– EUR/USD’s sixth gain in seven days continues to lead to ongoing weakness in the DXY Index.
– A confrontational tone by the US at the G7 meetings may rekindle fears of trade wars developing over the coming months.
– Retail traders remain net-short the US Dollar, but have trimmed their positions substantially over the past week.
Looking to learn more about how central banks impact FX markets? Check out the DailyFX Trading Guides.
US Dollar on Pace for Fourth Day of Losses
The US Dollar (via DXY Index) is on pace for its fourth consecutive day of losses (and six out of seven overall) as traders have turned their attention to the upcoming G7 meeting in Canada.
The pullback in the US Dollar has little to do with risk appetite, which has been bolstered in recent days after sharp rebounds by US stocks and US Treasury yields. Concurrently, little attention is being paid to Fed rate expectations, where the odds of a December rate hike (tallying four total for 2018) have risen back to near 50%.
DXY Index Price: Daily Timeframe (August 2017 to June 2018) (Chart 1)
Reports have emerged that key US trading partners are ready to strike a confrontational tone with the Trump administration over its stance on trade, leaving the US Dollar to the whims of speculation around potential trade wars developing (which, historically, are bad for the greenback).
Now that the DXY Index has broken its uptrend from the mid-April and May swing lows, further losses look likely in the near-term as the momentum profile turns more negative: price is below the daily 8-, 13-, 21-EMA envelope; and both MACD and Slow Stochastics have started to turn lower (albeit in bullish territory). The current target for the sell off is down near 92.50/65, the November and December 2017 swing lows and the January 2018 swing higher.
Euro Rallies for Sixth Day in Last Seven as Italian Yields Drop
Much of the attention paid to the Euro over the past week has been revolving around the new Italian government and its exorbitant fiscal spending plans. However, with new Italian Prime Minister Giuseppe Conte promising to reduce Italy’s debt burden alongside new spending efforts, Italian bond yields and CDS spreads have come down today, providing more room for the Euro to recover.
Italy is likely to take a backseat even more in the coming days as attention shifts to the European Central Bank’s June policy meeting next week. We’ve already seen how speculation over the ending of the ECB’s QE program has moved markets this week, and although we’re in the quiet period in the run-up to the meeting, traders will likely continue to speculate in the absence of meaningful commentary by policymakers.
EUR/USD Price: Daily Timeframe (August 2017 to May 2018) (Chart 2)
Given that the Euro is 57.6% of the DXY Index, it’s of little surprise that price action in EUR/USD is essentially a mirror image of what’s happening to the broad gauge of greenback strength. Price has started to move back through 1.1823, the low established on May 5 (and has subsequently served as resistance on a closing basis since the break on May 16), signaling the potential for further gains in the days ahead.
Commensurate with the DXY Index eying a return back to 92.50/65, EUR/USD’s near-term target also aligns with swing levels in November and December 2017 and January 2018 around 1.1945. Ongoing volatility over the coming week should be expected with the G7 over the next two days, the Fed meeting next Wednesday, the ECB meeting next Thursday, and finally the BOJ meeting next Friday.
FX TRADING RESOURCES
Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail firstname.lastname@example.org
Follow him on Twitter at @CVecchioFX
Slowing New Zealand GDP to Rattle Post-Fed NZD/USD Rally
Trading the News: New Zealand Gross Domestic Product (GDP)
Updates to New Zealand’s Gross Domestic Product (GDP) report may rattle the NZD/USD rally following the Federal Reserve meeting as the growth rate is expected to narrow to 2.5% from 2.6% per annum in the third-quarter of 2018.
Another downtick in the GDP print may produce headwinds for the New Zealand dollar as it warns of a slowing economy, and a dismal development may push the Reserve Bank of New Zealand (RBNZ) to alter the forward-guidance as the central bank warns ‘trading-partner growth is expected to further moderate in 2019.’
Even though the official cash rate (OCR) sits at the record-low of 1.75%, the weakening outlook for economic activity may encourage the RBNZ to further insulate the economy as the central bank asserts that ‘the direction of our next OCR move could be up or down.’ In turn, a GDP print of 2.5% or lower may spark a bearish reaction in NZD/USD, but a positive development may fuel the advance following the Federal Reserve meeting as it curbs bets for an RBNZ rate-cut. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.
Impact that the New Zealand GDP report has had on NZD/USD during the previous release
(1 Hour post event )
(End of Day post event)
12/19/2018 21:45:00 GMT
3Q 2018New Zealand Gross Domestic Product (GDP)
NZD/USD 15-Minute Chart
New Zealand’s Gross Domestic Product (GDP) report showed the growth rate increasing 2.6% after expanding a revised 3.2% in the second-quarter of 2018. A deeper look at the report showed Mining as the biggest contributor to growth as the sector grew 12.4% in the third-quarter, with Wholesale Trade climbing 1.1.% during the same period, while Utilities suffered a 2.3% decline after rising 4.1% during the three-months through June.
The New Zealand dollar struggled to hold its ground following the below-forecast print, with NZD/USD pulling back from the 0.6800 handle to close the day at 0.6774. Learn more with the DailyFX Advanced Guide for Trading the News.
NZD/USD Daily Chart
- Broader outlook for NZD/USD remains fairly constructive as both price and the Relative Strength Index (RSI) continue to track the upward trends from earlier this year, but the exchange rate may face range-bound conditions over the near-term as it appears to be stuck in a long-term wedge/triangle formation.
- With that said, the Fibonacci overlap around 0.6930 (23.6% expansion) to 0.6960 (38.2% retracement) sits on the radar as it lines up with the 2019-high (0.6942), with a break/close above the stated region raising the risk for a run at the December-high (0.6969).
- Next region of interest comes in around 0.6990 (50% expansion) following by the 0.7040 (50% retracement) zone, but failure to hold above the 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion) area may trigger a move back towards 0.6780 (100% expansion) to 0.6790 (50% expansion).
Additional Trading Resources
New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.
Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.
— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.
Crude Rally Testing Critical Resistance Zone
In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. Crude Oil prices have rallied nearly 10% from the yearly lows with the advance now testing a key technical resistance confluence around the 60-handle. These are the updated targets and invalidation levels that matter on the Crude Oil weekly price chart. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
New to Oil Trading? Get started with this Free How to Trade Crude Oil Beginners Guide
USD/CAD Weekly Price Chart
Notes: In last month’s Crude Oil Weekly Technical Outlook we noted that price was approaching 2018 pitchfork resistance with, “A topside breach of this formation / the high-day close at 57.14 targets more a more significant resistance confluence at 59.61-60.06 where the 50% retracement of the October decline and the 2018 open converge on the 2015/ 2016 pitchfork resistance- look for a larger reaction there IF reached.” Oil prices are testing this critical resistance confluence today on the back of a weak inventories report that showed a drop of more than 9.59mln barrels last week.
The focus is on a reaction off this threshold with the yearly advance at risk near-term while below. A weekly close above would be needed to suggest that a more meaningful low was registered in December with such a scenario targeting the 52-week moving average at ~62.82 and the 61.8% retracement of the 2018 decline at 63.68. Key support and bullish invalidation now rests back at 55.21/53– weakness beyond this threshold would risk substantial losses for crude prices.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Bottom line: We’re looking for a reaction on this stretch into confluence resistance at 59.61 – 60.06. Watch the weekly close- below would highlight the threat for a near-term correction / exhaustion in price. From a trading standpoint, a good place to reduce long-exposure and raise protective stops. We’ll be looking for possible price exhaustion heading into next week IF crude prices respect this threshold into the close. I’ll publish an updated Crude Oil Technical Outlook once we get further clarity in near-term price action
Even the most seasoned traders need a reminder every now and then- Avoid these Mistakes in your trading
Crude Oil Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-short Crude Oil – the ratio stands at -1.04 (49.1% of traders are long) – neutral reading
- Long positions are 4.2% lower than yesterday and 5.7% lower from last week
- Short positions are 8.2% lower than yesterday and 1.5% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil – US Crude prices may continue to rise. Yet traders are less net-short than yesterday but more net-short from last week and the combination of current positioning and recent changes gives us a further mixed Oil – US Crude trading bias from a sentiment standpoint.
See how shifts in Crude retail positioning are impacting trend- Learn more about sentiment!
Previous Weekly Technical Charts
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
US Market Open: Top 3 Market Drivers
Market Themes and Movers – Brexit, FOMC and US-China Trade.
GBP: Another day of confusion and conflicting Brexit deal/delay talks continue to leave Sterling rudderless. Despite the current impasse the British Pound remains bid, although it is becoming increasingly vulnerable to short, sharp moves as news flows continue. The latest round of media reports suggest that PM May is looking for a three-month Brexit delay from EU negotiators although putting a revised meaningful vote to Parliament cannot be ruled out. UK inflation data released this morning showed little change and was put aside as traders focus on Brexit updates.
USD: The latest FOMC monetary policy decisionswill be released later in the UK session with monetary settings expected to be left unchanged. Traders will look for clues from Fed Chair Jerome Powell on the future path of interest rates, via the dot plot, and his latest thoughts on balance sheet normalization.
Gold/Oil: Both gold and oil are struggling to make further headway with one eye on the FOMC meeting and the other on the latest US-China trade negotiations with US President Donald Trump tweeting yesterday that talks were going ‘very well’. As with Brexit, the situation remains fluid with news flows again the dominant driver for trade war risk sentiment. With global growth falling, any positive trade news should underpin oil at its present level and may well give it a further leg-up in the short- to medium-term.
Chart of the Day – US Dollar Basket – Over to You Fed
DailyFX Economic Calendar: For updated and timely economic releases.
Retail sentiment is an important tool for any trader to help gauge market sentiment and positioning. We provide updated daily and weekly positional changes on a wide range of currencies and asset classes to help decision making.
Market Movers with Updated News and Analysis:
- Sterling (GBP) Price Slips on Renewed Brexit Confusion, UK Inflation Stable.
- Preview for March FOMC Meeting and US Dollar Price Forecast.
- Trading Outlook for Gold Price, Crude Oil, Dow Jones and More.
- FTSE Technical Analysis – Support on Dip, New Levels of Resistance Targeted.
— Written by Nick Cawley, Market Analyst
To contact Nick, email him at Nicholas.Cawley@ig.com
Follow Nick on Twitter @nickcawley1
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