US Dollar Fundamental Outlook – USD Bulls Retook Control In Fx; Focus Will Be On Non-Farm Payrolls This Week
The US Dollar re-conquered the lost ground over the last week which doesn’t come as a complete surprise given the slow, overlapping USD uptrend that is in force since the start of the year.
With all the uncertainties across many countries that are posing serious risks to the global economy, “King Dollar” is still in a sweet spot among the major currencies. Similarly, last week it was not so much bullish USD news that pushed the Dollar Index to new 2-year highs, but rather, it was Euro weakness mainly driven by expectations for new stimulus from the ECB.
Monday is a holiday in the US, so Fx markets will probably remain quieter than usual. Trading will likely pick up on Tuesday with the release of the ISM Manufacturing PMI and the main attention will be on Friday’s jobs data and the Non-Farm Payrolls report. Another round of solid or strong data would help the Dollar to keep its gains from the last week and maybe even extend them.
Euro Fundamental Outlook – Top ECB Figures Confirm Bazooka Stimulus Is Coming
It is likely to be a relatively quiet week for the Euro ahead of the all-important ECB meeting in two weeks time on September 12.
Last week, incoming ECB President Lagarde said that negative interest rates and quantitative easing have been beneficial to consumers and that Europe would have been worse off without them. Other (incumbent) ECB officials also said that new easing measures are needed to help the economy. The market took those comments as a signal that the ECB will provide new easing measures this month to stimulate the economy and that saw the Euro falling to new lows versus the Dollar and other major peers.
No major reports out of the EU are scheduled on the calendar for this week hence the Euro would mainly take pick its direction based on movements in other currencies. Italian politics and perhaps Brexit also could be another uncertain source of volatility for the currency.
EURUSD Technical Outlook:
EURUSD took out the July lows last week and also fell below the “key” 1.10 level. Taking a look at the weekly chart, the moves last week confirm a complete breakdown of the technical picture on the pair. The wedge pattern (as shown on the chart) that was the focus of technical analysts since the start of the year has definitely failed at this point.
The focus now shifts to 1.0800 as support and given that there is no major resistance ahead of it, this level is likely to be reached over the coming weeks. The old support around the 1.1030 lows will now act as resistance if the price comes back higher at all.
British Pound Fundamental Outlook – BoJo Determined To Take UK Out On October 31; Not Beneficial For GBP
UK Parliament is getting back to work this week so expect things to get interesting and busy on the Brexit front. It was reported that anti “no-deal” MPs are preparing a vote in Parliament that will enable them to stop the Government from delivering a “no-deal” exit. If they succeed, it could give a big boost to the Pound.
However, Boris Johnson has his own plans as well and rumors are that the Government will ask the Queen to suspend Parliament until mid-October so that it doesn’t interfere in the Brexit process ahead of the crucial October 31 deadline.
Uncertainty is as high as ever and big moves in GBP are likely to unfold soon in one direction or the other. The problem still is, no one can tell for sure which way this is going to turn out and how the UK is going to leave the EU.
GBPUSD Technical Outlook:
GBPUSD reached the 1.2300 last week as we expected in our previous weekly analysis post here. As we said, this price zone represented the 38.2% Fibonacci retracement for GBPUSD. The bullish attempt was successfully rejected here and the pair reversed.
GBPUSD is now traveling toward the crucial 1.20 support area again where buying interest is likely to increase. However, given the shallow rebound after the steep downtrend, the risks are increasing that 1.2000 will not hold. If that happens, a major breakdown can ensue for GBPUSD with no clear support zone in sight until the major psychological levels lower such as 1.15 and 1.10.
Japanese Yen Fundamental Outlook – Risk-Off Mood Can Return; JPY To Stay Supported
After his rant two weeks ago that sent markets and the Dollar plummeting, President Trump was out with positive comments last week about the US-China relations. Stock markets rebounded as a result and the USDJPY pair did so too in response to a move that has been nothing but usual for Trump.
But investors, of course, know that by now they can’t trust what the US President says. Instead, they’ll have to wait and believe his actions once things unfold in a certain way. For now, that means that they will rather park their cash in the Yen and other safe-haven assets rather than being caught on the wrong side of the market again.
Furthermore, the inversion of the US yield curve, which is known to be the most accurate predictor of recessions, has got everyone on guard preparing for the next downturn. This is another tailwind for JPY that is helping the currency in these times.
USDJPY Technical Outlook:
USDJPY completed a solid rebound last week, and with a close above the 106.00 level, formed a bullish engulfing pattern. This is a second bullish engulfing candle pattern in series on the weekly chart after the previous one was completed three weeks ago.
A double bullish engulfing candlestick like this is usually a solid bullish signal, especially when it appears at a support area like here. What’s more, the 105.00 area is a major support for USDJPY due to multiple support lines meeting here, as shown on the chart. 107.00 and 110.00 are the main resistance zones to focus on if USDJPY starts moving higher again.
A bearish break of 105.00, on the other hand, would likely result in acceleration of the bearish price action.
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