Top Three Price Action Themes for Q2

Talking Points:

– Today outlines a finish of a initial quarter, and below, we demeanour during 3 of a some-more engaging price actionthemes for Q2.

– Q1 brought us even aloft all-time-highs in batch prices along with a rate travel that few were awaiting until dual weeks before; and subsequent entertain will expected be expostulate by usually how hawkish a Fed competence be during their Jun rate decision.

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Monday outlines a initial day of a second quarter, and as we tighten a books on Q1 there are utterly a few themes of substantial interest. Below, we demeanour during 3 of a some-more engaging situations in a FX-world for subsequent quarter.

Just How Hawkish is a Fed?

The initial entertain saw utterly a bit of change in this dialect as a initial dual months saw small expectancy for a travel in March, as contingency for a travel were hovering around 30-40% as we came into a month. But afterwards a Fed got to work, and a array of Fed speeches in a initial week of Mar helped to propel those odds-higher, along with a U.S. Dollar, as traders braced for a rate hike.

But when a Fed did travel rates for usually a 3rd time in 10 years, a U.S. Dollar sold-off with aggression; and continued-lower until a final few days of a month; during that indicate a Fed has seemed to get to work again in a several interviews and commentaries that they’re pity with a ubiquitous public. This week saw no fewer than 13 Fed speeches already; and we have some-more on a calendar for currently on this final day of Q1. But of sold note is a tonality of those speeches as a Fed’s been rather apparent in attempting to broadcast a hawkish-outlook to markets: We listened Mr. Eric Rosengren of a Boston Fed discuss a thought of 4 rate hikes in 2017, that would be even more-hawkish than a Fed’s possess expectations as we came into this year. The net impact of this week’s Fed-speak has been re-ignition of a bullish thesis in USD, as seen below:

Top Three Price Action Themes for Q2

Chart prepared by James Stanley

The large doubt around this thesis for Q2 is either or not a Fed hikes in June. Currently, markets are giving an estimate 59% possibility for a rate travel in Jun (via CME FedWatch); and as a bank gets some-more assertive around a subject of ‘two to 3 more’ rate hikes, we’ll expected see these contingency continue to firm-up around a intensity pierce in June. On a draft below, we’re looking during a shorter-term setup in a Greenback in a bid of plotting near-term bullish delay setups.

Top Three Price Action Themes for Q2

Chart prepared by James Stanley

Will a Cable Range Finally Give Way?

The Range in GBP/USD is now roughly 6 months old. And notwithstanding a fact that a Pound has continued to collapse around 30-year lows for roughly half-a-year now, bears have been incompetent to emanate any poignant expostulate subsequent a psychological level of 1.2000.

But one area that has responded to that impossibly diseased GBP have been importers and producers, as inflationary vigour in a U.K. continues to rise. At first, a BoE seemed indifferent by a awaiting of stronger inflation; underneath a hypothesis that a risks of Brexit would transcend a risks of potentially-higher inflation. But Brexit hasn’t incited out to be a business-killer that a BoE expected; during slightest not yet, and we’ve even listened as most from a arch economist during a Bank of England, Mr. Andy Haldane. In February, U.K. acceleration spiked-higher; and during a Mar BoE assembly we saw a initial opinion for a rate travel given Brexit, and a assembly mins indicated that we might be saying some-more than one dissenting opinion during destiny rate decisions.

This gives a coming that we might be saying a change within a Bank of England around a awaiting of near-term rate policy. For a part, Cable firmed-up as these more-hawkish indicators came into markets; though a longer-term operation still really most relates here.

Top Three Price Action Themes for Q2

Chart prepared by James Stanley

The large doubt for this thesis in Q2 is either a BoE gets more-hawkish with their acceleration expectations in their subsequent QIR, due to be expelled on May 12th during a bank’s subsequent Super Thursday.

Is This a Quarter that Stocks Begin to Stall?

Stock prices rode a rocketship-higher in a initial partial of Q1 to set even-higher all-time-highs; and this is expected during slightest partial of a reason that a Fed felt assured adequate to travel in March. But after that rate hike, matters seemed to change, during slightest for a integrate of weeks, as batch prices set a array of ‘lower-lows’ and ‘lower-highs’ in a dual weeks after.

The SP gapped-lower to start this week after a disaster around a AHCA, though support showed-up shortly after and since, we’ve seen prices running-higher. But we’ve usually set a reduce near-term low after this week’s gap-down; and we haven’t nonetheless seen a before swing-high on a daily draft taken-out during 2,381. So there are still bearish qualities on a short-term setup in a SP 500.

The large doubt here is if this is finally a entertain that batch prices don’t extend their duration run. A more-hawkish Fed could expostulate this theme, as could serve questions around mercantile policy; as investors tighten-up prolonged positions forward of another intensity rate move.

On a draft below, we’re looking during near-term price action in a SP 500; and a turn around 2,316 could be engaging should prices fall-below, as this is a 50% pen of that 2017 vital pierce and if cost movement does expostulate subsequent – a doorway could be non-stop to near-term bearish strategies in a SP 500. But until afterwards – this is still a long-term, extended longhorn market.

Top Three Price Action Themes for Q2

Chart prepared by James Stanley

— Written by James Stanley, Analyst for DailyFX.com

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