise gradually while the labor market is getting stronger. The Aussie lost some of its latest strength against the US Dollar during the meeting but it did not take it long to recover. However, the daily chart indicates some strong levels of resistance around the psychological level of 0.75 and Bollinger’s upper band.

Technical View

AUDUSD

The pair is running on a sharp uptrend on the hourly chart but the prevailing daily downtrend has not been broken yet. On the daily chart the RSI is slopping downwards trying to break the equilibrium level of 50, indicating an early sign of weakness of the upside correction. Moreover, ADX indicates no clear directional movement which is again a sign of a turning point while MACD has never managed to cross its bearish level. The critical resistances are near 0.75, 0.755 and 0.76 while the supports are 0.7423, 0.737 and 0.7325.

The 1-hour chart is still on an uptrend, with RSI slopping upwards but MACD slopping downwards. Again, ADX indicates no clear direction. If the pair manages to cross the resistance of 0.75 to the upside then we would expect it to go higher around 0.7515 and 0.7555 consequently. The downside risks are near the supports of 0.7463 which coincides with Bollinger lower band and the previous high and 0.7423 upon penetration.

GBPUSD

The cable is running on a symmetrical upward slopping channel and above the triple SMAs. MACD is above its equilibrium level while RSI slopped downwards due to the last few corrective candles. At the time of writing, the pair is near the critical support of 1.29 but the bulls do not seem willing to let the bears break it. This support coincides with both SMA50 and Bollinger’s lower band, giving it even more strength. However, if the support breaks, we see the pair crossing SMA50 downwards reaching the support of 1.286. But since the odds are always in favor of the prevailing trend, then next resistance levels to be watched are near 1.293 and 1.295.

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