Gold prices hit new 14-month highs last week near $1358.00 per ounce, and the yield on 10-year US government bonds last week fell to almost 2-year lows near 2.060%.
Investors are alarmed by conflicts in the Middle East, foreign trade disputes and a slowdown in economic growth, forcing them to move away from risks into defensive assets.
The decline in US government bond yields is also associated with forecasts that the Federal Reserve will lower interest rates by the end of the year. Published last Wednesday, weak data on inflation in the US added arguments to investors, which putting on the Fed rate cut.
Nevertheless, the dollar strengthened sharply last Friday, which allowed the DXY dollar index to grow significantly and almost completely offset its decline in the previous week. At the same time, by the end of the trading day on Friday, gold quotes returned to the close of the previous week's marks near $1341.00 per ounce, i.e. showed almost zero growth at the end of last week.
The dollar was supported by a strong growth in retail sales in May. The Fed takes into account this indicator in its rate decision, as US economic growth largely depends on the consumer sector. Retail sales data showed that American consumers are not yet experiencing the negative effects of a slowdown in economic growth. In addition, before the Fed meeting next week, other important macro data are no longer expected.
Next week, traders will focus on the publication of important macro statistics for Germany, the Eurozone, New Zealand, Canada, including data on consumer inflation in the UK, Canada, as well as on the results of the meetings of the central banks of the USA, Japan, and the UK.
As always, the publication of a number of important macroeconomic data is expected during the new trading week and number important news will be published.
US Dollar Fundamental Outlook – NFP Confirms Weakness In Economy; USD Hit Hard!
The US Dollar tumbled last week as economic data showed that investors’ worries over the economy and for Fed rate cuts are justified. ISM Manufacturing, Non-Farm Payrolls jobs growth, and wage growth all fell short of expectations - confirming the overall slowdown of the US economy. The only positive last week was the ISM Services report.
The Fed meeting is scheduled for June 19, and the probabilities favor the USD selling to extend going into this meeting. While a rate cut on June 19 still seems unlikely, chances are that the Fed will go full dovish at that meeting and maybe even prepare the markets for a rate cut in July. Markets are already pricing in a probability of 60 – 70 percent for a July cut and the Fed will now need to make it clear what they plan to do at the July meeting.
CPI Inflation and Retail Sales data will be released this week. If the numbers confirm the overall slowdown in the economy, then expect the USD decline to extend and accelerate as markets will price in an even greater probability of the Fed cutting rates in July.
The dollar fell last week, but major US stock indices rose, despite the continued high demand for defensive assets, such as gold, yen, and government bonds.
Thus, the yield on US 10-year government bonds fell last week by 2.8% or 0.059% in absolute terms to 2.072%. There is a somewhat contradictory picture. Stock indices are growing, despite investors' concerns about the state of the global and American economies. The growth of US stock indexes can, perhaps, be explained by the growing likelihood of a reduction in the Fed's interest rate.
A report released Friday by the US Department of Labor pointed out that the situation on the labor market in May was less positive than expected. Although the unemployment rate remained unchanged during the reporting period, reaching 3.6%, which is near the 50-year minimum, the number of non-farm jobs increased by 75,000 in May, with a forecast of +180,000.
Foreign trade remains the most important factor of uncertainty. In May, the United States raised to 25% duty on goods from China totaling $ 200 billion, and Beijing plans to raise tariffs on US imports worth $ 60 billion in response. Last week, US President Donald Trump threatened Mexico with imposing duties on imports of goods from this country, unless Mexican authorities take action against illegal immigration to the United States.
Last week, the Fed signaled that they were closely watching the risks of a slowdown in the economy. The deterioration of the economic outlook makes it possible to lower the interest rates of the Fed, which reduces the attractiveness of the dollar, but stimulates the purchase of high-yield, but at the same time high-risk assets on the stock market.
After the publication on Friday of a report from the US labor market, the dollar continued to fall, and the dollar index completed the past week with a decrease of 1.1% to 96.50.
Euro also rose against the dollar. At the ECB meeting last Thursday, its monetary policy remained unchanged, although the head of the central bank, Mario Draghi, who spoke at a press conference later, said directly that the bank was “ready to act and use all the tools at its disposal”, meaning a reduction in the rate and other measures.
Next week, the focus of traders will be the publication of data on consumer inflation in China, the USA, Germany, as well as data from the Australian labor market and the decision of the Swiss National Bank on the interest rate.
As always, the publication of a number of important macroeconomic data is expected during the new trading week and number important news will be published.
US Dollar Fundamental Outlook – Key US Data This Week Could Finally Move Currencies
The sideways trendless behavior of the USD and the Fx market in general, continued last week. The US Dollar, one of the primary safe haven currencies in the world, remains bid in an environment of increased trade tensions and slowing economic activity among major economies.
For the USD, it’s a usual first week of the month. The jobs data with the Non-Farm Payrolls report are scheduled on Friday and before that, the leading ISM Manufacturing and the ISM Non-Manufacturing surveys will be published on Monday and Wednesday. Fed Chairman Powell will also speak on Tuesday.
Robust US data will keep the current trends of broad Forex ranges with a bullish USD bias intact. On the other hand, overall weakness in this week’s data could trigger a stronger USD sell-off as the markets would start to price in even greater expectations for Fed rate cuts later this year.
US Dollar Fundamental Outlook – Focus On GDP And PCE Inflation In A Quiet Week
The US Dollar quickly returned in its broad ranges after first reaching new 2-year high last week. However, it seems that the breakout got some USD bulls on the wrong side of the market as traders quickly realized that major factors are still not working in favor of a sustainable bullish breakout.
The FOMC minutes from the latest Fed meeting showed that Chairman Powell and his colleagues at the US central bank are not thinking about cutting rates any time soon. The US Dollar pushed to new highs into the next day, but the gains were quickly reversed as Markit’s Services, and Manufacturing PMI reports for the US showed significantly worse conditions than the expectations.
Markit’s PMI readings for the US don’t have a huge impact on currency markets usually (as the US ISM does the same and is more closely followed). The fact that last week the USD reversed on these reports also suggests that the reversal is probably mainly due to technical factors rather than pure fundamentals.
This week, the focus will be on the new GDP release, out Thursday, and on the PCE inflation reports scheduled for Friday. Other than that, the US calendar for the last week of May is quiet ahead of the busy first week of June when traders will expect the latest Non-Farm Payrolls data.
US Dollar Fundamental Outlook – USD Remains The Best Among The Worst
Another week rolls by and it was another set of mixed economic data out of the US. Tensions regarding world trade subsided slightly over the past week; particularly US-China trade talks and the US-EU trade relationship are on a better foot at the start of this week after Donald Trump announced he will delay the planned auto tariffs on the EU for six months.
Nonetheless, although the good news on trade did manage to lift some of the more risky currencies higher, the US Dollar still ended the week higher as other domestic factors keep these currencies pressured to the downside. Thus the US Dollar continues to be the primary beneficiary of domestic problems that other developed nations face.
The USD calendar for this week is quiet with only the Core Durable Goods report, and a speech from Fed Chairman Powell scheduled for Friday and Tuesday. With this in mind, developments in other parts of the world and on the trade from (US-China, US-EU relations) will determine where Forex pairs and the US Dollar will trade.
US Dollar Fundamental Outlook – Opposing Factors Likely To Keep USD Range-Bound
In a broadly range-bound trading environment, the US Dollar was ended the past week slightly lower than where it opened.
Economic data confirmed that the job market is robust, but inflation recorded a more modest acceleration than what was expected – further taming rumors for a 2019 rate Fed hike. On the trade war front, the latest clash between the US and China has hurt risk appetite, but the impact on the US Dollar has been mixed. In either case, in the event of further escalation of the trade tensions, the US Dollar is unlikely to be a loser on a broad basis.
In the week ahead, the focus will be on the retail sales report and trade talks. These and developments in other economies will impact where the USD will move versus its currency peers.
US Dollar Fundamental Outlook – USD Down Despite Strong NFP!
Another week of mixed economic data out of the US, perhaps not surprisingly, failed to lend support for the Dollar. Even at a time when the US economy clearly outperforms the rest of the world, and there is continued strength in the US labor market – as shown by the Non-Farm Payrolls - the US Dollar struggles to advance higher.
Taking a look at the other data that was released over the last week, we can see that the ISM Manufacturing and Non-Manufacturing sentiment surveys slowed further and missed expectations by a notable margin. PCE inflation, as well as the wage growth component of the NFP report, also missed expectations – dampening the need for a rate hike from the Fed this year.
On the positive side for the Dollar, the Fed was flat neutral at their meeting last week, and Chairman Powell’s comments that low inflation is transient were taken as hawkish by the market. Non-Farm Employment change beat the consensus expectations by a wide margin, and the unemployment rate fell to 3.6% - a 50 year low for the US economy!
The calendar for this week is much quieter, with the main focus on Friday’s CPI reports, though that doesn’t mean that trading won’t be busy. US President Trump was out tweeting over the weekend about increasing tariffs on China which could result in a breakdown in the US-China trade talks and deal a heavy blow to risk appetite.
For the Dollar, the outlook remains mixed as the currency is dragged in different directions by different factors.
US Dollar Fundamental Outlook – Strong GDP Not Enough To Lift USD, Pivotal Week Ahead With Fed And NFP Up Next
US economic data continued to show positive improvements last week and the Dollar recorded fresh gains. Surprisingly, however, the much stronger than expected GDP report on Friday failed to extend the USD’s bullish run and the initial gains were quickly reversed.
Most have pointed to the details of the report as the reason for the reversal of the USD gains, but it could be also that traders decided to take profit on their long Dollar positions at the end of a strong week ahead of a new week that is filled with high-impact risk events.
Indeed, the week ahead could make or break the Dollar. The main focus will be on what are widely considered to be the two most important Forex events - the Fed meeting, scheduled for Wednesday, and the Non-Farm Payrolls due on Friday. The ISM Manufacturing PMI and the CB Consumer Confidence reports will be released earlier in the week.
US Dollar Fundamental Outlook – USD higher again as US data stays firm
The US Dollar recorded another green week as US economic data outperformed its other major peers again – particularly the Eurozone economy. The divergence between the US economy and the EU economy goes on and that continues to drive capital into the Dollar – keeping the US currency strong.
Retails sales were especially strong while the unemployment claims print at 192k reached the lowest level in 49 year – indicating further strength and tightness in the US labor market.
The start of this week will be quiet as most major exchanges are closed due to the Easter holidays. Thursday will see the US Durable Goods Orders report while on Friday all focus will be on the GDP data.
US Dollar Fundamental Outlook – USD In Between A Safe Haven And The Highest Yielding Major Currency
Economic data out of the US last week was positive - most of the key reports even exceeded the forecasts. In the meantime, central bankers at the Fed have continued to sound the dovish alarm which is further supportive of the US economy and the broad risk sentiment in stocks and across all markets.
In fact, risk appetite returned strongly last week after the positive economic reports from the US but also from China on Friday. As a result, safe haven currencies like the JPY and CHF were sold aggressively. The US Dollar also fell on the positive risk appetite, however, the move here was not as pronounced and seems less convincing that the USD downtrend can continue even if risk appetite stays well supported over the coming weeks.
Namely, high interest rates in the US should continue to keep the Dollar firm for as long as the US economy remains on solid ground, despite the safe haven role of the United States Dollar. The fact that the world’s ultimate safe haven currency is currently offering the highest yield among the major currencies is unlikely to work against it until the US economy starts to stagger more seriously and lag behind its peers.
The schedule on the calendar is relatively light for this week. The retail sales report is due on Thursday ahead of the Easter holidays starting on Friday.
US Dollar Fundamental Outlook – Even Weaker US Data Can’t Hurt USD? - Inflation Out This Week
The US Dollar remains firm and ended another week higher on a broad basis, although by a small margin only.
The US currency continues to clamber higher at the expense of other currencies as pessimistic growth rates in other major economies keep local currencies soft. Over the past week, nearly all of the economic data that was released from the US was weaker than the forecasts except for the Non-Farm Payrolls component of the jobs data.
But, still wage growth was weaker, retail sales and core durable goods disappointed, and both the ISM Manufacturing and the ISM Non-Manufacturing printed numbers below the consensus expectations. Yet the Dollar remains firm – again as a result of more serious weakness in other major economies than in the United States.
This week the main focus turns to the CPI inflation data and the FOMC minutes from the last Fed meeting – both scheduled to be released on Wednesday. The US Treasury will also release its currency report on Friday.
US Dollar Fundamental Outlook – USD still king among the majors in Fx
The US Dollar continued its advance last week and the US Dollar Index is again knocking on the highs in the 97.00 area.
US economic data that was released over the last week was softer than the wide expectations, but still not terrible either. Given that major other economies are experiencing more significant slowdowns, the USD remains the main beneficiary among the major currencies in this situation.
Particularly, the deteriorating European economy is keeping the Euro weak which in turn provides broader support for the Dollar.
This week is also packed with pivotal data on the calendar. Starting with retail sales and the ISM Manufacturing PMI Index later today (Monday 4/1/19), durable goods will be out tomorrow before we head for the end of the week and the all-important Non-Farm Payrolls report on Friday.
US Dollar Fundamental Outlook – USD can’t weaken despite an uber-dovish Fed
The unusual movements in the Forex market continued last week – creating rollercoaster like movements in USD pairs – as the US currency dropped dramatically on the FOMC interest rate announcement but then reversed all the losses and still closed the week higher.
Trend-followers continue to be frustrated in the Fx market as there is virtually no continuation to any of the strong spiking moves so far this year. A similar case was observed in the Euro currency post the most-recent ECB meeting. This sort of price action developments often leave many traders puzzled and unable to understand what is going on.
The Fed announced a major change in monetary policy last week – dovishly surprising the markets by forecasting no rate hikes this year and a plan to stop quantitative tightening in September. Yet, the factor that kept the USD supported throughout much of the past 5 – 6 months was in effect last week also. That is mainly weakness in other currencies – leaving investors with not many other choices but to go in the Dollar.
This week, GDP and PCE inflation from the US will be released on Thursday and Friday. As usual, the Dollar will be sensitive to the actual numbers of the reports.
US Dollar Fundamental Outlook – All eyes on Fed meeting and dot-plot
The US Dollar ended the past week in the red – reversing nearly all of the gains it made on the previous week. Most of the economic reports that were released over the last week were weaker than the expectations. Notably, CPI inflation and core durable goods orders were weaker while the retail sales data was stronger than the forecasts.
With inflation slowing even more than what the consensus expected, the markets are positioning for a dovish Fed this week and for further confirmation of the central bank readiness to stop quantitative tightening and even ease monetary policy if needed. This will be likely shown in the dot-plot (economic projections) where markets are expecting the Fed to lower the forecasted number of rate hikes for this year from two to one.
The Dollar is likely to weaken if the Fed delivers on the dovish expectations and could strengthen if the Fed maintains a neutral to a more hawkish stance.
US Dollar Fundamental Outlook – USD remains the only beneficiary in a global slowdown
The US Dollar ended another week higher as mixed economic data from the US showed that America is still outperforming the other major economies although the economic momentum has definitely slowed from last year.
Last week, the big miss was in the NFP component of the jobs report (only 20K jobs were added in February compared to 180k expectations) but all other data was either stronger than or met the consensus expectations. Most importantly, wage growth was stronger (0.4% m/m vs. 0.3% expectations) and the unemployment rate declined further to 3.8%. So, the big miss in the NFP could just be a sign of near full employment and the previous month’s NFP was exceptionally strong, so average job gains of the previous 3 months still remains strong. The ISM non-Manufacturing Index was released earlier in the week and was also stronger than expectations.
With this in mind, the US Dollar is likely to remain firm but not easily climb higher either. The focus will be on retail sales and CPI inflation this week.
Euro Fundamental Outlook – EUR down as ECB announces new TLTRO stimulus
The Euro was hit hard last week as the ECB met and exceeded the already dovish market expectations for their meeting. EURUSD made new lows for the year and dropped to the lowest levels since the first half of 2017.
The ECB staff sharply downgraded their economic projections for 2019, cutting both the inflation and GDP forecasts. They are still viewing the ongoing slowdown as temporary and are expecting the economy to rebound next year. The ECB over-delivered on dovish expectations with their decision to launch a fresh round of TLTRO stimulus, which will provide very low borrowing rates to support the economy in the ongoing economic slump. They also said they stand ready to add more stimulus shall the economy slows further.
No major reports from the Eurozone are scheduled on the calendar.
EURUSD Technical Outlook:
Bearish signals continue to build on the EURUSD charts. The candle for the last week made another close below the 200-week moving average, this time stronger than a few weeks ago and additionally made a new low for the year. So, although the week closed off the lows, technically there is potential for further continuation to the downside.
1.12 will still be support now, but weakened compared to a few weeks ago. The next level in focus to the downside will be 1.1000 while 1.1100 is minor support. First resistance will now be at 1.1300.
US Dollar Fundamental Outlook – Strong GDP lifts USD, Non-Farm Payrolls up next!
After another mixed week of trading, Thursday’s strong GDP report came at the right time for the Dollar as the currency managed to reverse all the weekly losses up to that point and made a strong rally into the weekly close to end the week higher.
The other reports from the US from the last week weren’t that great but not terrible either and Fed Chairman Powell kept a neutral stance in his testimony, so the US Dollar was able to get a lift.
The focus of this week, is by no surprise, on the NFP/jobs report for the previous month and to a lesser extent on the ISM non-Manufacturing report also.
US Dollar Fundamental Outlook – USD broadly mixed; Attention on Powell’s testimony and GDP data this week!
The US Dollar continued to trade broadly mixed over the last week, though it finished it lower than where it opened (USD Index).
There were no major events last week and so the overall range-bound price action across the Fx market is not surprising. However, that is likely to change this week with Fed chairmen’s Powell semi-annual testimony before Senate and Advanced US GDP scheduled on the calendar for the week ahead.
In addition to those two, the ISM Manufacturing PMI and PCE inflation data will be released on Friday. The US Dollar will again need solid numbers on these reports as well as not so dovish Powell to continue to march higher against the other currencies.
US Dollar Fundamental Outlook – USD remains firm, focus on FOMC speakers this week!
The US Dollar recorded another week of gains as a continuation of the strong trend from the week before. However, the bullish sentiment waned somewhat and we saw some of the USD gains been retraced on several occasions over the last week.
The weakest retail sales report in 10 years was a reality check last Thursday after the stellar jobs report at the start of the month. The Dollar struggled even more after that as the market shifted the focus back to the potential for more weakness in the US economy.
On the political front, President Trump declared a national emergency as a way to get funding for his border wall with Mexico, though, on the positive side, another Government shutdown was avoided last week.
Aside from trade talks and politics, for the week ahead, the focus will return on the Fed with the minutes from the latest FOMC meeting scheduled for release on Wednesday. But, what could be even more important is the scheduled speeches from several Fed Presidents throughout the week (and especially on Friday) who with their hawkish or dovish comments can send the Dollar either up or down.
US Dollar Fundamental Outlook – USD rises amid weakness elsewhere; Can it hold onto the gains?
The US Dollar had a good week last week and rose against all of the other major currencies. There were no particular reports or events last week that were a catalyst for USD strength, but rather the greenback was rising steadily throughout the week, mostly due to factors that we described last week.
In essence, traders and investors are realizing that despite all the tensions and weakness in the economies around the world, the US is still the best place to be. Also, the Federal Reserve, despite slowing the pace, is still the only major central bank that is on a rate-hiking path.
Several Fed Presidents will speak over the course of this new week and CPI inflation, Retail Sales, Consumer Sentiment and JOLTS Job Openings reports will be released. Aside from that, how the USD trades will also depend on where other currencies are moving and if the weakness there continues then the USD could extend its gains.
US Dollar Fundamental Outlook – Between a dovish Fed and strong economic data
The Fed succumbed to market pressures at last week’s meeting and made a complete U-turn on their monetary policy stance from their “hawkish” December meeting to a neutral (but rather a dovish sounding) stance at the meeting last week. This hurt the Dollar badly, but after the stellar Non-Farm Payrolls and ISM Manufacturing on Friday, traders were quick to realize that the Fed has no reason to go completely dovish for now (i.e. cutting rates) and hence the Dollar bounced.
In fact, the combination of a strong labor market and a strong economy with contained - low inflation is the perfect scenario for the Fed. In such a scenario they can keep a gradual pace of rate hikes and not hurt the economy, which would also be a very good scenario for the US Dollar as well if it holds for a while. Nonetheless, over the medium to long-term, it will be interesting to see what happens with the US Dollar as a function of the economy, Fed policies and US deficits. The US Dollar is overvalued on some metrics so over the medium and long-term it will still be easier for the USD to fall than to rise from here.
US Dollar Fundamental Outlook – Government reopened, Fed and Non-Farm Payrolls now in focus!
The Democrats and the Trump-led Republican Government finally reached a deal last Friday to end the Government shutdown, albeit only for 3 weeks. Although the shutdown didn’t have much of a tangible impact on the USD, the fact that Government institutions will be reopened ends one source of uncertainty for markets, for now.
The end of the shutdown also means that US economic data will be released with the normal schedule, and once the reports start flowing in the US Dollar could get on the move again on any surprises in the releases.
The week ahead is a busy one and ought to be volatile. The first Fed meeting of the year on Wednesday and the NFP employment reports on Friday will take the center stage in investors’ attention. But, aside from that, the no less important CB consumer confidence, PCE inflation index, ISM Manufacturing, and Chicago PMI reports will also be released during the week.
Fed officials have announced that they are turning more dovish and that they are going to slow the pace of tightening with interest rates and possibly even with the balance sheet reduction. More clarity on those two points is what the markets will want from this meeting.
Euro Fundamental Outlook – Slowdown continues, EUR neutral to bearish here!
The situation in Europe is going from bad to worse. Business sentiment indicators continue to deteriorate and last week was another string of “red” with most of the reports coming in below the forecasted numbers.
This week would be a reality check with a list of “hard data” scheduled on the calendar. We will see whether the actual GDP and CPI inflation reports confirm the picture from the sentiment survey indicators such as the PMIs. The risk for the Euro currency here is if the GDP and CPI reports show that the economy has deteriorated more than expected. In this case, an extension of the bearish trend in EURUSD and other Euro pairs looks very probable.
On the other hand, better than expected numbers could support the Euro in a new bullish leg higher.
EURUSD Technical Outlook:
The past trading week was a rollercoaster ride for the EURUSD currency pair. It was declining for the whole week before rebounding sharply higher on Friday – even managing to close the week in the green.
Friday’s tall bullish engulfing candlestick pattern is a good sign for Euro bulls, however, it does not at all suggest that EURUSD is ready to break higher or that a bearish breakout is definitely avoided.
Essentially, EURUSD is now back in the 1.1300 – 1.1500 trading range and things remain stuck here until a more significant breakout occurs. Although the falling resistance trendline has fallen below 1.1500 and is now standing around 1.1450, the 1.1500 level is probably going to carry more significance as resistance.
British Pound Fundamental Outlook – Brexit optimism drives GBP higher, reality check not far away!
Optimism on Brexit, or rather pricing out of the probabilities for a “no deal” Brexit is what drove the British Pound higher last week. However, it’s hard to see those gains extended until there is clear and tangible evidence that a positive Brexit solution is coming.
No deal Brexit is still the default scenario if nothing else is agreed, and will kick into effect on March 29. Hopes for at least a delay of the exit day and an extension of the negotiations beyond March 29 is what helped Sterling last week. But, there is no clear evidence for that either, as Theresa May has still not supported this option officially.
There are no major reports from the UK scheduled on the calendar for this week.
GBPUSD Technical Outlook:
The past week was the best for the GBPUSD pair in over a year. The pair didn’t only break above 1.3000 but it also managed to reach the 1.3200 level and closed the week near the highs.
This is a strong bullish sign from a technical analysis perspective while the monthly chart is also showing a tall bullish engulfing candlestick is forming which would be completed in 3 days if GBPUSD manages to stay near the current levels.
Nonetheless, resistance is not far and the first part of it has already been reached. The 1.3200 – 1.3300 area is an old technical area that we know where bullish attempts were rejected multiple times in 2018 only a few months ago.
So, the timing to get bullish is probably not perfect with this resistance starring us right in the face. Support is at 1.3000 and 1.2800.
Japanese Yen Fundamental Outlook – BOJ leaves policy unchanged, little action in JPY
The Bank of Japan meeting that took place last week was no source of volatility for JPY pairs as the central bank left its policy stance on all key issues unchanged. BOJ officials remained optimistic about the economy and the growth outlook in their projections but again lowered the forecasts for inflation. This means loose monetary policy and the money printing quantitative easing will remain in place.
Other than the BOJ, the usual factors that affect the Yen remain risk sentiment and the demand for other currencies. No major events from Japan are on the calendar for this week.
USDJPY Technical Outlook:
USDJPY had a pretty quiet week with a weekly trading range of below 100 pips. This is a radical and rather unnatural change from the volatile days of late December and January just weeks ago. Situations like this can trap many traders on the wrong side and lure them into using too much risk and potentially losing money.
But, no conclusion is clearer for the USDJPY pair than a confused market.
The pair has sold off sharply, reached the 105.00 level, bounced higher, gradually tried to reach 110.00 and was rejected there. What comes next here can be difficult to say as the higher timeframes (monthly and weekly) also point to a confused market.
Nonetheless, it seems that for now, the USDJPY pair has entered a 109.00 – 110.00 trading range. Based on the daily chart, it’s fairly likely that round number levels around this range will act as support and resistance. So, 110.00, 111.00 and 112.00 are resistance while 109.00 and 108.00 are support.
Unable to break through the key resistance level of 1.1565 (ЕМА200 on the daily chart), EUR / USD has been falling for the second week in a row.
EUR / USD is also trading below important short-term resistance levels of 1.1415 (ЕМА200 on the 4-hour chart, ЕМА50 on the daily chart).
The focus of traders this week will be the ECB meeting, which will be held on Thursday.
Most likely, the ECB will keep current key interest rates at the same level.
The basic interest rate will remain at the same level of 0%; the ECB deposit rate for commercial banks is also likely to remain unchanged at -0.4%.
US Dollar Fundamental Outlook – USD recaptures some losses, Fx market remains range-bound overall
The US Dollar managed to regain some of the recently incurred losses and closed the past week in the green. However, nothing big has changed in favor of the Dollar, but the currency rose primarily because there were no negative catalysts for further losses or positive catalysts for other currencies to gain.
So, overall, the situation in the Forex market across the major pairs remains range-bound, with the unloved USD rally from 2018 still a fresh memory and very much alive, though weakened compared to two months ago.
The US economic calendar is again scarce as many economic releases are delayed due to the ongoing Government Shutdown. There are not many reasons for USD strength going into this week, so again how the Dollar trades will also depend on developments in other currencies in the world and the overall risk appetite.
Euro Fundamental Outlook – EUR traders watching a new round of economic data and the ECB meeting
Three weeks into the new year and there hasn’t been much improvement in the Euro Area economy. The situation resembles the bad times of 2014-15 more than it does the good times of 2017.
The data that was released last week was also largely worse than expected, most importantly CPI inflation was even lower than the 1.7% estimates, coming in at 1.16%. German industrial production also disappointed.
The week ahead is a big one, starting with the renowned German ZEW sentiment index released on Tuesday and continuing with the services and manufacturing PMIs from different EU countries on Thursday. The PMIs have been constantly disappointing over the last several months, so the economy and the Euro desperately need a rebound and stabilization.
On the same day, the ECB will hold a meeting and the risks for the Euro now are even tilted to the downside as the central bank could start talking about easing monetary policy again. In such a case, EURUSD could easily be in for another 5% decline in the coming weeks and months.
The final economic release is on Friday with the German Ifo Business Climate index which like the PMI also has been disappointing in the last several months.
EURUSD Technical Outlook:
Nothing has changed in the overall technical picture for the EURUSD pair over the last week. The pair, however, did close in the red, forming a bearish engulfing candlestick pattern on the weekly chart.
Still, it’s hard to conclude that the weekly picture is bearish particularly because the 1.1300 support is still holding and there’ve been both bullish and bearish patterns formed inside of this 1.13 – 1.15 range.
So, in this frustrating range-bound situation, it’s best to wait for a breakout either below 1.1300 or above 1.1500 (with a weekly momentum close) before looking to trade the pair in that direction.
British Pound Fundamental Outlook – Nothing is clear for Brexit & GBP, though “no deal” less likely now!
Economic releases don’t matter for the Pound and “all” continues to be about Brexit. The CPI inflation and retail sales reports last week didn’t move the currency much as all the focus was on the Parliament vote on the Government proposed Brexit deal.
As was expected, the deal failed and didn’t pass the Parliament. But, what is rather surprising is that the deal failed quite miserably and was defeated by a wider than expected margin. A confidence vote in the Government was called by the Labour Party which Theresa May managed to survive. The situation remains deadlocked as ever while the Pound suffered wild swings and another rollercoaster ride in response to the political developments.
Though, the most important takeaway is that a “no deal” Brexit is now less likely as there is absolutely no majority for it within the UK Parliament or on the side of the EU. This is the main reason why the Pound managed to end the last week higher despite all the uncertainty.
With that said, the bias is bullish for GBP, but still, there is no clarity about what is the solution from the current situation. There are many options thrown on the table and some of them are still the dismal “no deal exit” or new Parliamentary elections, both of which would be negative for GBP.
So, it will be hard for GBP to rally substantially until there is more clarity about the solution from the current situation. All the focus is now on Theresa May who is expected to announce new steps for the Brexit deal today (January 21st).
The normally market-moving employment data will be released on Tuesday, but it is likely to cause no more than a muted reaction this time.
GBPUSD Technical Outlook:
GBPUSD broke out above 1.2800 last week and even managed to reach 1.3000, but didn’t hold there. Now, the pair is trading closer to the lower end of this 1.28 – 1.30 range than near 1.3000. The weekly candle for the past week is a Doji - an indication of indecision and possibly confusion in the market.
The technical support and resistance are well known for GBPUSD. The 1.2800 – 1.3000 range is now in play while on a wider scale, 1.2500 and 1.3300 are support and resistance respectively as shown on the chart below.
Japanese Yen Fundamental Outlook – The recovery in risk & JPY crosses continued, BOJ meets Wednesday
The rally in US stocks continued for a 4th straight week and so the JPY currency couldn’t find a bid in an environment of restoring risk appetite. The S&P 500 index even broke above the important 2600 resistance and if it can hold onto the gains this week it would be a strong bullish signal potentially.
However, traders and investors are not easily convinced, so further JPY weakness is unlikely to come easy or fast. Though a breakthrough in US-China talks could start another bullish leg higher.
The Bank of Japan will hold their first meeting in 2019 on Wednesday and will release their views and outlook on the economy as well as decide on interest rates. No major changes in monetary policy are expected, so as usually a muted reaction is likely. It would be interesting to see if they comment on the flash crash in JPY pairs from earlier this month and how any such comments can further affect the JPY currency.
USDJPY Technical Outlook:
Despite all the noise on JPY charts due to the flash crash and the subsequent – now - decline in volatility there are some interesting patterns that have formed on the weekly chart.
Most notably, USDJPY has now formed a bullish morning star candlestick pattern on the weekly timeframe which on the way tested both the 105.00 and 108.00 support areas and never closed below them on a weekly basis. This doesn’t mean that the outlook is strongly bullish or that USDJPY can just gallop quickly higher from here, but it does set a bullish tone and solid support at 105.00 for the coming months.
The monthly chart is also consolidative, so there is not much clarity regarding the longer-term direction of the pair. The 110.00, 112.00 and 114.00 resistance zones are also strong, so 110.00 still seems like the anchor toward which USDJPY would likely hover around.
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