Image Source: Unsplash

Fundamental Analysis & Market Sentiment

I previously wrote on Sunday, June 23 that the best trade opportunities for the week were likely to be:

1. Long of the USD/JPY currency pair. This produced a gain of 0.67%.
2. Long of the AUD/JPY currency cross. This produced a gain of 1.13%.
3. Long of the NZD/JPY currency cross following a daily close above ¥97.79. This did not set up.
4. Short of the USD/ZAR currency pair following a rejection of the resistance area at 18.18 to 18.25, targeting 17.60. This trade produced a loss.
5. Long of the Nasdaq 100 Index following a daily close above 20,000. This did not set up.
6. Long of the S&P 500 Index following a daily close above 5,500. This did not set up.

The overall result was a net gain of 1.80%, minus whatever was risked on the USD/ZAR trade. Last week’s key takeaways were:

1. US Core PCE Price Index data increased by 0.1% month-on-month, per market expectations. This is the Fed's favorite inflation indicator, so it is closely watched. The increase was lower than the previous month’s.
2. Australian and Canadian CPI data came in higher than expected. Australia's annualized rate increased from 3.6% to 4.0% when a rate of only 3.8% was expected. Canadian CPI saw a month-on-month increase of 0.6% when an increase of only 0.3% was expected. The data may have contributed to a sense that global inflation is not declining as hoped for.
3. US Final GDP data confirmed that the US economy is growing at an annualized rate of 1.4%, as expected.

Another key event is the strong showing by far-right parties in polls concerning the general election in France following the far-right's victory in the European Parliament elections. The final opinion poll shows the National Rally party taking 37% of the vote, which could even give the party a Parliamentary majority after the second round of voting next week.

Other important data releases last week were:

1. US Pending Home Sales – this came in well below expectations, suggesting slower demand for housing, which in turn suggests a slowing economy.
2. US CB Consumer Confidence – this came in almost exactly as expected.
3. US New Home Sales – this came in just slightly below expectations.
4. US Unemployment Claims – this came in as expected.
5. Canadian GDP showed a 0.3% month-on-month increase, exactly as expected.

The Week Ahead: July 1-5, 2024

The most important items over this coming week will be:

1. US FOMC Meeting Minutes.
2. US Non-Farm Payrolls / Average Hourly Earnings.
3. Eurozone CPI Flash Estimate.
4. German Preliminary CPI.
5. Swiss CPI.
6. French Parliamentary Elections, first round. The far right's weaker-than-expected showing might boost the euro.
7. UK Parliamentary Elections. A Labour landslide is a forgone conclusion.

Other major data releases due this week are:

1. Chinese Manufacturing PMI
2. US ISM Manufacturing PMI
3. US ISM Services PMI
4. US Unemployment Claims
5. Canadian Unemployment Rate

It should be noted that Thursday will be a public holiday in the US.

Monthly Forecast for July 2024

(Click on image to enlarge)

I made no monthly forecast last month. This month, I forecast that the USD/JPY currency pair will increase in value.

Weekly Forecast for Sunday, June 30, 2024

Last week, I made no weekly forecast, as there were no unusually large swings in any Forex currency crosses, which is the basis of my weekly trading strategy. Again, I have no weekly forecast, as this situation is unchanged.

Directional volatility in the Forex market fell last week, as only 11% of the most important currency pairs fluctuated by more than 1%. Throughout the trading week, the Australian dollar showed relative strength, while the Japanese yen showed relative weakness.

Key Support/Resistance Levels for Popular Pairs

Technical Analysis - US Dollar Index

The US Dollar Index printed a doji candlestick last week, which closed just above the previous week’s high. A doji candlestick at a swing high or low, such as this one, suggests indecision.

This analysis is reinforced by the fact that the price action was contained just below the descending trend line above, the horizontal resistance level at 105.80, and the round number at 106.00. This suggests that the price is trying to make a bullish breakout beyond this area, which would be technically significant, but it is failing to achieve it so far.

There is a bullish long-term trend as the price is above its levels from three months ago and its price of six months ago. This trend is now looking more solid. However, bulls need to generate a sustained breakout beyond 106.00 before we will see truly strong technical bullishness here.

It may make sense to trade the US dollar long now, but I will feel much more comfortable doing that once we get daily closes of this Index above 105.80, a bit below 106.00. I see the dollar as a bit of a sideshow, with the Forex market currently driven by weakness in the Japanese yen and strength in the Australian dollar.

(Click on image to enlarge)

USD/JPY

The USD/JPY currency pair printed a bullish candlestick last week, once again making a record-high weekly close, closing not far from the high of its weekly range. The closing price was only about 35 pips below the multi-decade high price earlier in the week.

The Japanese yen has been showing a real long-term weakness as the Bank of Japan continues to stall in changing its ultra-loose monetary policy.

The US dollar has become a better currency to use on the long side to exploit the yen's weakness, as it is moving within a long-term bullish trend. However, there are other yen crosses that it may be better to be long of over the coming week, as the Dollar Index seems somewhat stuck below key resistance.

Long trades may work out well here over the coming week. However, bulls need to beware of potential sudden intervention by the Bank of Japan or profit-taking when key psychological levels such as JPY162.00 or the high of JPY161.23 are reached. As a trend trader, I am very happy to be long of this currency pair. 

(Click on image to enlarge)

AUD/JPY 

I expected to see the AUD/JPY currency cross rise strongly last week, continuing its long-term bullish trend as it reaches new long-term high prices. It is worth noting that the Australian dollar was the strongest major currency last week and has consistently gained over the past year against other currencies, so it is showing a bullish long-term trend.

On the other side of this currency cross, the Japanese yen is weak, which is the major defining feature of the Forex market right now. There are good reasons to be long of this currency cross – both the short-term momentum and the long-term trends in the market support taking this position. I see this cross as a buy.

(Click on image to enlarge)

EUR/JPY

The EUR/JPY currency cross rose firmly during the week, continuing its strong long-term bullish trend as it reached new long-term high prices. Interestingly, the euro performed quite well last week while France seems set to elect a government that will cause a political earthquake at the heart of the Eurozone. If the result is not as favorable to the far right as polls suggest, we could see a stronger bullish move in the euro.

As previously discussed, there are reasons to be short of the Japanese yen. As the euro is showing some momentum, this cross may be a good one to use to try to exploit that, but it makes sense to watch for the exit polls from France first before entering any new trade here at the start of this week.

(Click on image to enlarge)

CAD/JPY

The CAD/JPY currency cross rose firmly last week, continuing its long-term bullish trend as it reached new long-term high prices. The Canadian dollar performed quite well last week after Canadian CPI data showed inflation is running a bit hotter than expected, which caused a small hawkish tilt on rates, boosting the relative value of the Canadian dollar.

As the Canadian dollar is showing some momentum supported by data, the currency cross with the Japanese yen may be a good one to exploit over the coming week.

(Click on image to enlarge)

EUR/USD

The EUR/USD currency pair hardly moved much last week. However, the coming week could be much more interesting, with the markets expecting a strong showing by the far right the French Parliamentary election. If their performance is even stronger than expected, we could see the euro take a hit. If significantly worse, the euro could get a bounce.

The US dollar is in a bullish long-term trend which could reassert itself with short-term momentum soon, and if the euro is also being sold, this could produce a strong move here. It will be worth keeping an eye on the EUR/USD currency pair this week. The biggest opportunity is likely to be a short trade below $1.0686.

(Click on image to enlarge)

AUD/USD

As expected, the AUD/USD currency pair maintained potential support at $0.6631. The H1 price chart below shows how an inside bar, marked by the upward arrow, rejected this support level near the start of last Monday's Tokyo session, signaling the timing of this bullish rejection.

This trade was nicely profitable, giving a maximum reward-to-risk ratio of approximately 3 to 1. Although the Australian dollar is strong and in a long-term bullish trend, the action here is likely to stay quite choppy, as the US dollar is also relatively strong and moving within a long-term bullish trend.

(Click on image to enlarge)

Nasdaq 100 Index

The Nasdaq 100 Index reached a new all-time high two weeks ago above the huge, round number of 20,000. However, although the price briefly traded above the huge, round number at 20,000 last week, the price quickly fell back to end the week as an indecisive doji candlestick.

The price action suggests there continues to be strong profit-taking above 20,000. However, the bearish price movements we see are not large drops, and the price remains relatively close to the high made earlier in the week.

It makes sense to be bullish on this major stock market index when it has recently made a new record high. Historical precedent shows this tends to produce further gains quickly. However, it will be prudent to wait for a daily close above 20,000 to prove that bulls truly seem to be in control.

I, therefore, see the Nasdaq 100 Index as a buy following a daily close above 20,000.

(Click on image to enlarge)

Bottom Line

I see the best trading opportunities this week as follows:

1. Long of the USD/JPY currency pair.
2. Long of the AUD/JPY currency cross.
3. Long of the CAD/JPY currency cross.
4. Long of the Nasdaq 100 Index following a daily close above 20,000.

More By This Author: