The S&P 500 experienced a slight increase at the beginning of the week as traders analyzed ongoing negotiations regarding the debt ceiling. The broader index rose by 0.3% to reach 4,136.28 points. Meanwhile, the Dow Jones Industrial Average ended its five-day losing streak, gaining 47.98 points (0.14%) and reaching 33,348.60 points. The tech-heavy Nasdaq Composite outperformed both indices, rising by 0.66% to reach 12,365.21 points. The focus for investors was on the debt ceiling talks, which were rescheduled to this week after being postponed from Friday. President Joe Biden is expected to meet with top congressional leaders on Tuesday to discuss this matter.

Investors are closely monitoring the debt ceiling negotiations, as failure to reach an agreement could have severe financial consequences. Treasury Secretary Janet Yellen warned that a failure to address the debt ceiling could lead to “financial chaos.” However, Yellen expressed optimism over the weekend, stating that negotiations were active and that areas of agreement had been found.

The market remains cautious, as each day of delay and lack of progress makes it increasingly challenging for the market to gain momentum. Additionally, investors are analyzing the latest economic data, including the May data for the Empire State Manufacturing survey, which showed a significant decline in manufacturing activity in New York. Throughout the week, investors will also be paying attention to major retail reports from Home Depot, Target, and Walmart, which will provide further insight into the state of the consumer.

Data by Bloomberg

On Monday, the stock market witnessed varied price changes across different sectors. Overall, the market experienced a positive trend with an increase of 0.30%. The materials sector performed particularly well, showing a significant rise of 0.85%. Financials and information technology sectors also displayed strong gains, with increases of 0.82% and 0.74% respectively. Industrials saw a moderate increase of 0.51%. However, energy and consumer discretionary sectors had more modest gains of 0.20% and 0.14% respectively. On the other hand, the communication services sector experienced a slight decline of -0.03%. Health care, real estate, consumer staples, and utilities sectors witnessed negative trends, with price decreases of -0.16%, -0.24%, -0.27%, and -1.24% respectively.

Major Pair Movement

On Monday, the US dollar retreated across the board after last week’s risk-off gains, as investors prepared for the upcoming US retail sales report and debt ceiling talks. Market sentiment was mixed as a volatile NY Fed report was met with caution, and several Federal Reserve speakers pushed back against expectations of rate cuts. The dollar index lost 0.25%, while the euro gained in response.

The Australian dollar, considered a high-beta currency, rebounded strongly against the low-beta yen, with AUD/JPY rising over 1% compared to USD/JPY’s modest 0.22% gain. The market remained hopeful that China would increase stimulus measures to support economic growth, and there was speculation that the US would avoid a debt default, boosting risk appetite. Additionally, there was a bounce in US bank stocks, contributing to the positive risk sentiment.

The British pound rallied throughout the day, influenced by risk acceptance flows and anticipation of employment and wage data that could support the Bank of England’s rate hiking stance. The Japanese yen’s gains were limited as the government showed lukewarm reception to the Bank of Japan’s policy review, reducing expectations of accommodative measures being scaled back.

Picks of the Day Analysis

EUR/USD (4 Hours)

Euro Makes Modest Gains Against Weakening US Dollar, Concerns Remain Over Eurozone Data and Debt Ceiling Drama

EUR/USD rose slightly on Monday as the US Dollar weakened following disappointing economic data. However, the Euro faced further losses against the Pound, nearing multi-month lows. Industrial Production in the Eurozone declined by 4.1% in March, surpassing the expected 2.5% decrease. In Germany, the Wholesale Price Index fell 0.4% in April, better than the anticipated -0.9%, while the annual index dropped from 2% in March to -0.5% in April. On Tuesday, Eurozone employment and GDP data for Q1 will be released, along with the May German ZEW survey. The Eurozone is expected to see a marginal expansion, avoiding contraction.

The US Dollar weakened on Monday amid mixed market conditions, influenced by the sharp decline in the US New York Empire Manufacturing index from 10.8 in April to -31.8 in May. Key data to watch on Tuesday includes April’s Retail Sales report. President Biden is set to meet with House Speaker Kevin McCarthy to discuss the debt ceiling issue. Despite higher US bond yields, the decline in the Dollar occurred alongside an improvement in market sentiment.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD pair is currently attempting to recover after a few days of downward movement, aiming to reach the middle band of the Bollinger band. It is anticipated that the EUR/USD will make a slight upward move and endeavor to reach the middle band. The Relative Strength Index (RSI) is currently at 36, indicating an overall bearish trend in the EUR/USD market.

Resistance: 1.0885, 1.0930

Support: 1.0820, 1.0785

XAU/USD (4 Hours)

Gold (XAU/USD) Gains Modestly Amid Debt Ceiling Concerns, Stocks and Bond Yields Mixed

Spot gold (XAU/USD) started the week with modest gains, trading around $2,020 per troy ounce. The advance in XAU/USD was supported by a decrease in demand for the US Dollar and an improved market mood. However, caution remained as negotiations related to the US debt ceiling were extended. Investors are closely watching the potential for a US default, with President Joe Biden scheduled to meet with lawmakers on Tuesday to find a resolution.

In the stock markets, there was a positive trend, although momentum was limited. The Dow Jones and S&P 500 saw gains of less than 0.10%, while the Nasdaq Composite performed the best, rising by 56 basis points (bps). Concurrently, government bond yields also increased, with the 10-year Treasury note reaching a yield of 3.51%, up by 4 bps, and the 2-year note remaining unchanged at 4.0%. The rise in US yields acted as a limiting factor for the bullish potential of XAU/USD.

Chart XAUUSD by TradingView

According to technical analysis, XAU/USD has been trading in a flat range for the past few days and has recently reached and is moving around the middle band of the Bollinger Band. The proximity of the upper band to the lower band suggests a potential consolidation phase for XAU/USD. Currently, the Relative Strength Index (RSI) stands at 48, indicating that XAU/USD is in a consolidation mode.

Resistance: $2,023, $2,036

Support: $2,010, $2,000

Economic Data

The financial industry anticipates major economic reports this week, focusing on the US Retail Sales and Australia Wage Price Index and Employment Change. These reports are crucial for traders navigating the markets and making informed decisions.

NY Empire State Manufacturing Index | US (15 May)
The NY Empire State Manufacturing Index unexpectedly jumped to 10.8 in April 2023 from -24.6 in March 2023.
Analysts expect a reading of 8 for May 2023.

Claimant Count Change | UK (16 May)
The number of people claiming for unemployment benefits in the UK rose by 28,200 in March 2023, the first increase in three months, and the biggest since February 2021.
The UK Claimant Count Change for April will be released on 16 May, with analysts expecting a decrease of 15,000.

Consumer Price Index | Canada (16 May)
Canada’s CPI increased by 0.5% in March 2023 compared to February 2023 figures.
Data for April will be released on 16 May, with analysts expecting an increase of 0.3%.

Retail Sales | US (16 May)
US retail sales dropped 0.6% in March 2023, after falling 0.7% in February 2023.
Analysts project a 0.7% increase for April 2023, with the data set to be published on 16 May.

Wage Price Index | Australia (17 May)
Australia’s seasonally adjusted Wage Price Index jumped 3.3% year-on-year in Q4 2022, after an upwardly revised 3.2% growth in Q3 2022.
Data for Q1 2023 will be released on 17 May, with analysts expecting another increase of 3.5%.

Employment Change | Australia (18 May)
Australia’s employment rate increased to 13.88 million, with a surge of 53,000 in March 2023. The unemployment rate stood at 3.5%.
The data for April 2023 is set to release on 18 May, with analysts expecting the employment rate to increase by 25,000. The unemployment rate is likely to remain at 3.5%.

Forex trading is a global market that operates 24 hours a day. And it is important to know the best times to trade in order to maximise your profits. 

The Forex market can be divided into four major trading sessions: the Sydney session, the Tokyo session, the London session, and the New York session.  

The Forex market opens in New Zealand on Monday morning, while it is still Sunday in most parts of the world. The market operates continuously from Monday to Friday, and there are no formal closing times during the week. 

As one region’s Forex market closes, another region’s market opens or is already open, resulting in overlapping trading periods, which are often the most active times in Forex trading. 

Apart from weekends, there are only two public holidays when the Forex market remains closed worldwide: Christmas and New Year’s Day. 

You should be aware that the opening hours of the Forex market may vary in March, April, October, and November due to different countries’ daylight savings schedules. This is an important consideration if you plan to trade during those times. 

Traditionally, the Forex market has had three main trading sessions that traders tend to focus on instead of trading all day and night. This is referred to as the “Forex 3-session system”, which includes the Asian, European, and North American sessions, also known as Tokyo, London, and New York. 

Tokyo session 

The Tokyo session starts at 12:00 am GMT. Japan is the world’s third-largest Forex trading centre. During the Asian session, around 20% of all Forex trading volume occurs. 

Economic data from Australia, New Zealand, China and Japan are released early in the session, and this could provide an excellent opportunity to trade news events. 

The Tokyo session’s moves could set the tone for the rest of the day, and traders in later sessions often evaluate what strategies to take in other sessions 

London session 

London’s strategic location benefits from its time zone, as its morning overlaps with late trading in Asia, and its afternoon overlaps with New York City. 43% of all Forex transactions happen in London. 

The London session is also known as the “European” trading session. Other major financial centres such as Geneva, Frankfurt, Zurich, Luxembourg, Paris, Hamburg, Edinburgh, and Amsterdam are also open during this time. 

Most trends begin during the London session and continue until the beginning of the New York session. 

Due to the high volume of transactions, the London session is typically the most volatile, making almost any pair tradable. However, sticking to the major pairs (EUR/USD, GBP/USD, USD/JPY, and USD/CHF) is generally best due to their tight spreads.

New York Session 

The US session begins at 8:00 am EST (12:00 pm GMT). New York is responsible for about 17% of all Forex transactions. 

This session is also referred to as the “North American” trading session, as major financial centres like New York, Toronto and Chicago in North America are open at the same time. 

Economic reports are usually released at the start of the New York session, with 85% of all trades involving the dollar. Hence, significant US economic data releases can move the market. 

During the US and European markets’ simultaneous opening, abundant liquidity allows traders to virtually trade any pair. During the afternoon US session, volatility and liquidity tend to drop when European markets close. 

So, when is the best time to trade Forex?

According to the analytical reports, the most favourable trading time is around 10 am and 3 pm London time (10 am NY time) when there is optimal liquidity. This is the busiest time of day when traders from London and New York engage in trading, and it can be affected by news reports from the US, Canada, and Europe. 

Additionally, this is the time when the WM/Refinitiv Spot Benchmark Rate is set, also known as the “London fix”. Banks and financial institutions use it as a reference point for daily currency exchange rates. For traders, there may be a surge in market activity before the fixing time that abruptly disappears exactly at the fixing time. 

In general, it is recommended to trade in the middle of the week when the most action occurs. Fridays are generally busy until 04:00 pm GMT, and then the market becomes quiet until it closes at 9:00 pm GMT. 

Summary: 

• ^{_{Forex trading operates 24 hours a day, Monday to Friday.}} 
• _{^{The Forex market is divided into four major trading sessions: Sydney, Tokyo, London, and New York.}} 
• _{^{The market overlaps during different sessions, which are often the most active times in Forex trading.}} 
• _{^{The traditional “Forex 3-session system” includes the Asian, European, and North American sessions.}} 

• _{^{Tokyo session starts at 12:00 am GMT and accounts for around 20% of all Forex trading volume.}} 
• ^{_{London session accounts for 43% of all Forex transactions and is typically the most volatile.}} 
• ^{_{New York session is responsible for about 17% of all Forex transactions and is affected by significant US economic data releases.}} 
• ^{_{The best trading time of day is around 10 am and 3 pm London time when traders from London and New York engage in trading, and it can be affected by news reports from the US, Canada, and Europe.}} 
• ^{_{In general, it is recommended to trade in the middle of the week when the most action occurs.}} 

US stock futures remained relatively stable on Thursday night, with the Dow Jones Industrial Average futures up 0.08%, while the S&P 500 and Nasdaq 100 futures increased by 0.12%. Elon Musk announced he would be stepping down as the CEO of Twitter, with Tesla’s shares increasing following the news.

On Thursday, the Dow Jones Industrial Average fell by over 200 points, or 0.66%, resulting in its fourth consecutive losing session. The decline was attributed to various factors, including Disney’s poor subscriber numbers and stress in the regional banking sector after PacWest Bancorp reported a drop in deposits. Investors remain concerned about a potential market downturn, despite weaker-than-expected wholesale prices data indicating easing inflation.

Investors are now waiting for preliminary consumer sentiment data and April import prices data, set to release on Friday. The Dow and S&P 500 are heading towards their second negative week in a row, while the Nasdaq Composite is on track for its third straight positive week.

Data by Bloomberg

On Thursday, the overall market experienced a slight decline of 0.17%. However, there were some sectors that performed well. Communication Services showed a positive growth of 1.65%, followed by Consumer Discretionary with a gain of 0.55% and Consumer Staples with a modest increase of 0.31%. On the other hand, several sectors saw decreases in their values. Financials declined by 0.20%, Health Care dropped by 0.34%, and Information Technology experienced a decrease of 0.45%. Industrials, Materials, Real Estate, Utilities, and Energy sectors all had larger declines, ranging from -0.65% to -1.24%.

Major Pair Movement

On Thursday, the trading market saw an increase in demand for the safe-haven currencies such as the US dollar and yen, as investors’ concerns over excess demand and inflation following pandemic reopenings faded. The yields of 10-year Treasuries declined by 4bp, due to several quarters of central bank tightening and yield curve inversion, which increased recession fears and reduced financial risk-taking. Moreover, there was an increase in demand for relatively high-yielding Treasuries and a decrease in regional banks’ pressure.

The Euro fell by 0.6%, and Sterling fell nearly 1% after the Bank of England (BoE) raised interest rates to 4.5%. However, this increase was oddly paired with higher than the previous inflation and growth forecasts, indicating the potential for a future slowdown. UK inflation remains above 10%, which is more than twice the new BoE projection. High beta and commodity-linked currencies experienced a decline due to the dollar’s risk-on rise and China demand doubts. Key risks ahead include US retail sales on Tuesday, as well as banks and the debt ceiling.

Technical Analysis

EUR/USD (4 Hours)

EUR/USD Drops to One-Month Low Amid Stronger US Dollar and Deteriorating Market Sentimen

The EUR/USD pair is heading towards its lowest daily close in a month due to a stronger US Dollar and worsening market sentiment. The pair has retreated from near 1.1100 and briefly dipped below 1.0900. The European Central Bank (ECB) Vice President, Luis de Guindos, expressed concerns about service and core inflation but did not provide any commitment on rates, while Joachim Nagel mentioned that decisions would be made on a meeting-by-meeting basis. Risk aversion benefited the US Dollar, and government bond yields rebounded during the American session.

US data indicated a slowdown in inflation and an increase in the labor market, with Initial Jobless Claims reaching the highest level since October 2021. Market sentiment will continue to be the main driver, and if concerns persist, the EUR/USD pair may experience further losses, contributing to increased volatility.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD pair is currently trending lower after reached the lower band of the Bollinger band. It is expected that the EUR/USD will continue to move lower and push the lower band. The Relative Strength Index (RSI) is presently at 37, suggesting a lower trend in the EUR/USD market.

Resistance: 1.0950, 1.0986

Support: 1.0911, 1.0881

XAU/USD (4 Hours)

Gold (XAU/USD)Prices Plunge on Surge in US Dollar and Market Sell-Off Amidst Banking Issues and US Debt Ceiling Concerns

Gold (XAU/USD)prices experienced a sharp decline on Thursday, hitting a new weekly low of $2,011.09, due to a surge in the US dollar amid a persistent dismal mood, resulting in a sell-off in the stock markets. The mood was impacted by banking issues, as the FDIC proposed extra fees for large banks to cover the $16 billion lost on the rescue of Silicon Valley Bank and Signature Bank in March. Furthermore, concerns around the US debt ceiling continued to undermine the sentiment, as Republican lawmakers are reluctant to back President Joe Biden’s plan. Additionally, government bond yields remain depressed, with the 10-year Treasury note yields at 3.38%, down 5 basis points, and the 2-year note offers at 3.86%, shedding 3 bps, due to the easing of inflation-related figures in April, as the PPI increased by 2.3% YoY.

Chart XAUUSD by TradingView

The technical analysis indicates that XAU/USD is moving lower on Thursday. The price is currently pushing the lower band of the Bollinger Band, indicating the potential for a slight lower movement for XAU/USD. Moreover, the Relative Strength Index (RSI) is currently at 38, indicating that XAU/USD is considered in bearish trend.

Resistance: $2,023, $2,036

Support: $2,010, $2,000

Economic Data

There are several ways to trade Forex, and each method has its own advantages and disadvantages.  

The most popular financial instruments used in Forex trading include retail Forex, spot FX, currency futures, currency options, currency exchange-traded funds (or ETFs), Forex CFDs, and Forex spread betting. 

Retail Forex is a way for individuals to participate in the Forex market through Forex trading providers or brokers. These brokers trade on behalf of the retail traders in the primary OTC market by finding the best prices and adding a markup before displaying them on their trading platforms. Retail Forex trading involves trading contracts to deliver underlying currency rather than the currency itself. 

Retail Forex trading is leveraged, meaning traders can control large amounts of currency with a small initial required margin. For example, with $2,000, traders can open a position valued at $100,000. However, this also means that traders can potentially lose more than their initial investment. 

To avoid the physical delivery of currency, retail Forex brokers automatically “roll” client positions by entering into an equal but opposite transaction. This rolling process is known as Tomorrow-Next or “Tom-Next” and results in either interest being paid or earned by the trader, known as a swap or rollover fee. 

Retail Forex trading is considered speculative, as traders are trying to profit from the movement of exchange rates without taking physical possession of the currencies they buy or sell. It is important for traders to understand the risks involved and to have a solid understanding of the market before participating in retail Forex trading. 

Spot FX is an OTC market where customers trade directly with a counterparty. Unlike centralised markets, spot FX contracts are private agreements between two parties, and most trading is done through electronic trading networks or by telephone. 

The primary market for FX is the interdealer market, which is dominated by banks and accessible only to institutions that trade in large quantities. 

In the spot FX market, traders buy or sell contracts to make or take delivery of a currency at the current exchange rate. The price of currencies in the spot market is determined by several factors, such as current interest rates, economic performance, geopolitical sentiment, and price speculation.  

The finalisation of a deal in the spot market is known as a spot deal, which is a bilateral transaction between two parties. A position in the spot market is settled in cash, but it takes two business days for the actual transaction to be settled. 

Although the spot FX market operates 24 hours a day, it is not where retail traders trade. 

Currency futures are contracts that allow traders to buy or sell a certain amount of currency at a set price and date in the future. 

They were introduced in 1972 by the Chicago Mercantile Exchange (CME) and are traded on centralised exchanges. 

The contracts have standard details, such as the amount of currency, the date when the trade will happen, and the smallest price change allowed. The exchange makes sure that both sides of the trade are settled. Traders can buy or sell currency futures based on a fixed size and date at commodities markets. 

The market is well-regulated, and you can easily get information about prices and trades. Currency futures are used by traders to protect against currency value changes or to predict future changes. 

Currency options are financial agreements that give the holder the right, but not the obligation, to buy or sell a specific amount of currency at a fixed exchange rate or before a future date. 

These options are available for trading on popular exchanges such as the Chicago Mercantile Exchange (CME), the International Securities Exchange (ISE), and the Philadelphia Stock Exchange (PHLX). 

In general, currency options are commonly used to protect against unfavourable changes in exchange rates by corporations, individuals, and financial institutions. At the same time, traders can use currency options to speculate on currency movements. 

Currency ETFs are managed investments in one or multiple currencies. They are created and managed by a financial institution and traded like a stock. 

Currency ETFs serve various purposes: speculation, diversification, and hedging. But they come with macroeconomic risks like geopolitical risks and interest rate hikes. 

Despite the limitations of trading, currency ETFs offer a convenient way to invest in the Forex market without the burden of managing investments. 

Forex CFDs, also known as Contracts for Difference, are financial instruments that allow traders to speculate on whether the price of an underlying asset, like a currency pair, will rise or fall. When a trader enters into a CFD contract, they agree with a provider to exchange the difference in the value of the asset between the opening and closing of the trade. 

Unlike traditional investments, CFD investors don’t actually own the underlying asset; instead, they receive revenue based on the price change of that asset. 

The advantages of trading Forex CFDs include access to the underlying asset at a lower cost than buying it outright, ease of execution, and the ability to take both long and short positions. 

Forex spread betting is a way to predict if a currency’s price will go up or down in the future without owning it. The price is based on the currency’s value in the FX market. 

Spread betting providers allow this type of trading and consider three factors: the trade direction, the bet size, and the spread of the instrument traded. 

One benefit of forex spread betting is that traders can use leverage to potentially make a larger profit from a smaller investment. However, if the market moves against you, you could lose more than your initial investment. 

Each of these trading methods has its advantages and disadvantages, and traders should choose the method that best suits their trading style and risk tolerance. 

Summary

To be short, the answer is “currencies”. 

When we want to talk about different types of currencies, we use three-letter symbols to represent them. The first two letters in the symbol tell us which country the currency comes from, and the third letter tells us the name of the currency. For example, USD stands for United States Dollar. These codes are called ISO 4217 Currency Codes. 

The most actively traded currencies are the US Dollar (USD), Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD), Swiss Franc (CHF), Canadian Dollar (CAD), and New Zealand Dollar (NZD). These currencies are often referred to as the “majors” and are traded in high volumes due to their liquidity and stability. 

The US Dollar plays a central role in the Forex market, with over 50% of the trades involving it. 

The US Dollar is crucial in the global economy for several reasons. Firstly, it has the largest economy and most liquid financial markets globally, making it a powerhouse for international trade. Secondly, it is the primary global reserve currency and is used in half of all international loans and bonds and in cross-border transactions, including petrodollars. Lastly, the US’s stable political system and sole military superpower status make it a safe haven for investors. 

It is important to understand that currencies are always traded in pairs. A currency pair is the exchange rate between two different currencies. For example, the EUR/USD currency pair represents the exchange rate between the Euro and the US Dollar. 

There are three main categories of currency pairs: the “majors”, the “crosses”, and the “exotics”. The popularity of currency pairs can vary depending on market conditions, so it’s important for traders to stay informed about which pairs are currently in demand. 

While there are eight major currencies, only seven major currency pairs exist. That is because US Dollar must always be present in the pair. This currency group involve EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD. The last three pairs are also called commodity currency pairs. The “majors” are usually the easiest for beginners to trade. 

The “crosses” are currency pairs that do not involve the US Dollar. Cross-currency pairs consist of two major currencies: the Euro and the Japanese Yen (EUR/JPY) or the British Pound and the Japanese Yen (GBP/JPY). Crosses are typically less liquid than the majors, but they can still provide opportunities for profitable trades. 

The “exotics” are currency pairs that involve a major currency paired with a currency from an emerging or developing country. Exotic currency pairs are considered more volatile and less liquid than the majors and crosses. Examples of exotic pairs include the USD/MXN (US Dollar/Mexican Peso) and the USD/ZAR (US Dollar/South African Rand). 

Understanding currency pairs is crucial for forex trading because buying one currency means simultaneously selling another. For example, if you buy the EUR/USD currency pair, you are essentially buying Euros and selling US Dollars. Trading currency pairs allows traders to speculate on the exchange rate between two currencies and potentially profit from the difference in price. 

Forex speculation is the practice of buying and selling currency pairs in order to profit from the fluctuations in their exchange rates. Speculators aim to buy currencies when they are undervalued and sell them when they are overvalued, making a profit on the difference in the exchange rate. 

Exchange rates are the values at which one currency can be exchanged for another. These rates are determined by the supply and demand of each currency in the market. When demand for a currency is high, its value increases, and when demand is low, its value decreases. Exchange rates are expressed as a ratio, such as 1.20 EUR/USD, which means that one euro is worth 1.20 US dollars. 

There are several factors that can affect exchange rates, including: 

Economic Factors: The state of a country’s economy can have a significant impact on its currency’s value. Factors such as inflation, interest rates, and economic growth can all affect exchange rates. 

Political Factors: Political stability and government policies can also affect exchange rates. For example, a country with a stable government and sound economic policies may have a stronger currency than a country with political turmoil and uncertain economic policies. 

Market Sentiment: The mood of the market can also influence exchange rates. If traders are optimistic about a currency’s prospects, its value may increase, while pessimistic sentiment can lead to a decline in value. 

Brexit is a prime example of how political events impact a nation’s currency exchange rate. The UK’s decision to leave the EU in 2016 resulted in uncertainty and instability, leading to a decline in the value of the British pound. Before the referendum, the pound traded at 1.50 USD, but after the decision, it fell to 1.30 USD. Prolonged negotiations between the UK and the EU added to the volatility, further weakening the pound against other currencies. 

Understanding these basics of Forex trading is essential for anyone looking to enter the market. VT Markets provides its clients with Daily market analysis to keep them up to date with the latest news and help make informed decisions about their investments. 

Summary: 

• _{^{Forex trading involves buying and selling currencies in pairs, with three main categories of currency pairs: majors, crosses, and exotics.}} 

• _{^{The most actively traded currencies are the US Dollar, Euro, Japanese Yen, British Pound, Australian Dollar, Swiss Franc, Canadian Dollar, and New Zealand Dollar.}} 
• _{^{Forex speculation means buying and selling currency pairs to profit from fluctuations in their exchange rates.}} 
• _{^{Exchange rates are determined by supply and demand, with factors such as economic and political stability and market sentiment affecting exchange rates.}} 

Forex is a short term for “foreign exchange,” which means changing one currency to another. 

Let’s say you’re travelling from France to the United States. You’ll need to change your euros to US dollars. When you go to the bank, you’ll see a big board with names of different currencies and numbers. This board shows exchange rates, which are the price of one currency compared to another. For instance, the exchange rate for €1 is $1.2. 

Suppose you exchange €1000 for $1200 before your trip. This means you participated in the Forex market. 

However, when you’re on vacation, you’ll notice that the exchange rate has changed, and now €1 is worth less in US dollars than when you exchanged your money. As a result, your €1000 is now worth only $1100 instead of $1200. This means your euros can buy fewer things in the United States than you initially thought. 

In the financial world, Forex traders aim to profit from the changes in exchange rates by buying and selling currencies at the right time. 

The Forex market is the world’s largest and most liquid financial market. It is estimated that the daily trading volume of the Forex market has reached $7.5 trillion USD. To put this into perspective, the stock market in the United States has a daily trading volume of around $400 billion USD, which is just a fraction of the Forex market’s volume. 

To help you visualise just how big the Forex market is, imagine the world’s largest shopping mall on Black Friday, with millions of people buying and selling goods all at once. Now, imagine that happening every single day, 24 hours a day, 5 days a week, all over the world. That’s how big the Forex market is. 

To facilitate trading around the clock, the Forex market has several financial centres located in different parts of the world, including New York, London, Tokyo, and Sydney. Each financial centre has its opening and closing hours, which overlap to create a continuous trading session. 

For example, when it’s morning in New York, and the Forex market opens, it’s already afternoon in London, where the market is already open. This overlap in market hours allows traders to trade in multiple markets simultaneously and take advantage of the increased liquidity and volatility. 

Forex plays a crucial role in facilitating international trade and investment by allowing businesses and individuals to exchange one currency for another. Without Forex trading, it would be difficult to conduct international transactions, as businesses and individuals would have to rely on their own country’s currency. 

The Forex market is decentralised, meaning that it does not have a central location like the New York Stock Exchange or the London Stock Exchange. Instead, it operates through a global network of big commercial banks, central banks, multinational corporations, investors, hedge funds, and individual traders who buy and sell currencies electronically. 

Commercial banks are the biggest players in the Forex market. They trade currencies for lots of different clients, such as other banks, big companies, and people who want to exchange money for their travels. When they trade currencies, they help to set the prices for all the other traders in the market. The big players that significantly influence the market are called market makers. 

The Forex market operates through two main channels: the interbank market and the over-the-counter (OTC) market. 

The interbank market is where banks and financial institutions trade currencies with each other, acting as both buyers and sellers. For example, if a bank needs to exchange US dollars for euros, it will turn to the interbank market to find another bank willing to sell euros and buy US dollars. 

On the other hand, the OTC market is where trades are conducted directly between two parties without using a centralized exchange or clearinghouse. For example, if you’re travelling to another country and need to exchange your currency for the local currency, you might go to a currency exchange booth at the airport. The currency exchange booth acts as an OTC market maker, buying your currency from you and selling you the local currency at a markup. 

Forex brokers like VT Markets play a crucial role in the Forex market by providing a platform for traders to buy and sell currency pairs. They act as intermediaries between traders and the market, executing trades on behalf of their clients. 

As a broker’s client, you have the opportunity to earn profits by speculating on the movement of currency pairs. Brokers also offer various tools and resources to help traders make informed decisions, such as market analysis, educational materials, and trading signals. 

Choosing a reputable and regulated broker is important, as the Forex market is known for its volatility and potential risks. However, with the right knowledge and strategy, trading Forex can be a lucrative opportunity for those willing to put in the effort to learn and practice. 

Summary:

• _{^{Forex means “foreign exchange” and involves changing one currency to another.}} 

• _{^{Exchange rates are the prices of one currency compared to another and fluctuate constantly in response to various economic and political factors.}} 

• _{^{Forex traders aim to profit from changes in exchange rates by buying and selling currencies at the right time.}} 

• _{^{The Forex market is the world’s largest and most liquid financial market, with a daily trading volume of $7.5 trillion USD.}} 

• _{^{The Forex market operates through a global network of big commercial banks, central banks, multinational corporations, investors, hedge funds, and individual traders who buy and sell currencies electronically.}} 

• _{^{The Forex market is decentralised and operates through two main channels: the interbank market and the over-the-counter (OTC) market.}} 

• _{^{Forex brokers play a crucial role in the Forex market by providing a platform for traders to buy and sell currency pairs.}} 

Dear Client,

Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.

Please refer to the table below for more details:

The above data is for reference only, please refer to the MT4/MT5 software for specific data.

If you’d like more information, please don’t hesitate to contact [email protected]

The Nasdaq Composite closed higher as investors turned to tech stocks following a relatively modest inflation report. The tech-heavy index gained 1.04% to reach a closing value of 12,306.44, while the S&P 500 added 0.45% to close at 4,137.64. In contrast, the Dow Jones Industrial Average dipped slightly by 0.09% to end at 33,531.33.

April’s consumer prices rose 4.9% compared to the previous year, falling short of economists’ expectations of a 5% increase. This news, along with the in-line month-over-month inflation rate of 0.4% in April, caused Treasury yields to decline. The 2-year Treasury yield fell by around 11 basis points to 3.91%, and the 10-year rate declined by 8 basis points to 3.44%.

While the market reacted positively to the tempered inflation report, cyclical stocks linked to the economy traded lower, with companies like Nike and Caterpillar ending the session in negative territory. Additionally, Airbnb and Twilio saw significant declines of 10.9% and 12.6%, respectively, following weak forecasts. Rivian, an electric vehicle maker, closed 1.8% higher after reporting a narrower-than-expected loss. The focus also turned to earnings reports from Disney and Robinhood.

Investors remained cautious about a potential full-fledged rally despite the more favorable inflation figures. Concerns over the U.S. debt ceiling also weighed on traders’ minds, as the possibility of an agreement being reached before June 1—when the U.S. Treasury Department says a default could occur—became uncertain. President Joe Biden met with congressional leaders, but limited progress was reported. Another meeting is scheduled for Friday to address the issue.

Data by Bloomberg

On Wednesday, the overall market showed a positive trend, with all sectors experiencing a 0.45% gain. The Communication Services sector had the highest increase of 1.69%, followed by Information Technology with a gain of 1.22%. Real Estate and Utilities also performed well, rising by 0.98% and 0.94% respectively.

Consumer Discretionary showed a modest increase of 0.63%, while Health Care and Materials had smaller gains of 0.27% and 0.05% respectively. On the other hand, Consumer Staples experienced a slight decline of -0.15%. Industrials and Financials sectors faced larger decreases of -0.32% and -0.58% respectively. The Energy sector experienced the most significant decline, dropping by -1.15%.

Major Pair Movement

The U.S. dollar initially weakened in response to the Consumer Price Index (CPI) data, which fell short of some expectations, indicating that it may not support the Federal Reserve’s position against rate cuts in the second half of the year. However, risk-off sentiment and book-squaring helped the dollar recover from its early losses, except against the safe-haven Japanese yen. The decline in Treasury yields, driven by the weaker-than-expected inflation data and renewed weakness in regional bank stocks, contributed to the dollar’s recovery.

The Japanese yen benefited the most from the stock market decline and falling yields, as Japanese Government Bond (JGB) yields are influenced by the Bank of Japan’s (BoJ) yield curve control and quantitative easing measures. Speculation is growing that the BoJ’s policy review, amid inflation levels surpassing its target, may lead to higher JGB yields. Additionally, a report highlighting Japanese life insurers’ inclination to reduce their Treasury holdings in favor of JGBs further fueled the exit of long positions in USD/JPY and yen shorts.

Meanwhile, the euro initially rebounded against the dollar following the CPI release but later experienced a modest 0.15% increase as risk-off flows supported demand for the safe-haven dollar. Similarly, sterling’s post-CPI rally to new one-year highs dissipated due to derisking and ahead of the Bank of England’s meeting on Thursday.

Technical Analysis

EUR/USD (4 Hours)

EUR/USD Lacks Direction as US Dollar Recovers Despite ECB Hawkish Comments

The US dollar initially weakened in response to US inflation data, causing the EUR/USD pair to briefly surpass 1.1000. However, the US dollar later regained its footing, pushing the pair back below that level. The EUR/USD pair is currently moving sideways without a clear direction, despite the European Central Bank (ECB) members’ hawkish comments.

ECB Governing Council member Mario Centeno stated that policy would remain tight for some time, but interest rates might start to decline in 2024. Bloomberg reported that some ECB members are considering a rate hike in September, assuming earlier hikes in June and July. Meanwhile, German inflation data confirmed a 7.2% annual increase in April.

In the US, the Consumer Price Index (CPI) showed a slight decrease to 4.9% in April from 5% in March, while the Core CPI dropped to 5.5% from 5.6% in March. Initially, the US dollar faced significant losses but eventually rebounded and turned positive. Market participants are pricing in a potential pause in rate hikes from the Federal Reserve in June. On Thursday, the US will release additional inflation data with the Producer Price Index (PPI).

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD pair is currently trending lower after reached the middle band of the Bollinger band. It is expected that the EUR/USD will continue to move back lower to reach the lower band of the Bollinger band. The Relative Strength Index (RSI) is presently at 42, suggesting a neutral trend but lower in the EUR/USD market.

Resistance: 1.0990, 1.1032

Support: 1.0965, 1.0939

XAU/USD (4 Hours)

XAU/USD Retreats as US Inflation Data Spurs Speculation on Fed Rate Hike Chances

Following the announcement of US inflation data, spot gold initially reached a peak of $2,048.14 per troy ounce but has since declined and is currently trading around $2,025. The rise in the US Consumer Price Index (CPI), with a 4.9% year-on-year increase in April and a 0.4% month-on-month increase in line with expectations, led to a surge in XAU/USD. However, the inflation rate has been gradually easing from its previous record highs in mid-2022.

The release of the inflation figures prompted speculators to factor in reduced chances of a rate hike by the Federal Reserve (Fed) in July. This resulted in a rally in stock markets as investors hoped that the Fed would maintain its current stance, reducing the risk of an economic downturn. Consequently, the US dollar initially weakened across the foreign exchange (FX) market.

Although Wall Street opened on a positive note, sentiment quickly shifted, allowing the US dollar to recover its losses against major currencies. Similarly, US Treasury yields initially rose but subsequently fell back to their pre-announcement levels, remaining at the lower end of the daily range. Currently, stock markets are trading with mixed results, with the Dow Jones Industrial Average (DJIA) in negative territory, the S&P 500 struggling to stay afloat, and the Nasdaq Composite performing the best, showing a gain of 78 points.

Chart XAUUSD by TradingView

The technical analysis indicates that XAU/USD is moving higher on Wednesday. The price is currently just above the middle band of the Bollinger Band, indicating the potential for a consolidating movement with higher potential. Moreover, the Relative Strength Index (RSI) is currently at 54, indicating that XAU/USD is considered neutral but slightly bullish.

Resistance: $2,038, $2,052

Support: $2,015, $2,003

Economic Data

Dear Client,

New contracts will automatically be rolled over as follows:

Please note:
• The rollover will be automatic, and any existing open positions will remain open.

• Positions that are open on the expiration date will be adjusted via a rollover charge or credit to reflect the price difference between the expiring and new contracts.

• To avoid CFD rollovers, clients can choose to close any open CFD positions prior to the expiration date.

• Please ensure that all take-profit and stop-loss settings are adjusted before the rollover occurs.

• All internal transfers for accounts under the same name will be prohibited during the first and last 30 minutes of the trading hours on the rollover dates

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