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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

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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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Forex

Dollar, Euro and Pound Trading Over the Coming Days is Going to Be Fraught

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Talking Points:

  • The severe tumble in risk trends last week wasn’t threatening market stability through the open session of this new week
  • DXY has offered little clarity on direction as primary motivation is itself unclear, meanwhile the deficit hit a 6-year high
  • Euro and Pound are seeing the quiet before their respective Italian and Brexit storms, be mindful of your trade intent with each

What do the DailyFX Analysts expect from the Dollar, Euro, Equities, Oil and more through the 4Q 2018? Download forecasts for these assets and more with technical and fundamental insight from the DailyFX Trading Guides page.

Risk Trends Steady to Start the Week, the Threats Remain Numerous

Like a life raft encircled by sharks, the risk-leaning benchmarks opened this week with an air of stability while the fundamental threats to the system remain distinctly unresolved. Following last week’s painful collapse in US indices – a move that motivated risk aversion far and wide – Monday’s steadfast conditions were welcomed by harried bulls. The balance was not simply isolated to US equities. European and Asian shares markets registered small movements, the emerging markets offered a measured gap lower without hitting new lows and the Yen-based carry trade eased up on its retreat. Yet, despite the implications such a correlation across diverse markets represents, there is more loaded speculative potential packed into the next move from the S&P 500, Dow and Nasdaq. These indices are still running a considerable premium to nearly every other high-profile ‘risk’ metric even after the deeper rout. The technical picture accurately reflects the circumstances moving forward. All three are hovering just above major trendline support which could readily signal a medium-term reversal in trend if cleared – in concert, the move would get on far more radars. Far more important is the sheer number of possible catalysts that can tip us back into selling pressure – or cue a notable rebound. Anticipation of the US Treasury’s call on Chinese polices keeps trade wars in focus (see the history of a century of trade wars here). Yields are at the mercy of risk trends and US Treasury yields specifically at the command of China. Growth forecasts were downgraded this past week for an otherwise ‘mundane’ threat. Earnings season hits its first ‘FAANG’ update (Netflix) Tuesday after the bell. Then there are the regional threats, which we discus below.

SPX Daily Chart

Dollar, Euro and Pound Trading Over the Coming Days is Going to Be Fraught

Dollar Is a Fundamental Stalemate with Too Many Charges to Keep Tabs On

When trading FX, it is difficult to avoid the US Dollar. However, given the state of its fundamental predicament, that may be an effort worth making. Whether we reference the trade-weighted DXY Dollar Index or an equally-weighted measure, there is a distinct lack of bearing on the benchmark. The picture is appropriately reflect via EURUSD, the most liquid currency bar none. There is a multi-year head-and-shoulders pattern that the pair tentative broke in August only to reverse course before conviction could take. What eventually resulted was an inverse variation of the same pattern where the break above 1.1725 again fell apart. Now trading around 1.1600, the Greenback has shown little intent to champion either bullish or bearish interests for the time being. That is not likely due to a lack of meaningful fundamental charge but instead it is more likely a side effect of an overabundance of meaningful themes tugging at the currency. For risk trends, there is not enough intensity to raise the focus on the currency’s safe haven status, but even its carry position has yet to be provoked this week. One fundamental signal that was prodded this past session but still abstract for most is the currency’s position as the unquestioned reserve leader. This United States deficit for 2018 was projected to $779 billion which equates to a 3.9 percent ratio to GDP. That is the largest dip into lending for the government since 2012 and furthers the concern that the country pushing the financing tolerance of the ratings agencies. Until we see one of these key themes take command of the currency’s bearings, it will prove difficult to trace its course.

DXY Daily Chart

Dollar, Euro and Pound Trading Over the Coming Days is Going to Be Fraught

Euro and Pound Tension Will Only Build into the Wednesday-Thursday EU Summit

As the Dollar flounders fundamentally, its largest counterparts are honing in on very specific fundamental themes. Yet, where there performance is riding on a single track, the outcome and timing of these uncertainties are problematically open-ended. Form the Euro, we were reminded that the currency’s future is under pressure. Following the growing discord between the Italian government and their EU/Eurozone counterparts this past weeks, the Italian Deputy Prime Minister Salvini remarked that the country doesn’t feel bound by the EU’s deficit rules – making a finer point to previous remarks that the country could increase spending if they don’t meet a generous GDP forecast and their belief that the European Central Bank (ECB) would bail them out should financial conditions grow strained. Prime Minister Conte’s remarks today and the two-day EU Summit Wednesday and Thursday will prove crucial. These particular events will very likely be more market critical than the Eurozone and Italian trade reports or the region’s investor sentiment survey from ZEW. The British Pound will also have a lot invested in the two-day meeting of the European leaders. This is a crucial ‘crunch’ event for the UK and EU to hash out a clear path for the divorce known as ‘Brexit’ (learn about the different possible Brexit outcomes in this special report). If this summit ends without resolution, the Pound is likely to tumble. Just as readily, a positive outcome will trigger a rally. Yet, after the collapse of talks between chief negotiators over the weekend and Prime Minister May’s remarks in Parliament Monday, the Cabinet meeting ahead will more likely set this event for a crash landing.

GBP Index Daily Chart

Dollar, Euro and Pound Trading Over the Coming Days is Going to Be Fraught

New Zealand Dollar Jumps after CPI Beat, Reminds of the Virtues of Discounted Majors

As convoluted as the backdrop seems for the likes of the Dollar, Euro and Pound; there are still options for the studious FX traders. The Canadian Dollar was given a serious charge this past session when the third quarter business sale survey from the Bank of Canada (BoC) showed an significant improvement. The general sentiment figure and lending survey were decidedly less encouraging, but these were reading taken before the breakthrough on the stalled NAFTA negotiations. Now the focus for the Loonie will more likely fall to BoC intent, so the next major update comes from Friday’s inflation update. Meanwhile, the New Zealand Dollar was prompted to a rally of its own with the release of the third quarter CPI (consumer price index) update. The 1.9 percent clip is still a ways from the upper threshold on the Reserve Bank of New Zealand’s (RBNZ) tolerance band for price pressures, but it nevertheless makes the next move decidedly more hawkish rather than dovish. Given the deep discount on the Kiwi these past months and the lack of response from the currency to last week’s risk flush, there is naturally more response to the positive news. I would expect the same for the Australian Dollar moving forward, but there the key event risk comes with the local employment report and third quarter business sentiment survey which will hit the wires at the same time. We discuss all of this and more in today’s Trading Video.

AUD/NZD Daily Chart

Dollar, Euro and Pound Trading Over the Coming Days is Going to Be Fraught

If you want to download my Manic-Crisis calendar, you can find the updated file here.

Written by John Kicklighter, Chief Currency Strategist for DailyFX.com



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Weekly Short Positions Increase 14% Sparking Bullish Bias

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GBP/USD: Weekly Short Positions Increase 14% Sparking Bullish Bias

Weekly Net-Long Positions Increase 17%

GBPUSD: Retail trader data shows 57.7% of traders are net-long with the ratio of traders long to short at 1.37 to 1. In fact, traders have remained net-long since Sep 20 when GBPUSD traded near 1.31492; price has remained unchanged since then. The number of traders net-long is 0.7% lower than yesterday and 19.9% lower from last week, while the number of traders net-short is 10.4% higher than yesterday and 14.9% higher from last week.

Having trouble with your strategy? Here’s the #1 mistake that traders make.

GBPUSD Sentiment Suggest That Price Could Rise

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse higher despite the fact traders remain net-long.

— Written by Jake Schoenleb, DailyFX Research



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Euro Reversal Eyes Initial Resistance Hurdle

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Euro reversed off confluence support last week with the advance now approaching the first major resistance hurdles. Here are the updated targets and invalidation levels that matter on the EUR/USD charts heading into the start of the week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

EUR/USD Daily Price Chart

EUR/USD Price Chart - Daily

Technical Outlook: Earlier this month in my EUR/USD Weekly Technical Perspective we highlighted a key support zone at in Euro at 1.1436/97 (low-week reversal close and the 61.8% retracement of the August advance). Price registered a low at 1.1432 on October 9th with the subsequent rebound faltering just ahead of a key resistance confluence at 1.1617/27 – a region defined by the monthly open & opening-range highs, the 50% retracement of the late-September decline and the 100-day moving average. A breach above this level targets 1.1669 (breakout-zone for the Euro). Initial daily support rests at 1.1529 backed by the monthly low-day close at 1.1491.

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EUR/USD 240min Price Chart

EUR/USD Price Chart - 240min

Notes:A closer look at near-term price action shows Euro trading within the confines of an ascending pitchfork formation extending off the October lows. Note that the upper parallel converges on the 1.1617/27 resistance zone and further highlights the technical significance of this region. Initial resistance rests with the median-line (currently 1.1550s) backed by 1.1521/29 with near-term bullish invalidation now raised to 1.1497-1.15.

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

Bottom line: EUR/USD is approaching near-term resistance targets which could see prices pullback a bit. From a trading standpoint, look for possible price exhaustion on a rally into 1.1617/27 – the trade remains constructive while above 1.15 with a breach above 1.1669 needed to fuel the next leg higher in price. The October opening-range is set – for now, I’ll favor fading weakness while within this formation. Keep in mind the EU-UK summit is on tap this week as well and may fuel increased volatility in the Euro & GBP crosses.

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

EUR/USD Trader Sentiment

EUR/USD Trader Sentiment

  • A summary of IG Client Sentiment shows traders are net-long EUR/USD – the ratio stands at +1.12 (52.8% of traders are long) – extremely weak bearishreading
  • Traders have remained net-long since October 1st; price has moved 0.2% lower since then
  • Long positions are7.8% lower than yesterday and 13.5% lower from last week
  • Short positions are 5.9% higher than yesterday and 0.3% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Yet traders are less net-long than yesterday & compared with last week andthe recent changes in sentiment warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long.

See how shifts in EUR/USD retail positioning are impacting trend- Learn more about sentiment!

Relevant EUR/USD Economic Data Releases

EUR/USD Economic Calendar

Economic Calendarlatest economic developments and upcoming event risk. Learn more about how we Trade the News in our Free Guide!

Active Trade Setups

– Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com

https://www.dailyfx.com/free_guide-tg.html?ref-author=Boutros



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