CWG Markets Market Insights May 7, 2024 (Tuesday):
Market Summary:
On Monday (May 6), the US dollar index briefly fell below the 105 mark but then recovered all losses and rose, eventually closing up 0.04% at 105.09. The yield on 10-year US Treasuries fell slightly, losing the 4.5% mark to close at 4.490%. The yield on the 2-year US Treasury, most sensitive to Fed interest rate policy, ultimately closed at 4.837%.
Gold prices climbed close to 1% on Monday (May 6) following weaker-than-expected US employment data, boosting expectations that the Federal Reserve might lower interest rates later this year. The dollar weakened in response, and gold prices were also supported by safe-haven demand amid the escalation of geopolitical concerns as Hamas agreed to a proposal while Israel insisted on attacking Rafah.
Amidst the uncertain outlook for a ceasefire in the Middle East, crude oil found some stability. WTI crude oil faced resistance around $79 on Monday (May 6), eventually closing up 0.87% at $78.43 per barrel; Brent crude rose 0.81% to close at $83.34 per barrel on Monday (May 6).
Previous data and news releases:
Due to the market's pursuit of risky assets, the dollar weakened against the euro, the pound, the Canadian dollar, and the Swedish krona on May 6, while strengthening against the Japanese yen and the Swiss franc. The dollar index, measuring the dollar against six major currencies, rose 0.02%, ending at 105.048 at the close of the forex market.
On that day, US stocks, international oil prices, and major cryptocurrency prices all significantly increased, as investors chased risky assets, reducing the demand for the dollar as a safe haven.
Thierry Albert Wizman, a strategist for global foreign exchange and rates at Macquarie, stated that the dollar would weaken as long as it is supported by data or Federal Reserve officials do not oppose statements by Fed Chair Powell.
Wizman believes there is considerable potential danger in going long on the dollar against the yen. This is mainly because if the Bank of Japan believes US Treasury yields have peaked, this would encourage them to try intervening in the forex market again.
However, strategists at Goldman Sachs believe that although Japan is capable of intervening in the forex market, the broader macroeconomic environment remains quite negative for the yen.
Analysts at Barclays also stated that intervention in the forex market would only delay the dollar's strength against the yen, not prevent it.
The Chief Economist of the European Central Bank, Lane, expressed that confidence in inflation coming down is rising, with the slowdown in service sector inflation in April being an important step; the impact of policy differences between the European Central Bank and the Federal Reserve should not be overstated, as the Fed's decision-making impacts the eurozone within a controllable range.
ECB Governing Council member Simkus stated that unless unexpected data is observed, there shouldn't be a limitation to reducing interest rates only in June, expecting three rate cuts this year.
ECB Governing Council member Vujcic mentioned that the economic growth and inflation data in the eurozone are consistent with the ECB's forecasts, serving as a reason to support rate cuts. Even if the ECB cuts rates in June, policy will still continue to restrict economic growth.
Hamas agreed to a ceasefire draft that includes a complete Israeli withdrawal from Gaza, but the Israeli side responded that the agreement is far from Israel's demands. The wartime cabinet unanimously decided to continue military operations in Rafah but will continue negotiations for a ceasefire. Israel has already launched limited-scale operations in some areas of Rafah, with 100,000 civilians in the eastern part of Rafah receiving an "evacuation order". Unconfirmed reports indicate that Israeli ground forces have participated in the attack on Rafah. The White House claims Israel should not put civilians in Rafah at risk.
On Tuesday (May 7) during the Asian session, spot gold traded narrowly, currently trading around $2324.92 per ounce. Gold prices climbed close to 1% on Monday, following weaker-than-expected US employment data, boosting expectations that the Federal Reserve might lower interest rates later this year. The dollar weakened in response, and gold prices were also supported by safe-haven demand amid the escalation of geopolitical concerns as Hamas agreed to a proposal while Israel insisted on attacking Rafah.
Daniel Ghai, a commodity strategist at TD Securities, stated: "The downward trend we've seen in recent weeks has actually likely exhausted its momentum, opening the door for gold prices to recover."
Christopher Lewis, a market analyst at FX Empire, noted: "The gold market continues to face significant upward pressure as it is used to protect wealth from devaluation and global geopolitical issues." Lewis pointed out that earlier in the trading session on Monday, spot gold initially fell below $2300 per ounce but has since shown signs of recovery, "At the moment, the market sees $2320 per ounce as a slight obstacle, but I believe, given enough time, we may go even higher."
Technical analysis of the US dollar index:
The dollar index faced resistance below 105.20 on Monday, and support above 104.85, suggesting that the dollar might continue to rise after a short-term decline. If the dollar index stabilizes above 104.85 today, the target for a later rise will be between 105.25--105.40. Today's short-term resistance for the dollar index is at 105.20--105.25, with important short-term resistance at 105.35--105.40. Today's short-term support for the dollar index is at 104.85--104.90, with important short-term support at 104.70--104.75.
Technical analysis of EUR/USD:
EUR/USD found support above 1.0755 on Monday, with resistance below 1.0790, implying a potential to maintain a rising trend after a short-term decline. If EUR/USD stabilizes above 1.0755 today, the target for a later rise will be between 1.0795--1.0810. Today's short-term resistance for EUR/USD is at 1.0790--1.0795, with important short-term resistance at 1.0805--1.0810. Today's short-term support for EUR/USD is at 1.0755--1.0760, with important short-term support at 1.0735--1.0740.
Technical analysis of gold:
Gold found support above 2291.00 on Monday, with resistance below 2332.00, suggesting a potential to maintain a rising trend after a short-term decline. If gold stabilizes below 2316.00 today, the target for a later rise will be between 2342.00--2357.00. Today's short-term resistance for gold is at 2341.00--2342.00, with important short-term resistance at 2356.00--2357.00. Today's short-term support for gold is at 2316.00--2317.00, with important short-term support at 2301.00--2302.00.
Key economic data:
Major economic events:
Market volatility:
European stock markets closing:
Germany's DAX Index closed up 187.26 points, gaining 1.04%, at 18180.95 on Monday (May 6);
France's CAC40 Index closed up 39.07 points, gaining 0.49%, at 7996.64 on Monday (May 6);
The Euro Stoxx 50 Index closed up 35.17 points, gaining 0.71%, at 4956.65 on Monday (May 6);
Spain's IBEX35 Index closed up 64.95 points, gaining 0.60%, at 10919.65 on Monday (May 6);
The Italian FTSE MIB Index closed up 347.79 points, gaining 1.03%, at 33977.00 on Monday (May 6).
US stock markets closing:
The Dow Jones Industrial Average closed up 176.59 points, gaining 0.46%, at 38852.27 on Monday (May 6); The S&P 500 Index closed up 52.40 points, gaining 1.02%, at 5180.19 on Monday (May 6); The NASDAQ Composite closed up 192.92 points, gaining 1.19%, at 16349.25 on Monday (May 6).
Precious metals closing:
With the tense geopolitical situation in the Middle East and heightened expectations for a Fed rate cut, spot gold surged over 1% during Monday's (May 6) trading, briefly climbing above $2330, eventually closing up 0.96%, at $2323.71 per ounce; Spot silver closed up 3.32%, at $27.42 per ounce on Monday (May 6).
CWG's Market Forecast:
For today, focus on buying the dollar index on dips, with a stop loss in place and set a profit limit of over 30 points before the US market opens, and cancel all pending orders that have not been executed. This strategy is suitable for margin trading, and cash traders may refer to it.
Dollar index: Buy within the 105.40--104.90 range, with a stop loss of 20 points if the position is breached, aiming for the upper end of the range.
EUR/USD: Buy at the lower end of the 1.0805--1.0755 range, with a stop loss of 25 points if the position is breached, targeting the upper end of the range.
GBP/USD: Buy at the lower end of the 1.2620--1.2540 range, with a stop loss of 30 points if the position is breached, targeting the upper end of the range.
USD/CHF: Buy at the lower end of the 0.9085--0.9045 range, with a stop loss of 30 points if the position is breached, aiming for the upper end of the range.
USD/JPY: Buy at the lower end of the 154.75--153.55 range, with a stop loss of 40 points if the position is breached, targeting the upper end of the range.
AUD/USD: Sell at the upper end of the 0.6645--0.6590 range, with a stop loss of 20 points if the position is breached, aiming for the lower end of the range.
USD/CAD: Buy at the lower end of the 1.3720--1.3640 range, with a stop loss of 30 points if the position is breached, aiming for the upper end of the range.
Gold: Buy at the lower end of the 2342.00--2316.00 range, with a stop loss of $10 if the position is breached, targeting the upper end of the range.
A reminder to everyone: if the strategy achieves the expected closing target for the day, conservative investors may choose to abandon the day's trading plan. When actually implementing this strategy, start positioning 5-10 points ahead, but the stop-loss level must be strictly observed.
When trading based on this strategy and there's a profit of over 30 points, make sure to protect your breakeven point or consider taking profits. Never let a profitable trade turn into a loss.
Positioning standard: For a risk tolerance below 20%, trade 0.1 lots per $2000; for a risk tolerance between 20%-50%, trade 0.1 lots per $1000; for a risk tolerance above 50%, trade 0.2-0.3 lots per $1000.
As an FCA fully authorized and regulated trading service provider, the content and opinions contained in this article are for general information only and have not taken into account your investment objectives, financial situation, and investment needs. Any information referring to historical price fluctuations or levels is based on our analysis and does not imply or prove that such fluctuations or levels may occur again in the future. Some research reports' forecasts represent only the analyst's personal views and are not investment advice. Investors are advised to invest rationally and be aware of the risks. If you have any doubts, seek advice from an independent advisor.
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