US Dollar Fundamental Outlook – Trump Labels China A Currency Manipulator; Blasts Fed & Strong Dollar
The wild times in Fx are not ending as the relationship between the US and China becomes even tenser. After the increase in tariffs two weeks ago, the US Treasury labeled China a currency manipulator last week. Further, President Trump used another opportunity to blast the Fed for not lowering interest rates enough and reminded everyone that he thinks the Dollar is too strong.
It was busy trading for currencies as a result, although markets are not much worried about Trump’s comments on the Dollar for now, mainly because the Government alone doesn’t have many powerful mechanisms to weaken the Dollar. Also, the Fed has not given way to pressures from Trump till now and those two key aspects are making Trump’s comments just empty talking rather than somethings which he can back by actions.
Data that was released last week was mixed and slightly missed expectations overall. Primarily, the ISM Non-Manufacturing PMI fell short of expectations and dropped further to a 3 year low of 53.7. CPI inflation, retail sales, the Philly Fed Manufacturing Index and the preliminary UoM Consumer Sentiment are on the calendar this week among the most important reports.
Overall, nothing much has changed for the Dollar and it continues to receive support based on its perceived safety in times of increased risks and the outperformance of the US economy.
Euro Fundamental Outlook – EUR Taking Cues From Elsewhere; Watching German Data This Week
The Euro is just a spectator in this environment where the US-China trade war and Brexit are dominating the news and are the main factor behind the latest market moves. The European Central Bank is also closely watching these issues and how the EU economy responds to them, so the Euro will take directional cues from these factors as well.
The EU economy continues to lag and this week has the German ZEW Economic Sentiment and the German Preliminary GDP scheduled on the calendar among the most important reports. The German economy is particularly experiencing a bad slowdown and some positive news in these reports could go a long way to lend a hand to the troubled Euro.
Overall, the Euro remains pressured to the downside as the persistent economic troubles, as well as increased Brexit risks now, are keeping it out of favor. And if the German data disappoints this week then the Euro could easily start another bearish leg to the downside.
EURUSD Technical Outlook:
The technicals for EURUSD continue to be mixed and conflicting. In particular, at the start of this new week, there are conflicting signals between the daily and the weekly chart.
Namely, the weekly chart has formed a bullish engulfing candlestick pattern (bounce off the wedge pattern support), while the daily chart is showing strong rejection at the 1.1200 price area which is an important resistance zone due to several factors. First, 1.1200 is the area where the recent daily lows from last month were formed and also the 55-day and 100-day moving averages meet in this same area.
Thus, it seems that this 1.1200 resistance zone - which stretches up to 1.1230 on the daily timeframe – is now pivotal. If it holds, the bias for EURUSD remains bearish and the pair’s likely destination would be toward 1.10. If on the other hand, the price breaks above 1.12, then the bullish signs on the weekly timeframe will be justified and a further move higher can be expected.
British Pound Fundamental Outlook – GBP Faces Mayhem As October 31 Deadline Approaches
There is no stopping for the Pound bears as the currency continues to make fresh lows versus its major peers. The EU and the Government of the UK continue to hold tightly onto their fortified positions in the Brexit negotiations while the October 31 deadline is approaching fast.
Pound Sterling, but also the Euro to a lesser extent, are facing serious trouble if things continue to move in the current direction. The Pound is currently trading near the 2016-17 lows versus both the Euro and the Dollar, and what’s worse is that this could be just the beginning of what is to come for GBP in case of a “hard” no-deal Brexit.
The UK calendar for the week ahead is busy with Employment, CPI inflation, and retail sales data scheduled for release. However, everyone’s attention is focused on Brexit and the market will look past these otherwise pivotal market-moving reports.
GBPUSD Technical Outlook:
GBPUSD continued to slide further over the last week and reached the 1.2000 support area that held off the major bearish trend in 2016.
Things are getting really interesting now for this pair as this is a make or break point. The bulls are sure to put up some fight here at such a major support zone, but if this support is broken that will be a major bearish breakout that will open the way for lower prices such as 1.15 and 1.10.
On the other side, if the support holds, the bulls will hope that GBPUSD can climb to 1.25 again which is the first big resistance from current levels. The daily chart below shows the steep sell-off that took GBPUSD from 1.25 to almost 1.20 in less than 3 weeks.
Japanese Yen Fundamental Outlook – Risk Sentiment Aggravated Further As USDCNH Breaks Above 7.00; JPY The Clear Winner
Risk assets received another big blow last week as the US-China trade war continues to escalate for the worse. The US finally labeled China a currency manipulator in response to the USDCHN exchange rate breaking the 7.00 level threshold which was seen as pivotal for risk appetite by many.
A break above 7.00 in USDCHN is seen as a switch to risk aversion and further appreciation higher is likely to intensify risk aversion that much more. The risk-off mood was clearly and immediately reflected in JPY pairs as well, the Yen being the clear winner obviously. As long as risk aversion dominates, a stronger Yen is a safe bet pretty much.
For now, China helps to calm the situation a bit by fixing the Yuan close to the 7.00 threshold level against the Dollar (instead of allowing USDCHN to climb much higher and much faster). However, it’s unlikely that they will be willing to do that for much longer especially if the US continues with hostile actions. Hence, risk-off is likely to stay in force for a while longer which means the JPY is to stay stronger.
USDJPY Technical Outlook:
At the start of this week, USDJPY is on the way to the major 105.00 support zone in a continuation move of the already existing downtrend. The big question for USDJPY traders will now be “how the price will behave around the 105.00 support are and will it break it”?
What we know for now is that the support here is heavy and very strong. This, however, makes it that much more a crucial point on the chart – meaning that if the price breaks through it is likely to onset a new wave of selling and further aggressive bearish price action.
If the 105.00 support holds, then the first resistance zone to the upside will be at the 107.00 area.
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