Source: PaxForex Premium Analytics Portal, Fundamental Insight
Traders brace for the start of the second-quarter earnings season, which will shed more light on corporate health. While many companies could release positive results after downgrading expectations during the first quarter, markets will monitor their full-year guidance. Volatility could spike in companies who release earnings while the broader trend remains bearish. Markets managed to stabilize and construct a positive week ending last Friday, but it appears to be the end of the bear market rally.
Yesterday’s bond auctions in France and the US saw borrowing costs increase as central banks drain liquidity and tighten monetary policy. The US Federal Reserve is leading the hiking cycle, but the ECB could surprise with a more aggressive 50 basis point increase to stem the collapse of the Euro, which is a few pips away from parity with the US Dollar. The French 6-month BTF auction eclipsed negative yields, while the US 3-year yield moved above 3.00%. The US 3-month and 6-month yields move higher, with the 6-month accelerating to 2.85%, narrowing the spread to the 3-year to just 15 basis points. Investors await today’s 52-week and 10-year auction.
Inflation continues to manifest itself as central banks, led by the US Fed, the ECB, and the Bank of Japan did not act sooner, allowing runaway inflation to harm economic growth and depress consumers. The ECB and the Bank of Japan failed to increase rates as they grapple with additional issues. The ECB communicated it would begin interest rate hikes in July after ending its quantitative easing program. The Bank of Japan is the last G7 central bank pumping liquidity into the financial system. Forex ripple effects, especially the collapsed Euro, could show up in the US earning season, resulting in smaller profits.
The forecast for the US30 remains bearish after setting a bull trap and recording a lower high, while the descending Kijun-sen rejected price action. Volatility can increase during the earnings season, and the Ichimoku Kinko Hyo Cloud extends its gradual step-by-step contraction. The Tenkan-sen began drifting lower, but traders should monitor the CCI after setting a lower high just below extreme overbought territory before revering. A move below zero could trigger more selling in this equity index. Can bears regain control over the US30 and force price action to a new bear market low and into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the Dow Jones 30 Index remain inside the or breakdown below the 30,760 to 31,420 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 31.000
- Take Profit Zone: 27.630 – 28.140
- Stop Loss Level: 31.900
Should price action for the Dow Jones 30 Index breakout above 31,420, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 31.900
- Take Profit Zone: 33.065 – 33.470
- Stop Loss Level: 31.420
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