Last month we talked about how the bears had just hit the US stock market hard for the second time this year, just as most traders were expecting a return back to the usual uptrend.
What has happened over this past month is that the S&P500 actually went even further down, briefly trading below its 200 day moving average, which is significant for the S&P. However, no daily candles closed below the 200 day moving average line, which is a sign that bulls are still active in the market and are buying aggressively during the dips.
Choppy trading activity in the US stock market continued over the entire month, and we can definitely conclude that volatility is back in the stock market. At the time of writing, we are only slightly above the price level from the same time last month in the US stock market.
Also worth noting is the clear downward trendline we can draw in the S&P500 chart. This adds further confluence to our bearish bias about the US stock market going into May
Greenback breaking out against the Aussie dollar
Moving over to the currency market, things are looking better for traders with lots of clean trends and chart patterns to take advantage of. As we all know, forex traders can make money just as easily in downtrending as in uptrending markets, unlike stock traders who usually only go long in the market.
Those of you who follow the Australian dollar may have noticed that the USD/AUD pair has been trading in an uptrending range over the past couple of months.
During the last week of April, however, USD/AUD shot up and broke through the upper trendline of the trading range. To be fair, these types of breakthroughs can often be “fake,” and we may see the price fall back into the range again.
On the other hand, it could also signal a stronger rally to come. To be on the safe side, we could wait and see until the price breaks through the level from the previous highs in the market, indicated by the red area in the chart. A strong break through that area will serve as confirmation of our bias that the market is going higher.
Kiwi short opportunity
The New Zealand dollar was a good shorting opportunity during the last week of April. Until April 20, NZD/USD had been trading above the 0.72 level, before it broke down trough that level with strong momentum on the 20.
The pair broke through both the 20 and 50 day moving average lines, before it continued down through the support level around 0.72 in a strong way. This is a textbook example of a good short setup for swing traders, and it may very well continue down to the 0.70 level before it meets any significant support.
JPY “screaming” short
Another obvious short candidate as we enter the month of May is the Japanese yen. JPY/USD recently fell below the support found around 0.0093, is trading below its 20 day moving average, and is now consolidating in the first support zone.
The JPY/USD chart still feels very “top heavy,” and a break further down to at least the 0.0090 level seems likely.
The technical signals in the JPY/USD chart coincided with statements from Bank of Japan’s Governor on the last Friday of April that inflation is accelerating in the country and that the stated price target forecast is indeed just a forecast, not a limit.The market reacted instantly by sending the JPY further down against the US dollar.
In terms of fundamentals for the month ahead, forex traders should take note of the Reserve Bank of Australia’s rate statement on Tuesday May 1.
A pro tip here is to watch the announcement live even though you are not planning to trade during the event. Just watching big news announcements like this while looking at the charts in real time can be a great learning exercise for new traders in particular.
When it comes to the US dollar, May 2 is a big day with the Federal Funds Rate expected to be released. Important to note for the US dollar is that rate changes are often anticipated and already priced into the market. As a result, a lot of traders pay very close attention to the statement from the FOMC, searching for clues on how rates will change in the future. The wording in these statements is often very vague, but it is still an interesting exercise to watch the market as the statement is released. Even the slightest change of tone can have the power to really move the US dollar against other major currencies.