US Dollar Fundamental Outlook – Big Week USD Ahead: FOMC Meeting And NFP On The Radar
The US Dollar was the strongest currency among the majors last week, and the Dollar Index is now nearing the 2-year highs after staging a potent bullish run off the June lows.
US economic data last week confirmed the narrative that the US economy is still outperforming the rest of the world and that is lending further support for the greenback. In the current environment, relative growth prospects have been the main factor that is driving currencies for a while and hence it is not surprising that the Dollar is staying firm despite expectations for the Fed to cut interest rates next week.
The USD Forex calendar for this week is packed with crucial market-moving events out of which the most closely followed will be the Fed meeting on Wednesday and the Non-Farm Payrolls on Friday. As noted earlier, markets are widely expecting the Fed to cut interest rates by 0.25% and some economists are even forecasting a bigger – 0.50% cut. Forward guidance of chairman Powell will be closely watched also.
Then, if the Non-Farm Payrolls data is strong, the US Dollar will likely extend the bullish move.
Euro Fundamental Outlook – Euro Slides Further As Economic Slowdown Deepens
The Euro currency had a tough time last week and finished near the yearly lows around the 1.1100 level.
The biggest disappointment last week were the Markit PMI sentiment reports which showed that services and especially the manufacturing sector have slowed further and are headed deeper into recessionary territory. The ECB didn’t cut rates further in negative territory as some expected, but Draghi made sure to send a strong enough dovish message that will keep the Euro down.
Inflation will be in the main focus for this week as the German Preliminary CPI and the Flash CPI for the whole Eurozone are scheduled on the calendar.
EURUSD Technical Outlook:
The technical outlook for EURUSD turns increasingly bearish after last week’s drop to new yearly lows. Although EURUSD only exceeded the May 1.1100 lows for a moment and closed slightly off the support level, there are no solid signs that the support here is holding and that the pair can form a double bottom in this area.
Furthermore, a move below 1.1100 will negate and completely canceled out the bullish wedge pattern several weeks ago. Usually, when a bullish pattern is negated it is a strong bearish signal and it probably won’t be different with EURUSD this time either.
To the downside, 1.1000 is the obvious first level below 1.1100 that would provide support while to the upside resistance remains at 1.1200.
British Pound Fundamental Outlook – GBP Drops To Fresh Lows As Brexiter Boris Johnson Becomes Prime Minister; Bank Of England Meets Thursday
Boris Johnson was officially sworn in as the new Prime Minister of the UK last week and during his first speech he used the opportunity to reiterate his stance that the UK must leave the European Union on the October 31 deadline, with or without a deal. Obviously, investors aren’t happy for this direction of the UK – EU relations and the Pound was sold as a result, falling to new 2-year lows against the Dollar.
While this doesn’t mean the UK will leave without a deal, it does become more likely with Boris Johnson now being the leader. Nonetheless, the outlook for GBP hasn’t changed regarding Brexit. The currency will have more room to fall if the UK leaves without a deal while an orderly Brexit with a deal will send the Pound soaring higher.
The Forex calendar for GBP is also busy this week with the main attention focused on the Bank of England meeting this Thursday. However, given all the Brexit uncertainty, the central bank has its hands tied pretty much but is likely to lean toward a dovish/easing bias as most of the other major central banks.
GBPUSD Technical Outlook:
The technical outlook for GBPUSD is now seriously bearish after the pair broke down below the 1.25 support area. The 1.20 big support is now within reach and if the bearish trend accelerates 1.2000 will be quickly reached. The former 1.2500 support which was definitely broken last week will now act as resistance. GBPUSD will need a strong weekly close above 1.2500 to negate the bearish breakdown and reverse the trend.
There is not much solid support ahead of 1.2000, so technically there isn’t much that will stop the pair from reaching this level.
Japanese Yen Fundamental Outlook – Bank Of Japan Meeting
The Japanese Yen remains a neutral currency in times when other currencies are hit by easing policies from their central banks or domestic political uncertainty.
Risk appetite improved modestly over the past week and hence the JPY was more in the back seat compared to recent times. But, overall the Yen remains firm due to a fragile environment and any signs that economic or political conditions are worsening will surely drive renewed large flows into the Yen. From this perspective, the Yen looks likely to stay supported overall.
The focus in the week ahead will be on the Bank of Japan meeting that will be held on Tuesday. However, there aren’t any huge expectations for this meeting and hence any impact on JPY pairs is likely to be small.
USDJPY Technical Outlook:
USDJPY had a strong week and formed a tall bullish candle last week, but the pair is still trading below 109.00. It’s likely that some resistance will wait at this level once the price comes near it and if the bullish attempt is rejected then the pair could be in for a bearish reversal.
Technically, USDJPY is still within the 107.00 – 109.00 range that we discussed in the last two weekly posts, which could offer interesting range-trading opportunities as long as the pair stays inside this range.
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