Asia extends Friday’s positive mood

 

Positive trends remain in place

Asian markets were steady to firmer in muted, holiday-thinned trade due to the start of the week-long Japanese holidays. Equity markets took their cue from the positive close on Wall Street on Friday while currency markets showed mild risk-on tendencies.

AUD/USD climbed 0.23% to 0.7055 while AUD/JPY added 0.29% to 78.73. USD/JPY only managed gains of 0.05% to 111.60, just above the 200-day moving average at 111.50.

USD/JPY Daily Chart

Source: OANDA fxTrade

Next leg of US-China trade talks set to begin

US press reported that US Treasury Secretary Mnuchin was upbeat ahead of the next round of trade talks due to begin in Beijing tomorrow. He commented that negotiations with China were “in the final laps”, repeating similar comments made a couple of weeks ago.

 

Dodging the information avalanche

 

EUR/USD edging higher after Spanish election

EUR/USD managed to eke out small gains as Spanish PM’s Socialists Party wins 123 seats with 97% of the votes counted. While he appears not to have the required majority of 176 seats, and will need to form a coalition government, the lack of a major political shift was seen as a positive. EUR/USD is up 0.12% at 1.1157.

EUR/USD Daily Chart

Source: OANDA fxTrade

Calm on the data front

It’s a relatively slow start to the week on the data front, but will gradually build up steam into the US non-farm payroll report on Friday,

Today we see numerous Euro-zone confidence indicators for April, ranging from consumer confidence to business climate to economic sentiment. Forecasts are suggesting either a steady or deteriorating bias. The US calendar features personal consumption expenditure price indices, both headline and core, and estimates are implying not much change from the previous month’s reading.

The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dodging the information avalanche

Prepared by Jeff Halley, Senior Market Analyst

 

Dodging the information avalanche

It’s difficult to know where to start this week. We’re expecting a veritable information avalanche with central bank rate decisions, trade talks, earnings and more data releases globally than you can shake a stick at. Weeks like this can be daunting, often causing traders to tie themselves up in knots. As such, it makes more sense to break the week down and take things one day at a time – the markets certainly will.

We can expect flip flops in sentiment each day, but by the end of the week the street should have a much clearer idea of the health of the world economy, the direction of US interest rates and the state of the US-China trade talks – the key macroeconomic event for the first half of 2019, if not the year.

Circling back to Friday and the galactic US GDP print of 3.2% annualised growth, this should be taken with a pinch of salt. Stockpiled inventories accounted for nearly half the number, bringing it much closer to market forecasts. My interpretation is that American businesses are still stockpiling goods as a hedge against a breakdown in US-China trade talks. Of course, they now have to actually sell them, but such details didn’t bother the equity markets with both the S&P 500 and Nasdaq closing at record highs on Friday. The S&P jumped 0.47%, the Nasdaq rose 0.34%, and the Dow Jones was up 0.31%.

As earnings season continues, Tech heavyweights Alphabet and Apple will report after the market closes tonight and tomorrow. The US-China trade talks recommence in Beijing on Tuesday, and although news has been quiet on this front of late, progress appears to be moving steadily forward. The Bank of England rate decision on Thursday will likely be a non-event, with the grand old Lady of Threadneedle Street on hold until Brexit occurs, one way or another – or not at all. We shall be on hold for a very long time then, or not.

The Federal Open Market Committee’s (FOMC) meeting starts tomorrow with a Fed Funds rate decision on Wednesday. While not expected to move, the devil will be in the detail of the statement as investors search for clues as to which way US rates will move. US data has been on a roll this year since the Fed’s dovish turn, and traders will be nervously watching for changes in its dovish outlook. My guess is these nerves are misplaced, and the Fed will happily keep its powder dry with the optionality to cut if needed. Just about every other central bank in the world has also moved to either a neutral or accommodative stance in Q1 as a result of the current two-speed global economic environment. Unlike the President, the Fed knows the US is not an island and will act as such.

Non-Farm Payrolls will finish the week with a flurry, but there’s plenty of data from the rest of the world to keep an eye on. The European Union releases business confidence today, GDP tomorrow and manufacturing PMI on Thursday. The Spanish Socialists Workers’ Party election win overnight will bring a sigh of relief from Europe, but not much else. Data from within the region continues to demonstrate anaemic performance and a poor showing this week could really start to weigh on the euro itself, particularly if the US continues its bright form.

Asia will have a rush of mid-week holidays for 1 May as it contends with an extended Japan Golden Week break. Volumes and liquidity are likely to be greatly reduced over the next ten days but this week itself sees a slew of regional data released. Taiwan consumer confidence, Vietnam inflation, Singapore property price index and Hong King’s trade balance all hit the wires today with South Korean industrial production, retail sales and China non-manufacturing PMI tomorrow. Korean balance of trade appears on Wednesday before a raft of regional PMIs and Caixin China non-manufacturing PMI on Thursday. Excluding China, Asia’s performance of late has been underwhelming, to say the least, and investors will be hoping that this week’s releases show the region is slowing coat-tailing China’s rise of the canvas.

Equities

Golden Week in Japan and the impending Labour Day holiday mid-week will likely lead to a subdued start to the week. That said, Wall Street’s impressive close could see regional bourses starting in the green. This exuberance will likely be tempered by the sheer volume of data released this week, as well as US-China trade politics. A continuing poor performance from the region’s economic indicators could cap any gains driven by Wall Street as the week progresses.

Currencies

The dollar finished Friday mixed after steamrollering all that stood before it last week. Trading had a definite pre-weekend profit-taking look about it, and barring any surprises in the US, we could see normal service resume and the dollar continue on its schoolyard bullying way, supported by data and high yields in a low-yield world. Asian currencies could be particularly vulnerable if this week’s data dump is poor, most notably the Australian dollar (AUD), as the lucky country heads into a Federal election with zero inflation, record low rates and a tanking housing market. The euro (EUR) rounds out the list, having failed to regain 1.1200 against the dollar last week. European data suggests the region itself is the new “English Patient”. Now there’s irony for you.

Oil

What goes up must come down, and on Friday it was oil’s turn to be stretchered off as Brent Crude tumbled 3.5% to USD71.60 a barrel. WTI was also holed below the waterline, falling 3.6% to USD63.00 a barrel. The sell-off occurred after President Trump announced he had called OPEC and told them the cost of oil was too high and to start pushing prices down. However, without stealing the President’s fire and brimstone, the sell-off is much more likely to have been caused by highly over-extended long positioning running into the end of the week. I must congratulate the President on his timing though.

With both contracts driven to seriously overbought levels by geopolitics, it was really a matter of when and not if an aggressive correction would occur. It does appear that USD75.00 a barrel for Brent Crude is a near-term top and we will need to see more developments and/or consolidation before the street is prepared to retest. A poor showing by global data releases over this week could leave both contracts vulnerable to a deeper correction, even though the fundamentals for oil remain constructive.

Gold

Gold rallied to USD1,285.50 on Friday, tracing out a two-week high for the yellow metal. Gold bugs should probably hold off breaking open the champagne, however. Week-end squaring, a mixed US dollar performance and poor US personal consumption data on Friday were likely the main drivers of gold’s rally, not a structural change in sentiment or gold market dynamics. The yellow metal should continue to benefit from geopolitical and data risk as well as reduced liquidity, but support will manifest itself as buyers on dips rather than traders chasing prices aggressively higher.

 

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Daily Markets Broadcast 2019-04-29

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Dollar could see big moves after Trade talks, Fed, Earnings and NFP

US stocks are back in style and riding momentum from fresh queues that the economy is doing well.  Friday’s better than expected US first quarter GDP reading of 3.2% was mainly supported on strong trade and inventory data, but the key takeaway remains the underlying economy is well and is not nearing a recession anytime soon.  The dollar last week rallied strong on the better than expected economic data and robust demand for US equities.

USD – Trade talks and FOMC meeting begins on Tuesday

EUR – Spanish polls see Socialist Majority with Catalan Moderates

Volatility – VIX short bets rise to highest on record

Stocks – Alphabet reports after the close

Oil – Putin: No news that anyone wants to exit production cut agreements

Gold – Needs dovish Fed to stave off sellers 

USD

The dollar could be vulnerable ahead of a big week that includes another round of trade talks and the May 1st FOMC rate decision.  The Fed probably wants this meeting to be a non-event and it could be if they stick to the script.  The US economy is performing better than what most Fed officials thought and they may need to acknowledge the slowdown was temporary.  They may choose to focus on low inflation and the possibility of easing, and that alone would help drive the dollar lower.  If they are much more optimistic on the economy and see an eventual upturn for inflation, we could see the dollar resume on marching higher.  The base case is for the Fed to remain patient on the data and concerned on inflation.  If that is the case, we could see high-beta currencies rally against the greenback.

On Tuesday, Treasury Secretary Mnuchin and US Trade Representative Lighthizer return to Beijing for another round of talks that will focus on intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases and enforcement. President Xi delivered many assurances with his speech at the Belt and Road Forum in Beijing. If President Trump signals to his team he is content with the latest concessions, we could see a final meeting setup later in May.

EUR

Euro opened slightly positive in early Asia-Pacific trade after Spain’s incumbent Prime Minister Pedro Sanchez appeared set to win the general election and could form a government with Catalan support.  This election appears to be positive for the euro and for stability for Spain’s economy.  The euro also received some support from S&P’s decision to keep Italy’s sovereign rating at BBB, which is just two notches in investment grade territory.   They did keep the outlook at negative, but that was expected.  Italy should see some relief in the bond market on Monday.

VIX

Volatility has been nowhere to find for many FX traders and hedge funds seem to believe that trend is not going to change anytime soon.  The latest CFTC numbers show big bets were short the VIX by about 178,000 future contracts, the largest amount since they kept records in 2004.  While the VIX posted a gain last week, it remains in a downward trend and is currently 30% lower than the average over the last 20 years.  Short VIX bets could be ripe for a short squeeze here, but the overall macro drivers do appear poised to support the downward move.

Stocks

Google parent company Alphabet Inc. reports after the close. Expectations are for earnings per share to fall after taking a $1.7 billion antitrust fine from the EU. Revenues are expected to remain strong with a slightly over 21% annual gain to over $30 billion. Results from Facebook lead many analysts to believe Google should see strong mobile ads.  Strong results from Google could help keep the Nasdaq delivering fresh record highs.

Oil

Crude prices had their first major weekly decline in months as it appears momentum from the OPEC + production cuts and ending of sanction waivers on Iranian crude have run out of steam.  Oil was ripe for a pullback and West Texas Intermediate crude may find strong support from the $60 a barrel level.

Over the week, Russian President Putin told reporters in Beijing, ““We have agreements within the OPEC+. We fulfill our agreements and we don’t have any news, any information, from our Saudi partners and any other OPEC member, that they are ready to exit these agreements.”.  Markets are focused on whether or not China remains critical of the US decision on ending of waivers on purchasing Iranian crude.  Putin took the opportunity to say Russia would be willing to meet China’s oil demand needs.  Which would imply the Russians are eager to ramp up production.

Russia appears to have every reason to resume ramping up production levels and the base case should start to become we will not see OPEC + agree upon extending production cuts with tweaks to cover the shortfall from Iran.  If we do see an agreement, it would be surprising if we did see the Russians deliver 100% compliance.  The Russian President did not deliver any updates on the contaminated oil in the Druzhba pipeline to Europe.

Oil remains very vulnerable here, but we could see some range trading here until Wednesday’s Fed meeting.  If we do see the Fed become more concern with low inflation and hint that we could see an insurance rate cut, that could provide a major dollar reversal, which should help propel risk assets and stabilize any weakness we see with crude early in the week.

Crude prices are slowly losing some of the key catalysts from this major rally and if we see the velocity in rising US production heat up, sellers may become in control in the short-term.

The alleviation of global growth concerns will likely see a pickup in demand for oil, while the supply side argument will likely become bearish in the coming months.  If we see a major dollar reversal, that should help oil prices become supported on any major selloffs.

Gold

The precious metal did not break last week despite major dollar strength in the first half of the week.  The big event for this week could be the Fed’s rate decision on Wednesday.  If they signal that we could see a rate cut later in the year, that could be the key catalyst for gold to regain bullish momentum.

The Fed is likely to wait until after the summer if they were to signal a rate cut, but if they are overly concerned with tame inflation, they could tee up a cut sooner for the end of the year.

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏

Ed Moya

Ed Moya

Can Tech giants Alphabet and Apple keep the Nasdaq rally going?

OANDA Corporation is a registered Futures Commission Merchant and Retail Foreign Exchange Dealer with the Commodity Futures Trading Commission and is a member of the National Futures Association. No: 0325821. Please refer to the NFA’s FOREX INVESTOR ALERT where appropriate.

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OANDA Australia Pty Ltd is regulated by the Australian Securities and Investments Commission ASIC (ABN 26 152 088 349, AFSL No. 412981) and provides and is the issuer of the products and/or services on this website. It’s important for you to consider the current Financial Service Guide (FSG), Product Disclosure Statement (‘PDS’), Account Terms and any other relevant OANDA documents before making any financial investment decisions. These documents can be found here.

OANDA Japan Co., Ltd. First Type I Financial Instruments Business Director of the Kanto Local Financial Bureau (Kin-sho) No. 2137 Institute Financial Futures Association subscriber number 1571.

Dollar rally stalls ahead of FOMC, NFP, Trade Talks, and Earnings

The US dollar rallied for most of the trading week, but gave back gains on Friday after the US first quarter GDP strong beat was supported by transitory factors and softer core PCE.  The headline showed US economic growth accelerated much faster than the high end of economists’ forecasts.  Net trade inventories and inventories were responsible for half the gains of GDP and personal consumption dropped sharply.  The kneejerk rally in the dollar was short-lived as rate cut expectations grew slightly.

  • FOMC meeting and Jobs data on tap next week
  • Big tech and Pharma highlight earnings on tap
  • Trade talks continue and China PMIs due
  • Loss of liquidity from Japan’s observance of Golden Week

USD

What is next for the US dollar?  After approaching two-year highs, with the last leg mainly being attributed to weakness in Europe, the dollar will look to take queues from the Wednesday’s Fed meeting and Friday’s nonfarm payroll report.  No change in policy is expected from the Fed, but investors will look for clues if they will say what is needed to occur for them to make a policy move.   The Fed is expected to make this meeting a non-event, but it could become one if they become optimistic on the economy.  On Friday, the April nonfarm payroll report is expected to see hiring create 185,000 new jobs, down from 196,000 in March.  The labor market remains the strong part of the economy, but we are starting to see some signs of weakness with job openings and jobless claims.

China

Two big risks for Asia will come from the next round of trade talks and another round of Chinese PMI readings.  This will also occur during Japan’s observance of Golden Week, which could mean exaggerated moves with yen crosses.

Treasury Secretary Mnuchin and US Trade Representative Lighthizer return to Beijing for another round of talks that will focus on intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases and enforcement.  President Xi delivered many assurances with his speech at the Belt and Road Forum in Beijing.  If President Trump signals to his team he is content with the latest concessions, we could see a final meeting setup later in May.

China’s Government PMI readings are also expected to remain in expansion territory, with the manufacturing reading rising from 50.5 to 50.6.

Earnings

So much for negative earnings forecasts.  Roughly a third of the way through earnings season and markets are happily surprised with the results.  Financials were mixed but optimistic on the consumer, tech has surprised to the upside and the consumer stocks have been mostly positive.  The next batch of results focus heavily on tech, pharmaceuticals, energy and transportation results.

Google parent company Alphabet Inc. delivers results on Monday, while Apple Inc. reports on Tuesday.  Healthcare results are expected from Pfizer, Merck, Eli Lilly, Amgen, GlaxoSmithKline, and Gilead.

Oil
Crude prices continued to slide from the six-month high made earlier in the week after President Trump tweeted “Spoke to Saudi Arabia and others about increasing oil flow. All are in agreement.”  The biggest fall with oil prices in four months is occurring despite the US ending sanction waivers for Iranian crude and a Russian supply outage.

The problem for oil bulls is that the market has been overly bid and there were hardly sellers in place.  The path of least resistance may be to the downside in the short-term.

Gold

The precious metal finished higher for a third consecutive day after markets dissected the US first quarter GDP beat that was accompanied with softer inflation and with components that suggest weakening consumer demand.

The broad-based dollar weakness also provided some much-needed support for gold prices.  Dovish expectations grew for the Fed following the data dump, but if we continue to see record highs in stocks, it will be most difficult for gold to break out much higher.

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏

Ed Moya

Ed Moya

Stocks rise slightly after strong GDP report

Stocks traded slightly higher on Friday as investors weighed better-than-expected economic data against a mixed batch of quarterly earnings.

The S&P 500 climbed 0.2%, while the Dow Jones Industrial Average rose 32 points. The Nasdaq Composite hovered around the flatline.

First-quarter gross domestic product was 3.2%, the Commerce Department said on Friday, topping the consensus economist estimate of 2.5%, according to Dow Jones. An increase in exports drove the increase. The better-than-expected print was driven by a rise in exports.
“The economic expansion will set new records for longevity in July and it looks like there is no stopping this economy,” said Chris Rupkey, chief financial economist at MUFG, in a note. “We had all but given up on the first quarter with the Federal government shutdown ending January 25, frigid winter weather conditions shutting down manufacturing production, and the fears of a world growth slowdown.”

“So far the fears are unfounded,” Rupkey said.

But stock gains were kept in check after companies like Exxon Mobil and Intel delivered quarterly reports that disappointed investors.

Dow member Exxon fell more than 2% after reporting quarterly earnings per share that badly missed analyst expectations. The company’s results were dragged down by poor performances in its refining and chemicals businesses. Intel, another Dow component, fell more than 10% after the company issued light revenue guidance for the year.

“The burden of proof is fairly high,” said Eric Wiegand, senior portfolio manager at U.S. Bank Wealth Management. “Investors’ appetite for companies that either disappoint or offer lower guidance on a go-forward basis tends to be met with a pretty sharp reaction.”

Those results overshadowed stronger-than-expected numbers from companies like Amazon and Ford Motor.

Amazon shares traded 0.7% higher after results topped expectations on Thursday and Wall Street analysts trumpeted its announced push to one-day delivery for Prime members.

Ford Motor, meanwhile, jumped 10% after issuing better-than-forecast quarterly numbers, which were driven by strong truck and SUV sales in North America.

Other companies that reported between Thursday afternoon and Friday morning include, Mattel, Starbucks and American Airlines.

CNBC

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏

Ed Moya

Ed Moya

OANDA Market Insights podcast (episode 62)

OANDA Corporation is a registered Futures Commission Merchant and Retail Foreign Exchange Dealer with the Commodity Futures Trading Commission and is a member of the National Futures Association. No: 0325821. Please refer to the NFA’s FOREX INVESTOR ALERT where appropriate.

OANDA (Canada) Corporation ULC accounts are available to anyone with a Canadian bank account. OANDA (Canada) Corporation ULC is regulated by the Investment Industry Regulatory Organization of Canada (IIROC), which includes IIROC’s online advisor check database (IIROC AdvisorReport), and customer accounts are protected by the Canadian Investor Protection Fund within specified limits. A brochure describing the nature and limits of coverage is available upon request or at www.cipf.ca.

OANDA Europe Limited is a company registered in England number 7110087 limited by shares with its registered office at Tower 42, Floor 9a, 25 Old Broad St, London EC2N 1HQ and is authorised and regulated by the Financial Conduct Authority, No: 542574.

OANDA Asia Pacific Pte Ltd (Co. Reg. No 200704926K) holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore and is also licenced by the International Enterprise Singapore.

OANDA Australia Pty Ltd is regulated by the Australian Securities and Investments Commission ASIC (ABN 26 152 088 349, AFSL No. 412981) and provides and is the issuer of the products and/or services on this website. It’s important for you to consider the current Financial Service Guide (FSG), Product Disclosure Statement (‘PDS’), Account Terms and any other relevant OANDA documents before making any financial investment decisions. These documents can be found here.

OANDA Japan Co., Ltd. First Type I Financial Instruments Business Director of the Kanto Local Financial Bureau (Kin-sho) No. 2137 Institute Financial Futures Association subscriber number 1571.

WTI crude – End of the road?

 WTI looking overstretched

Oil prices are spending a third day in the red, coming off the highs that were reached earlier in the week after the US announced it would not extend waivers on oil imports from Iran, which had previously been afforded to eight countries.

This was an unexpected development and triggered another rally in oil prices as traders weighed up the impact of up to a million barrels of oil disappearing, clearly not buying the line that the US, Saudi Arabia and UAE would fill the gap.

Inventory data will have contributed to declines of the last few days, with API and EIA both reporting large increases in stocks.

WTI Crude Daily Chart

OANDA fxTrade Advanced Charting Platform

Still, WTI remains in a good position, although they are looking a little overstretched to the upside at this point. The last couple of peaks have come amid slowing momentum which is typically a red flag and may indicate a correction in prices.

WTI is trading more than 3% lower at the time of writing and while this is being partially attributed to Trump’s claim that he called OPEC and told it to bring oil prices down, the move was already underway and when an instrument is overbought, it doesn’t tend to take much to trigger an oversized move. This is a prime example of that.

WTI now faces a big test around $61-62 range, with prior support and resistance combining with the 200 and 233-day simple moving averages to offer potential support. A break below here would be a very bearish development, with $57-58 being the next test.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dollar whipsaws following strong US Q1 GDP

GDP – Headline beat does not tell whole story

XI – Confirms trade deal is nearing

Oil – Short-term top in place

Gold- Sinks following solid GDP reading

GDP

3.2%!  The US economy grew at 3.2%, much higher than 2.3% consensus, and well above the 1.0% to 2.9% range.  It is a blockbuster number, but the components told a different story and with the dollar wrapping a solid week, we should not be surprised seeing a reversal following the release.

Net trade inventories and inventories were responsible for half the gains of GDP and Core PCE came in softer at 1.3%, well below the Fed’s target of 2.0%.  The complete story paints a mixed picture, with many believing the US economy, with the exception of the labor market is still slowing down.

–       USD: The dollar is now softer following the GDP report and we could see many investors unwind their bullish bets following the recent runup.

–       Treasury yields initially spiked higher but have reversed sharply following US GDP.  The 10-year yield dances around the 2.500% level.

Fed Fund futures had an interesting reaction following the 8:30am releases.  The strong GDP reading along with falling consumption and slightly softer inflation reading have increased rate cut expectations slightly for later in the year.  Expectations are at 25% for a rate cut at the June meeting and 50% at the September meeting.

XI
President Xi delivered personal commitments that China will deliver on several key trade deal issues with the US at his speech at the Belt and Road Forum in Beijing. China will deliver a new foreign investment law that will protect foreign companies from forced technology transfers, remove rules that support unfair competition, no more yuan depreciation and opening up China to further foreign investments.

Trade negotiations pick up again in Beijing next week and it appears we are inching closer to a final deal that is looking more likely to happen in May.

The yuan rallied on the last trading day of the week after central bank set the daily reference rate much stronger than what was expected.

Oil
Crude prices were unable to keep the recent rally going despite a Russian pipeline outage. Details on how long the outage will last are unknown, but it appears crude prices are taking a breather here. Russia has not disclosed any plans on fixing the organic chloride problem, but that could change today when they meet with representatives from Belarus, Poland, and Ukraine.

The over 40% rally in oil prices were mainly attributed to the success of the OPEC + production cuts, sanctions on Iranian crude, slower velocity in the increase of US production, and easing of global growth concerns in the US and China. Some of those key drivers however are changing. Saudi Arabia will need to stop over complying with their production cuts to make up for the Iranian shortfall. Russia’s compliance may be waning. US production is expected to continue to accelerate in the warmer months. Europe continues to drag down global growth, but this may be short-lived.

The oil rally may be ready for a stronger pullback after Brent failed to hold the $75 a barrel. The recent surge accelerated once price broke above $70 a barrel, but now it appears recent bullish catalysts have failed to accelerate the move higher.


Gold

The precious metal initially gave up most of its gains after a much better than expected first quarter GDP reading, but followed the general reversal that hit all the asset classes.  Gold is still on target to muster up a 3-day rally here.  It will be hard for gold prices to continue to stabilize here if the US economy remains this strong.

Goldman Sachs slashed their gold forecasts, but still remain bullish.  The 3-month forecast was lowered $50 to $1,300 and the 12-month target fell $75 to $1,375 an ounce.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏

Ed Moya

Ed Moya