Equity investors continued to sell yesterday pushing the key equity indices lower. DJIA and DAX took another heavy blow as the declining stocks outnumbered the advancers on NYSE by almost 10 to1. Gold rallied nicely as both a decline in yields and the risk aversion in stocks created new inflows into this safe-haven market. The risk of a re-run for the Euro-crisis with the yield of Italian government bonds rising sharply spooked investors. The dollar index took quite a beating closing down by roughly 1%. That’s almost three times the average daily volatility. USOIL traded down to my T1 level at 111.00 and rallied higher soon after. It might well be that the oil market is once again ready to trade higher. Commodity currencies found bidders yesterday after AUDUSD hit my scalping target on the downside. It was my view that the pair would be likely to first trade lower but that it might then move higher. Both scenarios played out nicely. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

After the weakness seen in the USD Index yesterday we could over the coming days see further strength in EURUSD and GBPUSD. Another big mover was the CHF which rallied strongly after a surprise 50 bp rate hike by the SNB. It seems that the dollar is losing the status of being the currency benefitting from the biggest interest rate differential projections. In other words, the other central banks are catching up and the expectations for the interest rate differential priced into the dollar is starting to erode. 

In today’s report, I provide you with trade ideas, analysis and key technical levels on

  • DAX
  • DJ
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DAX 8h chart 06 17 1

DAX is now trading below a key resistance area. We have Tuesday’s low at 13249 and the May 10th low at 13270. These levels are likely to be highly significant resistances. Now that the index has broken out of the range I talked about yesterday the downside target is only about 1% away from yesterday’s lows and still a valid target for swing trades. Alternatively, the market rallies back inside the range and moves to 13400. The key price levels for intraday trading today are 12945, 13015, 13189, 13223 and 13302.

DJ 8h chart 06 17

DJ looks pretty similar to DAX. The index is trading between a support and a resistance level. The market will break out of this range and the question is which way will it go and how much might it move after the breakout. As there are quite a few risks in the global economy at the moment it could well be that the breakout will happen to the downside. The measured move targets for DJ are 31750 and 29250. The nearest key levels are the range edges at 30140 and 31015.

AUDUSD 8h chart 06 17 1

AUDUSD – I said yesterday that AUDUSD was trying to reverse the recent downtrend. The market moved to my downside scalping target and quite soon after hitting my target level at 0.0.6965 the bulls took hold of the market and started pushing it higher. Now there’s been a pullback so I’m interested in long trades above 0.6943. My T1 for AUDUSD is at 0.7030 and my T2 is at 0.7080. Alternative scenario: The market breaks the 0.6943 support and moves to 0.6890.

USOIL Daily chart 06 17 1

USOIL traded to my downside target at 111 (T1) yesterday and started to rally. This is a bullish indication at least intraday today. It’s too early to estimate if this means the recent highs are likely to be taken out. If USOIL can stay above 113.60 the market might well rally beyond a minor resistance level at 116.80. This could open up a way to the 119.50- 120 range I talked about yesterday. Alternatively, the 116.80 cannot be penetrated or reached and the 113.60 gets taken out decisively. In this scenario, we’d be likely to see a test of yesterday’s lows.

Macro Drivers for the USD 

As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveFed hiked by 0.5% in May but according to Powell 0.75% hikes are off the table. 
StimulusThe Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe. 
YieldsThe US 10-year treasury yield has been drifting lower since early May as equity investors have moved over to T-Bonds in search of safety. 
EmploymentThe May non-farm payrolls increased by 390K (436K previous) while the participation rate was confirmed at 62.3% (62.2% previous). The unemployment rate remained unchanged at 3.6%. 
InflationThe US annual inflation growth for May accelerated to 8.6%. This was the highest reading since 1981.  Analyst consensus had expected the yearly rate to be 8.3%. The prices for energy (+34.6%) and food (+10.1%) made record increases. For food, this was the first increase of 10% or more since March 1981.

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 The Next Main Risk Events

  • USD – FOMC Member Waller Speaks

For more information and details see the TIOmarkets economic calendar here.

Trade Safe!

Janne Muta

Chief Market Analyst

Open a VIP Black account now at www.TIOmarkets.com. We want you to be able to exploit trading opportunities in financial markets with 0 commission and tight spreads. Take advantage of the best trading account in the industry: Tiomarkets VIP Black. For more details on this truly exceptional offering see here.

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