US Dollar Fundamental Outlook – Key US Data This Week Could Finally Move Currencies
The sideways trendless behavior of the USD and the Fx market in general, continued last week. The US Dollar, one of the primary safe haven currencies in the world, remains bid in an environment of increased trade tensions and slowing economic activity among major economies.
For the USD, it’s a usual first week of the month. The jobs data with the Non-Farm Payrolls report are scheduled on Friday and before that, the leading ISM Manufacturing and the ISM Non-Manufacturing surveys will be published on Monday and Wednesday. Fed Chairman Powell will also speak on Tuesday.
Robust US data will keep the current trends of broad Forex ranges with a bullish USD bias intact. On the other hand, overall weakness in this week’s data could trigger a stronger USD sell-off as the markets would start to price in even greater expectations for Fed rate cuts later this year.
Euro Fundamental Outlook – EUR Unlikely to Receive Much Support This Week; ECB To Remain Dovish
It is one of the bossiest weeks of the month for Forex traders, not just for the US Dollar but for the Euro as well. The preliminary CPI inflation reports, out on Tuesday, will be in focus on the data front, while the main event for the Euro will be the ECB meeting on Thursday.
The EU economy has not been performing well this year, and there haven’t been improvements lately either. The ECB doesn’t have much to be optimistic about with Germany, the biggest EU economy, being on the cusp of a recession, trade wars ragging in the world and now even Oil prices seem to be headed lower again.
The ECB will = remain dovish as much as possible, and the Euro is unlikely to find much support there. If anything, the Euro could benefit on external factors in the period ahead rather than on domestic factors.
EURUSD Technical Outlook:
EURUSD continues to trade in the contracting wedge formation that started in August 2018 during the risk-off selling amid the Turkish Lira crisis.
There are some bullish formations and signs in the most recent weeks, but the resistance trendline that currently stands around 1.1250 is still holding, so EURUSD remains stuck for now. Support has been firming at the 1.1100 area, which is near the support trendline of the wedge formation. This support area can extend down to 1.1000 and EURUSD will need to close below this area to negate bullish implications of the wedge formation.
British Pound Fundamental Outlook – The Contest For New UK Prime Minister Is On
Theresa May will formally step down from the Prime Minister position at the end of this week, and the contest for choosing the new leader will officially begin.
For the Pound, the stance of the next Prime Minister on Brexit will be crucial and how much more likely or less likely a “hard – no deal” Brexit will be under the new leadership. Presently, a lot of bad news is already in the GBP price, a “no deal” Brexit scenario is already heavily priced in, so that leaves excellent scope for a rebound on positive news.
Still, uncertainties are high, and there is room for GBP to suffer more under a Brexiter Prime Minister going into the October 31 Brexit deadline.
GBPUSD Technical Outlook:
The GBPUSD sell-off seems to have eased in the past few weeks as the price nears the 1.25 – 1.26 support area, though it’s far too early to declare the sell-off is ending.
A bullish signal or pattern will encourage the bulls that the pair has formed a bottom here, but for that to occur GBPUSD will need to close firmly above 1.2800 on a weekly basis. The 1.2800 price zone is an important technical area, and in this case, will act as resistance if/when GBPUSD reaches it.
To the downside, a test of 1.2500 seems imminent. A breakout below this area can open further downside toward 1.2000 even.
Japanese Yen Fundamental Outlook – JPY Higher Again As Trump Now Tariff Targets Mexico
The Japanese Yen was on the move last week as trade disputes take another direction after US President Trump threatened with a new round of tariffs on Mexico in response to a recent massive inflow of illegal immigrants on the southern US border with Mexico.
Risk sentiment plunged, as did stock markets and JPY currency pairs. Will the sell-off continue in USDJPY? Who knows? Maybe Donald Trump does, but one thing is certain, nonetheless. – Tensions have increased, and risk sentiment has now worsened significantly compared to several weeks ago.
If Trump doesn’t reverse his decisions for tariffs on China and Mexico, the Fed will likely need to cut rates later this year or provide some form of easing to improve risk appetite and save the stock market from plunging further. That scenario will be bearish for USDJPY too.
For now, risk aversion is in the driving seat, and for as long as that is the case, JPY will remain well supported.
USDJPY Technical Outlook:
USDJPY declined for a second straight week in a similar fashion – both times testing resistance early in the week and then dropping sharply and closing near the lows.
The 108.00 support area has now been reached, and the price has stabilized here for the moment. How USDJPY behaves here will now be key in terms of whether this 108.00 support will hold or not. In either case, the momentum is bearish, and USDJPY will need a strong weekly close above 109.00 to re-establish a bullish technical bias.
Below the 108.00 support, the 105.00 January flash crash lows will be in sight, and USDJPY could easily reach this area if the bearish momentum accelerates.
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