 Hi, my name is Leon Roeb, currency trader and trading coach at Trading1AT.com. Welcome to this week's forex and goal supply and demand analysis. If you're new, welcome to you and an equally warm welcome to you if you are returning. And if you like the analysis that I provide every week, please don't forget to press the like button and subscribe. And so question of the week before we get into the analysis was sent to me on YouTube and the person said, good day, sir. Leon, I got a quick question. Does the dollar appreciate on bad news surrounding its economy based on safe haven appeal in a risk of environment such as we are having during the US banking situation weeks back and the current sentiment on the US debt ceiling challenge? Because what that's what I observed, the dollar rallied on the back of these bad news. Please explain it better. Why isn't the dollar the one to be affected by the news? And it is a great question and something that I will get into as we go through the analysis in the video. So because I will be talking about the debt ceiling and I can kind of tie the questioning with that. And so getting into the week ahead, 22nd of May. So this week in the US the spotlight will be on the debt ceiling negotiations, FMOC meeting minutes and several Fed speeches. Additionally, investors will be closely monitoring data on personal income and spending PCE prices and the second estimate of GDP growth, corporate profits, durable goods orders, services and manufacturing PMIs as well as new pending home sales. So a lot going on this week. The data, furthermore, fresh May PMIs are anticipated in the UK, Australia, Euro area, Japan and Germany. Finally inflation rates for the UK will be released and monetary policy decisions are awaited for China, New Zealand and that's pretty much that's it. So they've done a bit of a typo there, FMC. And yeah, so that's basically what we've got going on this week. So let's get into a bit more of the technicals and some fundamentals and starting off on dollar index and dollar index is just a measure of dollar strength against the basket of currencies and you can see in fact my bias actually was to the short side and looking for a decent area to look for shorts, not in dollar index but just on other dollar currencies and the dollar has been rallying this week on the expectation of a high interest rates because of recent data that has come out that has supported that and inflation and also as well the expectation that the debt ceiling would actually be resolved at some point but things have turned at the last minute on Friday which has caused the dollar to kind of pull back in a little bit and so dealing with policy rates first and power steers policy debate with clear signal on June rate pause and so again as I was saying during the week and up to you know come from last week to this week we started having the market price in the probability of a rate hike in June and it actually reached I think as high as maybe 38 39% on the on the CME Fed Watch tool and this is the probability this basically I'll read it out it says this is the likelihood that the Fed will change the federal target rate at upcoming FOMC meetings according to interest rate traders analyze the probabilities of changes to the Fed rate and US monetary policy as implied by 30 big Fed funds futures pricing data and so we keep an eye on this and and up until I think it was like I said Friday Friday before Jerome Powell speaks this was basically as high the probability on a rate hike was as high as about 30 39% and this was down to maybe something like 50 something percent 60 something percent and and so yeah once we got Jerome Powell's speech that came out that he was a bit more signatory rate pause basically the market has pared back expectations for now who knows it could obviously you know it's a moving target it's not static so that it is data dependent and so I'll just read a little bit of this which says the Federal Reserve chair Jerome Powell gave a clear signal he is inclined to pause interest rate increases next month taking command of the policy debate over several officials suggested they wanted to keep hiking and he said we've come a long way in policy tightening and the stance of policy is restrictive and we face uncertainty about the lagged effect of our tightening so far and about the extent of credit tightening from recent bank stresses Powell told a Fed uh sorry Powell told a Fed conference Friday in Washington having come this far we can afford to look at the data and the evolving outlook to make careful assessments he said reading from prepared notes so investors pared bets on a rate hike next month to around 13% after Powell's comments compared to 33 before the spike so that was reflected again on here so um yeah the chances of a potential pause are on the cards but it depends on whether the market believes Jerome Powell right but there are things going on um you know um as far as as well the debt ceiling that they have to be concerned about as to why they may or may not also would have to factor in why they may or may not um uh hide crates as well and obviously one of them is the debt ceiling and Biden seeks to call um McCarthy after that limit talks hit impasse and this happened on Friday as well and so Joe Biden directed his age to schedule court on Sunday with White House Speaker Kevin McCarthy after the top Republican accused the White House of backtracking in talks on raising the U.S. debt limit and so for those of you out there who um you don't know what the uh the debt ceiling means right uh I'll just read this article just quickly it's not going to read the whole five minutes maybe maybe about a minute or two just to get an understanding of why the debt ceiling is um so a such an important thing to the battle of a raising the debt ceiling has threatened to rattle markets and wreak havoc on the U.S. economy so political leaders in Washington have been arguing for months over the federal debt limit and the conditions under which to raise it failure to come to an agreement would mean a first ever default on some of the government's obligations the debt ceiling is essentially a cap on U.S. government borrowing right now at nearly 31.4 trillion since January Treasury Secretary Janet Yellen has been using special measures to avoid a payment default but she's warned that the Treasury's risk risks running out of cash for its obligations as soon as June the first so JP Morgan uh CEO Jamie Diamond and other bank executives have warned of dire consequences if a deal isn't reached and it says here it's a fluid situation with ongoing discussions between White House and Congressional leaders House Speaker Kevin McAfee said Thursday negotiations would agree to a deal in principle as soon as this weekend but then talks broke down on Friday with Republican representatives Garrett Graves saying that the White House was being unreasonable so um this is basically um an issue uh that potentially could um was expected to be resolved sooner rather than later and to kind of go back to the uh the question from uh universe Alice 2438 and it was talking about um risk off right and so the debt ceiling is a risk off situation so risk off scenario um which typically the U.S. dollar would be a risk off in a safe haven currency so in a risk off environment when there's lots of fear uncertainty and doubt in the market money will go out of risk on assets um into risk off assets or safe haven uh assets like gold for example and uh and currencies like the Japanese yen the Swiss frank and the U.S. dollar now when the risk off event is actually originating in the U.S. then it wouldn't really make sense uh logically uh for the dollar to rally if um you know their experience in the risk off event right but what's happened is is that the market is actually priced in the uh risk event being resolved so although their headlines have been talking about the debt ceiling the debt ceiling you know it's a it's a risk event it's a risk off event who knows who knows the market has actually expected the risk event to get resolved so they're getting ahead of the um of the news and thinking okay well the probabilities are that they're gonna you know raise the debt ceiling so let's just you know take advantage of this while everybody else um including myself to a certain degree was thinking um that okay a risk off event would mean money would come out of the dollar the market has actually been pricing in the news event anyway as far as what they expect which is basically a positive outcome if it was a negative outcome that that's what they expected then the dollar would actually be falling but because they expect a positive outcome from the risk event they're getting ahead of that and making money to the upside and so that's pretty much what happens and what you need to think about during risk events is what is the expectation that the event will be um uh will be resolved um you know a positive result or actually a negative result right and whether you know and and that um is really where the money is made it's the expectation of what um of how the event and risk event is going to get resolved so for example with the banking crisis um you know for now there's been no other banks so the expectation is that um the the banking uh crisis is being contained for now now if the federal reserve starts to hike rates even more that might put pressure on other smaller banks and they might start to default and it might cause like a domino effect so the the fed have to keep an eye on um not only just raising rates because of inflation but they have to you know a counter of that could be actually more banks um starting to default which is what they don't want because then that would bring on um a potential recession of credit crunch etc and so it's you have to be a bit more dynamic and a bit fluid in your thinking when it comes to these things it's not an exact science right fundamentals is not a science doesn't mean that one you know a equals uh b or one equals two right or one to two equals two it's not it's not like that you have to be a bit more dynamic in your thinking when it comes to the expectation of where money is likely to flow and the result of the event so although the dollar um is under pressure in terms of the risk sentiment overall the um the debt ceiling is expected to be um uh resolved and so that actually has made money go into the dollar right so so that's pretty much an explanation I hope you know the explanation um makes sense all right um so yeah that's pretty much it uh so the dollar can back to the dollar that's the reason for the rally we've seen the rally this week in the dollar the expected um uh interest rate uh hikes or an interest rate hike um being priced in as well as a resolution to the debt ceiling but now we've come to a bit of a pause just before this uh or just beyond that supply zone and just under this uh supply zone here so we're in a bit of uh no man's land but let's see what happens this week I probably expect the market to um with with uncertainty to continue to fall in fact so to the downside we could see obviously if um if things continue to um create a positive environment for the US dollar meaning that they may continue to can uh uh hydrate that has to be priced in so you could actually see the dollar stop to um move higher but I'm my bias is at least for the second half of the year to get to look for a short trade on the dollar again we're not looking at a short in the dollar index we'll be looking for shorting on you something like the uh dollar yen and so speaking of the dollar yen we've seen prices break past this supply zone and that supply zone was was due for a break anyway because that level had been touched several times you know once twice already and the more times the level is touched the um the the weaker it becomes and you can see my analysis from last week looking at this demand zone prices did bounce off of this demand zone came back again and we had some positive news out from the dollar but uh now what we've got is let me just draw an update this we've got a demand zone right here and potential uh supply and I think there may be scope for a uh short trade at the moment um the the yen again holding rates but possible yield curve adjustment June or July coming through also is where there was some positive news surrounding their economy and rising inflation which puts pressure on the bank of Japan to potentially do something about yield curve control so I think this supply zone and also as well the higher supply zone I think are really nice shorting opportunities uh to buy the yen hopefully um and again depending on whether the the um the news for uh the dollar starts to run out of steam right I think that ceiling um has been priced in always being priced in um and I can't see that you know even when it you know June 1st comes around I can't see the market really you know taking off to the upside I think then after that it's going to be really about whether the Fed are going to potentially cut rates later on this year so if you do want to get short on that on that yen um on that dollar yen then you know this is the area to start to look for some short trades if you want to buy the dollar then you're looking for pullbacks into this zone before looking at getting uh long uh looking at the dollar Swiss again Friday's uh you know news came out negative for dollars so we did get a move back up to this area on the um on the dollar Swiss and again a big rejection from it so let's see if you want to look for short trades there if you're looking for any kind of long trades and again that supply zone has been touched several times so again I expected that to um start to uh break but if you do want to get long on the dollar Swiss it looks like these are the areas to look for any kind of long trades again you look for um go down to that the lower time frames and look for uh any kind of um um uh trade setups that you'd want to see within those zones um dollar CAD and the dollar CAD again a bit of a tricky one because the Canadian dollar actually um had some good news as well and there's I think there's a little bit of a hawkish um hawkish tilt to their uh to their bias uh for the Bank of Canada because inflation came up uh higher than expected so the market could be looking at the potential for a uh surprise hike and that really would surprise everybody it's not really a pair that I'm interested in trading anymore um there there was um a bit of uh I did have a bias to short the Canadian dollar and I still do to a certain extent but I think that um there's going to be a bit more of a difficult trade I think for me um if you are looking to get involved in this and buy the US dollar look for you know bigger pullbacks or you're looking at buying a Canadian dollar I think the absolute highs would be decent or even a move just above that but I'm not really looking at this this currency pair where fundamentally it doesn't really make too much sense to me the New Zealand dollar um I think it could be a decent buy on a pullback and that's providing the Federal Reserve don't hike rates and the RBNZ the New Zealand central bank actually do stop to hike rates or continue to be more aggressive in hike rates because they already are expected to hike rates this week so a pullback into that zone would be nice to look for buy trades on the um on a New Zealand dollar but this is with the Federal Reserve expected to hold rates and the RBNZ looking to hike rates so that's where the divergence is coming in um if you are looking to buy the um the US dollar then I think again that level's been touched several times so you know I think a sell there isn't necessarily the greatest you might want to wait for a move and it's so at these highs before looking at getting uh before getting short and even that level's kind of been touched several times but it's led to a new low so um that has it going in its favor uh the pound dollar pound dollar and um the pound this week fundamentally uh Bank of England Chief Economist says UK inflation at turning point in Hupill says a key measure of price increase should decrease and the UK economy grew by a sluggish 0.1% in first quarter of the year so Bank of England Chief Economist Hupill gave the clearest indication yet that officials think they might have sorry they might be able to pause their rate hiking cycle saying inflation has hit a turning point and is likely to slow but you also have Bank of England sorry Bank of America yeah Bank of America policies uh expects another UK rate hike after hawkish Bank of England forecast so um there's a bit of uh there's there a bit of odds at the moment um uh and a bit of uncertainty around whether they will hike or or hold I think it all depends on the um what the inflation numbers are this week if they come out and they are higher than expected then you're likely to have the pound start to rally because then the expectation for a rate uh an extra rate hike would have to be then priced in right so this could be the floor um if inflation does come down as expected I do think that we could see a deeper pullback into uh these one two three levels so let's see what happens uh this week um it's going to be very important to uh to have a to keep a watch on the data all right and then we just uh update this uh supply zone right here and you've got kind of like a supply zone sitting on top of this uh sitting on top of this demand zone in fact one of those I just draw this down here yeah make a bit clearer so these are your options if you do want to be a buyer of the US dollar then the first supply zone if prices pull back to that area or the second area there so um yeah the expectation is for the Fed to hold rates now um and one more hike expected but again it's data dependent it is data dependent um and that could be um hopes could be dashed for a for a rate hike if inflation is seen as coming down uh faster than expected or as expected uh going to the euro dollar and the euro dollar again this week the euro not necessarily being weak but the dollar um the market pricing in an unexpected rate hike has pushed the uh dollar down to like the 107s and so um we've come down to really fair value or just below fair value for the exchange rate so if we look at the low to the high so the low would be or be considered an absolute bargain price and the high would be expensive when it comes to exchange rates 50% is what is known as fair value so we've come down just below that fair value area into the area that I thought that prices uh could potentially bounce from that support resistance within that demand zone and so um the catalyst for the turn is possibly the fact that the market has now got ahead of itself and the market and uh and the Fed may not actually uh high rates right and if they don't then I think the market should want to go uh higher we do have a supply zone here that we need to get passed but ultimately I do think that any moves to the downside even down to the 107s right should be a decent buying opportunity providing that inflation comes down for the US dollar and um the euro keep hiking which um Christine Lagarde say uh says that she sees key juncture as ECB needs sustainably high rate yeah so we need says we have to keep sorry we have to really buckle up on achieving the 2% inflation goal uh ECB president speaks in broadcast in if you were spain's TV so european central bank is a key juncture because it needs to keep preserving um a person persevering with its monetary policy uh just as consumer price growth show signs of flowing uh christine president christine lagarde said now is a moment which is also quite critical because inflation is beginning to go down she said in an interview with spanish state one channel TV broadcast for friday we are beginning to see the um efficiency of measures but we still need to have high and sustainably high interest rates so very hawkish right very hawkish still and um and so yeah going to the chart while you've got one central bank that's you know maybe look into pause christine lagarde is coming out and pretty much saying that they're they're quite hawkish and so this now starts to look like um a decent price to look to uh get involved in the financial advice of course but just telling you what i'm doing and so yeah that's um this the area here if you do want to get involved and try and short the uh the u.s dollar then that first supply zone is where so it's short the euro then that supply zone is where you want to get involved um oz dollar the australian dollar um is a bit weak at the moment uh based off of some china data um coming out which wasn't supportive of the um or isn't supportive of australia as australia are uh one of their biggest trade partners and so if china are not growing then um exports and imports are going to be affected which affects the economy um inflation looks like it's um stubborn in australia but i think um uh the r b n z if i remember correctly um are a bit more dovish slightly dovish on um on hiking rates um or they've changed their stance if i remember correctly anyways um at the moment i think i think the australian dollar hopefully should be a buy at some point once um china do start to get their act together but i do think this level has been touched several times so i think price could come down to the 65s before uh bouncing if it doesn't come down here and bounce off of there that could be where we look for uh any kind of long trades if you're looking to buy the australian dollar if you're looking to buy the and let me just update this uh this demand zone from over here should be the last one and you have a supply zone right here so right on top um this is where you want to look for any kind of short trades if you're looking to buy the uh the us dollar um so the expectation actually for a hold um has is is really kind of dominant at the moment so and that and that's for the rba as well so again that's more data dependent so uh let's see i think when when they were talking about inflation maybe about a week or two ago they were quite hawkish but the market is expecting uh actually more of a hold than a hike so um you know that's where we could enter into this this range or this auction um and i think the 65s 50s down to the 65 round numbers are probably where it's a decent area to look for any kind of buys if you want to buy the australian dollar and finally gold so gold did have a really nice pullback into a zone uh that i was expecting from last week we had a little bounce based off of the news so if you do want to be a buyer of gold any kind of little pullback that will be quite nice um if you're looking to sell gold it looks like there are some i think probably all of this is going to be supply um yeah you're looking for a pullback into these zones and when you're again if one of the things that you can do if you know you're thinking that there's a wide zone of supply is break it down and look for areas of support and resistance within those areas of uh supply wide areas of supply and demand even on a daily or an intraday uh time frame and uh that's where you want to look for any kind of um any trades as confidence right so you've got resistance there resistance resistance of poor support so the underside of this supply zone is decent for a potential uh sell if you want to look to sell and you think that the dollar's going to strengthen right because you're not just selling gold you're thinking that you know thinking gold's going to get weaker you're going to you're thinking that the dollar's going to get stronger so you have to understand you know the reasons why the dollar is going to get um stronger and then gold to get weaker so um i think prices have come down to um really nice bargain area so any buyers for i think for gold if you're bullish on gold into the medium long term i think it's going to be nice and even cheaper in fact would be in fact the 1900s i think that's going to be a really nice area to look for uh buying gold if you're a gold bug anyways guys uh that's it for this week um again don't forget to like subscribe and share and until the next video hope you have a great trading week take care