H2 US Dollar Fundamental Analysis – How much will the Fed ease (cut)?
The US economy has slowed considerably in the first half of 2019, as we mostly expected and have warned here in our weekly posts. The main questions on investors minds now are how bad the economy will go from here and how much will the Fed need to ease?
These are the primary factors that will impact the value of the Dollar and where the exchange rate moves. The Fed has already announced readiness to cut rates and provide stimulus and that has already sent the Dollar lower.
If the Fed proceeds with multiple rate cuts by the end of 2019 then more of the same is in store for the Dollar and it will most likely tumble further on a broad basis.
H2 Euro Fundamental Analysis – Will the ECB have to restart QE?
The Euro has its own problems that have weighed on the currency for years. Despite the optimism throughout 2017, we saw a reality check in 2018 and the effects still last today. Populism and anti-EU sentiment is still high in Europe. The economic recovery of 2017 has fizzled and inflation has stayed well below the ECB’s target.
The European Central Bank ended Quantitative Easing only months ago and there is talk of new stimulus being in store already now as the ECB will try to find the economic slowdown and undershoot in inflation.
How the Euro trades will depend on these questions as well. Will the ECB have to do its own new round of monetary easing as well and by how much? Or, will the EU economy be able to recover and start growing again?
H2 EURUSD Technical Analysis
The EURUSD technicals are turning bullish on the long timeframes such as the monthly and weekly. The pair recently broke out of the descending wedge pattern, as we have described many times in our weekly analysis posts so far.
Also, as we outlined in our yearly analysis in January, EURUSD reached the 61.8% Fibonacci retracement around the 1.1200 level and now strongly bounced from it on the monthly chart. So far, the pair seems to be following the script perfectly. If the June monthly candle has closed with a bullish engulfing pattern as at the time of this writing (shown on the chart below), that will indicate further bullish price action is in store for the pair.
The major resistance remains at the monthly falling trendline around the 1.2000 area. EURUSD will need powerful bullish momentum to break through this major resistance trendline.
On the other hand, the main support remains in the 1.1200 area now.
H2 Pound Sterling Fundamental Analysis – How the new UK Prime Minister will manage Brexit?
Brexit remains in the main focus for Pound Sterling. Theresa May stepped back at the end of May and the most likely person to replace her as the leader of the Conservative Party is former London mayor Boris Johnson.
His stance on Brexit that is circulating in the media seems to be “harder” than that of Theresa May. This has pressured GBP as a Boris Johnson Prime Minister means higher probabilities of “no deal’ Brexit.
However, the ultimate conclusion is that Pound Sterling remains highly uncertain at the moment and any predictions are likely to be wrong. The binary outcome of a “no deal Brexit” being very GBP negative and a “smooth Brexit” or “no Brexit” being very GBP positive remains. But for the moment, it’s very difficult to say which one will turn into reality.
H2 GBPUSD Technical Analysis
The monthly chart of GBPUSD shows a bottom in February and the lows at 1.2430 have held up well so far this year. However, the support was challenged several times and the current price, at the beginning of the second half of 2019, is not far from this support either.
So this technical support area remains vulnerable and if it’s broken then GBPUSD will very likely reach the major post-Brexit lows at 1.2000. This area is heavy support and the pair won’t easily continue lower past it.
To the upside, if the current support in the 1.2500 area holds, then GBPUSD will likely meet 1.3000 again, and also, sooner or later, trade above 1.3500. Technically, if a new bullish leg is starting here, then GBPUSD is set to reach and move above the 1.38 – 1.42 strong resistance that we also noted in our 2019 yearly analysis in January.
H2 Yen Fundamental Analysis – Crisis or no crisis? Can do BOJ do more to boost inflation?
The Japanese Yen will remain highly vulnerable to strengthening in cases of risk aversion flows amid stock markets falling or other negative shocks happening in the world. In this regard, watching longer-term risk sentiment and stock market performance is key for how the Yen will trade in the second half of the year as well.
The other factor is the Bank of Japan and monetary policy. Other central banks have started to ease or are about to ease policy but the BOJ can’t follow them as it has used up its options for that. Considering this, the Yen is vulnerable to strengthening from this perspective as well, since if other currencies are falling because their central banks are easing, the Yen will automatically gain against them.
All in all, there is not much that can weaken the Yen in this environment of heightened global tensions and central bank easing. Unless the BOJ surprises with a major new easing measure, the JPY is likely to remain firm throughout 2019 as well.
H2 USDJPY Technical Analysis
As usual in recent years, volatility stayed subdued in USDJPY over the first half of 2019 as well. Not much happened in USDJPY between January’s turmoils and the increased volatility in recent weeks. In fact, the 3-month trading range between February and the end of April was only 300 pips for USDJPY. This is extremely low volatility.
May and June saw higher volatility with USDJPY to 107.00 again. However, this is where strong support is found due to the broken resistance trendline (one which we also talked about in our 2019 yearly outlook). The 105.00 lows are the bottom end of this strong support which if broken will open the way for fresh multi-year lows toward the 100.00 level and maybe even lower.
However, if the 105.00 support holds on the monthly chart holds, then USDJPY would sooner or later find itself above 110.00 again and probably test 114.00 sooner or later as well.
As a reminder, be sure to also have a look at our 2019 yearly Forex analysis that we did back in January. Find it at the link below:
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