US Dollar Fundamental Outlook – USD Down Despite Strong NFP!
Another week of mixed economic data out of the US, perhaps not surprisingly, failed to lend support for the Dollar. Even at a time when the US economy clearly outperforms the rest of the world, and there is continued strength in the US labor market – as shown by the Non-Farm Payrolls - the US Dollar struggles to advance higher.
Taking a look at the other data that was released over the last week, we can see that the ISM Manufacturing and Non-Manufacturing sentiment surveys slowed further and missed expectations by a notable margin. PCE inflation, as well as the wage growth component of the NFP report, also missed expectations – dampening the need for a rate hike from the Fed this year.
On the positive side for the Dollar, the Fed was flat neutral at their meeting last week, and Chairman Powell’s comments that low inflation is transient were taken as hawkish by the market. Non-Farm Employment change beat the consensus expectations by a wide margin, and the unemployment rate fell to 3.6% - a 50 year low for the US economy!
The calendar for this week is much quieter, with the main focus on Friday’s CPI reports, though that doesn’t mean that trading won’t be busy. US President Trump was out tweeting over the weekend about increasing tariffs on China which could result in a breakdown in the US-China trade talks and deal a heavy blow to risk appetite.
For the Dollar, the outlook remains mixed as the currency is dragged in different directions by different factors.
Euro Fundamental Outlook – GDP And CPI Upside Surprises Keep EUR Supported
The Euro held up relatively well over the past week amid positive surprises in the two key reports. Namely, both the GDP and CPI prints surpassed expectations which is a pleasant, positive surprise for the ECB and EU policymakers after a long period of gradual declines.
However, the surprise in the CPI rates, in particular, is attributed to transient factors due to the Easter holidays which is also why the Euro didn’t stage a stronger bullish reaction on the back of these reports.
The calendar for the week ahead features the final services PMI reports, new economic forecasts by the European Commission and ECB meeting minutes (or known as the ECB Meeting Accounts).
EURUSD Technical Outlook:
Weeks and months have passed, and not much has changed on the technical picture of the EURUSD pair.
The most recent weekly candle tried to break to the upside, but the bullish attempt was rejected near the falling resistance trendline. Gradually, over the past several months, the EURUSD price action has been shaping a wedge formation in addition to respecting the multi-month resistance trendline that goes back to March 2018.
We show both of these developments on the chart below, but the puzzling conclusion is that they carry different implications. - A downward channel is bearish while a wedge pattern is a reversal pattern (that is bullish in this case).
Furthermore, support and resistance have been respected, but not distinctly on the weekly chart. Only the 200-week moving average (red line) has been a more notable technical area here. It is the main resistance to the upside at the moment, while support to the downside should is likely to be found at 1.1000.
British Pound Fundamental Outlook – A Renewed Wave Of Brexit Optimism Inspires GBP Rally
Pound Sterling surged higher in late Friday trading on the back of positive Brexit comments from Jeremy Corbyn, the leader of the UK opposition, who said that a Brexit deal has to be done.
This new dynamic in the negotiations between the two largest political blocs in the UK comes as both parties suffered a significant fall in popularity among UK voters in local elections last week. Political experts have cited the ongoing Brexit deadlock as one of the main reasons for the frustration of UK voters.
Other than this, the Bank of England kept policy unchanged. On the calendar, the highlight of the week ahead is the GDP report on Friday, but of course, any Brexit headlines will take primary attention.
GBPUSD Technical Outlook:
GBPUSD posted a strong close and formed a tall bullish engulfing candlestick pattern in the process. Although the price didn’t touch the exact 1.2800 level last week, the rebound is from this support area and hence, is a solid bullish signal at this stage.
GBPUSD also broke above the 1.3000 watermark at the same time and now looks poised to re-test the 1.3300 highs. This resistance has been a significant hurdle in the past which suggests that if GBPUSD breaks it, then the bullish price action can accelerate rather aggressively toward the 1.3500 area and then toward 1.3800.
Support is at the all-important 1.3000 area.
Japanese Yen Fundamental Outlook – JPY Opens Stronger As Tariff Man Is Back Tweeting!
An extended period of low volatility on JPY pairs may have been an enjoyable period for some traders, but everyone knew that it wouldn’t last forever.
Just this Monday morning open, JPY pairs are down across the board on renewed US-China trade tensions. First, some Chinese sources on Friday said that trade talks might have hit an impasse and that seems to be confirmed from the US side now with President Trump tweeting late Sunday that he plans to hike tariffs on the additional $200 Billion of Chinese goods.
Just as everyone expected trade talks to be finalized with a deal, this move comes as a rather big surprise which is also why the Yen is reacting strongly. Whether the risk-off reaction aggravates now or JPY pairs reverse the losses will be up to how the situation evolves from here. After all, when it comes to Trump, everything is possible.
USDJPY Technical Outlook:
USDJPY is nearer to 110.00 now than to 112.00 after the gap at the market open.
The 100-week moving average (orange line) is providing resistance at 110.80 while the 55-week moving average (blue line) stands near 111.10, and together they form the first resistance area of 111.080 – 111.10 (previously viewed as support). The gap, which has not been filled thus far, is also in this area and will act as additional resistance here.
Support is at the obvious 110.00 handle, and USDJPY seems likely to test this area at least in the week ahead. The next big support lower is 108.00.
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