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As was widely expected, Bank of Canada maintained the current interest rates unchanged at +1.75% and the Loonie weakened. In its accompanying statement the bank stated that it will remain data dependent and that overall growth and business investment strengthened. Of particular interest was the comment that the oil sector is beginning to recover and that the escalating trade conflict casts doubts on global outlook. It should be noted that the Loonie weakened upon the release as CAD bears were encouraged by the preservation of the banks accommodative policy, which according to the bank is still warranted. Never the less analysts noted that the statement seems to have more of an optimistic tone, surprised by the market’s reaction. We see the case for the Loonie to correct somewhat and regain at least partially some of the losses in the near term. Some possible bullish tendencies of the oil market could also support such a scenario. USD/CAD rose yesterday, breaking the 1.3510 (S1) resistance line, now turned to support, and continued to hover slightly above it during today’s Asian session. We would not be surprised to see some bearish tendencies today, especially should oil prices rise somewhat. Should the pair come under the selling interest of the market, we could see it breaking the 1.3510 (S1) support line and aim for the 1.3425 (S2) support level. Should the pair’s long positions be favored by the market, we could see the pair rising even further and aim for the 1.3590 (R1) resistance line.

Oil prices rise, supported by API drawdown

Oil prices climbed higher yesterday, supported by output cuts by OPEC an also dropping supplies from Iran. Data showed that Iranian May crude exports fell to less than half of April levels, after the US tightened sanctions on Persia. Also many analysts tend to expect OPEC+ to extend its supply cuts in its meeting, end of next month. Oil prices were also supported by a surprise drawdown of -5.3 million barrels of US inventories as shown by API, implying a tight US oil market. On the other hand it should be noted that worries continue to exist about a possible global economic slowdown having a detrimental effect on oil prices. Analysts also pointed out that should also the EIA report later today show a decent drawdown as well, we could see oil prices rising even further. WTI prices rose yesterday, breaking the 59.10 (S1) resistance line, (now turned to support). Should there be news, showing a tightening oil market we could see oil prices rising even further. Should the bulls continue to direct the commodity’s direction we could see it aiming if not breaking the 60.50 (R1) resistance line. On the flip side if the bears take over, we could see oil prices breaking the 59.10 (S1) support line and aim for the 57.75 (S2) support barrier.

Other economic highlights, today and early tomorrow

Today during the American session, we get from the US the 2nd estimate of the GDP growth rate for Q1. Also from the US we get the goods trade balance for April, the pending home sales also for April and the EIA crude oil inventories figure. In tomorrow’s Asian session, we get a number of releases from Japan, yet we tend to highlight Tokyo’s inflation rates for May, the unemployment rate for April and the preliminary industrial output growth rate for April. Also during the Asian session we get China’s NBS manufacturing PMI for May. As for speakers please note that BoE’s Ramsden, Fed’s Clarida and BoC’s Wilkins are scheduled to speak.

USD/CAD H4

Support: 1.3510 (S1), 1.3425 (S2), 1.3360 (S3)
Resistance: 1.3590 (R1), 1.3660 (R2), 1.3720 (R3)

WTI H4

Support: 59.10 (S1), 57.75 (S2), 56.00 (S3)
Resistance: 60.50 (R1), 62.00 (R2), 63.70 (R3)

The US dollar continued its growth against the basket of major currencies. The dollar index (#DX) closed in the positive zone (+0.20%). Trade disputes between the US and China are still in the focus of attention. The provocation of a trade conflict is “naked economic terrorism,” one of the senior Chinese diplomats said on Thursday, ramping up the rhetoric against the United States. Trade tension between Washington and Beijing sharply increased earlier this month after the Trump administration accused China of “abandoning” its previous promises to make structural changes to its economic practice. Also, as it became known, Beijing intends to use rare-earth metals as a leverage of pressure in the trade war with the United States.

The euro weakened after the publication of weak economic statistics from Germany. Thus, the number of unemployed in Germany increased by 60K in May, while experts expected a decrease by 8K. The unemployment rate also rose to 5.0% from 4.9%.

The Bank of Canada decided on the interest rate. As expected, the regulator left the indicator unchanged at 1.75%. Today we expect data on US GDP.

The "black gold" prices show positive dynamics. At the moment, futures for the WTI crude oil are testing $59.60 per barrel. At 18:00 (GMT+3:00) data on crude oil inventories will be published in the US.

Market Indicators

• Yesterday, the main US stock indices closed in the negative zone: #SPY (-0.67%), #DIA (-0.87%), #QQQ (-0.82%).
• The 10-year US government bonds yield is recovering. Currently, the indicator is at the level of 2.27-2.28%.

The news feed on 2019.05.30:

• Data on US GDP at 15:30 (GMT+3:00);
• Pending home sales in the US at 17:00 (GMT+3:00).

The pair ticks higher in early Thursday's trading and probes above the ceiling of four-day congestion, after downside attempts were repeatedly rejected.

Fresh attempts higher cracked 10SMA barrier (109.80) but so far unable to break higher.

Conflicting signals from daily techs keep near-term picture in mixed mode, while recovery attempts stay below falling 20SMA (109.90).

The pair is still lacking clearer direction signals, which will be generated on sustained break above 20SMA (bullish) or eventual break below pivotal support at 109.02 (13 May low) (bearish).

Res: 109.80, 109.90, 110.09, 110.31
Sup: 109.47, 109.15, 109.02, 108.50

BoE Deputy Governor Dave Ramsden said in case of a smooth Brexit with transition, the MPC expected UK growth to pick up, leading to excess demand and building domestic inflationary pressure. In such case, further monetary tightening is appropriate. Ramsden's GDP growth expectation was "a little more pessimistic". However, he also saw "downside risks to productivity, while he's also "less optimistic on investment recovery". Thus, his overall view on monetary policy was broadly in line with the MPC.

Ramsden noted that the "biggest risk to the UK economy and UK financial stability, remains that of a Brexit outcome of no deal and no transition." But he emphasized that "most risks to financial stability that could arise have been mitigated", even though "a no deal, no transition Brexit could still be expected to bring significant market volatility, as well as economic instability."

Ramsden's full speech here.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.11600
Open: 1.11310
% chg. over the last day: -0.21
Day's range: 1.11244 – 1.11433
52 wk range: 1.1111 – 1.2009

EUR kept losing positions against the USD. The quotes have set the new local minimums. The pressure on the EUR was caused by the weak labour market report from Germany. The US/China trading conflict remains in the spotlight. Beijing claimed that they are not going to use precious metals in as leverage in the war. Right now the quotes are consolidating between 1.11300 and 1.11500. The trading instrument can descend further. The investors are evaluating the US economic releases. You should open positions from the key levels.

The Economic News Feed for 30.05.2019:

GDP report (US) – 15:30 (GMT+3:00);

Jobless Claims (US) – 15:30 (GMT+3:00);

Unfinished Real Estate Purchases (EU) – 17:00 (GMT+3:00);

The price fixed below 50 MA and 200 MA which points to the power of the sellers.

The MACD histogram is in the negative zone, the %K line is below the %D line which also points to the bearish mood.

The Stochastic Oscillator is in the neutral zone, the %K line is below the %D line which also points to the bearish mood.

Trading recommendations

Support levels: 1.11300, 1.11100
Resistance levels: 1.11500, 1.11750, 1.12000

If the price fixes below 1.11300, expect further descend towards 1.11000-1.10800.

Alternatively, the quotes can grow towards 1.11700-1.11900.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.26533
Open: 1.26201
% chg. over the last day: -0.19
Day's range: 1.26111 – 1.26403
52 wk range: 1.2438 – 1.3631

GBP/USD remains in a bearish mood. GBP is under pressure due to the Brexit ambiguousness. GBP/USD quotes are consolidating. The key support and resistance levels are 1.26100 and 1.26500. GBP has prospects for a further descend. The financial market participants are evaluating important economic reports. You should open positions from the key levels.

The Economic News Feed for 30.05.2019 is calm.

The indicators point to the power of the sellers, the price fixed below 50 MA and 200 MA.

The MACD histogram is in the negative zone but above the signal line which gives a weak signal to sell GBP/USD.

The Stochastic Oscillator is in the neutral zone, the %K line is below the %D line which also points to the bearish mood.

Trading recommendations

Support levels: 1.26100, 1.25600
Resistance levels: 1.26500, 1.26850, 1.27100

If the price fixes below 1.26100, expect further descend towards the round 1.25700-1.25500.

Alternatively, the quotes can correct towards 1.26800-1.27000.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.34828
Open: 1.35164
% chg. over the last day: +0.17
Day's range: 1.34937 – 1.35205
52 wk range: 1.2727 – 1.3664

USD/CAD stabilized after a long rally. CAD is consolidating. The key support and resistance levels are 1.34850 and 1.35200. The Bank of Canada, as expected, kept the key monetary policy at the same levels. We expect important reports from the US. Keep an eye on the oil quotes dynamics and open positions from the key levels.

at 15:30 (GMT+3:00) Canada will publish a current operation balance report.

The indicators do not provide precise signals, the price is testing 50 MA.

The MACD histogram is in the positive zone but started to descend which gives a weak signal to buy USD/CAD.

The Stochastic Oscillator is in the neutral zone, the %K line is crossing the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.34850, 1.34550, 1.34300
Resistance levels: 1.35200, 1.35450

If the price fixes above 1.35200, expect further growth towards 1.35450-1.35700.

Alternatively, the quotes can descend towards 1.34600-1.34400.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 109.356
Open: 109.587
% chg. over the last day: +0.17
Day's range: 109.476 – 109.826
52 wk range: 104.97 – 114.56

USD/JPY started to grow and updated the local maximums. The quotes are consolidating next to 109.800 resistance level. 109.550 acts as a mirror support. The US economic reports are in the spotlight. Keep an eye on the intel regarding Brexit and open positins from the key levels.

The Economic News Feed for 30.05.2019 is calm.

The price fixed between 50 MA and 200 MA. There are no signals at the moment.

The MACD histogram is in the positive zone and above the signal line which gives a strong signal to sell USD/JPY.

The Stochastic Oscillator is near the overbought zone, the %K line is crossing the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 109.550, 109.300, 109.150
Resistance levels: 109.800, 110.000, 110.250

If the price fixes above 109.800, expect further growth towards 110.000-110.250.

Alternatively, the quotes can descend towards 109.350-109.150.

There are no sign of trade tensions de-escalating, the trade war has become a bare knuckle fight. In the latest around of sparring, China has threatened the US about its dependence on rare earth minerals which are crucial in the production of technology products. The US needs to have a plan in place in order to fight with this threat, because this is huge. It is going to impact the technology sector. For this particular reason, the US futures and European markets are trading soft today.

GOLD

The strong rhetoric by China on the trade war isn’t stimulating the demand for the precious metal. In other words, investors do not hold much love for the riskier assets, we are still not seeing any strong upward movement in the precious metal. It is like if investors do not care about the safe haven trade, they would rather stay on the side line. Putting money in gold isn’t their priority for now, perhaps a fatal mistake.

A major reason for the weakness in the gold price is mainly due to the strength in the dollar index. The dollar index is up nearly 2% for the year. There is more interest for the US Treasuries and this is the reason that the yields are dropping like a rock. The inverted yield curve is the result of this.

OIL

In the oil market, there is some optimism after the inventory data confirmed that the supply glut isn’t building. However, any upside move in the oil price is open to the threat which comes from the on going trade war. Remember, this situation is going to impact the demand enormously, regardless of the oil inventory data. So, I will not be too optimistic for any upward move.

Bears are taking a breather and consolidating within narrow range in early Thursday’s trading, following three-day fall after upside rejection at 1.1215 and failure to close above falling 30SMA.

Bearish momentum continues to strengthen on daily chart, with converged 5/10SMA’s attempting to form bear-cross maintain negative technical outlook.

Weak pound on Brexit fears, strengthening dollar and concerns over global trade slowing, also weigh.

Bears eye base at 1.1111/07, break of which would trigger stops parked below and spark stronger bearish acceleration towards psychological 1.10 support.

Meanwhile, the pair may hold in consolidation as bears face headwinds from bids at 1.11 zone, but upside attempts are expected to be limited and ideally capped by converged 5/10SMA (1.1163), which guard converging 20/30 SMA’s (1.1182/85).

Only break above 1.1215 (recovery high posted on Monday) would neutralize bearish bias and signal stronger recovery.

Res: 1.1143, 1.1163, 1.1185, 1.1215
Sup: 1.1124, 1.1111, 1.1107, 1.1020

China continued its hard line rhetorics on the topic of US-China trade war. Commerce industry repeated the pledge to fight till the end if US keeps escalating tensions. And China will firmly defend its own national interests. There is no indication of more talks as China said US sincerity is in doubt.

In addition to the usual stuffs, the Commerce industry also said China is willing to meet reasonable demand for rare earths from other countries. Though, it would be unacceptable that countries using Chinese rare earths to manufacture products would turn around and suppress China.

Separately, it's reported that China has halted soy purchases from the US already. Government data indicates China bought about 13 million metric tons of US soybeans since December. While there is no cancellation of previous orders, there is no further orders to continued the so called goodwill buying.

NZDUSD has jumped into the Ichimoku cloud over the last few sessions as it found strong support around the 0.6505 barrier. The price touched the 40-simple moving average (SMA) in the 4-hour chart, and returned lower again, while the RSI indicator is also pointing down in the negative region. What remains to be seen is if the bears have enough fuel to continue the sharp negative movement or change the bearish bias to neutral.

A move below the 40-SMA could open the way towards the immediate support of 0.6505. Should the price break the line to the downside, the spotlight would turn next to the seven-month low of 0.6482, achieved on May 23.

In the alternative scenario, the pair may retry to surpass the upper surface of the Ichimoku cloud and the 20-SMA around the 23.6% Fibonacci retracement level of the bearish movement from 0.6780 to 0.6482 near 0.6553. If the attempt proves successful, the next target would be higher at 0.6580, taken from the highs on May 16.

To sum up, in the very short-term NZDUSD has been in a narrow range of 0.6505 – 0.6553. However, only a close below the seven-month low would endorse the downward structure again.

• Dollar remains king as major peers continue to lack appeal
• Stocks calm down after drop, but perhaps only temporarily
• BoC stands pat, loonie drops as officials keep a lid on optimism

Dollar reigns over FX market, nears 2-year highs

The world’s reserve currency remains the undisputed king of the FX market, as investors continue to favor dollar-denominated assets amidst worries that the conflict between Washington and Beijing is slowly morphing into a new cold war. The greenback outperformed even the traditional safe haven in the Japanese yen, despite risk aversion being the dominant theme.

The dollar index is now flirting with 2-year highs, and what’s striking is that this strength is manifesting itself even in the face of falling US interest rates, as investors bet that a slowdown in growth will push the Fed to ease. This divergence highlights that growing rate-cut expectations are only one half of the puzzle needed to weaken the dollar. The other half depends on some other major currency, and especially the euro, becoming attractive enough to offer a viable alternative to the greenback – a condition that is not satisfied yet.

In other words, until one of the gloomy narratives in the other major economies improves, the outlook for the dollar remains bright overall. Even if incoming US data – like today’s second estimate of GDP for Q1 or tomorrow’s core PCE inflation – disappoint, that may only be a temporary setback for the greenback, not a game changer.

Meanwhile, look out for remarks by Fed Vice Chair Richard Clarida today at 16:00 GMT.

Key support barriers halt losses on Wall Street

Risk sentiment remained fragile for most of Thursday, with US stocks opening lower, but managing to recoup some losses late in the session. The benchmark S&P 500 index (-0.69%) found buy orders near its 200-day moving average – a key barrier that acted as reliable support last year.

Futures point to a higher open today, albeit only modestly so. Yet, considering that trade rhetoric continues to escalate, with China’s vice foreign minister saying today that US actions are “naked economic terrorism”, this stabilization in markets may only be a calm before the next storm. With tensions so heightened, it’s difficult to see even how the negotiations can restart, much less an actual deal.

Loonie softens as BoC keeps a lid on optimism

The Bank of Canada (BoC) kept its policy unchanged yesterday, delivering a broadly balanced view. Policymakers noted that global trade risks have increased uncertainty, but at the same time maintained a constructive view on the domestic economy, indicating that the housing market is stabilizing and investment is firming.

The loonie moved lower, despite the broadly neutral tone, mainly due to what the officials chose not to say. Instead of acknowledging that recent data have been much stronger, they said they were ‘in line with expectations’, playing down their strength. They were probably trying to signal that the streak of solid numbers doesn’t mean that much, as the external risks could derail this recovery quickly, for instance if trade conflicts escalate further.

The BoC’s Deputy Governor, Carolyn Wilkins, will speak today at 18:30 GMT and may try to clarify the rationale behind this decision. As for the loonie, with the BoC so mindful of risks and oil prices back on the retreat, any meaningful rebound seems unlikely for now.