AETOS Market Commentary
05/06/2019
EURUSD
The euro strengthened on Tuesday, closing at 1.1255(+10 pips) against the greenback. The greenback was unable to recover the ground lost Monday, hit by trade war-related headlines and mounting speculation about a rate cut in the US.
On Tuesday, Fed's Chief Powell spoke about the Federal Reserve's policy strategy, tools, and communication practices, and despite no direct reference to future policies, odds for a cut decreased modestly.
Powell said that policymakers would act as appropriate to sustain the expansion, different from the official Fed's 'patient' stance. In the data space, the EU released May preliminary inflation estimates, which missed the market's expectations, up by 1.2% YoY vs. the expected 1.3%, also below the previous 1.7%. Core CPI in the same period posted a modest 0.8% advance against the 0.9% forecasted, while the unemployment rate in the Union decreased to 7.6% in April.
The US published the ISM-NY Business Conditions Index, which collapsed in May to 48.6 from 77.3 previously, and April Factory Orders, which declined by 0.8%, better than the -0.9% expected. This Wednesday, Markit will release the final services PMI for both economies, while the US will release the official ISM Non-Manufacturing PMI, this last expected at 50.9.
Earlier in the day, the EU will release April PPI and Retail Sales, this last, seen decreasing monthly basis by 0.4%.
EURUSD 4 Hour Chart
The pair held onto gains by the end of the day, trading around the mentioned 1.1250 region, although maintaining the positive short-term tone according to the 4 hours chart, as technical indicators have settled within overbought territory, having corrected extreme readings before stabilizing. In the mentioned chart, a sharply bullish 20 SMA(Red Line) crossed above the larger ones, all of them below the current level, and with the shorter one at around 1.1220 reinforcing the static support area.
GBPUSD
The cable pair rose and closed at 1.2701(+39 pips) against the greenback. The GBP/USD pair edged higher for a third consecutive day, peaking at 1.2713 amid persistent dollar’s weakness, ending the day not far below such high.
The Pound upward potential was limited by the UK Construction PMI, which unexpectedly declined in May, down to 49.4 in May from 53.1 in April. According to Markit official report, the index was below the 50.0 no-change mark for the third time in the past four months. That follows a poor Manufacturing index which printed 49.4. This Wednesday, Markit will release the Services PMI, foreseen at 50.6 vs. the previous 50.4. US President Trump is in the UK and met with PM May.
According to her spokesman, a future trade deal would be "a significant focus" of those talks.
GBPUSD 4 Hour Chart
The 4 hours chart for the pair shows that it’s trading just below a bearish 100 SMA and above a mild bullish 20 SMA(Red Line), RSI also nears overbought territory, although with a moderate bullish pace.
Nevertheless, the pair is poised to continue advancing, with an immediate resistance being the 1.2747 level, the high set on May 27. Given dollar’s weakness and the negative tone of the greenback, the ongoing recovery could continue beyond 1.2800 in the upcoming sessions.
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