FOMC Roundup: Fed Reconsiders Rate Cuts as Inflation Forecast Drifts Higher

The Fed Forced to Trim Rate Cut Bets due to Hotter Inflation Profile

Federal reserve members were allowed the opportunity to revise their individual interest rate outlooks after May’s inflation data was released just hours before the two-day meeting was due to conclude on Wednesday.

In the end, officials stepped back from their March projections where three rate cuts were deemed appropriate for this year; now opting for just the single 25 basis point cut for 2024. The decision was largely influenced by a series of stubborn inflation prints which recently showed signs of ‘modest’ progress but ultimately forced the Fed to adopt a more conservative stance, being prepared to maintain interest rates at current, restrictive levels.

Growth and unemployment forecasts remained the same for this year but the labour market is expected to ease slightly by the end of 2025. The big movers included headline and core PCE data, rising this year and next, with the Fed funds rate also expected to be firmer over the same horizon.

Summary of Economic Projections (June 2024)

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Source: US Federal Reserve Bank, prepared by Richard Snow

USD Reclaims Some Lost Ground on Hawkish Forecasts

The hawkish forecasts helped the dollar partially recover losses from the earlier, softer CPI print that sent the greenback notably lower. Today the dollar appears to continue the bullish momentum from late in the day yesterday but PPI data this afternoon could bring the focus back to an inflation profile that is evolving in a more favourable manner which could cap USD upside if PPI comes in below the consensus number of 0.1% which is already low as it is.

Markets brought a second rate cut back onto the table after the CPI print yesterday but that was thrown into doubt after the Fed projections where it remains a strong possibility but Is no longer fully priced in.

Dollar bulls will be encouraged by a vulnerable euro, which sold off after the French President Emmanual Macron announced a snap election scheduled for the end of this month. This theme may re-emerge once the CPI data appears in the rear-view mirror and we get closer to the election.

US Dollar Basket (DXY)

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US Equities Rally on Lower Yields, USD Despite the Hotter Inflation Outlook

Stocks rallied on the softer inflation print and appear undeterred by the Fed’s hotter inflation outlook. Stocks tend to do well when the dollar and US Treasury yields sink. This effect has been amplified by the fact markets remain hopeful of that second rate cut which remains a strong possibility.

Yesterday, the 5,500 level was identified as upside resistance, a level that is expected to be tested or even breached at the open today. The futures market anticipate a gap higher at the start of trading in New York at 09:30 AM (Eastern Time).

S&P 500 E-Mini Futures (ES1!) Daily Chart

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The Nasdaq is also expected to gap higher at the open today, with the continuous futures falling just shy of the psychological 20,000 level. Something to be wary of is the current overbought nature of the advance heading into the last two sessions of the week.

Nasdaq E-Mini Futures (NQ1!) Daily Chart

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A Guide to Support and Resistance Trading

Price bouncing between support and resistance

Learn how to trade using support and resistance levels

Support and resistance is a powerful pillar in trading and most strategies have some type of support/resistance (S/R) analysis built into them. Support and resistance tends to develop around key areas that price has regularly approached and rebounded thereafter. This article explains what support and resistance is and covers top support and resistance trading strategies.

What is Support and Resistance?

Support and resistance is one of the most widely followed technical analysis techniques in the financial markets. It is a simple method to analyze a chart quickly to determine three points of interest to a trader:

  • The direction of the market
  • Timing an entry in the market
  • Establishing points to exit the market at either a profit of loss

If a trader can answer the three items above, then they essentially have a trading idea. Identifying levels of support and resistance on a chart can answer those questions for the trader.

Support

Support is an area on a chart that price has dropped to but struggled to break below. The diagram above shows how price drops down to the area of support and subsequently ‘bounces’ sharply from this level.

In theory, support is the price level at which demand (buying power) is strong enough to prevent the price from declining further. The rationale is that, as the price gets closer and closer to support, and becomes cheaper in the process, buyers see a better deal, and are more likely to buy. Sellers become less likely to sell, since they are getting a worse deal. In that scenario, demand (buyers) will overcome supply (sellers) and that will prohibit price from falling below support.

Resistance

Resistance is an area on a chart that price has risen to but struggled to break above. The diagram above shows how price rises up to the area of resistance and subsequently “bounces” sharply from this level.

Resistance is the price level at which supply (selling power) is strong enough to prevent the price from rising further. The rationale behind this is that as the price gets closer and closer to resistance, and becomes more expensive in the process, sellers are more likely to sell and buyers become less likely to buy. In that scenario, supply (sellers) will overcome demand (buyers) and that will prohibit price from going above resistance.

Top 4 Support and Resistance Trading Strategies

Below are four top strategies for trading with support and resistance:

1) Range trading

Range trading takes place in the space between the support and resistance as traders aim to buy at support and sell at resistance. Think of the area between support and resistance as being a room. Support is the floor and resistance the ceiling. Ranges tend to appear in sideways trading markets where there is no clear indication of a trend.

Pro TipLevels of support and resistance are not always perfect lines. Sometimes price will bounce off a particular area, rather than a perfect straight line.

Traders need to identify a trading range and therefore, need to identify areas of support and resistance. The area of support and resistance can be identified and is shown in the chart below:

EURUSD support and resistance when trading in a range

When the market is range-bound, traders tend to look for long entries when price bounces off support and short entries when price bounces off resistance.

It is clear to see that price has not always respected the bounds of support and resistance which is why traders should consider setting stops below support when long, and above resistance when going short.

When price does break out of the defined range, this can either be due to a breakout or a false breakout, also known as a “fakeout”. It is essential to adopt sound risk management to limit downside risk when markets breakout of the trading range.

2) Breakout strategy (pullback)

It is often the case that after a period of directional uncertainty that price will breakout and begin trending. Traders often look for such breakouts below support or above resistance in order to capitalize on further increasing momentum in one direction. If this momentum is strong enough it will have the potential to start a new trend.

However, in an attempt to avoid falling into the trap of trading the false breakout, top traders tend to wait for a pullback (towards support or resistance) before committing to a trade.

For example, the chart below shows a strong level of support before sellers pushed the price down below support. Many traders might get carried away and rush to place a short trade prematurely. Instead, traders should wait for the response in the market (buyers attempting to gain control) to break down before executing a short trade.

In the below scenario, traders should wait for the market to continue moving down, after the pullback, before looking for entry points.

AUDUSD pullback towards support

3) Trendline strategy

The trendline strategy utilizes the trendline as either support or resistance. Simply draw a line connecting two or more highs in a downtrend, or two or more lows in an uptrend. In a strong trend, price will bounce off the trendline and continue to move in the direction of the trend. Therefore, traders should only be looking for entries in the direction of the trend for higher probability trades.

using trendline as support in US dollar basket up trend.

4) Using Moving averages as support and resistance

Moving averages can double up as dynamic support and resistance. Popular moving averages to include are the 20 and 50 period moving averages, which can be altered slightly to 21 and 55 period moving averages to make use of Fibonacci numbers. It is not uncommon for traders to incorporate the 100 and 200 MAs and ultimately, it is up to the trader to find a setting that they are comfortable with.

From the chart below, it is clear to see that the 55 MA initially tracks above the market as a line of resistance. The market then bottoms and reverses and the 55 MA then becomes the dynamic level of support. Traders can use these trendlines to make informed decisions about markets likely to continue trending and those susceptible to a breakout.

NZDUSD moving average acting as support and resistance

Support and Resistance Trading Key Takeaways

  • Support and resistance is a powerful pillar in trading and most strategies have some type of support/resistance analysis built into them.
  • Support and resistance strategies can either be based on price respecting these levels (range bound strategy) or anticipating the break of support and resistance (Breakout and pullback strategies).
  • Price will not respect support and resistance forever. Bearing this in mind, traders need to adopt sound risk management to limit losses if there is a breakout.

Forex Trading Journal: A How-To and other Forex Trading Tips

A forex trading journal is a log of your trades that can help you refine your strategies based on learning from previous experiences. Just as a business owner tracks inventory, a trader should also keep up with their closed positions.

While keeping a trading journal may be difficult at first, recording your trades can help answer some critical questions about your trading techniques. It can increase the consistency of your trading, keep you accountable, and improve your technique overall. In this piece we will explore what you need to know about journaling, providing the following:

  • A forex trading journal Excel template
  • Tips on finding the journaling method that suits you
  • Tips on the ideal forex trading workflow.

Forex Trading Journal Excel

Screenshot showing a forex trading journal template

As in the forex trading journal Excel example above, your journal might contain information such as the currency pair traded, size of the trade, whether your position is long or short, the date of the trade, your conviction level, whether you’ve used a fundamental or technical strategy, the reward to risk ratio, points movement, and whether the trade was successful or not.

You may also want to include details such as the entry price, stop price and limit price, as well as lots traded. The more data you keep, the easier it will be to assess your past trades at a later date.

Also, be sure to include space to add notes in your journal. Traders using multiple entry techniques will want to track things such as chart time frames, indicators used, market conditions (range, trend, breakout) and any other information that factors into a trading decision.

Through journals such as the one above, over time the trader will be able to identify characteristics of winning or losing trades.

The Basics of Technical Analysis

An Introduction to Technical Analysis

Technical analysis is becoming an increasingly popular approach to trading, thanks in part to the advancement in charting packages and trading platforms. However, for a novice trader, understanding technical analysis – and how it can help predict trends in the market – can be daunting and challenging.

Technical analysis in trading

Technical analysis is the study of price movements in a market, whereby traders make use of historic chart patterns and indicators to predict future trends in the market. It is a visual representation of the past and present performance of a market and allows the trader to use this information in the form of price action, indicators and patterns to guide and inform future trends before entering a trade.

This technical analysis beginners guide will introduce you to the basics of this trading approach, and how it can be used to trade the financial markets.

Understanding Technical Analysis

Technical analysis involves the interpretation of patterns from charts. Trader’s make use of historic data, based primarily on price and volume and use this information to identify trading opportunities based on common patterns in the market. Different indicators are applied to charts to determine entry and exit points for traders to maximize a trades potential at good risk-reward ratios.

The below chart is an example of a chart with the use of the MACD and RSI indicator.

EUR/USD chart with indicators

While advocates of fundamental analysis believe that economic factors are the main contributors to movements in the markets, technical analysis traders maintain that past trends can assist in predicting future price movements. Although these trading styles can vary, understanding the differences between fundamental and technical analysis – and how to combine them – can be extremely beneficial.

How Technical Analysis can help traders

Many traders have found technical analysis to be a useful tool for risk-management, which can be a key stumbling block. Once a trader understands the concepts and principles of technical analysis, it can be applied to any market, making it a flexible analytical tool. Where fundamental analysis looks to identify intrinsic value in a market, technical analysis looks to identify trends, which conveniently can be caused by the underlying fundamentals.

Using Charts in Technical Analysis

The below chart is an example of a candlestick chart for the EUR/USD currency pair.

EUR/USD candlestick chart

Charts are key to technical analysis. This is because the most important measure of a market’s past and current performance is the price itself; this is the starting point when delving into analyzing the potential of a trade. Price action can be represented on a chart as this is the clearest indication of what the price is doing.

Charts assist in determining the overall trend, whether there’s an upward or downward trend, either over the long or short term or to identify range bound conditions. The most common types of technical analysis charts are line charts, bar charts and candlestick charts.

When using a bar or candlestick chart each period will give the technical analyst information on the price from where it opened, the high or low of the period as well as the close. Candlestick analysis is especially useful as the patterns and relationship within them can assist in making forecasts about the future direction of the price.

Once a trader has mastered the basics of charting, they can then make use of indicators to assist in determining the trend.

Technical Analysis Indicators

Indicators are used by technical traders when looking for opportunities in the market. Although many indicators exist, traders often make use of volume and priced-based indicators. These assist in determining where the levels of support and resistance are, how often they are maintained or breached as well ascertaining the length of a trend.

A trader can view the price or any other indicator using multiple time frame analysis, ranging from one second to a month which gives the trader a different perspective of the price action.

The more popular indicators for technical analysis include:

The EUR/USD chart below shows how to make use of different indicators.

Moving averages and MACD are often used to identify trends in the market while the RSI is typically used to determine possible entry and exit points. Indicators assist traders in analyzing the market, validating trade set ups and determining entry points.

Technical analysis basics using indicators

Short-term analysis for oil, gold, and EURUSD

I welcome my fellow traders! I have made a price forecast for the USCrude, XAUUSD, and EURUSD using a combination of margin zones methodology and technical analysis. Based on the market analysis, I suggest entry signals for intraday traders.
The US dollar weakened after the US Federal Reserve’s interest rate decision.
Oil price forecast for today: USCrude analysis
Oil’s short-term uptrend continued yesterday, but the price started a correction at the close of the US trading session. If the correction continues today, the support (A) 75.96 – 75.66 can be tested. After the price tests this support area, consider long… Read full author’s opinion and review in blog of #LiteFinance https://www.litefinance.org/…/short-term-analysis…/…

Short-term analysis for BTCUSD, XRPUSD, and ETHUSD

Dear readers,
I’ve prepared a short-term forecast for Bitcoin, Ripple, and Ethereum based on the Elliott wave analysis.
Elliott Wave analysis for Bitcoin
The BTCUSD cryptocurrency pair continues forming the final part of a bullish impulse, wave [5]. Its first element, subwave (1), is currently unfolding. Correction 4, which includes subwaves [W]-[X]-[Y], is likely completed as part of subwave (1). The price is expected to rise in subwave 5, probably to the high of 71827.95 marked by subwave [X].
Trading plan for BTCUSD for today:
Buy 67485.82, Take profit: 71827.95
Elliott Wave analysis for Ripple
The pair’s bullish trend continues in… Read full author’s opinion and review in blog of #LiteFinance https://www.litefinance.org/…/short-term-analysis…/…

GOODNEWS: MT4 account servers to be renamed

MT4 account servers to be renamed

Dear clients,

Please be aware that the MT4 account servers specified in the table below will be renamed on Saturday, 15.06.2024, to optimize trading processes.

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LiteFinance Web platform and Mobile trading app

You don’t have to do anything if you use LiteFinance’s online platform at my.litefinance.org.

MT4 desktop version for Windows

In the desktop version of the MetaTrader4 trading platform for Windows, the server name is usually changed automatically, and no errors occur when reconnecting. Simply… Read more https://www.litefinance.org/company/detail/news/104383/…

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UK Sheds Jobs but Pay Grows to 5.9% – Complicating BoE Rate Outlook

UK Job Market Eases Further While Wages Remain Persistently High

The UK job market showed further signs of vulnerability after May witnessed the highest claimant count (application for unemployment benefits) since February 2021. Restrictive monetary policy has helped bring inflation down in a notable fashion but the labour market is feeling the effects.

In the three-month period ending in April, employment contracted by 139k (-100k expected) which follows on from a loss of 178k in the three months prior to that.

Average weekly earnings in April rose to 5.9%, proving a sticky data point for the Bank of England to contemplate ahead of next weeks policy setting meeting. However, the Bank has previously expressed it is no longer looking at earnings data as a major contributing factor to inflation pressures, meaning the overall decline in broader measures of inflation are likely to point the Monetary Policy Committee (MPC) towards an eventual rate cut towards the latter stages of the year.

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Market pricing reveals an expectation of one, maybe two rate cuts this year – much like the Fed – with November expected to be the month of interest while September remains a possibility if the data becomes increasingly more dovish (lower CPI, higher unemployment rate, low/contracting growth).

Implied BoE Basis Point Cuts into Year End

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Market Reaction

Cable understandably dropped in the wake of the data, with the unemployment rate and May claimant data presenting a worrying picture but the reaction appears limited ahead of major US event risk still to come tomorrow (CPI, FOMC).

GBP/USD 5-minute chart

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The UK data has helped extend the bearish GBP/USD move that developed in the wake of Friday’s massive NFP shock that sent the dollar higher. Understandably, moves are contained ahead of the main event of the week (FOMC) with he Fed due to update its dot plot projection of the Fed funds rate by year end. Many expect an upward revision in the dot plot (fewer rate cuts). The question now is whether stubborn inflation data in the US, alongside a resurgent jobs market will be enough to erase two or just one rate cut from the yearly outlook.

GBP/USD trades below the 1.2736 swing high from the end of last year, opening up channel support as the next level of support. To the upside, 1.2800 produces a clear level of resistance, capping prior advances.

GBP/USD Daily Chart

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How to Read a Candlestick Chart

What is a candlestick chart?

A candlestick chart is simply a chart composed of individual candles, which traders use to understand price action. Candlestick price action involves pinpointing where the price opened for a period, where the price closed for a period, as well as the price highs and lows for a specific period.

Price action can give traders of all financial markets clues to trend and reversals. For example, groups of candlesticks can form patterns which occur throughout forex charts that could indicate reversals or continuation of trends. Candlesticks can also form individual formations which could indicate buy or sell entries in the market.

The period that each candle depicts depends on the time-frame chosen by the trader. A popular time-frame is the daily time-frame, so the candle will depict the open, close, and high and low for the day. The different components of a candle can help you forecast where the price might go, for instance if a candle closes far below its open it may indicate further price declines.

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Interpreting a candle on a candlestick chart

The image below represents the design of a typical candlestick. There are three specific points (open, close, wicks) used in the creation of a price candle. The first points to consider are the candles’ open and close prices. These points identify where the price of an asset begins and concludes for a selected period and will construct the body of a candle. Each candle depicts the price movement for a certain period that you choose when you look at the chart. If you are looking at a daily chart each individual candle will display the open, close, upper and lower wick of that day.

A red and a blue candlestick with open and close wicks

Open price:

The open price depicts the first price traded during the formation of the new candle. If the price starts to trend upwards the candle will turn green/blue (colors vary depending on chart settings). If the price declines the candle will turn red.

High Price:

The top of the upper wick/shadow indicates the highest price traded during the period. If there is no upper wick/shadow it means that the open price or the close price was the highest price traded.

Low Price:

The lowest price traded is the either the price at the bottom of the lower wick/shadow and if there is no lower wick/shadow then the lowest price traded is the same as the close price or open price in a bullish candle.

Close Price:

The close price is the last price traded during the period of the candle formation. If the close price is below the open price the candle will turn red as a default in most charting packages. If the close price is above the open price the candle will be green/blue (also depends on the chart settings).

The Wick:

The next important element of a candlestick is the wick, which is also referred to as a ‘shadow’. These points are vital as they show the extremes in price for a specific charting period. The wicks are quickly identifiable as they are visually thinner than the body of the candlestick. This is where the strength of candlesticks becomes apparent. Candlesticks can help traders keep our eye on market momentum and away from the static of price extremes.

Direction:

The direction of the price is indicated by the color of the candlestick. If the price of the candle is closing above the opening price of the candle, then the price is moving upwards and the candle would be green (the color of the candle depends on the chart settings). If the candle is red, then the price closed below the open.

Range:

The difference between the highest and lowest price of a candle is its range. You can calculate this by taking the price at the top of the upper wick and subtracting it from the price at the bottom of the lower wick. (Range = highest point – lowest point).

Having this knowledge of a candle, and what the points indicate, means traders using a candlestick chart have a clear advantage when it comes to distinguishing trendlines, price patterns and Elliot waves.

Bar Chart vs Candlestick Chart

As you can see from the image below, candlestick charts offer a distinct advantage over bar charts. Bar charts are not as visual as candle charts and nor are the candle formations or price patterns. Also, the bars on the bar chart make it difficult to visualize which direction the price moved.

How to read a candlestick chart

There are various ways to use and read a candlestick chart. Candlestick chart analysis depends on your preferred trading strategy and time-frame. Some strategies attempt to take advantage of candle formations while others attempt to recognize price patterns.

Interpreting single candle formations

Individual candlesticks can offer a lot of insight into current market sentiment. Candlesticks like the Hammer, shooting star, and hanging man, offer clues as to changing momentum and potentially where the market prices maytrend.

As you can see from the image below the Hammer candlestick formation sometimes indicates a reversal in trend. The hammer candle formation has a long lower wick with a small body. Its closing pricing is above its opening price. The intuition behind the hammer formation is simple, price tried to decline but buyers entered the market pushing the price up. It is a bullish signal to enter the market, tighten stop-losses or close out a short position.

Traders can take advantage of hammer formations by executing a long trade once the hammer candle has closed. Hammer candles are advantageous because traders can implement ‘tight’ stop-losses (stop-losses that risk a small amount of pips). Take-profits should be placed in such a way as to ensure a positive risk-reward ratio. So, the take-profit is larger than the stop-loss.

Hammer formation showing stop loss

Recognizing price patterns in multiple candles

Candlestick charts help traders recognize price patterns that occur in the charts. By recognizing these price patterns, like the bullish engulfing pattern or triangle patterns you can take advantage of them by using them as entries into or exit signals out the market.

For example, in the image below we have the bullish engulfing price pattern. The bullish engulfing is a combination of a red candle and a blue candle that ‘engulfs’ the entire red candle. It is an indication that it could be the end of a currency pairs established weakness. A trader would take advantage of this by entering a long position after the blue candle closes. Remember, the price pattern only forms once the second candle closes.

As with the hammer formation, a trader would place a stop loss below the bullish engulfing pattern, ensuring a tight stop loss. The trader would then set a take-profit. For more forex candlestick charts check our forex candlesticks guide where we go in depth into the advantages of candlestick charts as well as the strategies that can be implemented using them.