The final trading hours of May are upon us and the USD Index is on the ropes. Losses against the Swiss franc and Japanese yen have highlighted today’s forex action for the Greenback, sending June USD Index futures much lower. At this hour (1:30 PM EST), rates are near 97.770, well off of Thursday’s high of 98.195.

Is A FED Rate Cut On The Way?

If nothing else, today’s tariff headlines have illustrated the fragility of the U.S. markets. Equity and commodity values have fallen, with safe-havens gaining steam. The USD hasn’t been spared and the CME FEDWatch Index has responded to today’s tariff strife.

As a tool, the CME FEDWatch Index is a reliable barometer of FED activity. Current figures show that a late-2019 rate cut is likely and may be as large as ¾ of a point. Check out the probabilities facing an 11 December reduction in the Federal Funds Target Rate:

Rates                                                      Probability

Current (2.25%-2.5%)                               10.2%

2.0%-2.25%                                                31.2%

2.0%-1.75%                                                35.4%

1.50%-1.75%                                              18.5%

So, the CME FEDWatch Index is assigning only a 10.2% chance of rates being held steady until the end of the year. In short, rates are going down and the USD is in a position to weaken significantly by New Year’s Day 2020.

June USD Index Futures Stumble To Close May

It has been an ugly final stanza of May for June USD Index futures. Rates are down big day-over-day, giving back half of the week’s gains.

Overview: Keep in mind that Monday is the first trading day of June. Monthly opens often bring heavy participation from institutional investors, so be on the lookout for volatile market conditions. Also, this weekend’s news cycle is going to play an integral role in Monday’s open. If we see further developments on the international tariff front, then expect more pressure on U.S. products following the opening bell.

Safe-havens are in vogue today as trade war fallout is dominating market sentiment. Significant intraday gains in the Japanese yen, Swiss franc, and GOLD have come pass as investors are actively limiting risk. It appears as though a majority of traders are interested in hedging their bets ahead of the weekend break.

Today’s lead story of the Trump administration’s bold tariff move against Mexico is the classic definition of systemic risk. The new tariff proposal came on quickly and has shaken asset values across the board. For now, cutting risk exposure is the preferred course of action until the U.S./Mexico situation becomes clear.

Safe-Havens Are On Parade

Until today, the Greenback was putting together a nice week against the Swiss franc. Now, sellers are in control and rates have returned to a key level of Fibonacci support.

Bottom Line: For the USD/CHF, the macro-wave 62% Fibonacci Retracement (1.0025) is a huge level. Should it be taken out, a return to par value is likely during the late session. In the event rates continue to fall, I will be scalping 1.0006 to the long. With an initial stop at .9998, this trade produces a fast five pips on a bounce from 1.0005.

Today’s close is going to be a big one for the U.S. markets. Commodities, equities, and the Greenback are all on the slide. If this trend intensifies as we near the closing bell, next Monday’s June 3rd open may bring more of the same.

The fresh round of U.S. tariffs on Mexico has thrown the commodity markets into chaos. Agricultural commodities, as well as crude oil, have fallen out of bed as traders prepare for retaliatory tariffs on American exports to Mexico. At this point, ag products and oil are trending south in a big way.

Ag Commodities Dive

The entirety of the ag markets are in the red, from corn to cattle. Pledges by the Trump administration to raise tariffs by 25% on Mexico if illegal immigration is not curbed have rattled sentiment to the core. Corn, soybeans, wheat, lean hogs, and feeder cattle are all deep in negative territory as traders brace themselves for an unprecedented North American trade standoff.

Crude oil hasn’t been spared from the fallout. July WTI futures have crashed below $55.00 for the first time since February. To say that this price action is “abnormal” is the understatement of the year ― “alarming” is more appropriate.

As far as the daily technicals go, there isn’t a whole lot to play off of in July WTI crude. The biggest level in this market is $55.00; other than that, the technical roadmap is wide open.

Overview

May’s price action in WTI crude is reminiscent of last fall’s plunge in Bitcoin. Most active traders and analysts, myself included, expected Bitcoin bulls to put up a fight at $5000. This idea proved to be categorically false, and prices continued to plunge to the $3000 area.

The near-term outlook for WTI crude is much the same. Although it is oil buying season, investors are headed for the door. The odds of a global economic slowdown increase with each tariff levied and that is bad news for the energy sector. If $55.00 gives way as support in July WTI, then $50.00 will be upon us very quickly.

Today’s weakness in ag commodities is adding pressure to an already embattled sector. Extreme flooding has decimated grain crops in the Midwest, with many producers taking long positions in the futures markets to offset losses. If a U.S./Mexico tariff standoff develops, Midwestern farmers are in for tough times ahead.

The sentiment in financial markets shifted to negative at the end of last month as the trade war escalated once again after Donald Trump increased tariffs on China. Since then, risk aversion has been the name of the game in financial markets and we are seeing a similar price action almost everyday. Safe havens have been going up while risk assets keep declining and that’s what’s been happening today.

• German Retail Sales – Retail sales have turned positive this year in Germany apart from March when we saw a 0.2% decline which was revised higher today to 0.0%. Today’s report was expected to show another increase of 0.4% in retail sales but we saw a sudden decline of 2.0%.
• German Prelim CPI – Consumer price index inflation kept weakening last year in Germany as in the rest of the globe and in January we saw a 0.8% decline. But it turned positive again growing by 0.5% in February, 0.4% in March and 1.0% last month. Inflation was expected to cool off today to 0.3% for this month but it missed expectations coming at 0.2%.
• Trump Threatens Mexico With Tariffs – Donald Trump tweeted this morning, threatening with 5% tariffs on Mexico which might go up to 25% if Mexico doesn’t stop immigration from Mexico itself and from the rest of Latin America into the US. As a result, the Mexican Peso has turned pretty bearish.
• Comments from China – According to the Chinese state radio, China is to set up ‘unreliable entities’ list to combat foreign firms that cut supplies to China. They are planning to draft list of ‘unreliable entities’ targeting foreign parties that are causing harm to Chinese firms’ interests and will disclose details of the list in the near future.

US Session

• Canadian GDP – The GDP report was released a while ago; the economy was expected to grow at 0.4% that month but beat expectations, growing by 0.5%. Canada Q1 2019 GDP rose by 0.4% on an annualized basis 0.7% estimated. YoY GDP for March comes at 1.4% versus 1.2% estimated. Growth was driven by 0.9% increase in household spending which is the fastest since 2017. Business investment in machinery and equipment rose by 8.7%, exports declined by -1.0% while imports increased by 1.9%. Net trade was the biggest drag on growth. The final domestic demand rose by 3.4% versus -1.0% the previous quarter.
• US Core Price Index – The core price index has been growing by 0.1% all this year, apart from February when it moved up to 0.2%. In March, the price index fell flat to 0.0% but was revised higher today to 0.1%, while today’s report showed a 0.2% increase for April.
• US Personal Spending and Income – Last month’s report showed a big jump in personal spending of 0.9% which was revised even higher today to 1.1%. In April, personal spending was expected to increase by 0.2% but it beat expectations increasing by 0.3%. Personal income also beat expectations of of 0.3% and instead it increased by 0.5% last month.

Bearish EUR/JPY

1. The main trend remains bearish
2. The MAs are pushing the price down
3. Fundamentals good for the JPY

Moving averages keeps pushing the price down

EUR/JPY has been on a bearish trend since the middle of April as the H4 chart above shows. So, the way to trade this pair is to wait for retraces higher and then sell it. The 50 SMA (yellow) and the 100 SMA (green) have been providing strong resistance and they have pushed this pair lower as the sentiment in financial markets turns increasingly negative. I am waiting now on another pullback higher and when we reach one of the moving averages I will look to sell EUR/JPY.

In Conclusion

The US personal spending and personal income posted some nice numbers a while ago but the USD turned bearish suddenly. Perhaps it is because of the comments about the new front in this global trade war that the US is trying to open with Mexico. Risk assets turned bullish for a moment but they are back to bearish now.

A fresh round of tariffs has equities investors running for the hills and the U.S. indices driving lower. The first half-hour of trade has been a tough one on Wall Street, led by a 300 point loss in the DJIA. New U.S. tariffs being slapped on Mexico are the primary fundamental at work, generating an abundance of negative sentiment.

Aside from trade war news, there were several peripheral U.S. metrics released during the pre-market session. Here is a quick look at the data:

Event                                                                           Actual      Projected        Previous

Core Personal Consumption (YoY, March)            1.6%             1.6%                1.5%

Personal Income (MoM, April)                                 0.5%             0.3%                0.1%

Personal Spending (April)                                         0.3%             0.2%               1.1%

This set of numbers is encouraging. Consumption is up, as is income, and spending beat expectations. Regardless of how strong these figures are, trade war fears will continue to dominate today’s U.S. session.

DJIA Falls Beneath 25,000 On Mexican Tariff News

The daily downtrend in the DJIA is gaining steam, with values crashing through the 25,000 psyche level. At this point, sellers are in complete control and further damage to the U.S. equities indices appears imminent.

Overview: What goes up must come down and the DJIA is falling like a stone. The damage to long positions in equities has been significant in May, with values falling from near-27000 to sub-25000. Trade war fears are the culprit and there is no end in sight.

While I certainly expect some bids to hit the market around the key numbers of 24750 and 24500, short is the way to be until proven otherwise. The possibility of a major sell-off today in the June E-mini DOW is very real ― either join the short side or stay out until the dust clears.

EUR/USD has been on a bearish trend for more than a year, although this trend has slowed down considerably in recent months. But, the pressure is on the downside and the safest way to trade this pair is to wait for a pullback higher and then go short on it after the retrace has ended.

That’s what we did just now. We sold EUR/USD as this pair was retracing higher. It’s not much of a retrace, only 40 pips, but that’s enough since the stochastic indicator is almost overbought, which would make this pair overbought and the retrace higher complete on the H4 time-frame chart.

Besides that, the 20 SMA (grey) is providing resistance on this chart. If you switch to the H1 time-frame chart, you will see that the stochastic indicator is well overbought there and turning down now. On top of that, the price has formed a few reversing candlesticks so the chart setup on these two time-frames is pointing to a bearish reversal, hence the sell signal in this pair from us.

What’s up, traders.

It’s been a volatile session for crude oil as WTI crude oil slipped below $59.61 to place a low around $54.90. On Friday, crude oil prices trade bearish after data showed the US crude inventories sank less than estimates from last week.

As per the US Energy Information Administration weekly report, crude oil inventories slumped by just 0.28 million barrels in the week ending on May 24. Its bearish report forecast a stockpile draw of 0.86 million barrels after a build of 4.74 million barrels in the earlier week.

Additionally, crude oil slipped over heightened safe-haven appeal and sentiments that the trade war isn’t likely to end soon.

The world’s topmost oil exporter Saudi Arabia has increased production in May, but not by enough to offset for lower Iranian exports which dropped after the United States imposed sanctions on Tehran.

Technical Outlook
As you can see on the 4-hour chart, crude oil is consolidating above the intraday support level of 54.90. Below this, crude oil may have chances to go after 53.30.

Both of the leading and lagging indicators, the RSI and 200 periods EMA, are suggesting bearish trend in oil. Although 54.85 seems excellent support, it’s risky considering the strong bearish momentum in the oil market. I will be looking to stay bullish above 54.80 only if crude oil manages to hold above 54.85.

Good luck and stay tuned!

The recent yield inversion in US bond markets may have investors worried about a possible recession looming in the US economy, but the Fed isn’t worried just yet. Even as the US-China trade war concerns continue to weigh on markets, analysts expect Fed to continue holding off on any rate cuts in the near future.

According to Fed Board of Governors Vice Chair, Richard Clarida, the US economy is in a very good place and is close to the Fed’s goals in terms of employment and price stability. However, if the recent move in the bond market is followed by any drop in inflation or further straining of sentiment because of the US-China trade war, it could lead to a slowdown in the economy.

For now, futures traders have increased their expectations for a rate cut to over 50-50 in September and have increased the possibility of at least one rate cut by December 2019 to more than 80%.

GBP/USD turned bearish at the beginning of this month and it looks like it will close the month on a bearish foot. So far this pair has lost 600 pips from the top at the start of May and from the price action of the last couple of hours, it seems like the decline will stretch further to the downside.

During this time, the trend has been obvious and the retraces higher have been pretty shallow with the biggest retrace taking place at the end of last week when this pair retraced nearly 150 pips higher. Although, that was due to some increased USD weakness which came after the soft economic reports form the US.

The last retrace took place this morning but it ended at one of the moving averages as it has done many times during this  downtrend. This time it was the 50 SMA which provided resistance on the H1 time-frame. The price formed a small upside-down hammer just below that moving average and it turned bearish again from there. So the trade plan remains simple for this pair, sell the pullbacks at the 50 SMA and wait for the bearish trend to resume.