Macroeconomic overview: U.S. retail sales increased broadly in April while consumer prices rebounded, pointing to a pickup in economic growth and a gradual rise in inflation that could keep the Federal Reserve on track to raise interest rates next month.
The reports on Friday added to labor market data in suggesting the near stall in economic activity in the first quarter was an anomaly. But a moderation in year-on-year inflation led financial markets to dial down expectations of at least two more rate increases this year.
The Commerce Department said retail sales rose 0.4% last month after an upwardly revised 0.1% gain in March. Sales rose 4.5% in April on a year-on-year basis. The market had forecast overall retail sales increasing 0.6% last month.
The economy grew at a 0.7% annualized rate in the first quarter, held back by the weakest increase in consumer spending in more than seven years. The Atlanta Fed estimates GDP will rise at a 3.6% pace in the second quarter.
In a separate report on Friday, the Labor Department said its Consumer Price Index rose 0.2% after dropping 0.3% in March. The rise in prices suggested that March’s decline, which was the first in 13 months, was an aberration. In the 12 months through April, the CPI increased 2.2%. While that was a slowdown from March’s 2.4% increase, it still exceeded the 1.7% average annual increase over the past 10 years.
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Financial markets are pricing in more than a 70% chance of a rate hike at the Fed’s June 13-14 policy meeting. But the likelihood the U.S. central bank will raise rates twice before the end of the year fell after Friday’s data. Prices of U.S. Treasuries rose and the USD weakened against a basket of currencies after the release of Friday’s data.
The chief of the Federal Reserve Bank of Chicago said Friday that he would be “very surprised” if the U.S. central bank raises interest rates more than two more times this year, and that it could be just once more if the inflation outlook clouds. Evans, who has a vote on monetary policy this year, also said that it seems “likely” the Fed could begin to trim its USD 4.5 trillion balance sheet before the end of the year.
Philadelphia Fed President Patrick Harker, a voting member of the Fed’s policy committee this year, said the Fed could adjust the pace at which it trims its balance sheet depending on how financial markets react. He added that the U.S. labor market is roughly “at full health” and repeated his support for two more interest-rate hikes this year.
Technical analysis: Friday’s close above 14-day exponential moving average is encouraging for long trades. The nearest bulls’ target is 1.1021 high on May 8. A close above 1.0977 (50% fibo of May 2016-January 2017 fall) will may signal stronger upside move, to at least 61.8% fibo of the above-mentioned move (1.1127).
Short-term signal: The corrective move was not as deep as we expected. We have closed short position with a loss at 1.0930 and switched to the long. Our target is 1.1130 now.
Long-term outlook: Bullish
USD/CAD: Loonie driven higher by oil prices recovery
Macroeconomic overview: The Canadian dollar hit its highest level in two weeks today as a bounce in oil prices drove a recovery in major commodity-linked currencies.
Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said on Monday in Beijing that a joint deal to cut crude supplies needed to be extended from the middle of this year until the end of March 2018.
The Organization of the Petroleum Exporting Countries, of which Saudi Arabia is the de-facto leader, and other producers led by Russia, pledged late last year to cut output by 1.8 million barrels per day during the first half of 2017. OPEC-members agreed to cut 1.2 million bpd under the deal.
The extension will initially be on the same volume terms as before, although the ministers said they hoped other producers would join the efforts.
Russia and Saudi Arabia together produce about 20 million bpd of crude, equivalent to one-fifth of global consumption. Their clout in oil policy is seen ensuring that other producers who have so far participated in the cuts will also extend.
OPEC is due to meet in Vienna, Austria, on May 25. While it was broadly expected that OPEC and Russia would agree to extend the cut, the timing and wording of the statement sent crude prices up.
The major unknown will be the response of low-cost U.S. shale producers, which could undermine the unified effort to prop up the market.. Thanks to a relentless rise in drilling activity, mostly from shale producers, U.S. oil output has shot up by more than 10% since mid-2016 to over 9.3 million bpd.
Technical analysis: A close below 23.6% fibo of January-May rise would be a strong bearish signal. We think the USD/CAD is likely drop to 1.3381 (50% fibo of the above-mentioned move) in the coming days.
Short-term signal: Short for 1.3450
Long-term outlook: Flat
TRADING STRATEGIES SUMMARY:
FOREX – MAJOR PAIRS:
FOREX – MAJOR CROSSES:
How to read these tables?
1. Support/Resistance – three closest important support/resistance levels
2. Position/Trading Idea:
BUY/SELL – It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
LONG/SHORT – It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.
3. Stop-Loss/Profit Locked In – Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.
4. Risk Factor – green “*” means high level of confidence (low level of uncertainty), grey “**” means medium level of confidence, red “***” means low level of confidence (high level of uncertainty)
5. Position Size (forex)– position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
Position size (precious metals) – position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).
6. Profit/Loss on recently closed position (forex) – is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
Profit/Loss on recently closed position (precious metals) – is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
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By GrowthAces.com – Daily Forex Trading Strategies