Daily Briefing

GBP/USD: Cable Crushed as Brexit Talks Go Awry, FOMC on Deck

Price action and Macro.

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Talking Points:

- Next week is the final week of Q3, and it looks to be a prime backdrop for volatility as we wind down what’s become an interesting year of FX price action. The British Pound is on the move this morning as Brexit discussions have seemingly disintegrated in front of our eyes, and it now looks like the UK is going to need to go back to the drawing board. Already, Theresa May is talking up Hard-Brexit options, and this is something that could continue to provide pressure into the Pound.

- Not to be lost in the shuffle, both EUR/USD and the US Dollar put in significant moves yesterday as each broke out to fresh inflection points. EUR/USD is softening after establishment of a fresh Q3 high, while USD is pulling back to find a bit of resistance from prior short-term support, taken around the 94.33 level that helped to set a short-term low on Tuesday and Wednesday of this week.

- 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.

GBP/USD: Cable Crushed as Brexit Talks Go Awry, FOMC on Deck

As we move towards the end of this week, a busy economic calendar is ahead as we approach the final week of Q3. The big item on the morning is an aggressive reversal showing in the British Pound as Brexit discussions have seemingly gone awry. While the currency has been lifted throughout September on optimism of a softened stance from the EU, a rejection of Theresa May’s Chequers plan has brought to light, again, the possibility of a No-Deal Brexit. This has invoked a sharp reversal in the British Pound, and bullish strategies should come into question as this new item or driver gets priced-in to the equation.

GBP/USD Hourly Price Chart: British Pound Breakdown as Brexit Talks Go Awry

gbpusd gbp/usd hourly price chart

Chart prepared by James Stanley

A Busy Calendar into the Q4 Open

As we move into the final week of Q3, a number of themes have shown items of interest, particularly around US Dollar pairs following the currency’s breakdown from support. The US Dollar started on a down-trend in January of 2017 that didn’t start to slow until February of this year. Q2 saw a bullish theme develop in the Dollar, but this also went along with some stark downside themes in both the Euro and British Pound. As we walked into Q3, we had the legitimate prospect of a continuation of that Dollar strength, as matters remained fairly risky around both Europe and the UK; and the Federal Reserve was sticking out as one of the few major Central Banks ready to continue pushing tighter policy.

That strength even lasted for the first-half of Q3. The US Dollar jumped up to the first target that we were looking for in our Q3 Technical Forecast on the US Dollar at 96.47; and after a week of stall, a reversal began to develop that continues to hold a bearing on USD price action. That theme gained speed as we traded through the second-half of Q3, and yesterday gave us a significant down-side break to fresh two-month lows; setting the stage for what looks to be a very interesting final quarter of 2018 around USD-pairs.

US Dollar Four-Hour Price Chart: Descending Wedge Breaks, Followed by Bounce Up to Resistance at Prior Support

us dollar usd four hour price chart

Chart prepared by James Stanley

FOMC, RBNZ Highlight Next Week’s Economic Calendar

It looks as though the quarter will finish with high potential for continued volatility, and next week’s economic calendar brings a number of high-impact US items, as we get at least one such release each day next week from Tuesday through Friday.

European CPI numbers will likely be highly-watched, as this could provide further evidence of sustainability for the pair’s bullish breakout. In the UK – we’re likely going to continue to see headlines around Brexit dominating the flow, and we may even get some BoE-speak on that topic when Mr. Mark Carney hosts a speech on Thursday.

DailyFX Economic Calendar: High-Impact Events for the Week of September 24, 2018

DailyFX Economic Calendar

Chart prepared by James Stanley

EUR/USD Breaks Out to Q3 Highs

This week’s bullish breakout in EUR/USD was significant for a number of reasons, key of which is the spot on the chart at which this theme took place. There was a build of resistance in the price zone that runs from 1.1709-1.1750, and this area had reversed multiple topside advances.

The latter-portion of July saw a steady outlay of selling pressure develop here, and when we re-encountered this zone in late-August, resistance was able to cap the advance. We saw the pair begin to re-engage with that zone last week; but this time – sellers weren’t able to push as deeply as the prior test in late-August. We looked at the pair trying to form higher-low support earlier in the week, and sure enough bulls were able to hold the line; embarking on another test of this key zone of resistance.

As we pointed out, the increasing frequency with which resistance was coming back into play combined with the higher-lows that were building as evidence of a waning impact of that long-term resistance – it appeared as though bullish breakouts would soon be on the cards for EUR/USD. That finally took place yesterday, and the pair ran-up to fresh Q3 highs.

EUR/USD Eight-Hour Price Chart: Bullish Breakout Brings Fresh Q3 Highs

eurusd eight hour price chart

Chart prepared by James Stanley

Now that we’re pulling back, the big question is where in this area of prior resistance might buyers come back-in. We’ve seen a bit of short-term support develop at the top of the zone, around 1.1750, but given the theatrics in the pair this week, this may not be able to hold support. A bit deeper, we had looked at a price around 1.1725, as this around swing-highs from both Friday and Tuesday of this week.

EUR/USD Hourly Price Chart: Bullish Breakout Pulls Back, Will Support Hold at Prior Resistance?

eurusd eur/usd hourly price chart

Chart prepared by James Stanley

GBP/USD: Is the Bullish Trend in the British Pound Done?

Possibly. It’s still very early in this scenario as we just got that new information this morning, but the singular factor that appeared to shift price action in the Pound as we came into August was that softened stance out of the EU. It appeared as though we were safe to escape away from a Hard-Brexit scenario, and this helped to hold higher-low support in GBP as buyers priced-in a softer landing than what was previously feared.

But – at this stage, it appears as though the UK needs to go back to the drawing board. And Theresa May is openly talking about Hard-Brexit or No-Deal Brexit options, and given the way we saw the currency trade earlier this summer, that would likely be a negative factor for GBP.

At this stage, it’s still early, and traders would likely want to take a step back to let price action show the way. If we do see that continued pressure price-in, similar to what happened in early-August, then we could move forward with a bit more confidence that this morning’s reversal becomes something more with the generation of a new bearish trend. However – if we do see buyers step-in to defend prices around prior areas of interest, such as the 1.3000 psychological level or perhaps even the zone we’ve been following just below that, running from 1.2918-1.2956, there may be a usable thesis for a return of strength in the pair.

GBP/USD Four-Hour Price Chart

gbpusd gbp/usd four 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 Q3 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




DXY Index Lingers Near August Swing Lows for Fifth Day

News events, market reactions, and macro trends.

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Talking Points:

- Market participants shrug off latest Trump tariffs after China vows to avoid devaluing the Yuan in the trade war, a sign that resolution may still be possible.

- A push higher by US Treasury yields is helping keep the US Dollar afloat, as it lingers near key support for a fifth straight day.

- Retail trader sentiment towards the US Dollar remains 'neutral,' but is on the precipice of shift to 'bearish.'

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

The US Dollar (via the DXY Index) continues to fight off attempts to push it lower, with yesterday's doji bar forming at critical support over the past three-plus weeks. Now, price is testing the late-August swing lows for the fifth consecutive day, a sign that market participants are not quite ready to choose a direction for the consolidating greenback.

Despite escalations in the US-China trade war, markets continue to brush off any long-term implications of real economic consequences. Even as the tit-for-tat attitude towards one another continued, the fact that China has vowed not to devalue the Chinese Yuan as a weapon leaves open the possibility that a resolution could still be eyed down the road.

Of course, it would be counterproductive for China to publicly declare a Yuan devaluation policy - it would certainly draw the ire of other economies like the EU or Japan - so any efforts made on the Yuan's behalf are likely to be stealth. To wit: a recent round of FX reserves figures showed that the People's Bank of China was allowing the Yuan to weaken by not selling off its reserves. Color this analyst skeptical that the US-China trade war is close to being resolved; it will continue to esclate before what seems to be an inevitable 'crashing back to earth' moment for market participants.

Elsewhere, the US economic calendar is quiet the rest of the session following this morning's housing data. Less than a week out from the Federal Reserve's September FOMC meeting, markets are still pricing in >95% chance of a 25-bps rate hike next week and are now pricing in at least an 80% chance of a hike in December. The September FOMC meeting may shape up to be a 'buy the rumor, sell the news' type of event for the US Dollar as near-term Fed policy tightening is already priced-in.

DXY Index Price Chart: Daily Timeframe (January to September 2018) (Chart 1)

DXY Index Lingers Near August Swing Lows for Fifth Day

Not much has changed for the US Dollar in recent days. The DXY Index remains on the precipice of breaking significant near-term support. Price is comfortably below its daily 8-, 13-, and 21-EMA envelope, while both daily MACD and Slow Stochastics have turned lower in bearish territory. A daily close below the late-August swing lows around 94.43 would trigger a downgrade in the US Dollar's near-term outlook from 'neutral' to 'bearish.'

Read more: DXY Index Tests Key Support for Fourth Consecutive Day

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX




Yen Drop May Continue, Euro Likely to Overlook PMI Data

Fundamental analysis, economic and market themes.

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TALKING POINTS – YEN, EURO, STOCKS, QUADRUPLE WITCHING

  • Yen down as Asia Pacific shares follow Wall Street higher
  • Risk-on mood aims to continue, ‘quadruple witching’ eyed
  • Euro unlikely to find lasting cues in PMI survey roundup

The Japanese Yen traded lower in otherwise quiet Asia Pacific trade as regional bourses followed Wall Street higher, putting pressure on the perennial anti-risk currency. Easing trade war worries inspired sharp gains in US shares, with the benchmark S&P 500 rising to the highest level on record.

RISK REBOUND MAY CONTINUE, QUADRUPLE WITCHING EYED

More of the same may be on offer in the final hours of the trading week. Futures tracking the FTSE 100 are pointing conspicuously higher ahead of the opening bell in London, hinting the risk-on mood has scope for follow-through. Conviction ahead of the weekly close may be limited however.

The possible impact of so-called “quadruple witching” also bears mention. This means that today will bring the simultaneous expiration of stock index futures, stock index options, stock options & single stock futures. That can bring kneejerk volatility as portfolios are rebalanced, muddying price action.

EURO MAY LOOK PAST PMI DATA

Eurozone PMI data headlines the economic calendar in European trading hours. The region-wide composite gauge is expected to print at 54.5 in September, leaving the pace of manufacturing- and service-sector activity growth unchanged from the prior month.

Economic data outcomes out of the currency bloc have increasingly disappointed relative to forecasts in recent weeks, opening the door for a downside surprise. That may not have a significant impact on the Euro however considering its limited implications for ECB policy, with the central bank on autopilot through year-end.

See our study on the history of trade wars to learn how it might influence financial markets!

ASIA PACIFIC TRADING SESSION

Asia Pacific Trading Session Economic Calendar

EUROPEAN TRADING SESSION

European Trading Session Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter




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