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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

Dow Jones, DAX 30 and FTSE 100 Technical Forecast

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Dow Jones, DAX 30 and FTSE 100 Technical Forecast:

  • The Dow Jones faces considerable nearby resistance
  • The DAX 30 enjoys nearby trendline support, but must surmount a Fib level to press higher
  • To the delight of technical traders, the FTSE 100 will have to unravel two conflicting candlestick patterns

Dow Jones, DAX 30 and FTSE 100 Technical Forecast

Amid a whirlwind of trade war developments, equity markets across the globe had to negotiate significant volatility. After the S&P 500 posted its largest gap lower since 2009 on Monday, US equities had their work cut out for them – but were able to recoup most losses. In the days to come, equity markets will continue to struggle with the same themes. Expect technical levels to be strained, especially if volatility persists.

Dow Jones Technical Forecast: Bearish

The Dow Jones ended the week marginally lower than it closed the Friday prior. More importantly however, the Index resides beneath two nearby Fib levels – the 61.8% retracement from March to May at 25,775 and the 78.6% at 23,823. Each level will look to provide resistance early next week. If those levels are surpassed, the 50% level at 25,952 will come into play. The area rebuked prices multiple times last week and should play a similar role next week.

Dow Jones Price Chart: 4 – Hour Time Frame (February – May) (Chart 1)

DJI

How to Day Trade the Dow Jones

With considerable topside resistance, the Industrial Average will once again have its work cut out for it. If attempted rallies are curtailed, the 78.6% level around 25,523 may fortify prices. Beyond that, the 25,400 area should provide further buoyance, despite a break lower on Monday. The area marks March’s lows and provided moderate support last week.

DAX 30 Technical Forecast: Bullish

After a considerable surge last week, the German DAX seems to have its sights set on a continuation rally. Luckily for bulls, the 23.6% Fib level at 12,169 and an ascending trendline from December’s low will look to provide nearby support. The trendline previously marked the lower bound of the ascending channel the Index found itself in during the first-quarter rebound. Should the support hold, the channel may become pertinent once more.

DAX Price Chart: 4 – Hour Time Frame (April – May) (Chart 2)

DAX

Should the index continue higher, highs from last week – around 12,300, should pose initial resistance. Secondarily, the 61.8% Fib level at 12,331 will come into play. If both those levels are surmounted, subsequent resistance will be offered by the upper-bound of the channel and at 12,437 – the full extension of the Fib level from March’s lows to May’s highs.

FTSE 100 Technical Forecast: Bullish

The FTSE 100 closed Friday’s session to leave a perfect hanging-man candlestick on the daily chart. Although shorter time frames are typically better suited for weekly forecasts, the candlestick patterns are too clear to ignore. A hanging man candlestick at the top of an uptrend generally precedes a trend reversal, but what precedes the Friday candle may carry more weight.

FTSE 100 Price Chart: Daily Time Frame (February – May) (Chart 3)

UKX

Prior to the hanging man, the candlesticks from the Tuesday through Thursday sessions form three white soldiers – in this case green soldiers. This candlestick pattern offers a bullish signal, usually preceding further gains. With the conflicting candlestick signals, technical traders will have a lot to look for next week.

That said, the most likely outcome – in my opinion – is a brief retracement early in the week to fulfil the hanging man prophecy and to consolidate. In this scenario, the 23.6% Fib level at 7,296 would pose as critical support. Once the consolidation is underway, the three white soldiers may drive the FTSE 100 higher as the week progresses. For follow up on these technical patterns, or to ask any questions, follow @PeterHanksFX on Twitter.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: Gold Price Plummets, Seeks Technical Support Near May Lows

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.

Looking for a fundamental perspective on Equities? Check out the Weekly Equity Fundamental Forecast



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S&P 500, DAX Fundamental Forecast

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Equity Analysis and News

  • S&P 500 | Trade War Tensions Dictating Price Action
  • DAX | EU/US Trade Dispute is Delayed, Not Resolved

FTSE

Source: Thomson Reuters, DailyFX

S&P 500 | Trade War Tensions Dictating Price Action

The S&P 500 is on course to drop over 0.5% for the week as investor angst over US/China trade wars continues to weigh on risk appetite, most notably in the US benchmarks. However, while a mid-week bounce has seen losses pared slightly since the escalation with the S&P 500 now down 3% (Prev. -5.4%), the trade sensitive sectors have maintained their losses with the US Semiconductor Index down 10% (Prev. -11%). Consequently, focus will continue to remain trade wars.

SPX

Markets Pricing in Fed Rate Cuts

The Federal Reserve have continued to maintain the mantra that they will be on hold for the foreseeable future and that there is little reason to provide a cut. However, bonds markets have continued to price in Fed easing, with money markets fully priced for a rate reduction in December. Alongside this, the 3M/10yr US yield curve has continued to dip into inversion amid the rising trade war tensions. The upcoming week will see commentary from Fed Chair Powell, however, with markets pricing in a dovish Fed, the bar is high for Powell to match those dovish expectations as was evidenced in the post monetary policy decision speech on April 24th, in which the Chair noted that soft inflation was “transitory”.

FED

Source: DailyFX, Thomson Reuters

DAX | EU/US Trade Dispute is Delayed, Not Resolved

A firm week for the DAX, which recorded gains of over 1%, among the major factors behind this had stemmed from source reports stating that the Trump Administration were to delay imposing auto-tariffs on EU imports for an additional 6-months (full story), which in turn saw the European auto names surge. The decision to delay could largely be attributed to the fact that US/China tensions have escalated. However, this is merely a delay and not a resolution. Noteworthy calendar events: ECB Draghi & Praet (Thurs), Eurozone PMIs (Thur).

DAX Price Chart: Daily Time Frame (Jan 2019May 2019)

DAX

RESOURCES FOR FOREX & CFD TRADERS

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

— Written by Justin McQueen, Market Analyst

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

Follow Justin on Twitter @JMcQueenFX

Looking for a technical perspective on Equities? Check out the Weekly Equity Technical Forecast



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Euro Weakness to Remain the Theme

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EURUSD Technical Highlights:

  • Euro looks headed towards the April low or worse
  • 4-hr chart has a developing structure to pay attention to

Check out the DailyFX Trading Guides page for intermediate-term forecasts, educational content aimed all experience levels, and more.

Euro looks headed towards the April low or worse

To be clear, trading EURUSD lately hasn’t been an easy endeavor as low volatility conditions continue to be a headwind for traders. We’ve seen some movement in other majors (GBPUSD in particular) but not in the most widely traded pair. That will eventually change, but until it does we have to continue to take what is presented to us and be patient with set-ups.

With that said, the general trading bias remains the same as it has for months – lower. Trend and price action continue to be supportive of this bias. A run on the April low at 11109 or worse looks to be in store sometime in the coming sessions, but the path could be a little shaky.

Dialing in a bit closer to the 4-hr time-frame, a channel is becoming visible even if it isn’t perfect, with candlestick wicks clouding the picture. A small bounce from the lower parallel may make for the best scenario, as the lower parallel’s importance is further cemented and a nearby low is created in the process.

A bounce and subsequent breakdown could offer a solid structure (see 4-hr chart) for would-be shorts from both a probability and risk/reward standpoint. Selling right here at support puts one at risk of a bounce with good stop placement difficult to determine.

A bounce that carries the euro beyond 11225 will give pause to sellers and bring into play the area around 12265 (recent highs/trend-lines) and possibly become an even more attractive spot to short. The bottom line is that the Euro looks headed lower, but it may pay to sit tight and wait for a better look before entering new positions. If currently in a short from higher levels, then one could use the aforementioned highs and trend-lines to manage risk accordingly.

Check out the IG Client Sentiment page to find out how changes in positioning in major markets could signal the next price move.

EURUSD Daily Chart (April low, 11000s could be soon)

EURUSD

EURUSD 4-hr Chart (Channel/Bear-flag)

EURUSD

Helpful Resources for Forex Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at@PaulRobinsonFX

Looking for a fundamental perspective on The Euro ? Check out the Weekly EUR Fundamental Forecast



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