US Dollar Fundamental Outlook – USD Sell-Off Subsides As Economy Still Holds Up
The June USD steep sell-off eased as July came along with the release of the new rounds of US Economic data. Namely, the July NFP and jobs data release showed that the labor market rebounded in June after the dismal May numbers.
The odds for a Fed rate cut have declined, therefore, and as a result, the US Dollar stabilized. However, the bearish trend may not be over yet and that will depend on how the economy in the US and globally will develop in the coming weeks and months.
The economic data that was released last week was positive while for this week, retail sales the Philly Fed Manufacturing Index and the UoM Consumer Sentiment reports are scheduled on the calendar. In addition, Fed Chairman Powell and Chicago Fed President Charles Evans will speak on Tuesday.
Euro Fundamental Outlook – Quiet Week Ahead; EUR Stays Largely Directionless
The ECB recently got a new President in the name of Christine Lagarde, the current head of the IMF, who will replace Draghi as ECB President when his term ends on November 1. No major shifts in policy are expected at the ECB when she takes office and she is believed to only carry on with the policies that were set in motion under Draghi already.
Not surprisingly, the Euro has not been affected much on the news about the new ECB President. No major economic reports were released over the past week, while in the week ahead, Forex traders will watch the German ZEW Economic Sentiment Index and the Final CPI reports out of the Eurozone. No major impact is expected from these reports, so the Euro will probably trade on developments in other parts of the world and other currencies.
EURUSD Technical Outlook:
EURUSD broke out of the wedge formation in early June and the bullish move has stalled since then.
While the technicals clearly have turned (and remain) bullish now, the overall price action hasn’t changed much and is still of “rangy” nature. These types of breakouts where the price doesn’t clearly continue in the breakout direction can be difficult to trade.
However, one thing that we can be confident about for EURUSD is that the May lows around 1.1100 are strong support and likely to hold barring major changes to the outlook.
To the upside, the 1.1350 and 1.1500 areas remain the nearest and most notable resistance zones.
British Pound Fundamental Outlook – GBP Hit As Political Deadlock Goes On
Pound Sterling continues to suffer in an environment of continued political standstill and high uncertainty over Brexit. After a series of votes in the Conservative Party, Boris Johnson remains the most likely person to replace Theresa May as the new leader.
However, this change won’t necessarily bring more clarity on the political front in the UK, or over Brexit as the Parliament remains as divided on the matter as ever. This has increases expectations for a general election in the UK later this year as a way to break the deadlock – a non-positive GBP scenario. The currency has continued to decline in recent weeks as a result.
Economic data from the UK remains mixed which doesn’t help the currency much either. Employment data, CPI inflation, and retail sales are scheduled on the calendar for this week.
GBPUSD Technical Outlook:
GBPUSD again fell below the 1.2500 level last week in another test of the major lows and major support in this area. The week closed with a solid rebound in the price action and GBPUSD is now trading above 1.2500, but the area remains vulnerable to further bearish attempts at the moment.
Overall, the 1.2500 area support and the bullish signals that were formed here a few weeks ago still hold, but the current price is very near the bottom end of this support and hence the risks of breaking it have increased.
1.2800 and 1.3000 are the nearest resistance zones higher.
Japanese Yen Fundamental Outlook – JPY Range-Bound In A Generally Range-Bound Market
The Japanese Yen is following its currency peers and remains broadly range-bound. The JPY strength eased considerably recently as risk appetite recovered and stocks marched to new all-time highs.
However, stocks aren’t rising because of fundamental strength but because most of the major central banks recently signaled that they are ready to ease monetary policy as a prevention mechanism of a possible crisis. This has lifted stock markets but also Gold and precious metals and has sent currencies plummeting lower.
The Japanese Yen was among the most unaffected currencies in this environment and strengthened in the last 2 months. Nonetheless, the modest recovery in risk appetite over the past few weeks is not enough to reverse all the JPY gains and the Japanese currency remains firm.
USDJPY Technical Outlook:
USDJPY bounced off the 107.00 support zone, then reached the 109.00 level where it was rejected and now trades mid-way between those two levels.
The selling pressures that drove down USDJPY in May and June seem to have eased after the bounce 3 weeks ago. The 107.00 level is also near the 105.00 major support, so it becomes increasingly difficult to break lower around these levels.
For the moment, it seems that USDJPY has started a range between 107.00 and 109.00, but it remains to be seen how things will progress from here. The 110.00 psychological level remains the main resistance further to the upside.
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