US Dollar Fundamental Outlook – Wild Week For USD Confirms Market Confusion
The greenback had a wild ride over the past week, first rising quickly and then falling with the same speed to close the week near the opening levels.
The wild rides in the Forex market confirm the confusion of traders and investors on the USD outlook. Some factors like risk aversion flows due to trade wars and the outperformance of the US economy over others, are working in favor of the US currency. But, on the other hand, an increasingly dovish Fed that is also under pressure from the Trump Government to lower interest rates faster is working against the US Dollar.
The Fed cut interest rates at their meeting last week, but the Fed’s forward guidance from the press conference, the statement and the economic projections was taken as hawkish from markets and hence the Dollar strengthened after the event. It was Trump’s decision for a new increase in tariffs on China that sent the Dollar tumbling lower, primarily against safe-haven currencies but also versus the Euro. The jobs and NFP reports showed numbers in line with the expectations and therefore there was no big reaction in markets to this data.
The USD calendar for the new week is relatively light with only the ISM Non-Manufacturing PMI scheduled for release. Hence, how the Dollar trades will depend more on the ongoing trade wars, risk aversion fears, and even politics also.
Euro Fundamental Outlook – Not Much To Help The Troubled Euro
The single currency also traded mixed last week. It finished unchanged versus the US Dollar, but bell sharply against the JPY and CHF safe-havens. The troubles for the Euro continue to grow as the economy slows further, inflation is not rising and the ECB is forced to renew massive monetary easing policies.
Political tensions are also taking a toll on the single currency. While the Euro has been able to withstand Brexit risks quite well so far, it will still be hit hard in case if hard Brexit becomes reality. And, for the moment, the probabilities for that have risen seriously which will pressure the Euro sooner or later. The escalation in the US-China trade war and the tense relationship between the US and the EU themselves is also adding negative pressures on the Euro.
The EUR calendar for the week ahead is quiet which means the currency will trade based on developments of the factors discussed above. Overall, there is not much to support the Euro at the moment and the outlook remains modestly bearish.
EURUSD Technical Outlook:
The EURUSD pair reached fresh multi-year lows last week but soon after rebounded and is now trading above the 1.1100 level.
Former support trendlines are now standing around the 1.1150 and 1.1200 levels which are the first resistance zones to the upside. As long as they hold the short-term bearish trend on EURUSD stays intact. The pair has also formed a narrow bearish channel, as drawn on the chart below, that could also provide resistance.
To the downside, there is no visible support zone and the first important level in sight is 1.1000.
British Pound Fundamental Outlook – GBP Drops Like A Rock As “Hard” Brexit Fears Intensify
Pound Sterling took a tough beating over the past week as risks of a “hard” no-deal Brexit intensified further under the new UK Prime Minister Boris Johnson.
The British currency is near the 2017 lows versus both the Dollar and the Euro which shows the seriousness of investors’ concerns over Brexit. Boris Johnson repeated his determination to exit the EU on October 31, no matter whether a deal is reached or not. The EU, on the other hand, repeated that they are not willing to make any changes to the already existing deal that was negotiation under Theresa May.
The negotiations remain as stuck as ever but the October 31 deadline is approaching fast. The Pound will not find it hard to take another huge fall and make record lows if no progress is made soon and the chances of a “hard” Brexit continue to rise.
Economic data and events on the calendar continue to be of secondary importance for GBP and only have muted impact on the price.
GBPUSD Technical Outlook:
GBPUSD extended the bearish move after completing a bearish breakout of the 1.2500 – 1.3300 trading range two weeks ago. The pair is now trading near the 1.2000 major support and given the momentum of the ongoing bearish trend, it won’t be surprising if GBPUSD reaches or goes below 1.2000.
To the upside, the former support at 1.2500 is now the big resistance. The trend will stay bearish as long as GBPUSD is below this level. To the downside, as we already mentioned, 1.2000 is heavy support that will be hard to break. But, if it is broken it can open a lot of room for further bearish price action in GBPUSD.
Japanese Yen Fundamental Outlook – JPY Retakes The Leading Role On Risk Aversion
It didn’t take much for a sharp and complete reversal of the recent JPY trend. A new and further escalation of the US-China trade war late last week was enough to send USDJPY 200 pips lower while the Japanese Yen soared even more against risky currencies.
At the start of this new week, it was reported that China will respond back to the newly imposed tariffs by stopping agriculture imports from the United States. As a result, the Yen extended the bullish run while USDJPY took another leg down and is now trading below the 106.00 level.
What’s even more important probably is that the USDCNH (Dollar/Chinese Yuan) exchange rate broke above the big 7.00 level which is seen as a crucial level for the US-China trade relations. If the breakout above 7.00 is sustained, risk aversion flows will likely continue to build which should be bullish for the Yen.
USDJPY Technical Outlook:
USDJPY made a sharp reversal at the 109.00 resistance zone last week and quickly plunged lower in one single week – breaking below the 107.00 modest support.
The open of this new week doesn’t give much hope either as the pair is already falling toward the major 105.00 support zone. This support will not be broken easily. As can be seen from the chart, there are several major lows in this area from the past years and also the former resistance trendline that was broken also stands in this area. So, in a way, this will be the second big test of this broken resistance trendline for USDJPY, after the big test from December-January when USDJPY made major lows around 105.00 on the big flash crash around the turn of the year.
If, however, 105.00 is broken, then that will open potential for a further and big bearish move in USDJPY, likely resulting with the pair reaching 100.00.
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