Just like the month before, May has also been characterised by strong volatility in the financial markets, in particular in the stock market. Depending on how you view it, this may be good or bad for your trading. However, we can say for sure now that markets are nervous and continuously react with sharp moves to new geopolitical developments.
The US stock market has been volatile and difficult to predict throughout the month of May. While our bearish outlook on the market from the last update did hold for the first few days of the month, we later saw a strong reaction to the upside.
As we can see in the chart above, the S&P500 broke through the downward sloping trendline on May 9 and traded higher for a while before it found support in the area around the last green circle on the chart.
This is the same area of the chart as the price has found support twice before, and we therefore consider it to be one of the most important price areas for the S&P500 right now. From a technical standpoint, the S&P500 is therefore an attractive buy opportunity right now.
Gold losing its allure
If we take a look at the gold chart, we are seeing pretty much the opposite as we see in the stock market. Both markets are hinting towards more positive news for the world economy in the time to come, with stocks going higher and the gold chart breaking down and turning bearish.
The gold price has been stuck in a trading range for the past few months now, but eventually broke out of the range and started to trade lower in May.
When we last discussed gold back in the beginning of April, we pointed out that gold had been trading in a range for quite some time, and that a break-out could be expected. We predicted that this would happen to the upside because of turmoil in the stock market, which turned out to be wrong – at least for the time being.
What we are now seeing in the gold market is that the price is following a new trendline lower. This is likely to continue until we reach some more solid support around the $1,270 area.
Aussie dollar finally reversing?
Another interesting chart to take a look at as we enter June is the US dollar/Australian dollar pair below.
The US dollar managed for a brief time to trade above the previous market top from December (beginning of the green line), but quickly came back down below that level. It attempted another break-out again on May 30, but the price was again rejected by the market, as we can see from the long red pin sticking out above the last candlestick on this chart.
As of right now, the path of least resistance for the USD/AUD pair seems to be down, and it may in fact be a nice opportunity for traders who want to take a short position in this market. The chart seems “top-heavy,” and we can compare the run-up we have seen over the past few months to the one we saw between September and December last year.
A similar downtrend to what we had after December is a dream for a short trader and a textbook example of a set-up trend-following traders should look out for.
June forex market fundamentals
Events to keep an eye on in early June include Manufacturing PMI and Non-farm employment change numbers in the US on the 1st. Following that, the Royal Bank of Australia will announce its cash rate on June 5. These two announcements will together determine what the next large move in the USD/AUD market will be.
The US Federal Funds Rate will be released on the 13th, which is also an important event for anyone trading US dollar-related currency pairs. On the 14th, the Bank of Japan will follow with their announcement.
As always, be cautious with trading during these news events. If you do choose to trade, use tight stops to stay on the safe side and protect yourself from the wild market movements that do occur. Happy trading!