US Dollar Fundamental Outlook – Fed Signals Rate Cuts Are Coming; USD Tumbles!
It’s official folks! Last week, the Fed announced that they are expecting to cut interest rates in the coming months, either this year or next. This is a big change for a central bank that six months ago was forecasting two rate hikes for 2019. As a result, the US Dollar was walloped – tumbling by several figures!
The calendar for the week ahead is quite busy. Among the most important reports, it features the CB Consumer Confidence, the Durable Goods reports, the Final (3rd) GDP, and PCE inflation. However, it is still unlikely that this data could change the bearish USD trend that was set last week. On the other hand, if the data shows any weakness, the USD bear trend is likely to accelerate that much more.
The Fed has announced that rate cuts are coming and not much can change their view. Inflation is subdued while the economy has been slowing for a while, so essentially there are few reasons for the Fed not to cut interest rates in such an environment.
Euro Fundamental Outlook – EUR Benefits On “Healthier” PMI Data & Anti-Dollar Flows!
ECB President Draghi is not lagging behind his peers. In his speech last week he used the chance to spread the dovish wings by reminding the markets that the ECB stands ready to provide powerful monetary easing if necessary. The Euro fell sharply on this but recovered the losses on the Fed’s own dovish turn.
Friday’s PMI data was also overall healthier than what was expected so that further helped to kick the Euro higher. This week the data in focus is the German Ifo business sentiment index on Monday and Flash CPI Inflation scheduled for Friday. If this data is also healthy, it should further help the Euro to climb higher.
The race to the bottom has started. For currencies, it seems it will be all about which central bank will be the most dovish one and which one the least dovish.
EURUSD Technical Outlook:
EURUSD completed the bullish breakout of the wedge pattern last week by retesting the broken resistance and strongly bouncing from it.
This is a very solid bullish sign and when we consider that EURUSD also broke above the 200-day and 200-week moving averages (1.1350 area), the conclusion is that the technicals have now turned clearly bullish for the EURUSD pair.
A continuation toward the 1.1500 area is now imminent. The technicals remain strongly bullish for as long as EURUSD trades above the 1.1350 former resistance (now support). However, the bullish technicals are not completely negated for as long as EURUSD is above 1.1200.
The nearest resistance is at 1.1500 and if EURUSD breaks it then the next resistance higher is at 1.1800.
British Pound Fundamental Outlook – Uncertainty To Remain Elevated; GBP Can Slide Further!
Known as the most volatile major currency among Forex traders, the British Pound had another rollercoaster ride last week.
The currency fell to fresh 6-month lows versus the Dollar and the Euro at the beginning of the week and then recovered by and large as the Euro and Dollar suffered on central bank dovishness. However, the EURGBP currency pair still ended the week higher which indicates an underlying weakness for the Pound – related to Brexit concerns.
The calendar last week was busy for Sterling with several data releases and a central bank meeting. Overall, the data was mixed and the Bank of England leaned on the dovish side as well, without much bullish impact on Pound Sterling.
The run for new Prime Minister and Conservative Leader and the subsequent influence on the Brexit process is all that will matter for GBP in the coming weeks and months. Boris Johnson remains the most likely candidate to be the new leader of the UK and his insouciance to a “hard - no deal” Brexit hasn’t helped GBP much either.
GBPUSD Technical Outlook:
GBPUSD also rebounded rather strongly last week and completed a bullish signal on the weekly chart.
Namely, the pair formed a tall bullish engulfing candlestick pattern, which is also the second in a row over the past 4 weeks. This is a solid indication that a base is in place for GBPUSD here, and as a result, traders’ attention now turns only to the upside.
The nearest and main resistance is at the well-known 1.3000 area ahead of the 1.3300 area at the top of the trading range. The main support remains cemented at the 1.2500 lows.
Japanese Yen Fundamental Outlook – JPY Strengthens As Other Central Banks Switch To Easing Mode!
Unlike it has been usual in recent instances, the main reason for the Yen to strengthen last week were not risk aversion flows, but rather USD weakness and weakness in other major currencies.
The Bank of Japan also met last week, and while both the Fed and the ECB turned fully dovish and signaled readiness to provide monetary easing, the BOJ does not have many options in that regard. The Bank of Japan has been holding monetary policy steady for long as it ran out of options to ease monetary policy further, despite inflation undershooting their 2% target for years.
As a result, the Yen susceptible is to strengthening when other currencies are weakening. However, given that risk appetite is supported when central banks are easing and printing money, the JPY may not extend its bullish run much further from here.
USDJPY Technical Outlook:
USDJPY extended the bearish trend last week and was just 4 pips shy of reaching the 107.00 level. The trend remains clearly bearish, though the pair is reaching a strong support area as it slowly moves down.
107.00 is a minor support on the weekly chart, but the more important one is at the major lows in the 105.00 area.
Resistance has now switched to the 108.00 price zone and the technicals will remain bearish for as long as USDJPY trades below 108.00. The falling resistance trendline of the bearish trend on the daily chart is still intact and is also currently standing near the 108.00 level.
The support line of the bearish trend (channel) currently stands near 106.50, so risk-reward doesn’t look very attractive for selling USDJPY at current levels.
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