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US Dollar Tests Trend-Line Support After Mid-Terms; FOMC Ahead

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US Dollar Talking Points:

The economic calendar over the next two days brings a couple of rate decisions: At 2PM ET tomorrow, the last FOMC meeting that’s not expected to be a ‘live meeting’ at the Fed. December is a quarterly rate decision that will bring an updated dot plot to go along with new projections and an accompanying press conference. And then starting next year – any FOMC rate decision could be a ‘live meeting’ and will bring an press conference with Fed Chair, Jerome Powell.

– The Dollar has dropped down to a confluent area on the chart following yesterday’s mid-term elections in the US. Democrats gained a majority in the House while the GOP increased their majority in the Senate. Focus now shifts towards the 2020 Presidential Election, and markets appear optimistic around yesterday’s outcome at the early stage of the matter as equity futures have moved-higher overnight and appear poised to gain at the open.

– 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 Dollar Drops to Trend-Line Support Following US Mid-Terms

The results of 2018 mid-terms are still being tallied in a couple of races but for most intents and purposes, the results are in. Democrats took the house while the GOP increased their Senate majority, and focus now shifts towards the 2020 Presidential Election in what will almost surely be billed as another ‘most important election of our lifetimes’. Markets have put in some interesting moves in response, as the risk trade caught another shot-in-the-arm and global equity markets are in varying forms of bounce; and the US Dollar caught a stern run of selling to drop down to two-and-a-half week lows as risk appetite showed more prominently through the FX space.

At this point, the Dollar appears to be trying to hold support on a trend-line projection that can be found by connecting the September and October swing lows in the currency. This current support is also confluent with the 61.8% Fibonacci retracement of the bullish breakout from October.

US Dollar Two-Hour Price Chart: Trend-Line, Fibonacci Support Hold Lows Ahead of FOMC

us dollar usd two hour price chart

Chart prepared by James Stanley

As I’ve been discussing in webinars over the past month, themes of USD-strength and weakness have appeared to be unevenly distributed amongst major currency pairs. While EUR/USD retains some bearish structure on the four-hour chart, pairs like AUD/USD and NZD/USD are trading at fresh monthly highs; and this comes after each of those pairs built-in and held key support during the US Dollar’s prior topside run. This can help to denominate strategy in the Greenback moving forward, and I look into a series of major pairs below.

EUR/USD Tests Resistance – Italian Budget Due Next Week

One of the larger items of risk aversion over the past couple of months is the continuing situation between Italy and Brussels. The European Commission rejected Italy’s budget proposal in October. Italy is now supposed to re-submit a revised budget by November 13th, and a bit of suspense remains here as markets still don’t know whether the newly-elected Italian government will cave to the EC’s requests.

This theme has been a source of Euro pain for a chunk of this year already, as the currency went into a swan-dive in April and May as the government was being elected, and then again in late-September into early-October as budget concerns were coming to light.

EUR/USD Four-Hour Price Chart: A Strong November as Prices Re-Test 1.1500 Resistance

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

Cable Rips Back Above 1.3000

Brexit waves continue to push price action in the British Pound, and the bid has been active thus far in November trade as GBP/USD has jumped by more than 450 pips in the early portion of this month. Along the way a number of key levels have been tested and then taken out, and prices are now finding some resistance at 1.3164, which is the 50% marker of the 2016-2018 topside move in the pair. This also projects around the descending trend-line taken from September and October swing-highs.

Given the volatility in GBP/USD over the past few months, it would appear that Brexit may have a bit more pull than just standard USD trends, as this was somewhat of a hyperbolic USD move. As the Dollar was really strong through October, GBP/USD was extremely weak, as risk around Brexit added-on to those Dollar gains and this pushed GBP/USD down towards yearly lows. But as USD-weakness has showed up over the past week, optimism around Brexit has added on to that theme and the pair has posed a stern topside move back above the key 1.3000 area.

This could add an item of risk to USD-strategies traded through GBP/USD, as we likely haven’t seen the end of volatility around the British Pound as Brexit negotiations will probably continue to push prices in either direction.

GBP/USD Daily Price Chart: An Even Stronger November as GBP/USD Jumps Above 1.3000

US Dollar Tests Trend-Line Support After Mid-Terms; FOMC Ahead

Chart prepared by James Stanley

AUD/USD Breaks Trend-Line Resistance, Runs to Fresh Monthly Highs

During the US Dollar’s topside run last month, I began to look at the longer-term support build in AUD/USD. While the pair had spent most of 2018 in some form of down-trend, adhering to a bearish trend-line for much of the period, October brought respect of lows above the .7000 level and, even as USD strength was running vividly elsewhere, it seemed to dry up against the Australian Dollar.

Coming into November, I began to look at topside plays in the pair, and as USD-weakness has come back, AUD/USD has put in a fairly bullish past week of price action. This has brought along a break of the 2018 bearish trend-line, another re-load of higher-low support at prior resistance, followed by fresh monthly highs in the pair. This can remain attractive for strategies designed around further USD-weakness; and in AUD/USD, that could open the door for higher-low support around the .7250 area of prior resistance.

AUD/USD Eight-Hour Price Chart: Bulls Take Control, Higher-Low Support Potential Around Prior Resistance

audusd aud/usd eight hour price chart

Chart prepared by James Stanley

NZD/USD Jumps to Three-Month-Highs

Similar to AUD/USD above, NZD/USD had a relatively strong October considering the strength that was seen in the US Dollar. While the Greenback was jumping up to fresh yearly-highs, NZD/USD retained its own bullish structure and respect of prior support. In late-October, as USD was rushing up to fresh highs, NZD/USD held higher-low support around the .6500 handle.

And as that USD theme softened, NZD/USD lifted off of support, breaking above a symmetrical wedge pattern in the process. As USD-weakness has grown a bit more prominent, that topside move in NZD/USD has continued to drive-higher, now bringing on fresh three-month-highs in the pair.

At this stage, the pair might be a little too hot to try to buy, particularly given that prices remain perched near three-month-highs. But – there is an area of prior resistance that retains interest for higher-low support, and that takes place around the .6700 handle that was broken-through without so much as a pause yesterday.

Also of note – there is an RBNZ rate decision lurking on the calendar for later today, ahead of the November rate decision from the Federal Reserve, set to take place tomorrow.

NZD/USD Eight-Hour Price Chart

nzdusd nzd/usd eight hour price 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 Q4 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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Forex

Is Gold Posed to Lose its Luster?

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Is Gold Posed to Lose its Luster?

GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL

Talking Points:

  • Gold’s recent bullish breakout may come under pressure despite strong safe-haven demand
  • A strong US Dollar notching year-to-date highs to limit further advances in gold
  • Prospect of a Federal Reserve rate hike pause could shoot the precious metal higher

GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL

Over the last 5 days of trading, XAUUSD declined 0.72% as investors anxious over slowing global growth sent the US Dollar higher. Although risk-off sentiment should send the precious metal higher, gains in the Greenback overpowered bullish bids for gold. A higher US Dollar makes purchasing gold denominated in America’s currency relatively more expensive thus limiting upside.

Looking to next week, focus will shift to the Federal Reserve as markets await the highly anticipated decision by the central bank’s Federal Open Markets Committee on monetary policy. Markets are currently pricing a 77 percent chance that the Fed will raise its benchmark policy interest rate for the fourth time this year according to the futures market implied probability.

In general, Gold has an inverse relationship with interest rates due to the precious metal not yielding any cash flows like debt instruments. Higher rates result in weakened demand for the commodity as alternative assets such as US Treasuries provide a higher rate of return. If the Fed surprises markets and pauses next week or makes any material downward change to the Fed’s dot-plot, gold could ascend quickly on back of lower future interest rate expectations.

Eyes will also closely watch for the release of several key economic indicators out of America next week. If actual results miss expectations, risk-off sentiment should continue and further boost demand for gold. However, fears over a slowing global economy will incite further rotation of capital from stocks to bonds with investors flocking to the safety of US Treasuries.

For a list of global economic events and data releases, check out our real-time Economic Calendar.

As international buying of Uncle Sam’s bonds increases, foreigners must convert their currency into US Dollars. This drives up demand for the Greenback which becomes a headwind for gains in gold due to the inverse relationship between the two assets.

A third key driver to take note of that will determine gold’s next move higher or lower will be the performance of the Chinese Yuan. As the damaged Asian economy continues to experience downward pressure amid worsening economic data due to the ongoing trade war with the United States, the Dollar may appreciate further against its Chinese counterpart.

The importance of USDCNY to gold is seen in their strong negative correlation. Trade talks between the world’s largest economic powerhouses will largely drive returns for the currencies with the CNY benefiting from any progress President Xi can make with President Trump towards de-escalation tension or reaching a deal.

Is Gold Posed to Lose its Luster?

Due to the mixed event risks and waning bullish technical indicators, the forecast for XAU will be neutral over the week of December 17. Take a look at client sentiment for insight on client positioning and trader bearish or bullish biases.

–Written by Rich Dvorak, Junior Analyst for DailyFX

–Follow Rich on Twitter for real time market updates @RichDvorakFX

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



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Euro Shorts in Charge on Tri-break

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EUR/USD Technical Highlights:

  • Triangle finally broke, has Euro rolling downhill
  • November low, Nov ’17 t-line initially targeted
  • Must be cautious once at support, may put in floor

Let us help you. DailyFX has guides ranging from forecasts to trade ideas to education all in one location – DailyFX Trading Guides.

Triangle finally breaks, has Euro rolling downhill

Friday’s breakdown finally put the Euro outside of the triangle it had been forming over the course of the past month. It’s been an anticipated event, but confirmation was needed first before running with a more aggressive short bias.

Looking lower there is support not too far away. First up is the November low at 11215, followed by the lower trend-line extending over from November of last year; resides around roughly 11180. The way EUR/USD has been trading we’ll want to pay close attention to how it reacts once support is met.

The moves over the past few months haven’t been sustained for very long and this could be another unsustainable drive lower. With that in mind, from a tactical standpoint if the Euro starts to turn up from one of the aforementioned levels then it may be best to call it a wrap as a quick counter-trend bounce could develop.

If, however, selling pressure increases and a break below support unfolds, then perhaps a little momentum may kick in towards near 11100 or worse. It seems unlikely we will see too much power given not only the Euro’s behavior in past months but also because there is only about a week left in the year of full market participation before we go into ‘holiday’ mode. However, even as such, watch and follow the price action first.

Traders are generally long EUR/USD, see the IG Client Sentiment page to see how this acts as a contrarian indicator and is supportive of lower prices.

EUR/USD Daily Chart (Levels, lines to watch)

EUR/USD

EUR/USD 4-hr Chart (Triangle broke Friday morning)

EUR/USD

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at@PaulRobinsonFX

Other Weekly Fundamental Forecast:

Australian Dollar Forecast – AUD Prices May Fall Into 2019, AUD/CAD at Risk to Reversal Pattern

British Pound Forecast – Seven Weekly Bear Candles Dominate

US Dollar Forecast – Dollar Hits an 18-Month High as Anti-Currency Demand Fights Liquidity

Equity Forecast – Technical Forecast for Dow, S&P 500, FTSE 100, DAX and Nikkei

Oil Forecast –Crude oil may See Light in Tunnel As Oncoming Train

Gold Forecast – Price Rally Pulls Back ahead of FOMC



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Price Rally Pulls Back ahead of FOMC

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Gold Weekly Technical Outlook: Price Rally Pulls Back ahead of FOMC

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.Gold prices snapped a three-week winning streak with the precious metal off by nearly 1% ahead of the New York close on Friday. Here are the key targets & invalidation levels that matter on the Gold (XAU/USD) weekly chart heading into the close of the year.Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

New to Gold Trading? Get started with this Free How to Trade Gold -Beginners Guide

Notes:In my most recent Gold Technical Outlook we noted that price was, “responding to up-slope resistance and while we could see some near-term weakness, the focus remains higher while above within this formation” (channel formation in red). Gold is testing near-term support into the close of the week at 1234/36 where the 2017 December low converges on the 200-week moving average with more significant support seen at 1216/21– a region defined by the December open, the 38.2% retracement of the August advance and basic channel support. A break here would risk a larger setback with such a scenario targeting broader bullish invalidation at the yearly low-week close at 1184.

Initial resistance stands at the 50% retracement of the yearly range at 1263 with a breach above the highlighted slope confluence at 1270 needed to validate a larger reversal in price targeting 1287 and the 2018 open at 1302.

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

Bottom line:

The immediate threat remains for a deeper pullback IF price slips below 1234 but the medium-term focus remains higher while above 1216. From a trading standpoint, look for weakness to offer more favorable entries lower down near slope support.

Even the most seasoned traders need a reminder every now and then-Avoid these Mistakes in your trading

Gold Trader Sentiment

Gold

  • A summary of IG Client Sentiment shows traders are net-long Gold – the ratio stands at +3.55 (78.0% of traders are long) – bearish reading
  • Long positions are 1.4% higher than yesterday and 5.8% higher from last week
  • Short positions are 2.0% lower than yesterday and 4.9% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger Gold-bearish contrarian trading bias from a sentiment standpoint.

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

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

Other Weekly Technical Forecast:

Australian Dollar Forecast – AUD Prices May Fall Into 2019, AUD/CAD at Risk to Reversal Pattern

British Pound Forecast – Seven Weekly Bear Candles Dominate

US Dollar Forecast – Dollar Hits an 18-Month High as Anti-Currency Demand Fights Liquidity

Equity Forecast – Technical Forecast for Dow, S&P 500, FTSE 100, DAX and Nikkei

Oil Forecast –Crude oil may See Light in Tunnel As Oncoming Train



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