Analyst Picks

Michael Boutros , Technical Strategist

Michael Boutros
My Picks:  Near-term Trade Setups in USD/CAD, EUR/USD & GBP/USD
Expertise:  Technical
Average Time Frame of Trades:  1-3 Days

Review this week’s Strategy Webinar for an in-depth breakdown of these setups and more.

Loonie Price Chart - USD/CAD 240min

Loonie Price Chart - USD/CAD 240min - US Dollar vs Canadian Dollar Technical Outlook

Chart Prepared by Michael Boutros, Technical Strategist; USD/CAD on Tradingview

In my most recent Canadian Dollar Price Outlook, we noted that USD/CAD was approaching, “uptrend resistance just higher and we’re looking for a reaction on a stretch into 1.3338/55.” Price registered a high at 1.3345 this week before faltering with Loonie holding a tight weekly opening-range just below resistance. While the broader focus remains weighted to the topside, the advance is vulnerable below this threshold- look to the breakout for guidance.

A topside breach exposes the median-line backed by confluence resistance at 1.3435/37. A break lower would expose monthly open support at 1.3190 backed bullish invalidation at 1.3141/15. Review my latest Canadian Dollar Weekly Price Outlook for a longer-term view of the USD/CAD technical trade levels.

USD/CAD Trader Sentiment

Loonie Trader Sentiment - USD/CAD Price Chart - US Dollar vs Canadian Dollar Technical Outlook
  • A summary of IG Client Sentiment shows traders are net-short USD/CAD - the ratio stands at -1.67 (37.5% of traders are long) – bullish reading
  • Traders have remained net-short since July 23rd; price has moved 1.8% higher since then
  • Long positions are 1.0% lower than yesterday and 32.7% higher from last week
  • Short positions are 21.6% lower than yesterday and 3.5% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/CAD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/CAD price trend may soon reverse lower despite the fact traders remain net-short.

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

Sterling Recovery Facing First Test

Highlighted this setup including the near-term trading levels in today’s GBP/USD Price Outlook. An outside-day reversal off support earlier this week shifted our focus higher in Sterling with the price recovery now testing the first major test at confluence support near 1.2250. Immediate threat for a pullback here but we’ll favor fading weakness while above the monthly open targeting 1.23 and beyond. For a longer-term look at the Sterling technical trading levels review my latest GBP/USD Weekly Outlook.

New to Forex? Get started with our Beginners Trading Guide!

EUR/USD 240min Price Chart

Euro Price Chart - EUR/USD 240min - Euro vs US Dollar Technical Outlook

Chart Prepared by Michael Boutros, Technical Strategist; EUR/USD on Tradingview

In my Euro trade update we highlighted a break of a near-term consolidation range just below downtrend resistance in EUR/USD targeting 1.1106. The decline registered a low at 1.1064 today with the weekly opening-range intact just above monthly open support at 1.1075 heading into Friday trade. Look for the breakout here - ultimately, a breach higher would expose 1.1162 with a close above 1.1186 needed to suggest a more significant low is in place.

From a trading standpoint, I’d favor a final washout towards the median-line before a larger recovery. Weakness beyond the monthly / yearly low at 1.1026 would mark resumption of the broader downtrend. Review my latest Euro Weekly Price Outlook for a longer-term view of the USD/CAD technical trade levels.

Euro Trader Sentiment – EUR/USD

Euro Trader Sentiment - EUR/USD Price Chart - Euro vs US Dollar Technical Outlook
  • A summary of IG Client Sentiment shows traders are net-long EUR/USD - the ratio stands at 2.1 (67.7% of traders are long) – bearish reading
  • Traders have remained net-long since July 1st; price has moved 2.5% lower since then
  • Long positions are 1.6% higher than yesterday and 25.2% higher from last week
  • Short positions are 11.1% lower than yesterday and 25.5% lower 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. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias from a sentiment standpoint.

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

-Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex

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David Song , Currency Strategist

David Song
My Picks:  Bearish EUR/USD
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  2 - 10 Days

EURUSD struggles to retain the recovery from earlier this month as the Bundesbank warns of an economic “slump,” and the exchange rate may continue to give back the advance from the August-low (1.1027) as a growing number of Federal Reserve officials tame speculation for a rate easing cycle.

After dissenting against the July rate cut, Boston Fed President Eric Rosengren, a 2019-voting member on the Federal Open Market Committee (FOMC), insists that the central bank needs “to be careful not to ease too much” as the US economy shows little signs of a looming recession.

Image of Atlanta Fed GDPNow forecast

In fact, the Atlanta Fed’s GDPNow model forecasts the US economy to expand 2.2% in the third quarter of 2019, but the ongoing shift in trade policy may spur a growing dissent within the FOMC as the committee comes under pressure to reverse the four rate hikes from 2018.

It remains to be seen if Chairman Jerome Powell will try to sway market expectations as the central bank head is scheduled to speak at the Kansas City Fed Economic Symposium in Jackson Hole, Wyoming, and a batch of less dovish comments should keep EURUSD under pressure as the central bank resists calls to reverse the four rate hikes from 2018.

EUR/USD Rate Daily Chart

Image of EURUSD Daily Chart

Source: Trading View

Keep in mind, the broader outlook for EURUSD is clouded with mixed signals as the exchange rate clears the May-low (1.1107) following the Federal Reserve rate cut in July, with the 1.1100 (78.6% expansion) handle no longer offering support.

The Relative Strength Index (RSI) highlights a similar dynamic as the oscillator fails to retain the upward trend from earlier this year, with the indicator now tracking a bearish formation.

As a result, the rebound from the monthly-low (1.1027) may continue to unravel amid the string of failed attempts to close above the Fibonacci overlap around 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement).

Need a break/close below 1.1040 (61.8% expansion) to open up the downside targets, with the next area of interest coming in around 1.0950 (100% expansion) to 1.0980 (78.6% retracement).

However, failure to test the monthly-low (1.1027) may generate range-bound conditions ahead of the Fed symposium, with a move back above 1.1140 (78.6% expansion) opening up the overlap around 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement).

Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Additional Trading Resources

For more in-depth analysis, check out the 3Q 2019 Forecast for the Euro

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.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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Peter Hanks , Junior Analyst

Peter Hanks
My Picks:  Bearish USD/CAD
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  Sevel Days to Several Weeks

Canadian Dollar Forecast:

  • As USD/CAD negotiates the 200-day moving average to the topside, Canadian Dollar strength may return and drive the pair lower
  • A slew of upcoming events on the economic calendar posses the potential to spur volatility in the pair
  • Interested in longer-term trades? Check out our Free Quarterly Forecasts for the Canadian Dollar, Gold, Dow Jones and more.

Canadian Dollar Price Forecast: USD/CAD Strength May Fade

USD/CAD has enjoyed a 0.75% climb in August as the US Dollar extended its rally versus the Canadian Dollar after bottoming out in mid-July. While the fundamental drivers between the two North American currencies are in constant flux, USD/CAD will have to negotiate the 200-day moving average while RSI creeps closer to overbought territory. The combination of topside barriers and potential for fundamental catalysts – resulting in heightened volatility across all CAD pairs - in the week ahead could spark a reemergence of Canadian Dollar strength that could look to threaten the USD/CAD rebound.

USD/CAD Price Chart: Daily Time Frame (September 2017 – August 2019) (Chart 1)

USD/CAD price chart forecast

To that end, the pair presents an intriguing opportunity to explore short exposure if USD/CAD is unable to comfortably surpass the recent peaks around 1.3344. A failure to do so could speak to tiredness among bulls and bolster a bearish bias in the shorter-term. Should such price action occur, 1.3250 will be an initial area of interest as the first mentionable zone of support.

USD/CAD Price Chart: 4 - Hour Time Frame (March – August) (Chart 2)

USD/CAD canadian dollar price chart, canada currency chart

Subsequent points of interest are scattered beneath near 1.3200 and 1.3145 before more formidable support will look to come into play slightly above 1.3015. Conversely, 1.3440 will be looked to as an area of invalidation if bullishness resumes which is entirely possible given the economic calendar for both the US and Canadian Dollars and the gravity of the Jackson Hole Symposium.

economic calendar

Another consideration to be made is the recent rebound in crude oil prices, which has seemingly provided very little boost for the Canadian Dollar. That said, Canadian CPI will pose the first scheduled risk to USD/CAD bearishness. Should the reading come in notably beneath expectations, CAD strength would likely fade as the odds of future rate cuts from the Bank of Canada tick higher in response to disappointing inflation. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis on the developing price action.

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

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Dow Jones, DAX 30, FTSE 100, Nasdaq 100 Technical Forecasts

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Justin McQueen , Analyst

Justin McQueen
My Picks:  USD/CAD
Expertise:  Fundamental
Average Time Frame of Trades:  1 Month

CAD Price Analysis and Talking Points:

  • What is Impacting the Canadian Dollar
  • Bank of Canada: The Next Central Bank to Join the Dovish Bandwagon
  • Trade War Escalation Posing Downside Risks

See our quarterly FX forecast to learn what will drive prices throughout Q3!

Canadian Dollar Outlook: CAD Weakness Ahead on Dovish BoC and Trade War Escalation

Source: DailyFX (Positive value = positive correlation)

Risk sentiment stemming from growing concerns of a global slowdown has had an increasing impact on the direction of the Canadian Dollar in recent sessions.

Bank of Canada:The Next Central Bank to Follow the Dovish Bandwagon

Since the July Monetary Policy Report, Canadian data has eased with the Citi Canadian Surprise Index pulling back from a 9yr high to lowest level this year. Among the notable data points that softened had been the most recent employment report, which showed a contraction in Canadian jobs created, while the unemployment rate rose 0.2ppts to 5.7%. Alongside this, the housing market has shown new house prices continuing to drop, yet again raising concerns for the BoC.

Key data ahead before BoC rate decision

  • CPI (Aug 21st)
  • Retail Sales (Aug 23rd)
  • Q2 GDP (Aug 30th)
Canadian Dollar Outlook: CAD Weakness Ahead on Dovish BoC and Trade War Escalation

Trade War Posing Downside Risks

The Bank of Canada has previously cited that escalation of trade conflicts remains the biggest downside risk to the global and Canadian outlooks. Since this statement, the ceasefire has been broken between the US and China after President Trump pledged to place 10% tariffs on $300bln worth of Chinese goods (albeit some tariffs will be delayed). In turn, this has underpinned the dramatic move to safety with global bonds continuing to rally as market participants grow concerned over a global slowdown. In response to the escalating trade tensions, global central banks have eased monetary policy in order to shield their respective economies from negative spillovers. This is also a potential avenue for the Bank of Canada, who could look to provide an insurance rate cut. As it stands, market pricing for BoC easing is relatively tame with one rate cut priced by the year end, therefore a signal from the central bank that easing is warranted could bring forward expectations of near term easing and thus weigh on the Canadian Dollar.

Elsewhere, the impact of escalating trade war tensions has been felt in the energy complex with oil prices dropping on concerns of slowing demand. As such, with the oil prices notably below the BoC’s recent assumption, risks are that the central bank could downgrade its outlook.

Bank of Canada July Monetary Policy Report Assumption

Brent crude: $65 (Currently $58.80) (down 9.5%)

WTI: $55 (Currently $54) (down 1.8%)

Forget the US Yield Curve Inversion, Look at Canada

While the US yield curve inversion has increased investor angst over the potential risk of a recession. CAD traders really be looking at the Canadian yield curve, which is now 90% inverted, while the 10yr yield is over 60bps below the BoC’s target rate. Alongside this, the Canadian 2s10s curve is also the most inverted since the early 2000, providing warning signals to BoC officials.

Canadian Dollar Outlook: CAD Weakness Ahead on Dovish BoC and Trade War Escalation

Given that global central banks have eased monetary policy we feel there is an increasing likelihood that the Bank of Canada will follow suit, thus raising downside risks to the Canadian Dollar with expectations of BoC easing relatively tame thus far. That said, we have a bullish bias on USD/CAD with upside risks towards 1.35.

USDCAD Price Chart: Daily Time Frame (Jan 19 – Aug 19)

Canadian Dollar Outlook: CAD Weakness Ahead on Dovish BoC and Trade War Escalation

FX TRADING RESOURCES:

--- 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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Michael Boutros , Technical Strategist

Michael Boutros
My Picks:  Near-term Trade Setups in EUR/USD & AUD/USD
Expertise:  Technical
Average Time Frame of Trades:  1-3 Days

Review this week’s Strategy Webinar for an in-depth breakdown of these setups and more.

Euro Price Chart - EUR/USD 120min

Euro Price Chart - EUR/USD 120min - Technical Outlook

Chart Prepared by Michael Boutros, Technical Strategist; EUR/USD on Tradingview

In my most recent Euro Technical Price Outlook we noted that EUR/USD was, “testing downtrend resistance - From a trading standpoint, the immediate focus is on a breakout of this near-term consolidation for guidance.” The weekly opening-range resolved lower this today with the decline now testing a near-term support confluence at 1.1138/43 – looking for a reaction here. A break below this zone would keep the focus lower towards the 61.8% retracement / last week’s open at 1.1106/12. Look for initial resistance back at 1.1182/87 with a breach above 1.1223 needed to shift the broader focus higher in Euro.

New to Forex? Get started with our Beginners Trading Guide!

EUR/USD Trader Sentiment

Euro Trader Sentiment - EUR/USD Price Chart - Technical Outlook
  • A summary of IG Client Sentiment shows traders are net-long EUR/USD - the ratio stands at -1.22 (55.0% of traders are long) – weak bearish reading
  • Traders have remained net-long since July 1st; price has moved 2.0% lower since then
  • Long positions are 2.9% higher than yesterday and 2.1% lower from last week
  • Short positions are 8.5% lower than yesterday and 6.7% lower 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. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in Euro retail positioning are impacting trend- Learn more about sentiment!

Aussie Price Chart - AUD/USD 240min

Aussie Price Chart - AUD/USD 240min - Technical Outlook

Chart Prepared by Michael Boutros, Technical Strategist; AUD/USD on Tradingview

In last week’s Australian Dollar Price Outlook we highlighted a major support confluence at 6733/45 – a region defined by the January swing low and the 1.618% extension of the decline off the yearly highs. Aussie is testing this zone yet again today – a break below would expose another run at the lows near 6677 and beyond. We’re on the lookout for a pivot in price down here. Initial resistance at the weekly open backed by 6828/32 - a breach / close above 6855 would be needed to suggest a larger recovery is underway. Review my latest AUD/USD Weekly Price Outlook for a look at the longer-term technical trade levels.

AUD/USD Trader Sentiment

Aussie Trader Sentiment - AUD/USD Price Chart - Technical Outlook
  • A summary of IG Client Sentiment shows traders are net-long AUD/USD - the ratio stands at -3.18 (76.1% of traders are long) – bearish reading
  • Traders have remained net-long since July 19th; price has moved 3.8% lower since then
  • Long positions are 1.3% lower than yesterday and 1.6% lower from last week
  • Short positions are 11.9% lower than yesterday and 8.4% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current Aussie positioning and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias from a sentiment standpoint.

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

-Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex

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Paul Robinson , Currency Strategist

Paul Robinson
My Picks:  EURUSD & GBPUSD
Expertise:  Technical
Average Time Frame of Trades:  Several days to several weeks

The Euro recently found significant support off an underside trend-line dating back a year-ago (best seen on weekly chart). This helped blow some life into it as of Friday, but that upward momentum is stalling with a pair of semi-bearish reversal candles.

While EURUSD could turn down from here, a more optimal point of entry for shorts could come on a bit more strength as a couple of trend-lines run lower from last year. These lines also run near the 200-day, making the 11300/50 a potentially optimal spot from a risk/reward perspective to look for another swing lower to develop.

Trading Forecasts and Educational Guides for traders of all experience levels can be found on the DailyFX Trading Guides page.

EURUSD Weekly Chart (bottom/top-side lines)

Euro & Pound Outlook: EURUSD, GBPUSD Charts to Watch

EURUSD Chart by Tradingview

EURUSD Daily Chart (200-day, weak tone/trend)

Euro & Pound Outlook: EURUSD, GBPUSD Charts to Watch

EURUSD Chart by Tradingview

GBPUSD is forming a short-term pattern (4-hr chart), but watch out for longer-term support should the triangle formation trigger. There is still room to go before the bottom of the support zone is met at the October 2016 flash-crash low of 11905, but buyers could certainly show up sooner. However, this doesn’t mean a good trade can’t be had before, the key will be watching price action and signs of buyers coming in after a bearish break, if indeed a bearish break unfolds.

Symmetrical triangles can break to the top-side, in which case the pent-up pressure at support might help give it a lift should the top-side line of the pattern is breached. The bottom line is, wait for a break of the pattern before running with a trading bias.

GBPUSD Daily Chart (Long-term support down to 11905)

Euro & Pound Outlook: EURUSD, GBPUSD Charts to Watch

GBPUSD Chart by Tradingview

GBPUSD 4-hr Chart (Triangle nearing trigger point)

Euro & Pound Outlook: EURUSD, GBPUSD Charts to Watch

GBPUSD Chart by Tradingview

***Updates will be provided on these ideas and others in the trading/technical outlook webinars held at 930 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.

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 Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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David Song , Currency Strategist

David Song
My Picks:  Bullish EUR/USD
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  2 - 10 Days

EURUSD retraces the decline following the Federal Reserve interest rate decision, with the exchange rate extending the advance from the monthly-low (1.1027) amid the growing threat of a US-China trade war.

The ongoing shift in US trade policy may continue to influence monetary policy as it puts pressure on the Federal Open Market Committee (FOMC) to insulate the economy, and the central bank may come under increased scrutiny to reverse the four rate hikes from 2018 especially as President Donald Trump tweets that the Fed “must cut rates bigger and faster, and stop their ridiculous quantitative tightening now.

It seems as though the Federal Reserve will continue to alter the forward guidance ahead of the next interest rate decision on September 18 as St. Louis Fed President James Bullard, a 2019-voting member on the FOMC, insists that “additional policy action may be desirable” amid the uncertainty surrounding the economic outlook.

Image of Fed Fund futures

In turn, Fed Fund futures highlights a 100% probability for at least a 25bp reduction, and speculation for lower US interest rates may keep EURUSD afloat as the European Central Bank (ECB) appears to be in no rush to implement a negative interest rate policy (NIRP) for the Main Refinance Rate, its flagship benchmark for borrowing costs.

With that said, expectations for an imminent FOMC rate cut may keep EURUSD afloat, and current market conditions may fuel a larger correction in the exchange rate as Fed officials show a greater willingness to implement lower interest rates.

EUR/USD Rate Daily Chart

Image of eurusd daily chart

The reaction to the FOMC meeting undermines the broader outlook for EURUSD as the exchange rate clears the May-low (1.1107), with the 1.1100 (78.6% expansion) handle no longer offering support.

The Relative Strength Index (RSI) highlights a similar dynamic as the oscillator fails to retain the bullish formation from earlier this year.

However, the monthly opening range raises the risk for a larger correction in EURUSD amid the failed attempt to close below the 1.1040 (61.8% expansion) area, with a close above the 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement) region opening up the Fibonacci overlap around 1.1270 (50% expansion) to 1.1290 (61.8% expansion).

Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Additional Trading Resources

For more in-depth analysis, check out the 3Q 2019 Forecast for the Euro

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.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2019.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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Paul Robinson , Currency Strategist

Paul Robinson
My Picks:  CADJPY Pending Short
Expertise:  Technical
Average Time Frame of Trades:  Several days to several weeks

CADJPY remains stuck in a longer-term downtrend that leaves it vulnerable whenever the chart starts to tilt to the downside. The high last month came at a trend-line running down off the March high, this was met with a series of rejection candles. Again, a turn lower developing off the trend-line in the form of a lower high.

However, there was still a positive tone off the June low in place with a bottom-side parallel keeping CADJPY supported within an upward channel. After yesterday’s turnabout we are seeing the channel line come under fire in today’s session. A break after respecting significantly increases odds that another leg lower will develop soon.

Furthering along the case for shorts is the bear-flag/channel forming on the 4-hr time-frame. It is currently testing the under-side parallel. A break of the parallel and low at 8213 will open up a path towards lower levels. The lower parallel off the July high will need to be monitored, but a breach through there will likely steepen the sell-off.

Overall, the chart is leaning lower and if recent support breaks it may be time to prime up for another leg towards long-term support via a trend-line from late 2016 with stops potentially at just above 81 and 8060. If the recent low at 8213 holds, then so does a bearish bias with an alternative route possibly developing via a descending wedge.

Trading Forecasts and Educational Guides for traders of all experience levels can be found on the DailyFX Trading Guides page.

CADJPY Daily Chart (chart tilting lower)

CADJPY Chart Rolling Over

CADJPY 4-hr Chart (flagging on lower parallel)

CADJPY Chart Rolling Over

***Updates will be provided on these ideas and others in the trading/technical outlook webinars held at 9 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.

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 Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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James Stanley , Currency Strategist

James Stanley
My Picks:  GBPUSD, USDJPY, USDCAD, USDCHF
Expertise:  price action, macro
Average Time Frame of Trades:  few days - few weeks

FX Price Action, GBP/USD, USD/JPY, USD/CHF, USD/CAD Talking Points:

USD: Bulls in a China Shop

It was a big week for the US dollar as bulls returned with gusto. Last week provided a quick flicker of weakness around some comments from NY Fed President, John Williams. Those remarks were walked back shortly after by the NY Fed, and the US Dollar began to bounce in response. That bounce continued through this week’s trade save for small blip in the radar that developed around Thursday’s ECB rate decision. At this point, the US Dollar is trading at fresh seven-week-highs as the currency has continued to rally ahead of next week’s widely-expected rate cut.

Along those lines, from last week’s FX Setups the two long-USD setups remain attractive while the two short-side Dollar setups were quickly stopped out. In EUR/USD, a break below the higher-lows that had held for the prior month took out the bullish backdrop; while AUD/USD pushing below the .7000 big figure quickly negated that bullish potential and the pair just continued to fall through the rest of the week.

For next week, the US Dollar will likely remain on the move. The Fed is widely-expected to cut rates for the first time in a decade on Wednesday but as has become the norm, the importance is with the details. Is the Fed considering more cuts later this year? Or of recent, grumblings have even started around more QE at some point if the situation calls for it. The big matter of importance is just how dovish might the FOMC be? At this point, a large amount of divergence remains between market expectations for rates and the FOMC projections that were provided at the June rate decision. As discussed this morning, rates markets are showing a 53.5% probability of at least three cuts by the end of the year. The Fed, at this point, has merely pointed to one. Below I look at two setups on either side of the US Dollar ahead of next week’s FOMC-fueled volatility.

US Dollar Daily Price Chart

US Dollar Daily Price Chart

Chart prepared by James Stanley

GBP/USD Bearish Sub-1.2500

On the long side of the US Dollar, I came into this week looking at the British Pound in an attempt to further fade-out last week’s strength. As USD-weakness priced-in around those Williams’ comments last week, GBP/USD flexed up to the 1.2550 level. Prices had started to decline again ahead of last week’s close, so I wanted to look for a bounce into a key zone of potential resistance to open the door for short-side setups. That zone runs from 1.2500-1.2523, and this filled-in on Wednesday of this week ahead of a break down to fresh two-year-lows.

At this point, selling at current levels can be a challenge as price action remain very near those two-month-lows; but on the long side of the US Dollar, this remains as an attractive venue, and a pullback to resistance at prior support can re-open the door for bearish plays. The area of focus that appears most attractive for that scenario right now comes-in around the 1.2442-1.2450 zone that had provided support earlier in July. This can open the possibility of stops above this week’s high coupled with targets back at the 1.2400 level; after which break-even stop moves could be investigated along with deeper profit targets looking for a continued break-down to new two-year-lows.

GBP/USD Two-Hour Price Chart

gbpusd gbp/usd price chart

Chart prepared by James Stanley

USD/JPY: Bearish on Hold Below 109.00

If USD-weakness shows up next week, the short-side of USD/JPY could quickly become attractive again. The pair is currently re-testing a zone of resistance that had come into play to help set the June swing-highs, and a hold of this zone through the Monday open keeps the door open for short-side swing setups with stops investigated above the July high around 109.00. Nearby is bearish target potential around 108.00-108.25, after which 107.50 becomes of interest. After that, the 107 level may come into play but that theme would likely need to be coupled with either a really weak US Dollar or a really strong gust of risk aversion.

USD/JPY Four-Hour Price Chart

usdjpy usd/jpy four hour price chart

Chart prepared by James Stanley

USD/CHF: Bearish on Hold of .9950

It was a strong week in USD/CHF as Dollar-strength came back with aggression. The pair made a fast move towards the parity handle, slowing down when re-testing resistance from earlier this month around .9940-.9950. If this zone can hold through Monday trade, the door remains open for short-side swing potential. Stop placement could be investigated at either .9965 (aggressive) or above the parity handle (more conservative). The luxury of that tighter stop could be initial targets at the Fibonacci level around .9902 at which point break-even stop moves could be investigated. Beyond that, .9850 and .9800 remain of interest for short-side target potential.

USD/CHF Four-Hour Price Chart

usd/chf usdchf four hour price chart

Chart prepared by James Stanley

USD/CAD Bullish on Hold Above 1.3110

Back on the long side of the US Dollar and USD/CAD remains of interest. I started looking at bullish scenarios in USD/CAD last week as a falling wedge formation had formed. Key for that theme was the fact that bears appeared very reticent to re-test the 1.3000 handle and, sure enough, even as USD-weakness was pumping in around those comments from John Williams, USD/CAD merely postured ten pips away from the psychological level.

This week saw USD strength come back and two of the three targets looked at coming into this week have been touched. As discussed in that piece, additional target potential remains around the 1.3250-1.3300 zone, but this will likely need an assist from a less-dovish FOMC outlay than what many are looking for.

A re-test of support from 1.3132-1.3150 can re-open the door for bullish trend strategies, with stop placement investigated below the 1.3110 low. Targets can be directed towards 1.3200, followed by that ‘big picture’ zone of possible resistance around prior support of 1.3250-1.3300.

USD/CAD Four-Hour Price Chart

usdcad usd/cad four hour price chart

Chart prepared by James Stanley

To read more:

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--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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Rich Dvorak , Junior Analyst

Rich Dvorak
My Picks:  USDMXN
Expertise:  Fundamental & Technical
Average Time Frame of Trades:  Several Days to Several Weeks

SPOT USDMXN PRICE OUTLOOK – BULLISH

Spot USDMXN looks set to resume its bullish ascent as fundamental themes appear likely to tilt back in favor of the US Dollar. The Mexican Peso has failed to advance against the US Dollar with conviction despite broad weakness in the greenback as of late – largely driven by dovish Fed expectations. This could be attributable to Mexico’s rapidly declining economy with outlook turning increasingly pessimistic. Most prominently, Mexico GDP contracted back in Q1 and the country’s GDP growth estimates continue to receive downward revisions.

In fact, Mexico’s central bank Banxico cut its 2019 GDP forecast back in May while earlier this week the IMF lowered its own GDP growth forecast for 2019 Mexico GDP growth a staggering 0.7% with the economy now expected to grow less than 1% this year. Also, with the abrupt resignation of Mexico’s Finance Minister Carlos Urzua, another layer of uncertainty is thrown into the mix. As such, bullish prospects for the Mexican Peso continue to dissipate – even in spite of the USMCA trade agreement’s probable ratification – as Mexico’s discouraging economic and political landscape look to weigh negatively on its currency.

Furthermore, speculation continues to grow that Banxico will cut interest rates aggressively later this year to help support its stumbling economy while a potential credit downgrade looms with Pemex – Mexico’s state-owned petroleum company – in dire conditions.

Shifting to the other half of the equation, the US Dollar could record an episode of resurgence if the Federal Reserve provides the market with upbeat outlook following the central bank’s first rate cut in over a decade likely coming at the July FOMC meeting. The upcoming Q2 US GDP report could serve as a bellwether to whether or not the Fed will ease monetary policy further or if it will take a more hawkish stance than the overzealous dovish bets currently priced by markets.

Also, the possibility that that the long-awaiting USMCA deal fails to garner legislative backing cannot be discounted and poses more of a threat to the Mexican Peso than it does the US Dollar. Additionally, there is an eminent risk that US President Trump threatens to raise tariffs on Mexico to push his political agenda.

USDMXN PRICE CHART: WEEKLY TIME FRAME (MARCH 29, 2015 TO JULY 24, 2019)

Spot USDMXN Rate Chart Technical Analysis

The technical outlook for spot USDMXN appears quite attractive as well. Turning to the charts, technical support provided by the bullish trendline dating back to late 2015 looks to provide the currency pair with a strong degree of buoyancy. At the same time, spot USDMXN downside momentum has waned with the RSI showing potential of trending higher. That said, the 38.2% Fibonacci retracement of the currency pair’s 2017 trading range could serve as a headwind for spot USDMXN bulls around the 19.200 level.

USDMXN PRICE CHART: DAILY TIME FRAME (JANUARY 07, 2019 TO JULY 24, 2019)

Spot USDMXN Price Chart Technical Analysis

Honing in on a closer time frame, support from the bullish trendline becomes more evident with spot USDMXN shown holding the series of higher lows back in April and again earlier this month. Also, it could be constructive for spot USDMXN price action to fill the conspicuous gap lower printed early June. While holding the 19.000 handle will likely be key for bullish conviction to remain intact, the swing low in January 2019 near 18.870 could serve as a more appropriate stop loss for USDMXN longs. Looking back upward, the area around 19.475 could be a possible topside target.

- Written by Rich Dvorak, Junior Analyst for DailyFX

- Follow @RichDvorakFX on Twitter

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