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US Dollar, EUR/USD Hold Support Ahead of FOMC, ECB

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Talking Points:

– US CPI for the month of May printed in-line with expectations at an annualized 2.8% on the headline read, opening the door for a rate hike out of the Federal Reserve at tomorrow’s rate decision. With a hike at tomorrow’s meeting long-expected, the bigger question is what the bank might be looking for in the second half of the year. At our last quarterly meeting in March, the central expectation at the bank was for three hikes, which would allude to one more after tomorrow’s move. Has the last quarter produced a backdrop with which the Fed can get more hawkish in the second half of 2018, looking for an additional two hikes to bring the total for this year to four?

– The US Dollar posed a muted reaction around this morning’s inflation release, highlighting the fact that market participants are looking ahead on the economic calendar, as the next few days bring a considerable amount of potential for volatility. The Fed’s rate decision is followed by the ECB on Thursday morning, and after last week’s reports that the bank may begin to discuss options around stimulus-taper, Euro has recovered from the May swoon that was driven by an uptick in political risk.

– 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.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

US Inflation Prints In-Line for May, Focus Moves to FOMC, Tomorrow at 2PM ET

Tomorrow afternoon brings the June rate decision out of the Federal Reserve, and a hike at tomorrow’s meeting has long been expected. At this point, we can move forward with the reasonable expectation that tomorrow’s move is already priced-in, and market participants’ focus is looking ahead to what the bank is looking for in the second half of this year. This will be delivered via the dot plot matrix, and at our last quarterly meeting in March, the central expectation was for a total of three hikes in 2018, which would entail one additional move after tomorrow. This would allude to another hike in either September or December; but should the Fed signal a fourth potential hike this year, we could see USD-strength continue as markets begin to price-in a more hawkish Fed.

At this stage, the US Dollar is holding the support area that we looked at last week, and this takes place around the 23.6% Fibonacci retracement of the recent bullish move.

US Dollar via ‘DXY’ Daily Chart: Support Holds Around 23.6% Fibonacci Retracement

US Dollar usd daily chart

Chart prepared by James Stanley

On a shorter-term basis, a bear flag formation appears to be forming after a couple of different failed tests at that longer-term support last week. This has produced an upward-sloping channel on the hourly chart that appears to be corrective in nature, and this can keep the door open for shorter-term bearish strategies around the Greenback as we move towards tomorrow’s rate decision.

US Dollar Two-Hour Chart: Bullish Channel Off of Support, Potential Bear Flag Scenario

US Dollar usd two-hour chart

Chart prepared by James Stanley

EUR/USD Back Above Key Support

The European Central Bank is waiting in the wings for their own rate decision less than 24 hours after the Fed announces; and last week’s report that the ECB may roll-out details on stimulus taper has helped EUR/USD to recover after an aggressive sell-off lasted for most of the month of May. In that sell-off, EUR/USD sank below a big zone of support that runs from 1.1685-1.1736. The price of 1.1685 is the 23.6% Fibonacci retracement of the 2008-2017 major move, while 1.1736 is the 38.2% retracement of the 2014-2017 move (the ECB QE-fueled sell-off in the pair). Perhaps more importantly, this zone has elicited numerous examples of both support and resistance, helping to hold the lows on multiple occasions in the latter-third of last year, with price only falling through after the ECB extended stimulus into 2018, at which point this area showed as resistance.

EUR/USD Daily Chart: Prices Re-Engage Above Key Support Zone

EURUSD eur/usd daily chart

Chart prepared by James Stanley

A couple of weeks after that stimulus extension from the ECB, a red-hot German GDP report was issued and prices quickly re-engaged above this zone. After a support test in late-October, and again in December, prices launched up to fresh multi-year highs, eventually failing at the 1.2500 level.

When the Euro sell-off was hitting full speed in May, this area acted as a mere speed bump. We then saw a couple of days of resistance, and last week’s report of a potential announcement of stimulus taper has helped prices to move back above this zone. Since then, we’ve seen a hold of that support on a couple of different tests, and this has helped to produce a bullish pennant in short-term EUR/USD price action.

EUR/USD Two-Hour Chart: Bull Pennant, Support at Prior Resistance After Higher-Highs, Lows

eur/usd eurusd two-hour chart

Chart prepared by James Stanley

If EUR/USD holds above this support zone through this week’s FOMC and ECB rate decisions, the door remains open for a deeper recovery in the pair, targeting towards the 1.2000 level. This is something traders should approach cautiously, as the European Central Bank may not yet be in a position where they can fully forecast the end of QE. This may be more of an opportunistic attempt at the bank to begin talking about the prospect of stimulus exit while the Euro is very weak.

GBP/USD Remains in Bear Flag – UK Inflation is On Deck

Before tomorrow’s FOMC fireworks we get an updated look at inflation in the UK. This has very much been a push point for the British Pound of recent, as the high rates of inflation that were seen in the latter-portion of last year, pushing rate expectations around the Bank of England higher, have dissipated as we’ve traded into 2018. Last month’s inflation showed further drawdown, printing at an annualized 2.4% for the third consecutive month of slower price growth.

Softening Inflation Makes Less Concerted Case for Higher Rates from BoE

UK Inflation monthly CPI Since February, 2017

Chart prepared by James Stanley

While a 2.4% read still remains above the Bank of England’s 2% target, the fact that we’re not seeing the same 3% prints from last year highlights inflation weakness. This softening in inflation may keep the Bank of England from hiking rates in August, or November, as the BoE still remains rather cautious around Brexit-related risks.

Tomorrow’s inflation release of May data will be helpful for evaluating the potential around this theme. In GBP/USD, the bear flag formation that we looked at last week remains, and the support side of that channel is in the process of being tested. Last week saw a failed attempt to test the prior support zone that runs from 1.3478-1.3500; but sellers showed up ahead of that area and price action has continued to run within the framework of this channel. This keeps a bearish tonality in the pair, and GBP/USD remains as one of the more attractive options for working with USD-strength as we move towards tomorrow’s UK CPI report, and the Fed meeting on the calendar for later in the day.

GBP/USD Daily Chart: Testing Support in Bear Flag Formation

gbpusd gbp/usd daily chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on 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 USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

— Written by James Stanley, Strategist for DailyFX.com

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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