The Exodus From Safe Havens

The FED’s week hasn’t brought any clarity to the market: the monetary policy was not changed and probabilities of interest rate decline have dropped substantially for June’s meeting, and signal a parity between two scenarios (dovish and hawkish) for July.

The main event in the headlines was an announcement from US president Donald Trump about upcoming possible easing of tariffs and trade talks. That had boosted some positive sentiment back to the crypto market, especially for Bitcoin, which had surpassed the psychological 100k level. Other than that, the Bitcoin domination index has fallen, meaning that many other cryptocurrencies have jumped higher even more aggressively. The risk-on regime today is mostly associated with crypto markets, while fiat markets are still on hold.

The stock market was cautious as S&P 500 and Nasdaq indices have consolidated. Gold and EURUSD have slid lower, as well as Japanese Yen.

We can conclude that the current overall market narrative is “sell safe havens”. The risk premiums in Gold, Yen, Swiss Frank and other “safe haven markets” are starting to evaporate. As proof of this concept, we can highlight the drop of “safe haven demand” from CNN’s fear-and-greed index, and relatively low VIX.

Moreover, Gold had turned into a seasonal cycle of consolidation, having reached the peak in late April. The next seasonal window of opportunity will happen in July.

The next important macro publication in focus would be the US inflation report on Tuesday, May 13th. The expected reading would be 0.3% for core inflation rate, which is greater than anticipated. So, now the US dollar gets back in play, fueled by possible political resolutions of tariff confrontations and overall tight conditions of the US labor market, high yields of treasury bonds and hawkish expectations about the monetary policy.

EUR/JPY

EURJPY is testing the area above the massive consolidation pattern. Given the elimination of the risk premium from safe haven demands, Japanese Yen may get under pressure, which may lead to the breakout from the consolidation, as shown at the chart.

Average True Range indicator had reached yet another bottom signaling decreasing volatility: usually this pattern precedes the sharp volatility increase and may point to trend continuation.

Japanese Yen gets under pressure in May, according to historical seasonal studies: that’s another confirmation of the described scenario.

XAU/USD

Gold had entered the consolidation phase after completing the “bullish trap” at the top of the price action. The next possible support level would be location lower, when price would meet the lower band of the Bollinger Bands indicator, as shown at the chart.

The exact pivot point is hard to predict, but given the strong trending market conditions, the buy opportunity would be the next possible opportunity.

According to the information from CMEGroup, volume for Gold futures is growing, whereas open interest has diminished for the last couple of weeks. This points to a distribution pattern and confirms the displayed scenario.