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AUD/USD April Rebound at Risk on RBA Rate Cut, Verbal Intervention

- Reserve Bank of Australia (RBA) Expected to Cut Benchmark Interest Rate to 2.00%.

- Will Governor Glenn Stevens Toughen the Verbal Intervention as AUD/USD as Well?

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Trading the News: Reserve Bank of Australia Interest Rate Decision

According to a Bloomberg News survey, 25 of the 29 economists polled anticipate the Reserve Bank of Australia (RBA) to reduce the cash rate by 25bp to 2.00%, and another round of easing may prompt a further decline in AUD/USD amid the deviation in the policy outlook.

What’s Expected:

AUD/USD RBA

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Why Is This Event Important:

The RBA may take additional steps to combat the downside risks surrounding the region as Governor Glenn Stevens keeps the door open to offer lower borrowing-costs, and the central bank may also look to toughen its verbal intervention on the local currency in an effort to further assist with the rebalancing of the real economy.

Expectations: Bearish Argument/Scenario

Waning confidence along with fears of a slowing recovery may push the RBA to further support the $1T economy, and another round of monetary easing may dampen the appeal of the aussie especially if the central bank keeps the door open to push the cash rate to fresh record-lows.

Risk: Bullish Argument/Scenario

However, the RBA may retain its current policy in May amid sticky price growth paired with the pickup in private-sector activity, and the aussie-dollar may continue to retrace the decline from the beginning of the year should Governor Stevens endorse a wait-and-see approach.

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How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Cuts Cash Rate & Toughens Verbal Intervention

  • Need red, five-minute candle following the rate decision for a potential short AUD/USD trade.
  • If market reaction favors a bearish aussie trade, sell AUD/USD with two separate position.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish AUD Trade: Governor Stevens Endorses Interest Rate Stability

  • Need green, five-minute candle to consider a long AUD/USD position.
  • Carry out the same setup as the bearish aussie trade, just in reverse.

Read More:

COT-Large Yen Speculators Close to a Net Long Position

Bullish USD/JPY Retail Sentiment Narrows Despite Risk for Breakout

Potential Price Targets For The Release

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • Lack of momentum to close above former support around 0.8000 (61.8% retracement) to 0.8020 (38.2% expansion) may highlight a near-term topping process in AUD/USD; waiting for a break of the bullish RSI momentum for confirmation/conviction.
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd has flipped to net-short AUD/USD coming into the first full-week of May, with the ratio currently holding at -1.02.
  • Interim Resistance: 0.8000 (61.8% retracement) to 0.8020 (38.2% expansion)
  • Interim Support: 0.7710 (23.6% retracement) to 0.7740 (78.6% expansion)

Impact that the RBA Interest Rate decision has had on AUD during the last meeting

April 2015 Reserve Bank of Australia (RBA) Interest Rate Decision

AUD/USD Chart

The Reserve Bank of Australia (RBA) retained the benchmark rate at 2.25%, but kept the door open to further embark on its easing cycle in an effort to further assist with the rebalancing of the real economy. The RBA continued to highlight the risk for below-trend pace amid the slowdown in global growth, but Governor Glenn Stevens may continue to promote a wait-and-see approach in the first-half of 2015 as the Australian dollar exchange rate works it was towards the 0.7500, the preferred exchange rate outlined by the central bank head. The Australian Dollar strengthened following the rate decision, with AUD/USD climbing above the 0.7700 handle, but the market reaction quickly fizzled as the pair largely consolidated over the remainder of the Asian/Pacific trade to end the session at 0.7669.

— Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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Bullish USD/JPY Retail Sentiment Narrows Despite Risk for Breakout

Talking Points:

- USD/JPY Continues to Carve Higher Highs & Lows to Threaten Triangle/Wedge Formation.

- AUD/USD Outlook Mired by Bearish Formation, Growing Bets for Reserve Bank of Australia (RBA) Rate Cut.

- USDOLLAR Stalls at Former-Support; Fed Rhetoric in Focus.

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USD/JPY

USD/JPY Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • May see a continuation of the series of higher highs & lows in USD/JPY as the pair appears to be breaking out of the triangle/wedge formation, while the RSI threatens the bearish momentum carried over from back in December.
  • Near-term breakout may spur a resumption of the long-term bullish trend; need a break/close above 120.55 (23.6% retracement) to 120.60 (61.8% retracement) for conviction/confirmation for a further advance in USD/JPY.
  • Despite the growing risk for a breakout in USD/JPY, DailyFX Speculative Sentiment Index (SSI) shows the ratio coming off extremes and narrowing to +1.82 as the retail crowd appears to be fading the near-term advance in the exchange rate.

AUD/USD

AUD/USD Daily Chart

  • Near-term outlook for AUD/USD favors the downside targets as the pair continues to carve a series of lower highs & lows ahead of the Reserve Bank of Australia (RBA) interest rate decision.
  • Seeing increased bets for a 25bp RBA rate cut as market participants price a 75% probability for a further reduction in the cash rate according to Credit Suisse overnight index swaps (OIS).
  • Still waiting for a close below 0.7820 (38.2% retracement) to open up the next downside target at 0.7710 (23.6% retracement).

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Read More:

COT-Large Yen Speculators Close to a Net Long Position

May Forex Seasonality Foresees Dollar Rebound After April Selloff

USDOLLAR(Ticker: USDollar):

Bullish USD/JPY Retail Sentiment Narrows Despite Risk for BreakoutUSDOLLAR Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • Dow Jones-FXCM U.S. Dollar continues to trade on a firmer footing despite the mixed data prints coming out of the world’s largest economy; still waiting for a break of the bearish RSI momentum to favor a resumption of the long-term bullish trend.
  • Will keep a close eye on the fresh batch of central bank rhetoric coming out ahead of the highly anticipated U.S. Non-Farm Payrolls (NFP) report as 2015-voting members Charles Evans and John Williams are scheduled to speak later today.
  • Break/close above 11,901 (78.6% expansion) to favor a further advance in USDOLLAR, with the next topside objective coming in around 11,951 (38.2% expansion) to 11,965 (23.6% retracement).

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Click Here for the DailyFX Calendar

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David’s e-mail distribution list, please follow this link.

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US Dollar May Rise if Fed-Speak Hints FOMC to Look Past 1Q Slump

Talking Points:

  • US Dollar May Rise if Fed-speak Rekindles Mid-Year Rate Hike Speculation
  • Australian Dollar Drops as Markets Position for On-Coming RBA Rate Cut
  • See Economic Releases Directly on Your Charts with the DailyFX News App

A quiet economic calendar in European trading hours may see traders looking ahead to Fed-speak for direction cues. Comments from Governor Daniel Tarullo, Chicago Fed President Charles Evans and San Francisco Fed President John Williams – all current voting members of the rate-setting FOMC committee – are due cross the wires.

Rhetoric suggesting the US central bank may look past slow performance in the first quarter and deliver the first post-QE hike in the benchmark lending rate by around mid-year as it hinted at the onset of 2015 is likely to drive the US Dollar higher. The markets have pushed out their expected timeline for the start of the tightening cycle to October. A distinct similarity between weakness in the first quarters of 2014 and 2015 suggests policymakers may see through this year’s stumble as they did 12 months ago even amid calls to slow or pause the “tapering” of asset purchases.

The Australian Dollar faced broad-based selling pressure at the start of the trading week in what appeared to be pre-positioning ahead of tomorrow’s RBA monetary policy announcement. The central bank is widely expected to cut the benchmark lending rate by 25 basis points to a record low of 2 percent, though we see a distinct possibility that the doves will be disappointed.

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Asia Session

European Session

Critical Levels

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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May Forex Seasonality Foresees Dollar Rebound After April Selloff

Talking Points:

- May has produced strongest monthly performance for USD in QE era.

- Australian Dollar, Euro have typically led underperformers.

- Variation of returns is higher than other months; volatility is common.

See the full rundown of seasonal patterns broken down by currency pairs below, and to receive reports from this analyst, sign up for Christopher’s distribution list.

The beginning of the month warrants a review of the seasonal patterns that have influenced forex markets over the past several years. In our previous study, we decided to once again focus only on recent performance during the QE era of central bank policies (2009-present).

For May, we continue to focus on the period of 2009 to 2014. The small sample size is not ideal, and we recognize that there is increased statistical stability with using longer time periods. However, because of the specific uniqueness of the past six years relative to any other time period in market history – the era of quantitative easing – we’ve elected to attempt to increase the stability of the estimates with the shorter time period.

May Forex Seasonality Foresees Dollar Rebound After April Selloff

Forex Seasonality in Euro (via EURUSD)

May Forex Seasonality Foresees Dollar Rebound After April Selloff

The Euro has lost ground to the US Dollar in five consecutive years, with the only positive performance during the QE era coming in 2009. Accordingly, while the dispersion of returns is fairly wide, on balance, a modest loss has materialized. EURUSD has followed its QE-era seasonal tendencies closely thus far this year; and a continuation of this pattern would see the April gains reversed by the end of the month. The caveat may be the outsized net-short Euro position held by speculators in the futures market, which started unwinding in the middle of April.

Forex Seasonality in British Pound (via GBPUSD)

May Forex Seasonality Foresees Dollar Rebound After April Selloff

Like EURUSD, GBPUSD has seen losses materialize in each of the past five years, with the only positive performance coming in 2009. Also like EURUSD, losses have been moderate on average, but the dispersion of returns is higher than in other months of the year due to the outsized gain at the start of the QE era. The most comparable year may be 2010, when the UK general election took place; the general election takes place this year on May 7, and may prove to be the most significant driver of GBPUSD over the next several weeks.

Forex Seasonality in Japanese Yen (via USDJPY)

May Forex Seasonality Foresees Dollar Rebound After April Selloff

Our seasonal forecast for USDJPY in May is neutral, if not slightly negative. The average performance calls for lower prices, although gains and losses have alternated since 2011; the average performance is dragged down by significant losses in 2009 and 2010. USDJPY is in the midst of its “bearish” stretch of the year, which has lasted from April to August during the QE era.

Forex Seasonality in Australian Dollar (via AUDUSD)

May Forex Seasonality Foresees Dollar Rebound After April Selloff

May has been the worst month of the year for Australian Dollar during the QE era, bar none. Last year was an outlier, with a slight gain; but the preceding four years produced significant losses. Discounting the broad-based US Dollar weakness seen in 2009, May has typically marked itself as the epicenter for AUDUSD weakness during the year.

Forex Seasonality in USDOLLAR

May Forex Seasonality Foresees Dollar Rebound After April Selloff

May has been the best month of the year for the USDOLLAR Index (an aggregate of EURUSD, GBPUSD, AUDUSD, and USDJPY). 2009 produced the only loss during the QE era, leading to the wide range of outcomes. However, gains have been consistent in each of the past five years, although the lowest positive return developed last year. The caveat to an outright bullish forecast is the unwind going in the net-long US Dollar position in the futures market, following the best ten-month stretch for the greenback in market history.

Forex Seasonality in New Zealand Dollar (via NZDUSD)

May Forex Seasonality Foresees Dollar Rebound After April Selloff

May has consistently a poor month for the New Zealand Dollar during the QE era, with losses coming in four of the past five years. Last year’s performance was only slightly negative, and thanks to an outsized gain in 2009, the dispersion of returns is high. Considering that there has been no consistency in the magnitude of losses, it’s safe to suggest that volatility may be a hallmark of NZDUSD trading over the course of the month.

Forex Seasonality in Canadian Dollar (via USDCAD)

May Forex Seasonality Foresees Dollar Rebound After April Selloff

All things considered, May is a neutral month for the Canadian Dollar. Although the seasonal tendency has been for a very slight gain in USDCAD, the QE era May performances are bookended by a significant loss in 2009 and a slightly loss in 2014. If the US Dollar continues its positioning unwind, the Canadian Dollar appears to be among the best-suited to outperform.

Forex Seasonality in Swiss Franc (via USDCHF)

May Forex Seasonality Foresees Dollar Rebound After April Selloff

Like the other major USD pairs, USDCHF has seen a wide range in terms of outcomes over the past six years. Although gains have materialized in each of the past three years, the magnitude of positivity has decreased through present day. While May has on average produced the second best return during the year for USDCHF, a more neutral forecast may be deemed appropriate.

Forex Seasonality in S&P 500

May Forex Seasonality Foresees Dollar Rebound After April Selloff

‘Sell in May and go away?’ That may have been an appropriate axiom from 2010 to 2012, but investors living by that principle have been disappointed in each of the past two years. The average May performance has been on balance negative during the QE era (culminating in the worst month of the year for US equity markets); and like the USD-pairs, dispersion of returns has been high. Fundamental factors influencing markets this May are diverse: the Fed continuing its low rate policy, although it’s looking to raise rates at some point this year; corporate earnings have improved in recent years, but the slowdown in the US economy in Q1’15 has dampened consumer potential; and the return of inflationary pressures in a weak global demand environment has recently increased investor anxiety in recent weeks.

Forex Seasonality in Gold

May Forex Seasonality Foresees Dollar Rebound After April Selloff

As would be expected in a month when the US Dollar typically outperforms, Gold, a USD-denominated asset, has typically seen losses materialize in May during the QE era. Losses have developed in each of the past four year, albeit at a decreasing rate since 2012; and the only positive performances came in 2009 and 2010, as the Fed’s expansive QE programs were flooding the market with liquidity. It might be best to keep an eye on US yields; rising yields would buoy the US Dollar, decreasing the need for Gold as an inflation hedge or hedge against fiat dilution.

Read more: EUR/USD May Target Mid-$1.1500s; USD/JPY Best Bet for USD Gains

— Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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Euro Covering Rally Potential Unleashed, NFPs Only Obstacle

Euro Covering Rally Potential Unleashed, NFPs Only Obstacle

Fundamental Forecast for Euro: Neutral

- The EURUSD rally was kickstarted by the disappointing Q1’15 US GDP release on Wednesday.

- A double bottom technical pattern may see EURUSD extend itsgains above $1.1500.

- Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.

The Euro was easily the top performing major currency this past week, gaining +2.58% against the Australian Dollar, +2.91% against the US Dollar, and +3.85% against the Japanese Yen, the worst major performer. While there’s no single event or series of data that can be pointed to as the catalyst, it’s evident that a massive short squeeze is underway as the European Central Bank’s QE ‘trade unwinds’: short Euro, long European equities, and long European bonds. In concert with the Euro rally, European equity markets slid this past week, while both core and peripheral yields jumped.

Accordingly, as the ECB’s QE-driven trade has unwound, we’ve seen a sizeable (-7.9%) decline in speculative net-short positions in the futures market: there were 197.8K contracts as of the week ended April 28, 2015, a number that likely shrunk even further as EURUSD rallied +1.94% from the close on Tuesday through the end of the week alone.

Perhaps the most noticeable catalyst was the rise in medium-term inflation expectations, with the 5-year, 5-year inflation swap rising from 1.685% at the beginning of the week to as high as 1.797% by Thursday. Higher inflation expectations are further reducing the real return on already low-yielding fixed income assets; investors may have simply found themselves in the undesirable situation of holding low- or negative-yielding bonds in a rising inflation environment, provoking the sell off in the belly and long-end of yield curves in the Euro-Zone.

In the short-term, if rising inflation expecations proliferate, equity market and bond market weakness might continue, and the Euro may rally further. Even though Euro short positions have moderated, they still remain relatively stretched compared to positioning seen in other major currencies versus the US Dollar. From a charting perspective, the technical consolidation seen during March and April may have given way to a double bottom formation, opening the door for a potential EURUSD rally above $1.1500 over the coming weeks. The table is set for such a move, given postioning and correlated asset performances.

Over the next few days, there are relatively few obstacles in the way for the Euro to continue its covering move. Greece remains a concern, but barring its exclusion from the Euro-Zone, investors have more or less become comfortable (or complacent) with the day-to-day headlines regarding the debt negotiations. On the European data side, there is nothing truly noteworthy that may provoke investors to reassess their short-term trade horizon, although the European Commission’s updated economic forecasts on May 5 will be worth paying attention to. Outside of the Euro-Zone, the Reserve Bank of Australia rate decision on Tuesday and the US Nonfarm Payrolls report on Friday should be the most significant catalysts for price action this week. Truly, only a strong NFP report could slam the breaks on the EURUSD’s covering move, but after several weeks of disappointing data that haven’t abated at the start of Q2’15, the headline US labor market reading may only prove to be a minor impediment this week. –CV

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Trading Forecast: Euro, Dollar and Pound Face Strong Winds This Week

Key event risk in US NFPs, Greek negotiations, a UK election and RBA rate decision set the FX market up for volatility in the week ahead.

US Dollar Forecast– Dollar Technicals Say Bearish Reversal, Fundamentals Don’t Agree

This past week, the USDollar posted its first drop on a monthly basis in 10 consecutive months.

Japanese Yen Forecast – US Dollar May Finally Break Out versus Japanese Yen

The Japanese Yen finished the week notably lower versus the US Dollar but stuck to its long-standing trading range.

British Pound Forecast – GBP/USD Advances Fizzles Ahead of U.K. Election- 1.5000 on Radar

Headlines surrounding the U.K. election are likely produce increased volatility for GBP/USD, but the uncertainties clouding the fiscal outlook may only act as a near-term driver for the British Pound as the Bank of England (BoE) remains on course to normalize monetary policy.

Australian Dollar Forecast – Australian Dollar May Rise as RBADisappoints Rate Hike Bets

The Australian Dollar may rise if the RBA decides not to cut interest rates its May meeting. Seemingly compelling evidence suggests they may opt to do just that.

Gold Forecast – Gold Marks Outside Weekly Candle on FOMC- 1165 in Focus Ahead of NFP

Gold prices fell to a 6-week low with the precious metal off by more than 0.50% to trade at $1172 ahead of the New York close on Friday.

Trading Forecast: Euro, Dollar and Pound Face Strong Winds This Week

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