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DXY Index Range Breakdown Under Way, Eyes on Powell Speech

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Talking Points

– The US Dollar (via the DXY Index) has fallen to its lowest level since October 17, 2018 as traders continue to adjust positioning following last week’s speech by Fed Chair Powell.

– While Fed Chair Powell’s speech rendered the December FOMC meeting minutes stale, his upcoming remarks at the Washington Economic Club could prove significant for the US Dollar.

Retail traders are buying the dip in the greenback, fading advances by EUR/USD and GBP/USD.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

The brief pause in the US Dollar’s downtrend (via the DXY Index) proved to be just that – a brief pause – as selling ultimately recaptured traders’ imaginations yesterday following a lackluster release of the December FOMC meeting minutes. The reaction (or lack thereof) was not necessarily a surprise, given that Fed Chair Jerome Powell’s speech on Friday, January 4 at the AEA’s Annual Meeting, where he reset rate expectations just weeks after the FOMC updated its Summary of Economic Projections in mid-December.

FOMC Minutes were a Dud, Attention on Powell Speech

Fed Chair Powell’s message on Friday was clear: additional tightening steps, be it rate hikes or balance sheet runoff, won’t materialize as quickly as previously anticipated. The central bank chief noted that the central bank was listening “carefully and sensitively” to the “market’s risk concerns” and it could “shift the process” of balance sheet normalization if necessary, as there was “no preset path for policy.” Curiously, the minutes revealed a tone similar to Fed Chair Powell’s; it seems as if either 1) Powell did a bad job communicating the Fed’s intentions at the December meeting or 2) the Fed has ex-post facto massaged the minutes to appear more dovish.

Accordingly, with the December FOMC meeting minutes stale having been rendered stale, and in light of another dreadfully thin economic calendar, attention today should be on his upcoming comments at the Washington Economic Club on Thursday. Given the evolution of his comments over the past several months ((paraphrasing) October: ‘rates a long way from neutral’; November: ‘closer to neutral’; December: ‘balance sheet normalization automatic’; January: ‘policy not on preset course’), confirmation that the Fed has become more sensitive to the “market’s risk concerns” could prove beneficial for global equities and bad for the US Dollar once again.

DXY Index Price Chart: Daily Timeframe (January 2018 to January 2019) (Chart 1)

DXY Index Range Breakdown Under Way, Eyes on Powell Speech

The inside day on Tuesday proved to be a fruitless attempt at yielding a pause in the recent selling, as we noted yesterday that “holding at support does not mean that the attempted breakdown is finished just yet.” Indeed, the DXY Index range breakdown on Wednesday below 95.65 confirms the shift to a more aggressively bearish momentum profile. At present time, the technical structure indicates that further bearish resolution is the most likely near-term outcome.

Having exited the near-three-month range to the downside, the DXY Index is now finding follow-through lower from its break of the April and September 2018 lows. Concurrently, the DXY Index remains below its daily 8-, 13-, and 21-EMA envelope. Likewise, both daily MACD and Slow Stochastics continue to point lower as they trend deeper into bearish territory. A weekly close below 95.65 is still required, but the framework for a top in the US Dollar is in place.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides



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Forex

GBPUSD Fell, Another Vote on Brexit Deal Blocked. AUDUSD May Rise

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Asia Pacific Market Open Talking Points

  • GBP/USD already fell before third vote on May’s Brexit deal was blocked
  • Sentiment improved, placing the S&P 500 closer to achieving record highs
  • Risks for AUD/USD tilted to the upside on RBA minutes, Yen may weaken

Find out what the #1 mistake that traders make is and how you can fix it!

Key FX Developments Monday

The British Pound was the worst-performing major currency on Monday. Newswires attributed this to John Bercow, the Speaker in the House of Commons, blocking a third vote on Theresa May’s Brexit deal unless there are major changes to it. Looking at the immediate chart below reveals the full story behind volatility in Sterling.

GBP/USD vs. US Dollar and US Bond Yields

GBPUSD Fell, Another Vote on Brexit Deal Blocked. AUDUSD May Rise

Chart Created in TradingView

When Mr Bercow’s block crossed the wires, GBP/USD had already been drifting lower. This was partially due to a slightly higher US Dollar that trimmed losses from earlier in the session. The Greenback appreciated alongside front-end government bond yields, suggesting ebbing dovish bets ahead of this week’s highly-anticipated FOMC meeting. In fact, the risk for USD on the Fed may be tilted to the upside, posing as a risk for certain ASEAN currencies.

The S&P 500 still edged higher, building on top of a major resistance break from Friday’s session. Now that there is confirmation of a second close above 2824, the index is another step closer towards achieving a new record high. Still, negative RSI divergence persists which shows fading upside momentum. This may precede a turn lower. Gains in equities on Monday bolstered the pro-risk Australian and New Zealand Dollars.

Tuesday’s Asia Pacific Trading Session

As Tuesday gets underway, AUD/USD looks to the RBA minutes from the March policy meeting. Markets are becomingly increasingly confident that the central bank may deliver a cut by the end of this year. Earlier this month, Governor Philip Lowe underpinned confidence in the economy despite rising concerns over a property slump.

Like with the US Dollar, the risks for Aussie seem to be tilted to the upside if the minutes of the text show more confidence in the economy than what overnight index swaps are pricing in. Looking at sentiment, S&P 500 futures are pointing cautiously higher. We may see APAC equities follow Wall Street higher, sapping the appeal of the anti-risk Japanese Yen.

US Trading Session Economic Events

GBPUSD Fell, Another Vote on Brexit Deal Blocked. AUDUSD May Rise

Asia Pacific Trading Session Economic Events

GBPUSD Fell, Another Vote on Brexit Deal Blocked. AUDUSD May Rise

** All times listed in GMT. See the full economic calendar here

FX Trading Resources

— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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Regulators Set Sights on Facebook and Google

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S&P 500 Outlook Talking Points:

  • US regulators have expressed intentions to reduce power, monopolistic attributes, of FAANG group members Facebook and Google
  • The tech-names have offered meaningful contributions to the recent S&P 500 rebound which could be undone by regulatory scrutiny
  • Learn tips to trade breaking news with our Trade the News Trading Guide

S&P 500 Outlook: Regulators Set Sights on Facebook and Google

The S&P 500 could face trouble in the weeks ahead if US regulators look to pursue tighter restrictions on some of the tech industry’s biggest names. Support for regulatory action first gained steam last September when state attorneys met to discuss suspicions that conservative views were being suppressed on certain online platforms. In the discussions, officials argued the alleged issue was emblematic of a larger one, namely big-tech’s market power and handling of personal data, issues they could look to combat through aggressive antitrust action.

The companies most at risk – Alphabet’s Google and Facebook – have drawn criticism from both sides of the aisle. Democratic Senator Elizabeth Warren was recently supported by Republican Senator Ted Cruz upon the announcement of a sweeping legislative regulatory plan that will explore the idea of regulating big-tech companies as public utilities.

Learn the differences between the Dow Jones and the S&P 500

A similar idea was originally put forth by Stephen Bannon, President Trump’s former Chief Strategist. The rare bipartisan agreement could see legal action gain pace, particularly as politicians look to garner public support into election season. Such an outcome could pose a significant threat to Google and Facebook, two members of the FAANG group.

S&P 500 Price Chart: Daily Time Frame (January – March 2019) (Chart 1)

S&P 500 price chart and FAANG

The group of tech stocks has offered robust returns for the year-to-date as tech tries to recapture its former glory from mid-2018. At present, FAANG has returned roughly 15% in comparison to the S&P 500 which has climbed nearly 14% in the same span. Despite a disastrous performance last week, Facebook remains a pillar of strength in the group with an 18% return YTD.

View our Economic Calendar for big events scheduled in the week ahead.

Although the threat of antitrust action amounts to a significant risk for the tech-sector, adverse price action from the risk appears muted thus far. However, the threat could be weighing on a more determined drive higher, particularly for Facebook and Google.

Given the nature of Washington and lobbying power of the industry, the threat looks to remain an ancillary risk for the time being. That said, state attorneys will meet on March 26th at the American Bar Association’s spring meeting on antitrust. The FTC will also meet that week for a two-day hearing which has technological change, privacy and competition scheduled as major topics according to Bloomberg.

Together, the meetings could see regulators find actionable steps forward but immediate price action for the S&P 500 will arise from Wednesday’s FOMC rate decision. For live coverage of the rate decision, join John Kicklighter on Wednesday at 1:45 EST.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: Dow Jones, S&P 500, FTSE 100 and DAX 30 Fundamental Forecast

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.



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Weekly Trade Levels for EUR/USD, GBP/USD, USD/CAD, Gold, Oil & More

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New to Forex Trading? Get started with this Free Beginners Guide

US Dollar Crosses in Focus Ahead of FOMC Interest Rate Decision

The FOMC rate decision takes center stage on Wednesday with market participants eagerly awaiting the updated quarterly economic projections as they pertain to growth, employment and inflation. We discussed the importance of the interest rate dot-plot as Fed Fund Futures continue to highlight expectations for no hikes this year. From a trading standpoint, the majors are on the menu this week with numerous setups stretching into key technical zones heading into the release. In this webinar we review updated technical setups on DXY, EUR/USD, GBP/USD, GBP/NZD, USD/CAD, NZD/USD, AUD/USD, Gold, Crude Oil (WTI) and EUR/JPY.

Why does the average trader lose? Avoid these Mistakes in your trading

Key Levels in Focus

DXY – Key support at the monthly open at 96.22 backed by the 61.8% retracement at 96.05– Close below is needed to validate the break. Initial resistance with bearish invalidation at 97.20.

EUR/USD – Looking for possible price exhaustion on a move towards 1.1367 or ~1.1390s. Support at 1.1280 with broader bullish invalidation at 1.1215. Critical yearly open resistance at 1.1445.

GBP/USD – Risk for a pullback while below 1.3363. Near-term support at 1.1312 with broader bullish invalidation at 1.2985.

AUD/USDAussie has set a well-defined monthly opening-range and we’re looking for the break for guidance. Risk for price exhaustion heading into key resistance 7140 with support eyed at the March low / 2019 low-day close at 7003/05.

Gold – Price remains vulnerable for further losses while below 1321 (initial resistance at the monthly open at 1313). Support at 1292 with backed by the yearly open at 1280 and 1275/76 – both areas of interest for possible price exhaustion / long-entries IF reached.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Key Event Risk This Week

Economic Calendar

Economic Calendar – latest economic developments and upcoming event risk

Active Trade Setups:

Learn how to Trade with Confidence in our Free Trading Guide

—Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex



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