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Contracting Inflation Crushes the DollarThe US Dollar has been thriving on borrowed time. Time has run out. The US Dollar plunged to its lowest in 15-months in what many experts see as the beginning of a secular decline. Till now, A hawkish Fed served as a solid tail wind. A Fed pause will take the wind out of USD sails. The USD peak is behind us. Leveraged funds have repositioned their portfolios to go net short over the last month. Rising demand for FX gamma in the options market forebodes rising volatility in FX markets and a precursor to sharp out of the range price moves. Currency opportunities abound in developed markets (DM) and emerging markets (EM). Each of the G10 currencies have strengthened against the US Dollar over the last one month. High yield from double digit carry will position EM currencies to outperform the US Dollar in second half this year. Not all gloom and doom for King Dollar though. A resurgence in US inflation, onset of recession, and any further geo-political shocks will strengthen the US dollar as the world’s only global FX reserve. In this paper, we will explore two specific opportunities in the Euro and the Pound. Central Bank policy divergence and equity portfolio repositioning will drive Euro and Pound to significantly outperform the US Dollar. This paper posits two potential opportunities with long position in CME Micro FX Futures. First, a long position in CME Micro EUR/USD Futures with an entry at 1.128, target of 1.196 and hedged by a stop loss at 1.09 to deliver a reward to risk ratio of 1.8x. Second, a long position in CME Micro GBP/USD Futures with an entry at 1.31, exit at 1.399 and hedged by a stop loss at 1.265, delivering a reward to risk ratio of 2x. THE US FED APPEARS TO TAME INFLATION DOWN The US Fed has been fiercely fighting a raging inflationary environment. Its relentless battle is yielding results. Latest CPI reading shows that annual inflation is losing steam and now stands at 3% YoY. Both inflation and core inflation are now receding faster. Market expectations is for a final rate hike on July 26th marking the end of an unprecedented hiking cycle. The Fed seems to have tamed down inflation. Market anticipation of a Fed pause is taking winds off US Dollar sails. A clutch of DM and EM currencies have sharply outperformed the dollar over the last one month as seen from the chart below. Across the Atlantic, inflation remains stubbornly high in the EU and UK. The European Central Bank (ECB) and the Bank of England (BoE) have indicated that their hiking cycles are far from over. More fire power is required to tame inflation down. TAKING THE WIND OUT OF DOLLAR SAILS Policy Divergence: Exchange rates are all about interest rates. Central bank policy divergence plays a massive role in charting the forward path of FX-pairs. Combining Hawkish BoE and ECB with a US Fed that is expected to “pause for good” has led to a sharply weaker USD and strong Euro and Sterling. Equity Portfolio Repositioning: Besides policy divergence, it is the hedge funds fuelling rally in Euro and Sterling. These funds have been ramping up their equity positions in European stocks while slashing down the weighting in US equities as per prime brokerage data from Goldman Sachs. Portfolio repositioning by the hedge funds should come as no surprise. The Nasdaq recorded its best first half year in 40 years and is up >31% YTD. European stocks have been more subdued. Stoxx 600 is up merely 5% while the FTSE100 is down YTD. Lower valuations in Europe appear compelling for some hedge fund managers. FX Options Market Forebodes Sharp FX Moves: Time now is ripe for large moves in the FX market. FX option dealers have been witnessing rising demand for gamma in G10s. Gamma in FX options represents the sensitivity of FX options' delta to underlying FX rate. Typically, rising demand for gamma is a precursor to sharp FX moves. TRADE SETUP CME Micro FX Futures enable affordable access into the deeply liquid FX Futures market. Each lot of CME Micro EUR/USD provides exposure to 12,500 euros with each tick delivering a P&L of USD 1.25 per lot for every pip (0.0001) move in EUR. Similarly, each lot of CME Micro GBP/USD provides exposure to 6,250 pounds delivering USD 0.625 per lot in P&L for every pip (0.0001) move in GBP. LONG EURO FX FUTURES • Entry Level: 1.1280 • Target Level: 1.1960 • Stop Level: 1.0900 • Profit at Target: 680 pips x USD 1.25 = USD 850 • Loss at Stop: 380 pips x USD 1.25 = USD 475 • Reward/Risk: 1.8x LONG GBP/USD FUTURES • Entry Level: 1.3100 • Target Level: 1.3990 • Stop Level: 1.2650 • Profit at Target: 890 pips x USD 0.625 = USD 556.25 • Loss at Stop: 450 pips x USD 0.625 USD 281.25 • Reward/Risk: 2x Please note that the above P&L illustrations do not consider transactional costs and the cost of capital required for placing margins with CME clearing members and service providers which varies across brokers. CME clearing & trading fees can be found on CME Group's website. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
TVC:DXYShort
by mintdotfinance
VIX vs S&P500The VIX index (officially known as the Chicago Board Options Exchange Market Volatility Index), developed by CBOE in 1993, is calculated based on the implied volatility of call and put options on the S&P500; index (SPX) over a 30-day period. The theory behind the volatility index is that if investors believe the market is going to decline, they will hedge their portfolios by buying puts (the right to sell an asset at a predetermined price before a specific expiration date). Conversely, if traders are bullish, they may not want to hedge against potential downturns. This index shows a negative correlation with the S&P500.; When there is high volatility, the VIX reaches high values and is often accompanied by declines in the S&P500;, indicating fear and pessimism in the market. These events often lead to significant movements in the stock markets. Conversely, when the VIX is at lows, there is confidence in the market and movements are smoother. Relevant VIX levels: VIX<20: Investor confidence. Often coincides with bullish periods for the S&P500.; 2030: Increased investor pessimism or fear. High volatility and the potential for significant downward corrections in the prices of the S&P500; and major stock indices.
TVC:VIX
by JRiquelmeTrading
1
SasanSeifi 💁‍♂️XAUUSD👉1H Price Targets 1944/ 1950🟡 Hey there, 🌀Well, as you can see, the price has finally broken above the resistance level of 1935. ◼My expectation for gold is that the price will experience a minor correction and confirmation before continuing to rise toward the desired initial target within the price range of 1944. To better understand the continuation of the price trend, we should observe how the price reacts to the resistance level. It's important to note that this week will bring important economic data, which could lead to significant market fluctuations. 💹 Just keep these scenarios in mind as you analyze the market. Remember, things can always change unexpectedly, so stay flexible in your trading approach. Wishing you loads of success in your trading adventures, my friend!✌ ❎ (DYOR)...⚠️⚜️ Sure, if you have any more questions or need further clarification, feel free to ask. I'm here to help! And if you found my analysis helpful, I would appreciate it if you could show your support by liking and commenting. Thank you! 🙌 daily timeframe analysis 👇
FOREXCOM:XAUUSD
by SasanSeifi
SasanSeifi 💁‍♂️USDCHF👉4H ⏭ 0.90200 / 0.90400 Hey there, buddy!✌ ◼In the 4-hour chart, as you can see, the price is just bouncing around between 0.89 and 0.90. Right now, the situation looks like this: the price might have a little dip after hitting the resistance at 0.90, but then it could bounce back up towards the targets around 0.90200 and the selling zone at 0.90400. 💹 ◼ We gotta keep an eye on how it reacts to the resistance levels to get a better idea of where it's heading. It might face some correction if it gets confirmed and hits the selling zone. But, we already have a probable trend identified, and the support at 0.89600 is quite important.❗ 🔹Just keep these scenarios in mind as you analyze the market. Remember, things can always change unexpectedly, so stay flexible in your trading approach. Wishing you loads of success in your trading adventures, my friend!✌ ❎ (DYOR)...⚠️⚜️ 🔹Sure, if you have any more questions or need further clarification, feel free to ask. I'm here to help! 🔹And if you found my analysis helpful, I would appreciate it if you could show your support by liking and commenting. Thank you! ✌
Long
by SasanSeifi
SasanSeifi 💁‍♂️EUR /USD 👉1H🔻 1.084 / 1.080 Hey there, buddy!✌ ◼In the 1-hour timeframe, we can see that the price has dropped from the significant resistance level at 1.10 and is currently fluctuating positively, trading around the price range of 1.084. It is currently being traded at 1.094.💹 ◼Here's a possible scenario to consider: If the price manages to stay below the resistance levels of 1.095 / 1.098, we may see a more significant correction toward the support range of 1.084 / 1.080 / 1.078. To gain a better understanding of the price's future movement, it's important to observe how it reacts to these resistance levels.💹 On the other hand, if the price consolidates above the resistance levels, there is a higher chance of further growth.❗ ⭕Just keep these scenarios in mind as you analyze the market. Remember, things can always change unexpectedly, so stay flexible in your trading approach. 🔹Wishing you loads of success in your trading adventures, my friend❗ ❎ (DYOR)...⚠️⚜️ Sure, if you have any more questions or need further clarification, feel free to ask. I'm here to help!✌ And if you found my analysis helpful, I would appreciate it if you could show your support by liking and commenting. Thank you! 🙌
Short
by SasanSeifi
2
USD/JPY Pair Poised for Bullish Momentum, Targeting 142.000Yesterday, the USD/JPY pair experienced a decline to around 139.00 but has since shown signs of recovery. Investors anticipate that the Federal Reserve (Fed) will raise interest rates further in order to combat persistent inflation in the United States. As a result, there is optimism that the asset will surpass the significant resistance level of 140.00. Interestingly, despite discussions surrounding the Bank of Japan (BoJ) Governor Kazuo Ueda's consideration of moving away from an ultra-dovish interest rate policy, the Japanese Yen has not gained strength. According to Bloomberg, experts monitoring the BoJ anticipate no policy adjustments in June, as Governor Ueda consistently supports the need for monetary stimulus to maintain inflation above the 2% target. In light of these factors, our outlook suggests a new bullish momentum with a target of 142.000.
Long
by FOREXN1
18
Trade report of 15-6Today the unemployment figures of the US have come out. These were the same as last month and the market was not counting on that. The Dollar slipped on this news. The ECB countered with an interest rate adjustment. Unlike the FED, the ECB will continue to raise interest rates to combat inflation. The interest rate was 4.00%. 0.25% higher than last month. After yesterday and today we have new positions to take: EURUSD : We executed a new buy at 1.08927. EURCAD : new buy executed at 1.44956. Target is 1.46500. GBPAUD : the pair has gone range. We take the sell trades out of the system. AUDUSD : a new buy at 0.68351 deposited. AUDJPY : a buy trade executed at 96,130. The target of this trade is 97,442. AUDCAD : in line with the other major pairs, this pair is certainly interesting to perform a buy in. It ran at 0.90949 with a target of 0.92150.
by Probeleg
1
AUD/USD Pair Climbs to One-Month High, Faces Consolidation AheadOn Tuesday, the AUD/USD pair reached its highest level in a month at 0.6807 following the release of US economic data. However, it later retreated, reducing its daily gains. The Australian dollar struggled to stay above 0.6800. Although the upward trend remains intact after rising in eight of the last nine trading days, it appears that some consolidation or correction is overdue. The latest data revealed that the Australian Westpac Consumer Confidence increased by 0.2% in June, in line with expectations. On the other hand, the National Australia Bank reported a larger-than-expected decline in the Business Conditions Index from 15 to 8 in May, along with a drop in the Confidence Index from 0 to -4. The most significant economic report of the week, which includes employment numbers, is scheduled for release on Thursday. It is expected to show a positive change of 15,000. The decision by the People's Bank of China to ease short-term policy rates contributed to the positive sentiment towards the Australian dollar. This move by Chinese policymakers could potentially lead to further rate cuts. Specifically, on Tuesday, the 7-day reverse repo rate was lowered by 10 basis points to 1.9%. However, the impact on commodities and Chinese equities remained limited. In the US, data indicated that consumer inflation eased in May, with the Consumer Price Index rising by 0.1% and the annual rate at 4.0%, the lowest reading since March 2021. These figures reinforced the Federal Reserve's decision to pause. On Wednesday, the FOMC will release new economic projections, and Chair Powell is expected to provide a message that might signal the possibility of more rate hikes despite recent numbers. Additionally, the US May Producer Price Index is due before the FOMC statement. The US dollar and risk sentiment will continue to be the key drivers in the next few hours. Market participants will closely analyze the inflation figures from the US ahead of the FOMC statement. If a positive tone prevails in equity markets during the Asian session and commodity prices continue to rise, the Australian dollar could strengthen. The performance of the AUD/USD pair after the FOMC statement will be crucial in determining its trajectory, particularly in the 0.6800 area. From a technical standpoint, we anticipate a potential reaction and drop to the 38.2% or 50% Fibonacci level from the previous swing low before resuming growth.
by FOREXN1
5
EUR/USD:US Inflation Annual Consumer Price Index Slows in MayIn May, the Annual Consumer Price Index (CPI) in the US is projected to show a 4.2% increase, marking a slowdown compared to April's 4.9% rise. The Core CPI inflation, which excludes volatile food and energy prices, is anticipated to grow at a slightly faster pace of 5.6% year on year, surpassing April's 5.5% growth. The forthcoming release of US CPI inflation data by the US Bureau of Labor Statistics (BLS) on June 13 at 12:30 GMT is expected to have a significant impact on the Federal Reserve's interest rate outlook and the US Dollar markets. As a result, market participants have been closely monitoring the US Dollar's performance ahead of this crucial inflation report, particularly following the mixed May Nonfarm Payrolls report. The recent string of disappointing US economic indicators has reinforced expectations of the Federal Reserve opting for a pause in its interest rate hike trajectory during its upcoming two-day policy meeting. The outcome of the US CPI inflation data could shed new light on whether the Federal Reserve, the world's most influential central bank, will align with market expectations and pause its tightening cycle. Hence, this highly anticipated economic data release is likely to significantly impact the valuation of the US Dollar. What should we anticipate in the upcoming CPI data report? According to market consensus, the US Consumer Price Index is expected to rise by 4.2% in May compared to the previous year, indicating a deceleration from April's 4.9% increase. Conversely, the Core CPI, which excludes volatile food and energy prices, is projected to advance at a slightly quicker pace of 5.6%, surpassing April's growth rate of 5.5%. On a monthly basis, the Consumer Price Index is forecasted to increase by 0.3% in May, following a 0.4% uptick in April. However, the Core CPI is expected to rise by 0.4%, maintaining the same pace as the previous month.
Short
by DAY_PROFITS
18
GBP/CAD Pair in Pullback Mode: Assessing Bullish OpportunitiesThe GBP/CAD pair is currently experiencing a pullback phase following a notable reversal at the 50% and 61.8% Fibonacci levels. This retracement suggests a temporary correction in the price movement. However, there is potential for a new bullish impulse to emerge, which could propel the price towards the 1.6900 level. If this bullish momentum continues, the pair may eventually approach the resistance level at 1.69200. Considering these factors, traders are actively seeking a long setup in this market. The pullback presents an opportunity to enter a long position, anticipating a continuation of the upward trend. Traders will closely monitor price action and key technical indicators to confirm the strength of the bullish bias and assess the likelihood of the price reaching the target level of 1.6900. It's important to exercise caution and employ appropriate risk management strategies while trading in order to navigate potential market fluctuations and optimize trade outcomes.
Long
by DAY_PROFITS
2
EUR/JPY Reaches Two-Week High on ECB-BoJ Policy DivergenceFor the second consecutive day, EUR/JPY has scaled higher, reaching a two-week high on Tuesday. The ongoing upward move is supported by the policy divergence between the European Central Bank (ECB) and the Bank of Japan (BoJ), favoring bullish sentiment. Traders are now eagerly awaiting the upcoming ECB decision and BoJ meeting before making fresh directional bets. During the early European session, the EUR/JPY cross continues its positive momentum, extending the steady climb witnessed in the previous day. The spot prices surge to over the 150.70-150.75 region, marking a two-week high. The upward trajectory of the EUR/JPY cross is driven by the increasing expectations of further policy tightening by the ECB. The shared currency benefits from this sentiment, with ECB President Christine Lagarde suggesting the likelihood of additional interest rate hikes. She stated that there is no clear evidence of a peak in underlying inflation, aligning with recent hawkish remarks from several ECB policymakers. Despite a decrease in the headline Eurozone CPI to 6.1% in May, these factors indicate that the central bank still has room to raise borrowing costs. In contrast, the BoJ is expected to maintain its dovish stance to support the economy and ensure the sustainability of recent positive signs. BoJ Governor Kazuo Ueda emphasized the need to continue with ultra-loose monetary policy until durable wage growth accompanies price increases. Additionally, BoJ Deputy Governor Masazumi Wakatabe recently expressed the overwhelming case for the continuation of ultra-easy monetary policy measures. These factors contribute to the boost in the EUR/JPY cross. However, concerns about a global economic slowdown and the possibility of Japanese authorities intervening to support the domestic currency could provide some support to the safe-haven JPY. Traders may exercise caution in placing aggressive bullish bets on the EUR/JPY cross and instead wait for the upcoming central bank events. The ECB decision on Thursday, followed by the BoJ meeting on Friday, pose significant risks. Nevertheless, considering the aforementioned fundamental backdrop, the path of least resistance for spot prices appears to be on the upside.
Long
by DAY_PROFITS
1
GBP/USD Rides High on Weaker US Dollar, but Challenges Lie AheadOn Monday, GBP/USD capitalized on the overall weakness of the US Dollar (USD) and surged to its highest level in a month, surpassing 1.2590. However, the pair now faces resistance at 1.2600, and the short-term technical outlook suggests the possibility of a downward correction before the next upward move. The positive market sentiment at the start of the week has prevented the safe-haven USD from remaining resilient against its main rivals, thereby supporting GBP/USD in maintaining a positive stance. The UK's FTSE 100 Index rose by 0.3%, while US stock index futures showed gains ranging from 0.1% to 0.3% during the European session. Earlier in the day, hawkish comments from Bank of England (BoE) policymaker Jonathan Haskel further bolstered the strength of Pound Sterling. Haskel expressed his view that it is important to counter the risks of inflation momentum and did not rule out the possibility of further interest rate increases in the future, as stated in an article published in The Scotsman newspaper. On Tuesday, the UK's Office for National Statistics is set to release labor market data, including wage inflation figures. Average Earnings Excluding Bonus, a measure of annual wage inflation, is expected to rise to 6.9% in April from 6.7% in March. Currently, the markets have fully priced in a 25 basis points (bps) rate hike by the Bank of England at the upcoming policy meeting on June 22. Therefore, if wage inflation comes in weaker than expected, it could pose challenges for Pound Sterling to outperform other currencies. Conversely, a stronger-than-forecast reading may have a short-lived positive impact on the currency. The GBP/USD pair may experience significant volatility due to the release of May inflation data from the US and Bank of England Governor Andrew Bailey's speech during the Lords Economic Affairs Committee hearing on Tuesday. From a technical analysis perspective, the pair exhibits a Gartley pattern, where there was a reversal in price followed by a recovery. This suggests a bearish setup is still plausible.
by FOREXN1
7
EUR/USD Hits Resistance at 1.0800 on Fed-ECB Policy Convergence The Euro has seen significant demand as market participants anticipate a decrease in the policy divergence between the Federal Reserve (Fed) and the European Central Bank (ECB). Despite concerns of a recession in Europe, an ECB interest rate hike is anticipated. Expectations of a softer US headline inflation due to a decrease in energy prices, while core inflation remains persistent, have contributed to the Euro's strength. This has pushed the EUR/USD pair closer to the key resistance level of 1.0800, following a strong recovery from 1.0743. This week, the Euro is expected to experience volatility as ECB President Christine Lagarde announces the June interest rate decision. Similarly, the US Dollar is likely to see increased volatility as the Federal Reserve announces its interest rate policy on Wednesday. Prior to these announcements, significant market action is anticipated in the EUR/USD pair ahead of the release of the United States Consumer Price Index (CPI) data for May. Market participants are closely focused on the US inflation data as it will provide important guidance regarding the Fed's policy. It is expected that monthly headline inflation will accelerate at a slower pace of 0.2% compared to April's 0.4% pace. However, core CPI, which excludes oil and food prices, is projected to remain steady at 0.4%. The softening of headline inflation can be attributed to the negative impact from the energy component, while core CPI is expected to show persistence due to solid demand for durables and services. A weaker reading of US CPI would strengthen the case for a neutral interest rate policy announcement by the Federal Reserve, especially considering other factors such as the unemployment rate, jobless claims, and contraction in factory activities. There are indications that the Federal Reserve may adopt a more cautious stance, as tight lending conditions imposed by US commercial banks are impeding inflationary pressures. Furthermore, President Joe Biden is set to announce the appointment of a Federal Reserve Vice Chair and fill the vacant Fed Board seat, which could influence the central bank's policy direction. Meanwhile, ECB President Christine Lagarde is expected to raise interest rates by 25 basis points (bps) to 4.25%, despite concerns of a deepening recession in Europe. The final reading of the Eurozone's Q1 Gross Domestic Product (GDP) indicated a contraction of 0.1%, largely driven by declining factory activities. Germany, in particular, has already entered a recession after two consecutive quarters of contraction. An ECB interest rate hike combined with an unchanged policy stance by the Fed would narrow the policy divergence between the two central banks. The US Dollar Index is currently defending its immediate support level of 103.35 amid positive market sentiment. From a technical perspective, the price has dipped below 1.0800, and a rebound at this resistance level with a subsequent pullback is possible.
by FOREXN1
3
USD/CHF Struggles Amid Fed Rate Hike UncertaintyThe USD/CHF pair is struggling to take full advantage of its recent strong gains. Uncertainty surrounding the Fed's interest rate hike is keeping USD bulls on the defensive and limiting the upside. Traders are also hesitant to take aggressive positions ahead of the crucial US CPI report. During the Asian session on Tuesday, the USD/CHF pair is trading within a narrow range below the 0.9100 level, consolidating the significant gains it made in the past two days. The strengthening belief that the Federal Reserve (Fed) is likely to postpone a rate hike this month continues to weigh on the US Dollar (USD) and act as a hindrance for the USD/CHF pair. It's important to note that several influential Fed officials have recently reinforced market expectations of a temporary pause in the US central bank's year-long tightening cycle. However, Fed fund futures indicate the possibility of a 25 basis point increase in the July FOMC meeting. This speculation gained traction following surprise rate hikes by other major central banks such as the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) last week, indicating that the fight against inflation is ongoing. Consequently, the USD losses are limited, supporting the USD/CHF pair. Traders are also showing reluctance to take significant positions and are waiting for the release of the latest US consumer inflation data, which will be available later during the early North American session. This critical US CPI report will impact the Fed's policy outlook and drive USD demand, potentially providing momentum to the USD/CHF pair before the FOMC policy decision on Wednesday. Furthermore, the generally positive sentiment in equity markets may weaken the safe-haven Swiss Franc (CHF) and offer some support to the USD/CHF pair. However, a slight decline in US Treasury bond yields could discourage traders from anticipating a substantial USD recovery. As a result, the pair is more likely to continue its subdued or range-bound trading pattern on Tuesday. From a technical standpoint, there is a possibility of a price pullback within the 50% and 61.8% Fibonacci levels, followed by potential growth.
by FOREXN1
7