Forex Daily Analyses

As we noted above, at the time of publication of this article, S&P 500 futures are traded near the 3940.0 mark, testing the short-term support level 3941.0 (EMA200 on the 15-minute chart) for a breakdown. In general, the downward dynamics of the S&P 500 prevails, and the breakdown of the support level 3941.0 will be a signal for the resumption of short positions. A strong negative momentum remains, which may once again push the S&P 500 towards the important support level 3860.0 (EMA144 on the weekly chart). Further decline and breakdown of the key support level 3640.0 (EMA200 on the weekly chart) may finally push the S&P 500 into the zone of a long-term bear market.

"Inflation is too high, and we understand the difficulties it causes. We are taking swift action to bring it down," Fed chief Jerome Powell said during a press conference immediately after the release of the May 4 rate decision. As a result of this meeting, Fed leaders decided to raise rates by 0.50% and announced a reduction in the central bank's balance of assets (in the amount of $ 9 trillion), which will begin in June. The Fed will reduce its portfolio of Treasuries and mortgage-backed securities by just under $100 billion each month. Balance sheet shrinkage is one component of the Fed's monetary policy normalization program to slow inflation. Fed officials are focusing on changing short-term interest rates, but reducing the asset portfolio is also an important part of this process.

The activity of HFT algorithms in the Fx market today shows that the EURUSD pair is retracing down following several days of moving higher. EURUSD has now entered the light HFT buying pressure zone, which is noted at 1.0681 and below. The price has already reacted here, with the first signs of a bounce already evident. This area is also technical support, with the prior lows around 1.0650 - 1.0660.

Volatility in GBP/USD quotes remains. Today's decline in the pair has almost completely offset yesterday's growth. In February of this year, the GBP/USD moved into a bear market zone and despite the correction that started this month from the 1.2165 level, the GBP/USD is in a downtrend, declining in the channels on the daily and weekly charts. The lower boundary of the descending channel on the weekly chart passes through the zone of local support levels 1.2165, 1.2085, 1.2000. Earlier, we wrote that “more distant targets for the GBP/USD decline are located at local support levels 1.2250, 1.2085, 1.2000 (the low in the GBP/USD decline wave that began in July 2014 near the level of 1.7200)”. It seems that our scenario is coming true, and the decline targets 1.2165, 1.2085, 1.2000 are becoming relevant again.

The British pound fell sharply after the publication of Purchasing Managers' Index (PMI). As reported (at 08:30 GMT) at the Royal Institute of Purchasing and Supply, manufacturing PMI (from Markit Economics) fell to 54.6 in May from 55.8 in April. The PMI index for the services sector fell to 51.8 in May from 58.9 in April. The forecasts were 55.1 and 57.0, respectively. Values above 50 indicate an increase in activity. However, the relative decline in performance turned out to be a negative factor for the pound. The published data "suggest that the economy is slowing down as inflationary pressures have risen to unprecedented levels," S&P economists said. Such a significant relative decline in business activity again made market participants doubt the prospects for an interest rate hike by the Bank of England.

We are analyzing the activity of HFT algorithms in the Fx market today and note the potential that the USDCHF could provide trade setups from the long side. For instance, USDCHF is falling this morning toward the light HFT buying pressure zone, which is noted at 0.9605 and below. The price has not yet reached the area, but the bulls will be looking out for that and for any bullish signals thereafter.

EUR/USD is traded near 1.0685, 122 pips above today's opening price. Given that the average intraday volatility of the EUR/USD pair ranges from 50 to 120 points, it has risen to the maximum value of this range today. The price also broke through the important short-term resistance level 1.0652 (EMA200 on the 4-hour chart). In our opinion, it is possible to enter short positions from the current level by placing pending sell limit orders near the resistance levels 1.0700, 1.0740, 1.0800. A signal to enter short positions will also be a breakdown of the support level 1.0652. A break of the support level 1.0485 (the low in the pair's decline from 1.3870 that began in May 2014) will be a confirming signal for the resumption of the EUR/USD downtrend.

During its meeting in April, the European Central Bank kept its policy unchanged, leaving rates at the same levels: key - at 0.00%, deposit rate - at -0.50%, margin - at 0.25%. The ECB said in a statement that incoming economic data had increased the likelihood that the central bank would complete its bond purchases in the third quarter. The bank noted that purchases will be curtailed gradually: from 40 billion euros in April to 30 billion euros in May and 20 billion euros in June. As the head of the ECB, Christine Lagarde, said during a press conference, "the increase in inflation is mainly due to rising energy prices", although "the situation with core inflation is not yet clear." Two weeks earlier, Christine Lagarde confirmed that the Asset Purchase Program (APP) should be completed at the beginning of the third quarter. “Our inflation forecasts are increasingly indicating that inflation is at the target level in the medium term. It is increasingly unlikely that the disinflationary momentum of the past decade will return.”

The activity of HFT algorithms in the Fx market today shows that the EURJPY pair has reached and is reacting at the light HFT selling pressure zone that is noted at 135.63 and above. The first couple of attempts were already held back here, but EURJPY is still trading inside the light HFT zone. Whether bearish pressures will persist and push the pair down remains to be seen. Technical resistance from prior highs in this area should help attract extra bearish pressures.