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Price Action Setups Around a Falling US Dollar After CPI Sell-Off

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In this webinar, we used price action to look at macro markets in the aftermath of this morning’s US CPI report. That report showed continued strength in US inflation as we’ve now had the sixth consecutive month of at-or-above-target inflation as we approach next week’s FOMC rate decision. But, despite the backdrop for higher rates as driven by consistent inflation gains, the US Dollar remains weak as the year-long down-trend remains in order.

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US Dollar Takes a Hit After CPI

This morning’s CPI print out of the US was not all that bad, as we saw the sixth consecutive month of at-or-above target CPI growth ahead of next week’s Federal Reserve rate decision. But the reaction in the Dollar was a pronounced move of weakness that syncs well with the timing of this morning’s CPI release, even though many are attributing this downdraft in the Greenback to the morning announcement of the firing of Secretary of State, Rex Tillerson. And while there may be something there, the fact of the matter is that most drivers, both positive and negative, have brought upon the same net result of USD-weakness. This alludes to the fact that there is something else going on here helping to drive weakness into USD even in-light of seemingly positive factors, like inflation pushing the Fed towards tighter policy options. This can help to keep the bearish trend in the US Dollar at the forefront as we near next week’s FOMC rate decision.

US CPI: Sixth Consecutive Month At-Or-Above Target, USD Falls in Response

us cpi monthly

Chart prepared by James Stanley

EUR/USD Support Bounce Runs to 1.2400

Last Thursday we looked at support in EUR/USD, and we’ve since seen a respectable recovery from the ECB-fueled dip to 1.2280. The problem at this point is the fact that we’re so far away from support that bullish setups could be difficult to justify. A pullback to the prior support zone of 1.2335-1.2350 keeps the door open for additional topside in the pair; perhaps even to another approach towards the 1.2500 psychological level.

EUR/USD Four-Hour Chart: Approaching Last Week’s Highs After 2280 Support Visit

eurusd four hour chart

Chart prepared by James Stanley

GBP/USD Catches a Bid After Spring Statement

Growth forecasts were upgraded this morning in the UK’s Spring Statement, and this has brought some life into the British Pound. This helped GBP/USD to break above a bearish trend-line that’s held in the pair since late-January. This can start to open the door for short-term top-side setups, but for the longer-term move, traders will likely want to await a bullish break of the 1.4000 psychological level, as stops can be difficult to justify given recent swing-lows.

GBP/JPY Approaching Under-Side of Post-Brexit Trend-Line

For short-side GBP plays, GBP/JPY may be getting close to a point of interest, as there is a bit of confluence around 149.41, as we have both the 38.2% Fibonacci retracement of the February sell-off along with the projection of the post-Brexit trend-line that had previously done a good job of helping to carve-out support.

AUD/USD Rallies to Resistance Zone

While the US Dollar has been exuberantly weak this morning after that CPI report, AUD/USD has started to show what could finish as an indecision candlestick on the Daily chart. Resistance is coming-in around a zone that we’ve been following around the .7900 level, and this can start to open the door to short-side setups. We looked at how lower time frames can be used to assist with timing into the setup; allowing for traders to let the move start to show before looking at fading what’s been a really strong short-term trend. This was previously a favored long-USD candidate, and with today’s resistance starting to show even as the US Dollar remains weak, that door may be re-opening around the Aussie.

NZD/USD Testing Longer-Term Fibonacci Resistance

We’ve been following a level in NZD/USD that’s started to come into play, and now its time to watch what the pair does to see if this is a workable theme. The level in question is the 38.2% Fibonacci retracement of the 2009-2011 major move at .7335, and this level has done a great job of helping to form resistance on the weekly chart over the past couple of years. With a really weak US Dollar running into a strong NZD in February, the pair was able to temporarily eclipse this value, leading to a fall to .7200. But since that support showed at .7200, prices have been on the way up and we’re now re-testing .7335 again.

We looked at the hourly chart to focus-in on this recent strength, and how a break below a short-term trend-line can start to open the door to short-side setups.

USD/CAD Comes Back to Life After 1.3000 Resistance

Last week saw a really weak Canadian Dollar as USD/CAD testing the 1.3000 psychological level. After three days of tests Monday-Wednesday, USD-weakness took over and drove the pair down to 1.2800. Since then, we’ve seen more recovery as CAD-weakness has remained a dominant theme. We’re now catching resistance around 1.2928, which is the 50% Fibonacci retracement of the May-September sell-off from last year. We looked at how shorter-term charts can be used to work with the current setup in USD/CAD.

Yen-Weakness Pronounced Ahead of BoJ Minutes

There appears to be a brewing theme around the Japanese Yen that should get some more information tonight with the release of BoJ meeting minutes from last week’s rate decision. Yen-strength has become quite pronounced in 2018, and this goes along with a consistent rise in inflation that saw January come-in at 34-month highs. This is similar to the Euro and the ECB last year, where stronger growth and inflation led markets to buy the Euro in anticipation of an eventual move away from stimulus. While we’re still waiting on confirmation of that move away from stimulus, Euro-strength remains; and in the Yen, that strength has crafted a fresh yearly-high against the US Dollar. Starting around the Tokyo open last night, however, was a spate of Yen-weakness that had begun about 24 hours ahead of the release of those meeting minutes.

USD/JPY Weekly Chart: Support Holding on at a Long-Term Area of Interest

usdjpy weekly chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the Euro, the British Pound or the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on our EUR/USD, GBP/USD, USD/JPY, AUD/USD and U.S. Dollar pages. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

— Written by James Stanley, Strategist for DailyFX.com

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Contact and follow James on Twitter: @JStanleyFX



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Asian Stocks Hold Up As Markets Look To Fed, US Dollar Gains Too

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Asian Stocks Talking Points:

  • Stock markets made modest gains to start a new week
  • Hopes for a dovish Fed seem to be lifting the market
  • However, there are numerous potential worries below the surface

Find out what retail foreign exchange investors make of your favorite currency’s chances right now at the DailyFX Sentiment Page

Asian stocks were cautiously higher on Monday as investors looked with hope to this week’s Federal Reserve monetary policy meeting. There is some sense that the US central bank will steer a dovish path into 2019, with perhaps fewer interest rate hikes in prospect than have been seen this year.

Still, there was plenty of caution around too. The Bank of International Settlements said that recent market selloffs may not be an isolated event, with more volatility likely as monetary policy is normalized. The Nikkei 225 managed to gain 0.7% Monday afternoon, with Shanghai and Hong Kong up by 0.1% apiece. The ASX 200 added 1%, with bank stocks leading the way.

The Australian stock benchmark remains under clear pressure on its daily chart but a key short-term support zone between this year’s lass two significant lows continues to hold the bears in check.

ASX 200, Daily Chart

Foreign exchange markets seemed a little gloomier than their equty counterparts, with haven currencies such as the US Dollar and Japanese Yen benefitting at the expense of more clearly growth-linked units. The US Dollar index hovered near 19-month highs.

That Dollar strength took a modest toll on gold, while crude oil prices were hit by worries about likely future demand level. These worries come in the wake of weaker than expected economic numbers from both China and the US in recent weeks.

Monday’s remaining economic data schedule is a little sparsely populated. The final eurozone Consumer Price Index for November is coming up though. Then the focus will move across the Atlantic and on to the house building market. Canadian existing home sales figures are due as is the housing market index from the US National Association of Home Builders.

Resources for Traders

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

— Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!



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Australian Dollar Bulls Might Get A Little Help From The Fed

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FOMC may bring AUD/USD Volatility

Fundamental Australian Dollar Forecast: Bullish

  • The US Federal Reserve is likely to dominate AUD/USD trade this week
  • It will give its December policy call on Wednesday
  • Any sign of a more relaxed policy view will continue to support the Aussie, despite that currency’s own utter lack of interest rate support

Find out what retail foreign exchange traders make of the Australian Dollar’s prospects right now, in real time, at the DailyFX Sentiment Page

The Australian Dollar’s revival of fortunes against its US cousin goes on, underpinned as it has been since its November beginnings by two key factors.

The first is hope for a trade rapprochement between Washington and Beijing. China is the prime customer of Australia’s vast raw-material export machine, while the US is an indispensable partner for Canberra on security matters. So, Australia has much to gain from a trade thaw between the two global giants. More indeed than any other third country, arguably.

And no doubt trade headlines, if they come, will move the Aussie this week. But their timing is impossible to predict. Federal Reserve monetary policy meetings meanwhile are timed with scrupulous regularity. One is coming up early on Wednesday, Australian time.

That brings us to the second AUD/USD prop. Much of the pair’s recent vigor has been rooted in the thesis that US rates may not rise as much in 2019 as investors had previously thought. This seems reasonable. Economic uncertainties abound, from Brexit to rising US deficits and clear signs of economic slowdown around the world. Moreover, the Fed has already raised rates eight times from their financial crisis lows. A pause for reflection could be easily justified.

So the Australian Dollar market will likely be stuck like all others while it waits to see what the Fed has to say on Thursday.

It’s certainly worth pointing out that the Australian Dollar will lack interest rate support even if the US central bank does chart a more cautious monetary course into 2019. Aussie futures markets now see no increase to the country’s own record-low, 1.50% Official Cash Rate for at least eighteen months ahead.

Still, if the Fed delivers its expected December rate hike but then suggests it’s going to hold off for a while then AUD/USD will probably hold up and may make further gains.

It’s a bullish forecast this week.

AUD/USD has broken downward channel

Chart Source: IG.com

Resources Australian Dollar for Traders

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

— Written by David Cottle, DailyFX Research

Follow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!



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Dow Awaits Fed, FTSE Looks to EU No-Deal Data. CAC to Protests

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Dow Awaits Fed, FTSE Looks to EU No-Deal Data. CAC to Protests

Equity Fundamental Forecast: Bearish

  • Fed to issue rate decision on Wednesday, followed by a press conference with potential to spur the Dow
  • FTSE will look to Brexit and the BOE decision with a watchful eye on events across the channel
  • CAC concerned with protests and reaction from Brussels on budgetary infractions

Global Geopolitical Concerns Weigh

This past week saw a mixed bag of trading days. A trade war breakthrough on Tuesday spurred markets but most gains were forfeited before the close. The latter half of the week erased any earlier gains as the major US indices sold off Friday. The outlook for global equities remains bearish on a lack of upside potential and persistent threats from Brexit, the Italian budget debate and similar concerns arising in France. One area with upside potential is the Fed’s decision on Wednesday.

Dow, S&P 500 Await Fed Decision

The Fed is scheduled for their final rate decision Wednesday. At present CME Fed Funds futures have the probability of a hike at 77.5%. With a hike largely priced in, the real price action will arise from Chairman Powell’s discussion with the press afterwards. The Q&A will allow Mr. Powell to expand upon his view for rate hikes in 2019 and given a series of dovish comments in recent weeks, could make the case for a bullish reaction in US equities.

Learn about the differences between the Dow, Nasdaq, and S&P 500.

CME FedWatch Tool (Chart 1)

CME FedWatch Tool

FTSE 100 Looks to EU’s No-Deal Documents, Bank of England Rate Decision

The FTSE 100 will again await Brexit news. On Wednesday the European Union is scheduled to release documents regarding their preparation for a no-deal Brexit. If their findings are particularly bleak, expect a slump in the FTSE along with the other European indices.

Brexit Impact on GBP: How the Pound Might Move After Parliamentary Vote

The FTSE will also look to the Bank of England. With virtually no chance the bank hikes their interest rate, any reaction will come from commentary on the case for future hikes. Expect this event to be overshadowed by the Brexit news and the Fed.

FTSE 100 Price Chart (2) Daily, Year-to-Date

FTSE 100 Daily Price Chart

CAC 40 Gets Stung

The French equity index will eye the ongoing yellow-vest protests. Already the movement has secured concessions from French President Emmanuel Macron, but the movement’s leaders say the protest will continue into next week. The tax cuts and wage increases offered by President Macron will draw the eye of the European Commission along with the French people.

See the other economic events in the week ahead with our Economic Calendar.

France may now find itself in a position like Italy with an unacceptable budget to GDP ratio and could face the ire of European Commission President Jean-Claude Juncker. The civil unrest and budgetary overspending will undoubtedly weigh on the French index and could spread across the continent as the bloc attempts to reel in its members.

CAC 40 Price Chart (3) Daily, Year-to-Date

CAC 40 Daily Price Chart

Bearish on Equities? Learn some successful bear market trading strategies and techniques.

As with last week, trade wars remain in the picture. There are no scheduled events but talks between US and Chinese officials are ongoing. With that in mind, be wary of trade war developments that could impact your equity positions. There appears to be little upside potential in many equity markets, so the forecast for the week ahead remains bearish.

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

Contact Peter on Twitter at @PeterHanksFX

Other Weekly Fundamental Forecasts:

Japanese Yen Forecast – USD/JPY Rate Fails to Test Monthly-High Ahead of Fed Rate Decision

Oil Forecast – Crude Oil Prices Swamped by OPEC Cuts, Global Growth Fears, Fed

British Pound Forecast – A Complete Lack of a Cohesive Government Blights Sterling

US Dollar Forecast –US Dollar May Rise as the Fed Checks Slide in 2019 Rate Hike Bets

Gold Forecast – Is Gold Posed to Lose its Luster?



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