Image Source: Pixabay

Fundamental Analysis & Market Sentiment

I previously wrote on May 19 that the best trade opportunities for the week were likely to be:

1. Long of the S&P 500 Index. This produced a loss of 0.01%.
2. Long of the Nasdaq 100 Index following a daily close above 18613. This set up on Monday and produced a win of 0.72%.
3. Long of gold. This produced a loss of 3.34%.
4. Long of silver. This produced a loss of 3.61%.

The overall result was a net loss of 6.24%, resulting in a loss of 1.56% per asset.

Last week’s key takeaway was the more hawkish rhetoric on the fight against inflation from the US Federal Reserve’s recent meeting minutes, which triggered a minor boost to the greenback, but sent many commodities tumbling: notably precious metals such as gold and silver, which ended the week well off their recent highs. However, according to the CME FedWatch tool, a majority still expect the first rate cut to happen at the Fed’s September meeting.

Another major event was the policy release by the Reserve Bank of New Zealand, which held its Official Cash Rate at 5.50% as widely expected, but its Rate Statement delivered a minor hawkish surprise in its language on rates and inflation, boosting the kiwi somewhat.

The other two most important data releases were UK and Canadian CPI (inflation). Canadian inflation came in exactly as expected, but UK inflation has fallen more slowly than the market expected to see, which helped boost the pound.

Other important data releases last week were:

1. US Revised UoM Consumer Sentiment – this came in just a little higher than expected.
2. UK Retail Sales – this was much worse than expected, showing a month-on-month decline of 2.3%, suggesting consumer spending is in trouble.
3. Flash Services / Manufacturing PMI in USA, Germany, UK, and France – this came in slightly better than expected.
4. US Unemployment Claims – this came in slightly better than expected.

The Week Ahead: May 27-31, 2024

The most important items over this coming week will be the release of US Core CPI Price Index data, which is expected to show a month-on-month increase of only 0.2%, followed by US Preliminary GDP data, which is expected to show annualized GDP growth in the US has fallen to 1.3%. Apart from that, there are several other important releases scheduled, listed in order of likely importance:

1. Australian CPI
2. German Preliminary CPI
3. US CB Consumer Confidence
4. The Governor of the Bank of Japan will be giving a minor speech.
5. Canadian GDP
6. US Unemployment Claims
7. US Pending Home Sales
8. Chinese Manufacturing PMI

Monthly Forecast for May 2024

(Click on image to enlarge)

As May got underway, the long-term trend in the US dollar was still unclear, so I provided no monthly forecast.

Weekly Forecast for Sunday, May 26, 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.

Directional volatility in the Forex market declined last week, as only 11% of the most important currency pairs fluctuated by more than 1%. Last week, the British pound 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 weakly bullish inside bar last week, which closed within the lower half of its range. The support level at 104.00 held and produced a small bullish bounce, as did the steeply ascending trend line shown in the price below, which was supportive.

This is an inner trend line within the dominant consolidating triangle chart pattern. There is also a bullish long-term trend, as the price is now above its levels from three months ago and its price of six months ago.

The weekly price chart below shows that the dollar has been swinging but has been in a consolidation pattern for quite a while, and although the price faces a lot of closely packed resistance just above its current levels, it is not very far from making a significant bullish breakout.

It may make sense to trade the US dollar long now, but I will feel much more comfortable doing that once we start getting daily closes of this Index above 105.80.

(Click on image to enlarge)

GBP/USD

I expected that the GBP/USD currency pair would have potential resistance at $1.2759.

The H1 price chart below shows how this support level was rejected right at the start of last Wednesday’s London session by an inside bar, marked by the downward arrow, signaling the timing of this bearish rejection. Note that this can be an excellent time of day to enter a trade in a currency pair involving the British pound, such as this one.

This trade has been profitable so far, giving a maximum reward-to-risk ratio of approximately 2 to 1.

(Click on image to enlarge)

USD/JPY

The USD/JPY currency pair rose firmly during the week, printing higher support levels which held well. The price ended the week quite near its high, which is a bullish sign.

There is weakness in the Japanese yen which, apart from the stronger US dollar, is the major defining feature of the Forex market right now. This is a good reason to be short of the Japanese yen, although certain yen crosses may be better vehicles than this currency pair to exploit that.

I would prefer to wait for a daily close above JPY158.28 before entering any new long trades here, as the price will again be closing at long-term high closing prices if that happens.

(Click on image to enlarge)

GBP/JPY

The GBP/JPY currency cross rose strongly during the week, printing higher support levels which held well. The price similarly ended the week quite near its high, which is a bullish sign.

As previously mentioned, there is good reason to be short of the Japanese yen, and the British pound is one of the strongest major currencies. This suggests that this currency cross could be a great vehicle to use to take advantage of any yen weakness over the coming week.

When trading this cross, it helps to check support and resistance levels in the USD/JPY and GBP/USD currency pairs to be sure the price can rise or fall relatively easier. I think a firm breakout beyond last week’s high would be the best signal for a long trade entry.

(Click on image to enlarge)

EUR/JPY

The EUR/JPY currency cross also rose firmly during the week. The price ended the week quite near its high, which is a bullish sign, as is the fact that it closed at a multi-year high. The price chart below shows that there is a powerful and seemingly durable bullish trend which has been running since before 2024 began.

The euro is one of the stronger major currencies, although the British pound is even stronger. When trading this cross, it helps to check support and resistance levels in the USD/JPY and EUR/USD currency pairs to be sure the price can rise or fall relatively easier.

I think a bullish bounce following a retracement to JPY170.19 could be a good signal for a long trade entry.

(Click on image to enlarge)

Silver

The price of silver topped at the major quarter-number of $32.50 last week, before falling more sharply. The other major precious metal, gold, also took a hit. I argue that silver, technically, looks more bullish than gold, or at least has a better chance of recovering soon to make new highs again. This is because the price got a bit of a bullish bounce just above the big round number at $30.00.

Just below $30, there is a key support level at $29.85. I think this will very likely be next week’s pivotal point, so a bullish bounce which rejects both $30.00 and $29.85 could be an excellent entry signal for a new long trade.

(Click on image to enlarge)

Nasdaq 100 Index

For the fifth week in a row, the Nasdaq 100 Index rose again last week. For the second week in a row, it closed at a new all-time high. These are bullish signs. Bulls should note that there is a meaningful upper wick, but the price ended the week advancing after an earlier dip, so the most recent price action was showing short-term bullish momentum. It is also notable that this tech index is outperforming the broader S&P 500 Index.

It makes sense to be bullish on this major stock market index when it is rising firmly to make new record highs. Historic precedent shows this tends to produce further gains quickly. I therefore see the Nasdaq 100 Index as a buy.

(Click on image to enlarge)

Bottom Line

I see the best trading opportunities this week as follows:

1. Long of the Nasdaq 100 Index.
2. Long of silver following a bullish bounce rejecting $30.00 and $29.85.
3. Long of the GBP/JPY currency cross following sustained bullish price action above last week’s high price at JPY200.06.

More By This Author: