Awaiting US GDP – Forex Trading Tips

Our standing trade call for the moment is to buy USD from levels of support and resistance after decent pullbacks. Both AUD and NZD are bearish at the moment due to increased chances of cuts later in the year. We will be awaiting US GDP data before entering dollar positions. Pullbacks without fundamentally strong reasons in the dollar should be viewed as buying opportunities.

Current Sentiment:

Yesterday’s price action for the dollar was mixed as it strengthened against all counterparts early in the day, then proceeded to weaken against others. Weekly Jobless claims were worse than expected, then Pending Home Sales came in much better. This better reading was not enough to force the dollar higher across the board after an already exhaustive rally over the past fortnight. Antipodeans did under-perform against the greenback on speculation of monetary policy easing biases.

This morning’s Asian session saw some medium impact data from New Zealand with Building Permits coming in lower than prior then ANZ Business Confidence at the worst level in 6 months at 15.7. Downside was seen in NZD with Kiwi down 60 pips after bouncing off identifiable resistance confluence between the 72 handle and the daily pivot line.

Fundamentals:

The USD remains the strongest currency in the longer term, and the short-term sentiment now matches this bullishness. Friday’s CPI along with positive data on Tuesday has reaffirmed USD strength amid speculation of a rate hike by September.

The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue. If Greece fails to make any of their imminent repayments, the euro will be pressured further.

GBP is looking at a rate hike in the next 12 months but currently has bearish sentiment due to the weaker than expected GDP reading. We will need further data to assess how long this bearish sentiment will remain.

AUD has changed to a downward bias after the poor Capex data. This may weigh on the upcoming GDP reading. The RBA may consider further cuts this year. Recent strength in USD combined with low commodities prices forecasts will likely weigh on AUD in the weeks ahead.

NZD has a chance of decreasing interest rates in coming months. The Overnight Index Swap market is pricing a 51% chance of a June 11 cut. Several major banks predict a cut in both June and July, while NZIER expects the RBNZ to remain on hold for at least the rest of the year, as they believe the central bank cannot afford to boost the overheating housing market.

CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD. Last Friday’s CPI and Retail Sales came in worse than expected which is negative for CAD.

JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. This move is expected to continue. Sentiment on the JPY can turn bullish quickly if there is major uncertainty in the markets.

CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.

Technicals:

We will be monitoring levels of support and resistance in unison with any impactful news in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).

Other Market Moving News:

Today’s main event is GDP from US. GDP from Canada will be released simultaneously, however as this is a monthly number it has comparatively less impact than quarterly releases. G7 meetings are ongoing.

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