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US Dollar Range Continues as Inflation Prints at One-Year Highs

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US Dollar Range Continues as Inflation Prints at One-Year Highs

Talking Points:

Fundamental Forecast for USD: Neutral

The Quarterly Forecast for the US Dollar has just been released for Q2, Click here for full access to the DailyFX Q2 Forecasts.

The US Dollar started the week on a rough note, continuing the bearish move that started to show around last Friday’s Non-Farm Payrolls report. In short order, DXY had fallen back-below the 90.00 level, and bears remained in force all the way into Wednesday’s US session, at which point a bit of support began to show at a familiar area around 89.50. This was the same zone that held the lows in the Greenback for the first few weeks of March, and this led into a corrective move as prices moved back towards the 90.00 level. The net of this week’s price action has been an indecisive move lower as the intermediate-term range continued.

US Dollar Eight-Hour Chart: February/March Range Continues into April

US Dollar Range Continues as Inflation Prints at One-Year Highs

Chart prepared by James Stanley

US Inflation at One-Year Highs as USD Weakness Stokes Higher Prices

There was a big driver unveiled on Wednesday that helped that support to come into play, and that was the release of US inflation numbers for the month of March. That report showed strength in inflation as both headline and core CPI came-out at one-year-highs, and both data points were above the Fed’s 2% inflation target. Headline inflation remains strong, as we’ve now seen seven consecutive months of inflation at two-percent or more; and even core CPI has crossed the 2% marker, making a stronger case for that fourth hike this year out of the Fed.

US CPI Prints at One-Year Highs; Seven Consecutive Months At-or-Above the Fed’s 2% Target

US Dollar Range Continues as Inflation Prints at One-Year Highs

prepared by James Stanley

Currency Weakness Brings Stronger Inflation – But Lacking Follow-Thru

Normally, stronger rates of inflation bring strength into a currency as market participants look to capture the new, higher rate of return. This is the ‘carry trade’ and it’s one of the most attractive strategies in FX markets when it’s actually at work. That theme has been noticeably missing from the US Dollar over the past year. The Fed remains hawkish and continues to look at tighter policy options. But the US Dollar has continued to show weakness, selling-off by as much as 15% from last year’s high to this year’s low. This indicates that there’s another driver at work, at least on a longer-term basis, that’s acting as a hindrance to a stronger bullish advance. We’ve discussed this multiple times in the recent past, and this point remains as pertinent as we move deeper into 2018.

Next Week’s Economic Calendar

Next week’s economic calendar is noticeably light on US issues. The lone high-impact report that we receive is on Monday morning ahead of the US equity open, and this is the release of retail sales numbers for the month of March. This could certainly help to evoke some near-term volatility in the Greenback, as this is the first look we get at consumer behavior for the most recently completed month; but it’s unlikely to carry enough force to alter the longer-term or bigger picture move. The big question around that release is whether it can help the Dollar firm long enough for resistance to come into play, at which point the bigger-picture down-trend becomes attractive again for continuation.

DailyFX Economic Calendar: High-Impact USD Events for Week of April 16, 2018

US Dollar Range Continues as Inflation Prints at One-Year Highs

prepared by James Stanley

Fundamental Forecast for Next Week

The fundamental forecast for the US Dollar will be set to neutral for next week. While the longer-term bearish trend remains attractive, strength in this week’s inflation print makes the prospect of another hike out of the Federal Reserve this year a bit more likely; and this makes the prospect of a ‘squeeze-type’ of scenario in USD a bit stronger. The Dollar sold-off after the March rate hike as the Fed shared an expectation for an additional two hikes in the year; but the dot plot matrix looked very close to a median expectation of an additional three moves. This week’s inflation print highlights even more price pressure in the United States after last year’s sell-off in the Dollar, and this could put even more motivation behind the argument for three additional hikes (for a total of four in the calendar year of 2018) for this year out of the Fed.

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.

— Written by James Stanley, Strategist for DailyFX.com

To receive James Stanley’s analysis directly via email, please SIGN UP HERE

Contact and follow James on Twitter: @JStanleyFX

https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2018/04/12/us-dollar-downtrend-pulls-back-eurusd-to-support-after-ecb-minutes-srepstans.html



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DXY Index Pacing for Gains Everyday this Week

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Talking Points:

– After a reprieve yesterday, US-China trade war concerns are materializing again after the latest Chinese trade balance report showed that its surplus with the US widened; USD/CNH was back near its highest close of 2018.

– US President Trump’s comments on the state of Brexit have rekindled concerns about the viability of the Theresa May government; GBP/USD is at its lowest level since July 3.

Sentiment for the US Dollar continues to suggest a neutral outlook after recent price developments.

For longer-term technical and fundamental analysis, and to view DailyFX analysts’ top trading ideas for 2018, check out the DailyFX Trading Guides page.

The US Dollar (via the DXY Index) is pacing to gain everyday this week and due to post its first string of five consecutive up days since May 14 to 18. With trade concerns have been seemingly ebbing and flowing every day in recent memory, attention remains focused on any new developments on the US-China trade war front.

The offshore Chinese Yuan is weakening once again as market participants are divining the next move’s in the US-China trade war based on recent trade data. While some of the growth figures from the world’s second largest economy have been less than impressive recently, what has stood out is the fact that China’s trade surplus with the United States just grew to a new record surplus.

Given that US President Trump has turned his attention to countries that enjoy trade surpluses with the United States – Canada, China, Germany, Japan, among others – it would be logical to suggest the latest Chinese trade figures will not help ease tensions any further. Instead, it seems likely now that US President Trump will push harder for the new tariffs on $200 billion of Chinese goods, even if China is trying to back away from the ‘tit-for-tat’ type of negotiations.

Elsewhere, the British Pound is suffering as US President Trump and UK Prime Minister May convene in London. Ahead of the US president’s arrival, a wide-ranging interview was published in The Sun that was nothing short of an exocriating critique of how Brexit has gone under the current UK government’s watch.

Saying that a UK-US trade deal would be off – one of the reasons Leavers said would help soften the blow of a Brexit – US President Trump may have just poured fuel onto the fire of whether or not the May government will last following the wave of resignations last week. While still unlikely, a collapse of the May government ahead of the August Bank of England meeting could prove to provoke another hold in rates, setting the Sterling up for disappoint down the road.

DXY Index Price Chart: Daily Timeframe (July 2017 to July 2018)

DXY Index Pacing for Gains Everyday this Week

Overall, as has been the case throughout the week, the US Dollar’s (via DXY Index) technical posture continues to improve, but isn’t fully bullish on a momentum basis just yet. Price continues to hold above the daily 8-, 13-, 21-EMA envelop in sequential order as the DXY Index has now moved up to its highest level since July 2.

Daily MACD and Slow Stochastics both remain in bullish territory and are on the cusp of issuing ‘buy’ signals, suggesting that a return to the recent highs is possible. A move through the June 21 bearish daily key reversal and June 27 to 29 evening doji star candle cluster highs at 95.53 is necessary to truly reinvigorate US Dollar bulls.

Read more: DXY Index Gains Build Further; USD/JPY Nears Yearly High

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 cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX



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US Earning Season Begins, GBP Slides on Trump

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Check out the brand new DailyFX trading forecasts for Q3

MARKET DEVELOPMENTS – GBP FALLS AS TRUMP CRITISES PM MAYS BREXIT PLAN

At the last earning season, US corporate results had reached its best level in over 7 years with earnings growth of 24.8% and revenue gain of 8.7%. This trend is set to continue for this earning season with S&P 500 earnings growth expected to be above 20% again, given the backdrop of strong economic growth in the US and a boost from the Trump administrations tax overhaul continuing to support US corporate names and boost confidence. As such, if indeed US corporate results exceed expectations this could provide a nice distraction for equity traders and continue to buoy major equity markets.

GBP: The Pound had taken a hit after more negative headlines surrounding PM May’s Brexit strategy in which reports noted that President Trump had warned PM May that a soft Brexit proposal will kill prospects of a trade deal between the US and UK. This subsequently, pushed GBPUSD back towards 1.31 after losses had been exacerbated after a breach through 1.3175. Elsewhere, comments from the usually dovish BoE member Cunliffe had provided support for the Pound, having delivered a speech that was somewhat leaning on the hawkish side, subsequently boosting hopes that the BoE will deliver a rate hike next month.

USD: The Dollar index is moving back towards familiar technical resistance, suggesting that further gains could be limited with notable resistance potentially capping price action yet again. Focus continues to remain on the latest developments on US-China trade spat, which has quietened down since Tuesday.

NZD: The Kiwi is partially weaker on the higher greenback, edged even more so cautiously lower when local business manufacturing PMI underwhelmed. In New Zealand, that reading fell to 52.8 in June from 54.4 in May. That was the weakest reading since December 2017, making it a new 2018 low.

DailyFX Economic Calendar: Friday, July 13, 2018 – North American Releases

US AM Digest: US Earning Season Begins, GBP Slides on Trump

DailyWebinar Calendar: Friday, July 13, 2018

US AM Digest: US Earning Season Begins, GBP Slides on Trump

IG Client Sentiment: GBPUSD Chart of the Day

US AM Digest: US Earning Season Begins, GBP Slides on Trump

GBPUSD: Retail trader data shows 70.4% of traders are net-long with the ratio of traders long to short at 2.38 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.40897; price has moved 6.7% lower since then. The percentage of traders net-long is now its highest since Jul 05 when GBPUSD traded near 1.32203. The number of traders net-long is 3.4% higher than yesterday and 2.4% lower from last week, while the number of traders net-short is 6.1% lower than yesterday and 4.2% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias.

Five Things Traders are Reading

  1. DXY Index Pacing for Gains Everyday this Weekby Christopher Vecchio, CFA, Sr. Currency Strategist
  2. USD Technical Analysis: DXY at Familiar Resistance Yet Again, will it Hold?” by Justin McQueen, Market Analyst
  3. Charts for Next Week: EUR/USD, Euro-crosses, USD/JPY, Gold Price & Moreby Paul Robinson, Market Analyst
  4. Trade War Risk to be Offset by US Q2 Earning Seasonby Justin McQueen, Market Analyst
  5. GBPUSD Update: Sterling Hammered by Trump on Brexit” by Nick Cawley

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX



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Fed Testimony, China GDP and Earnings Compete with Trade Wars

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US Dollar Forecast – USD: Trade Wars vs Strong Economic Fundamentals – The Battle Continues

The US dollar should be powering ahead based purely on economic fundamentals but the over-arching threat of global trade wars is reining in the greenback’s performance.

British Pound Forecast – GBP: Strong UK Data may Boost GBP, However, Brexit Overhang Remains

The overhang of Brexit continues to provide an uncertain outlook for the Pound. However, strong UK data could potentially see GBP post marginal gains.

Australian Dollar Forecast – Australian Dollar Could Be Stuck Between RBA Minutes, Jobs Data

The Australian Dollar ‘s overall backdrop remains pretty bleak for bulls, but AUD/USD seems to have hit durable support and may have suffered enough for the moment.

Canadian Dollar Forecast –CAD Undermined by US Auto Tariff Threat. Hawkish BoC, So What?

The Canadian Dollar was unable to capitalize on a hawkish BoC amidst trade war concerns. Ahead, the US might impose auto import tariffs and local CPI could miss, undermining CAD.

Japanese Yen Forecast – USD/JPY Forecast: Dollar Strength to Persist on Hawkish Fed Testimony

The Humphrey-Hawkins testimony may influence the near-term outlook for USD/JPY as Fed Chairman Jerome Powell is scheduled to appear before Congress.

Oil Forecast – Crude Oil Sidesteps Trade War Fears, Inventory Drawdowns Continue

Crude oil has avoided the fate of other commodities that have been hit very hard by trade war fears. A massive drawdown in US crude stockpiles may help the argument of Bulls, but by how much remains unclear.

Gold Forecast – Gold Prices Flirt with Disaster- Key Support in Focus Ahead of Powell

Gold is once again testing critical support ahead of next weeks Fed testimony- it’s make-or-break here. These are the updated targets & invalidation levels that matter.

Equities Forecast –S&P 500, DAX & FTSE – Outlook Shrouded in Uncertainty

The week ahead doesn’t hold much in the way of major market moving events on the calendar, but that doesn’t mean there aren’t risks out there; the general outlook is indecisive at the moment.

Weekly Trading Forecast: Fed Testimony, China GDP and Earnings Compete with Trade Wars

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

See how retail traders are positioning in the majors using the IG Client Sentiment readings on the sentiment page.



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