The difference between success and failure in Forex / CFD trading is very likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.
So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment. Read on to get my weekly analysis below.
Fundamental Analysis & Market Sentiment
I wrote in my previous piece last week that the best trades for the week were likely to be:
- Short of the S&P 500 Index following a daily (New York) close below 3,900. This did not happen, so there was no trade.
- Short of BTC/USD following a daily (New York) close below $28,606. This did not happen until Friday’s close, so there was no trade.
The news remains dominated by the Russian invasion of Ukraine, which is now into its fourth month, but has been met by an effective, NATO-armed Ukrainian defense, funded by the US alone with more than $40 billion to date. Russian forces are currently conducting a strong offensive in eastern Ukraine and seem to be having some successes, although Ukrainian forces are also counter attacking. The war initially caused quite strong movements in some markets, especially in certain agricultural commodities such as Wheat and Corn, but now seems to be having little effect beyond keeping the price of Wheat relatively high.
Markets had been exhibiting risk-off sentiment in recent weeks, which was expressed mostly in falling stock markets and bearish action in cryptocurrencies. However, the past week has seen global stock markets recover, with especially strong upward movement in the US market represented by the S&P 500 Index.
One reason for the stronger optimism on US stocks was the strong US consumer spending data released last week. There are plenty of economic concerns remaining in the background however, such as historically high rates of inflation, and the pace of rate hikes which will certainly be implemented over the coming months by major central banks.
Last week’s important economic data releases came in as follows, with no major surprises:
US FOMC Meeting Minutes showed the next two months are likely to bring rate hikes of 0.5%, which is in line with general expectations.
US Preliminary GDP annualized from Q1 2022 showed a decline of 1.5% compared to the 1.3% which had been expected. The data had little impact on the market.
US Core PCE Price Index data showed an increase of 0.3% which was expected. This could be seen as positive for US CPI (inflation).
The Reserve Bank of New Zealand hiked rates by 0.5% to 2.00% which is the highest rate of any major currency.
German Flash Manufacturing & Services PMI data produced no real surprise.
Cryptocurrencies continue to look very weak, with minor coins generally in serious trouble as they decline in value by the day, but it is notable that Bitcoin buyers are still stepping in when Bitcoin threatens to break down below the $28,607 area. It should be said the price action is weak, and there remains a serious and immediate danger of strong falls in major cryptocurrencies. Short trades in cryptocurrencies will continue to attract speculators in this environment, while margin calls will force retail liquidations.
The Forex market is still dominated by a sell-off in the US Dollar which continues. The main factor driving the Forex market now is US Dollar weakness. Commodity currencies were the best performers over the past week, and commodity indices are rising towards new highs, with energy commodities performing especially well.
There is increasing hope that the coronavirus pandemic may be almost over, with rates of coronavirus infection globally falling again in line with a long-term downwards trend. The only significant growths in new confirmed coronavirus cases overall right now are happening in the Bahamas, Belize, Chile, the USA, Costa Rica, Panama, and Taiwan.
The Week Ahead: 30th May – 3rd June 2022
The coming week in the markets is likely to be equally or less volatile than last week. There are a few releases of high importance scheduled. They are, in order of likely importance:
US Non-Farm Payrolls / Average Hourly Earnings & Unemployment Rate – this will be analyzed for clues as to the strength of the US economy and could impact decisions on future US rate hikes.
Bank of Canada Rate Statement & Overnight Rate – the BoC is expected to hike rates by 0.50%.
US ISM Manufacturing PMI
Australian GDP data – expected to show a small increase.
US JOLTS Job Openings
Technical Analysis
U.S. Dollar Index
The weekly price chart below shows the U.S. Dollar Index fell again last week, against the long-term bullish trend, printing a bearish candlestick that closed very close to the bottom of its range. This reversal is not very notable technically, apart from its location in the chart confluent with a long-term high, with reinforces the bearish case that we may have seen a major bearish inflection point.
A notable feature in the Forex market this week was that the selloff in the greenback has been against almost all other currencies, showing the market is currently being driven by US Dollar weakness.
Despite the long-term bullish trend, it will probably be a mistake to expect a rising Dollar over this coming week.
US Dollar Index Weekly Chart
BTC/USD
Bitcoin fell again last week in line with its long-term bearish trend, for the ninth consecutive week. The week ended with a close at a 17-month low and the printing of a small bearish candlestick.
These are bearish signs, and there has been panic in the crypto sector due to the collapse of certain stablecoins such as Luna/Terra. This helps the bearish case. Another interesting factor is that the US stock market has shown positive correlation with Bitcoin, but this correlation is now breaking down – the S&P 500 Index rose firmly last week.
However, crucially, the price remains very reluctant to make a firmly bearish daily close below the very pivotal support level at $28,607 – the price somehow keeps refusing to spend very long below that level, although the price has traded meaningfully lower. Over the past few days, this key support area seems to have survived tests from above.
Bitcoin is poised on the edge of an abyss, but we may see a long-term bullish rebound from this area. A key indicator is likely to be whether we get a daily close below this very pivotal round number of $28,000.
I wrote something similar about Bitcoin last week, except I thought the key support level to use was a little higher, at $28,607. I am not discouraged by this as the price action continues to look bearish and heavy, and I continue to believe we are more likely to see a significant downwards movement in the price before we see any strong bullish rebound.
BTC/USD Weekly Chart
Bottom Line
I see the best opportunity in the financial markets this week as likely to be: