If you look at the weekly chart of the CHF / JPY pair, you can see that since July 2017 the pair has been traded mainly in the range between the levels of 118.00 and 107.00.
The median line of this range is the key support level 112.00 (ЕМА200 on the weekly chart). At the same time, the CHF / JPY pair reached the zone of important support levels at 113.90 (ЕМА144 on the daily chart, as well as January, February, March highs), 113.30 (ЕМА200 on the daily chart).
Selling on global stock exchanges in the first half of today's trading day provoked the strengthening of the dollar.
Futures on US stock indexes fell during today's Asian session and continued to decline early in the European session. The fall in stock indices was associated, according to observers, with the growing concern of investors about the rapid spread of coronavirus in the world, which could cause a new wave of restrictive quarantine measures and another round of slowdown in business activity, as well as a new deterioration in the labor market.
Diminishing hopes for a new round of fiscal stimulus from the US government are also putting pressure on stock indices, which remain inversely correlated with the dollar, and are falling today for the 4th trading day in a row.
Investors again turned their attention to it as a defensive asset amid growing uncertainty.
As of this posting, DXY dollar futures are traded near 93.33, 83 points below the local highs reached last week, maintaining a downward bias towards the local September and nearly 3-year lows of 91.73 hit earlier this month. The daily DXY chart also shows that the dollar index remains in the range formed in early August with borders at 93.97 and 91.73 (local lows). Earlier, we have repeatedly emphasized that the dollar remains under the pressure of strong fundamental factors.
US Dollar Fundamental Outlook: Powell Testifies Before Congress This Week, USD Keeps Neutral
The Fx market perceived the Fed meeting last Wednesday as not so dovish, and the USD was initially higher following Powell’s presser, but, by the end of the week, it fell and closed in the red. The USD bears camp seems to outnumber the bulls, and this makes it hard for the dollar to find a bid.
Still, when we consider the recent reactions in the Fx market to central bank events, they point to mixed sentiment on the dollar with sideways action likely to continue for a while. That is, of course, barring unexpected events that could lead to large breakouts and which wouldn’t surprise us if they occur given the uncertain environment of the COVID-19 pandemic, trade wars, and US election.
The USD Forex calendar for the week ahead is relatively light except for Fed Chairman Powell’s testimony before Congress that will take place on Tuesday, Wednesday, and Thursday. Usually, these events by themselves don’t cause much volatility in the Fx market, however, that may happen if Powell speaks about the new AIT (average inflation targeting) policy and gives more details about it. Other than that, the dollar remains neutral here until some event moves the trend up or down.
Euro Fundamental Outlook: EUR Consolidation Continues After Central Bank Meetings Fail to Trigger a Breakout
The euro is also trading mixed, not only versus the dollar but also against the other major currencies. Last week, it declined sharply against JPY and was also down versus GBP. EURUSD and EURAUD closed the week unchanged, while EURCHF and EURCAD finished higher.
The highlight on the EUR calendar this week are the services and manufacturing PMIs, out on Wednesday. While these reports are unlikely to elicit much volatility at the time of the release, they have been an important factor for EUR”s direction, particularly in recent years. Consensus expectations are for the reports to be above but close to 50. Big surprises, either a beat or a miss on the expectations, may very well be a factor that will lead EURUSD out of the current 2-month range.
EURUSD positioning is still long at extreme levels, which still favors some correction from here. However, we must keep in mind that such a correction may also only be shallow rather than something material or steep. It will all depend on how the US vs. Europe’s economies perform and who deals better with the pandemic. The outcome of the US election will also play a large role, with a Biden victory being the most negative USD scenario and bullish for the euro.
EURUSD Technical Outlook:
The boring EURUSD correction extends into the new week, though it seems that it may be shifting toward a gradual downward trajectory after the 1.20 high. For instance, the first pair of lower low and lower high have formed on the daily chart. If we get another lower low that will likely trigger a breakout of the recent range, which may clear the road for a deeper correction.
The 1.18 - 1.1750 support zone remains key for triggering a larger correction. A distinct support level slightly lower in this area is 1.1725, where the support trendline and the 55-day moving average meet (see chart).
To the upside, the first key resistance is at the 1.19 zone and then at 1.1950. These resistance zones should hold if EURUSD is to extend the correction below 1.1750. Last week’s reversal from around 1.1750 rejected the bears’ attempt to push lower. However, this week, EURUSD is already below 1.18 again this Monday and may be making another attempt toward lower levels.
The AUDUSD currency pair is declining today after earlier reversing inside the light HFT selling pressure zone, which is noted at 0.7322 and above for the current daily session.
AUDUSD broke the support around the intraday lows at 0.7285 and is now knocking on the light HFT buying pressure zone that is noted at 0.727 and below. There is additional support in this area from last week's lows, which may lead to a bounce coupled with the HFT buy area.
However, if AUDUSD pushes through the light HFT buy zone, further losses will become more likely. The medium HFT selling pressure zone is noted at 0.7374 and above.
The Fed did not disappoint financial market participants, keeping its key rate at 0.25% and confirming its intention to achieve an average inflation level of 2% with long-term inflationary expectations also on average at 2%.
According to the updated forecasts of the Fed, we should expect to consider the issue of a rate hike no earlier than 2023. Fed officials noted improved financial conditions, as well as increased economic activity and an improvement in the labor market. Investors reacted with enthusiasm to the Fed's more positive outlook for the economy.
At the same time, Powell's statement that he considers the current policy sufficient, and that now, in order to continue the economic recovery, new measures of fiscal support from the government are needed, alerted buyers in the US stock market. American stock indices declined after the Fed meeting, and the dollar strengthened, gaining some breathing room after falling sharply in the previous 4 months. However, at the end of last week, the DXY dollar index, which reflects its value against a basket of 6 major currencies, still declined. The immediate target for the DXY dollar index in case of renewed decline will be 91.72 mark, which corresponds to the September and almost 3-year lows.
The central banks of Japan and Great Britain also did not change their monetary policies at their meetings last Thursday.
The Bank of England, in particular, acknowledged the risks of a longer period of increased unemployment and the uncertain economic outlook. The Bank of England promised to continue considering the possibility of negative interest rates, to which the pound reacted with a sharp short-term fall. However, the GBP / USD pair by the end of the trading day last Thursday returned to the price level at the opening of the trading day. Yet the dynamics of the dollar, which is vulnerable against the backdrop of the Fed's aggressively stimulating monetary policy, the progress of the coronavirus pandemic in the country, as well as political unrest and uncertainty ahead of the presidential elections in November, remain more important to the dynamics of the entire foreign exchange market.
Next week, investors will pay attention to the publication of important macro statistics on Australia, Germany, the Eurozone, Great Britain, the United States, as well as the results of the meetings of the central banks of New Zealand, Switzerland and the statements of the heads of the Bank of England and the Fed.
Of the most significant macroeconomic data, the publication of which is expected next week, it is worth noting the following:
*) new events can be added to the calendar and/or some scheduled events canceled during the coming week
The volatility of the dollar, in which oil prices are expressed, may rise again today, when the preliminary consumer confidence index of the University of Michigan is released at 14:00 (GMT). This indicator reflects the confidence of American consumers in the country's economic development. A high level indicates economic growth, while a low level indicates stagnation. This indicator is expected to be released in September with a value of 75.0 (versus 72.5 in July, 74.1 in August). Data worse forecast may negatively affect the dollar in the short term. However, a better-than-expected indicator will strengthen the USD, which is likely to also negatively affect oil quotes.
Having reached a local minimum near the 36.05 mark by the end of the first decade of September, the price of WTI crude oil again moved to growth in the following days, for several reasons.
The analysis of the EURGBP currency pair this morning shows that the pair is range trading after yesterday's wild price movements.
HFT algorithms analysis suggests that bearish or bullish opportunities on EURGBP may exist today if it reaches some of the price extremes. The HFT zones for today's trading session on EURGBP are found at the following levels:
Fx traders can look for a reversal if one of the zones is reached.
During the American session on Wednesday and the Asian session on Thursday, the EUR / USD declined, breaking through the support levels of 1.1787 (ЕМА200 on the 4-hour chart), 1.1780 (38.2% Fibonacci level of the upward correction in the wave of the pair's decline from 1.3870, which began in May 2014).
The dollar strengthened on Wednesday, mainly due to gains during the American trading session, continuing its growth during today's Asian session. However, the dollar declines again at the start of today's European session. As of this writing, DXY dollar futures are traded near 93.20, 70 pips below the local highs reached last week, maintaining a downward bias towards the local September and nearly 3-year lows of 91.72 hit earlier this month.
At the same time, there is still increased volatility in dollar quotes after the Fed's regular meeting ended on Wednesday.
We are analyzing the activity of HFT algorithms in the Fx market today and note that the GBP/JPY currency pair has reached levels that may provide buying trading opportunities in the session ahead.
Namely, GBP/JPY is testing a support area at the bottom of its recent range around the 135.50 level. Moreover, this level is inside the light HFT buying pressure zone, which is today noted at 135.6 and below. The confluence, thus, makes for a very appealing area to consider long positions.
The advanced FxTR Divergence indicator also showed bullish divergence on the hourly chart a few sessions ago. Fx traders will be looking toward the light HFT selling pressure zone to the upside, which is noted today at 136.51 and above.
Despite the decline in the first two weeks of September, the S&P 500 maintains upward dynamics, traded in an upward channel on the daily chart, above important short-term support levels 3405.0 (EMA200 on the 1-hour chart), 3382.0 (EMA200 on the 4-hour chart) and above the previous a record high reached in February 2020 near 3397.0 mark.
The central event of the day will be the publication (at 18:00 GMT) of the Fed's interest rate decision.
Following two meetings in March, the Fed sharply cut its interest rate (to 0.25% from 1.75% in February), and also announced the allocation of $ 700 billion for the purchase of US government bonds and mortgage-backed securities. Subsequently, the Fed has repeatedly announced additional measures to support the US economy and inject cheap liquidity into the financial system.
The rate is widely expected to remain at 0.25% at this meeting. At the end of May, US Federal Reserve Chairman Jerome Powell said that he was "satisfied with the current situation and the path we (at the Fed) are now heading". "We are not close to any of our limits", - said Powell, making it clear that the Fed intends to continue to support the economy. Other Fed leaders have also repeatedly stated in recent days that they are in favor of continuing the policy of supporting the American economy.
The analysis of activity on high frequency trading algorithms in the Fx market this morning shows that the AUDNZD pair is trading at levels near the light HFT buying pressure zone that is noted at 1.0852 and below.
The HFT buy zone is identified as a potential reversal area by high frequency trading algorithms, meaning that if AUDNZD reaches it, it may bounce or completely reverse there.
However, having a confirmed reversal signal by other indicators and factors is preferable before taking a trade to ensure higher probabilities for profit. In this sense, the prior lows around the 1.0850 level in AUDNZD should attract additional buys on intraday technical support.
To the upside, the light HFT selling pressure zone is noted at 1.0903 and above.
At the start of today's European session, the GBP / USD pair is traded near 1.2900, recovering from last week's plunge. The pair's dynamics are also affected by the renewed weakening of the dollar. DXY dollar futures are traded near 92.93 at the start of today's European session, 53 points below their local highs reached last week, maintaining a downward bias towards the local September and nearly 3-year lows of 91.72 hit earlier this month.
"We must preserve the territorial integrity of the UK and would like to conclude an optimal free trade agreement", - said British Prime Minister Boris Johnson during yesterday's Brexit vote in the British Parliament. Last week, he threw market players into confusion by proposing legislation that violates international law and the
Agreement on the country's exit from the EU, signed in January.
The UK home market bill, which gives the government the power to reverse part of the Brexit deal, overcame the first hurdle in the House of Commons on Monday and further exacerbated market concerns about a tough scenario.
Investors have become more pessimistic that the Brexit deal will be reached before the December 2020 deadline.
The analysis of high frequency trading algorithms' activity in Fx this morning shows that the USDCHF pair may trade to higher levels today.
For instance, USDCHF reached the light HFT buying pressure zone - noted at 0.906 and below - and rebounded there on the first attempt. The prior lows in the 0.9050 area here are also aiding with technical support.
The advanced FxTR Divergence indicator is also signaling bullish divergence exists on the hourly timeframe (see chart below). It gave a bullish signal a few sessions ago, concurring with the other bullish signals here.
Fx traders will aim for the light HFT selling pressure zone that is noted at 0.9101 and above.
US Dollar Fundamental Outlook: Is the USD Bound to Rebound?
The dollar index (DXY) recorded another green weekly candle, the first back-to-back positive weeks in 3 months. It is tempting to view this development as evidence bottom, especially given the several strong rejections each time the bears attempted to break lower. While estimating the long-term dollar trend is a different feat, the Fed meeting this Wednesday could indeed prove a catalyst for a near-term USD correction.
Expectations are for the economy’s recovery to continue, possibly even at a faster pace than initially expected. Thus, no big decisions on monetary policy are seen at this Fed meeting. FOMC participants will also release their updated economic projection and the dot plot on Wednesday, which could turn out to be a key element to spur volatility in markets. Given the already priced in dovish expectations and extended short positioning, the dollar can rebound if the Fed leans even slightly to the hawkish side. For example, markets may read the event as hawkish if Fed officials are more optimistic in their economic projections, or if Powell provides no details regarding the new average inflation targeting policy.
The USD impact is likely to be more muted, on the other hand, if Chairman Powell focuses on the risks to the economic outlook instead of on the positives. Or he may choose to maintain an overly dovish stance, e.g., via statements such as “we are not even thinking about thinking raising rates.
Retail sales data will also be released on Wednesday, where strong numbers could offer additional support for the USD.
Euro Fundamental Outlook: Hawkish Lagarde Fails to Drive EUR Higher
The ECB surprised everyone last Thursday by expressing confidence that their policy response will support the economic recovery and made no reference to increasing the quantitative easing (PEPP) program or changing interest rates. President Lagarde wasn’t worried about the appreciating euro either, which sounded an overall hawkish tone at the press conference.
However, the euro didn’t extend the initial gains and now trades at levels where it traded before the ECB meeting. The euro’s failure to rise on a hawkish ECB is a sign that the market may be ready for a correction lower. This would probably be most evident in EURUSD as the long exposure is the most extreme there.
Two clear instances support this narrative:
After all, if it doesn’t go up on good news, what do you think it will do on bad news?
Such developments are usually indicative of exhaustion of the uptrend and mean that once there is some positive USD or negative EUR news, EURUSD will be quick to break lower. On balance, sentiment on EURUSD seems to have shifted clearly neutral at least, and ready to turn bearish under the right circumstances.
The EUR calendar for the week ahead is light with no major market-moving data scheduled.
After NZD / USD (for a short time) reached an 11-year low near 0.5470 mark in March, its upward correction began in the following months, the main driving force of which was a large-scale weakening of the US dollar.
In early September, the NZD / USD pair broke through the key resistance level of 0.6725 (ЕМА200 on the weekly chart) and reached a local 14-month high near 0.6788 mark.
The dollar resumed its decline during today's Asian session. The DXY dollar index, reflecting its value against a basket of 6 major currencies, is declining again. DXY dollar futures are traded near 93.06 in early European session today, 40 pips below the local highs reached last week, maintaining a downward bias towards the local September and nearly 3-year lows of 91.72 reached earlier this month.
The dollar remains vulnerable amid the Fed's aggressively stimulating monetary policy, the progress of the coronavirus pandemic in the country, and political unrest and uncertainty ahead of the presidential election in November.
Analysis of high-frequency trading algorithms this morning shows that the NZDUSD currency pair reached interesting levels that could prove attractive for short entries.
Namely, NZDUSD is currently testing the light HFT selling pressure zone, noted today at 0.6695 and above. The initial attempt there was stopped during the Asian session, and another one was also stopped in early European trading.
The prior highs from Thursday and Friday also stand in this area near the 0.67 round number level and should provide technical resistance. According to the FxTR advanced overbought/oversold indicator, NZDUSD has also reached overbought levels on the hourly chart.
Looking at potential bearish targets to the downside, prior lows are located at the 0.6640 area, slightly above the light HFT buying pressure zone that is noted today at 0.6638 and below.
The dollar has strengthened, and the American stock indices have declined by the end of last week, and, this is the second week of the strengthening of the dollar and the fall of stock indices. Their inverse correlation is still observed.
One of the most important events of the past week was the ECB meeting. The central bank executives decided to leave interest rates unchanged at 0.00% (for major refinancing operations) and -0.50% (deposit rates). The ECB also left the volume of purchases of assets under the PEPP program at 1.350 billion euros and confirmed its intention to continue buying assets under this program until the end of June 2021. Euro quotes skyrocketed, but only after it became known that ECB leaders believe that there is no need to overreact to the euro's rise.
The EUR / USD rose to an intra-week high near 1.1917, but then declined, almost returning to last week's opening price near 1.1840.
Still, the dollar remains vulnerable amid the Fed's stimulus policy, the steady progress of the US coronavirus pandemic and political uncertainty ahead of the November presidential election, and its current gain can be attributed to an adjustment after a sharp decline over the previous 4 months.
Next week, three of the world's largest central banks (Bank of England, Bank of Japan and the Fed) will hold their regular meetings and decide on the interest rate. Economists do not expect the leaders of these banks to make any changes to the current monetary policy, although unexpected decisions are also possible. Any movements or signals in the direction of further easing of the policies of these banks will cause increased volatility in the financial markets and weakening of GBP, JPY or USD, respectively.
Investors will also pay attention to the publication of important macro statistics on China, UK, USA, New Zealand, Australia, Canada, as well as the results of the vote in the British Parliament on Brexit, scheduled for Monday.
Of the most significant macroeconomic data, the publication of which is expected next week, it is worth noting the following:
*) new events can be added to the calendar and/or some scheduled events canceled during the coming week
The EUR / USD maintains positive dynamics, traded at the beginning of today's European above the important support levels 1.1833 (ЕМА200 on the 1-hour chart), 1.1780 (ЕМА200 on the 4-hour chart and the 38.2% Fibonacci level of the upward correction in the wave of the pair's decline from the level 1.3870, which began in May 2014) and remains within the ascending channel on the daily chart.
The lower border of the channel passes through the level 1.1780, and the upper one - near the level 1.2180, through which the resistance level in the form of the 50% Fibonacci level passes. This mark (1.2180) will become the next target for EUR / USD after the breakdown of the resistance levels 1.1960 (ЕМА144 on the monthly chart), 1.2010 (local September highs and highs of the year), 1.2075 (ЕМА200 on the monthly chart).
Yesterday's trading day was marked by high volatility and multidirectional movements, which is associated, first of all, with the ECB meeting held on Thursday. As you know, the ECB leaders have decided to leave interest rates unchanged, at 0.00% (for major refinancing operations) and -0.50% (deposit rates). The ECB also left the volume of purchases of assets under the PEPP program at 1.350 billion euros and confirmed its intention to continue buying assets under this program until the end of June 2021.
We are analyzing the activity of HFT algorithms on the GBPUSD pair this morning and find that sellers are dominating this market with potential for further bearish price action.
Fx traders will be looking for retracements to join the trend; The light HFT selling pressure zone - noted at 1.2968 and above - if reached, is likely to offer attractive selling opportunities.
Momentum indicators can be used additionally to confirm extreme levels. For example, the FxTR overbought/oversold indicator (see chart) is an effective tool for confirming tops and bottoms. It is now rising on the hourly GBPUSD chart, and overbought readings may coincide with the price reaching the light HFT sell zone.
To the downside, the light HFT buying pressure zone is foudn today at 1.2707 and below.
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