US Dollar Fundamental Outlook – NFP Confirms Weakness In Economy; USD Hit Hard!
The US Dollar tumbled last week as economic data showed that investors’ worries over the economy and for Fed rate cuts are justified. ISM Manufacturing, Non-Farm Payrolls jobs growth, and wage growth all fell short of expectations - confirming the overall slowdown of the US economy. The only positive last week was the ISM Services report.
The Fed meeting is scheduled for June 19, and the probabilities favor the USD selling to extend going into this meeting. While a rate cut on June 19 still seems unlikely, chances are that the Fed will go full dovish at that meeting and maybe even prepare the markets for a rate cut in July. Markets are already pricing in a probability of 60 – 70 percent for a July cut and the Fed will now need to make it clear what they plan to do at the July meeting.
CPI Inflation and Retail Sales data will be released this week. If the numbers confirm the overall slowdown in the economy, then expect the USD decline to extend and accelerate as markets will price in an even greater probability of the Fed cutting rates in July.
Euro Fundamental Outlook – ECB Not As Dovish; EUR Benefits on USD Selling!
As we anticipated in our weekly analysis from last week, the Euro benefited on external factors (i.e., USD weakness) rather than on domestic factors like an improving economy or a hawkish ECB.
The ECB was dovish but not as dovish as some traders hoped for, so the Euro also rose in the aftermath of the ECB meeting last Thursday. The central bank nudged up its inflation and GDP forecasts for 2019, but lowered the projections for 2020 and signaled that interest rates will not rise till H1 2020.
Regarding EURUSD, there is nothing much that can stop the buying momentum that was set in place last week. Although the move is driven by USD weakness and USD selling, the Euro may also benefit somewhat even on a broad basis as investors move capital from Dollars to Euros. The EURUSD pair may consolidate for a while, but another push to the upside seems likely and the move can extend toward the 1.1500 area.
EURUSD Technical Outlook:
The technicals for EURUSD also confirm the fundamentals that we discussed above. Finally, after trading almost for ten months within the contracting wedge pattern, EURUSD last week broke out of the wedge to the upside.
This breakout confirms the nature of the pattern (which is bullish when the wedge slopes to the downside) and suggests there is further bullish price action in store for the EURUSD pair. The only more notable resistance lying ahead is the 1.1350 area where the 200-day and 200-week moving averages currently stand. A push above this price zone will likely drive EURUSD to 1.1500 in the near future.
Some consolidation in the first part of this week can be expected, though dips will probably be good buying opportunities. The old resistance at 1.1200 is now the big support and as long as EURUSD stays above this level the bullish breakout of the wedge pattern stays intact.
British Pound Fundamental Outlook – High Brexit Uncertainties Keep GBP Traders At Bay
It’s a big data week for the Pound with GDP and Employment scheduled on the calendar on Monday and Tuesday. But, as has been usual for the GBP currency, not much impact can be expected from economic data as long as Brexit is not out of the way.
There is nothing new on that front for the moment, so the currency has stabilized from the selloff in the past couple of weeks. However, it’s highly unlikely that GBP can gain much ground without positive news on Brexit. The process of choosing the new Conservative Leader and the new British Prime Minister is still ongoing and that is the first uncertainty that needs to be cleared for GBP to move either up or down.
GBPUSD Technical Outlook:
It appears that the support in the wider 1.2500 area held as GBPUSD closed the past week in the green and also formed a bullish engulfing candlestick pattern on the weekly chart.
The daily chart reveals a weaker momentum of the bullish price action, though an inverted head and shoulders pattern is near completion which will open the way for gains of 200 pips more to the upside. A bullish breakout above 1.2750 would confirm the head and shoulders, and its target will be to the 1.2950 area.
Support in GBPUSD remains at the 1.2550 lows but can extend down to the 1.2500 area.
Japanese Yen Fundamental Outlook – Risk Sentiment Improves, And JPY Is A laggard!
Fed rate cut odds soared last week, and while that was bearish for the Dollar, it is good news for stocks and risk appetite. By definition, what is good news for risk appetite is not great news for the Japanese Yen, and hence the currency has been a laggard.
Even USDJPY was not able to benefit on USD weakness, and the pair closed the week almost unchanged. The S&P 500 Index rebounded sharply last week and could attack the all-time highs again if risk appetite stays supported. Such an environment will keep JPY on the weak side, but betting on such an outcome can mean playing with fire as things could quickly change and turn for the worse.
The US-China trade war is still on, and there were new tensions in the US-Mexico relations recently also. So, while risk appetite has recovered somewhat, the environment remains fragile, and the optimism can quickly falter again on adverse news.
USDJPY Technical Outlook:
USDJPY closed the past week where it opened which points to some stabilization in the bearish trend that lasted for several weeks. Further, it opens the potential for a bullish reversal at this point, and that is particularly the case also because USDJPY closed above the 108.00 level which, in previous posts here, we pointed out as important support for the pair.
The first resistance now is at May’s lows in the 109.00 zone and then 110.00. The 108.00 should now be even stronger support which if broken can open the way toward the major 105.00 lows.
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