Forecasts

US Dollar May Resume Rising Trend After FOMC Rate Decision

Fundamental analysis, economic and market themes.

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FUNDAMENTAL FORECAST FOR THE US DOLLAR: BULLISH

  • US Dollar drops in pre-positioning for FOMC policy announcement
  • Risk appetite recovery offers trigger for unwinding long-USD trades
  • Rising trend likely to reemerge after the passing of critical event risk

See our free guide to get help gain confidence in your US Dollar trading strategy!

The US Dollar suffered a second consecutive week of heavy losses. Price action appeared to be defined by pre-positioning for the upcoming Federal Reserve monetary policy announcement due September 26, albeit not of the kind envisioned in last week’s forecast.

Looking at market expectations implied in interest rate futures, a hike following this month’s gathering of the FOMC committee has been all but fully priced in for a long time. The probability of another one in December has more recently grown to about 80 percent.

This seems to have made for asymmetric surprise risk, with more scope for volatility if Fed rhetoric deviates from status quo in the dovish versus the hawkish direction. That probably encouraged an unwinding of speculative net-long USD exposure, which the latest COT data put at a 16-month high.

Recovery in market-wide risk appetite seems to have provided the accelerant. The greenback had enjoyed support from haven-seeking capital flows amid recent worries about trade war escalation and emerging market instability. As these concerns receded, traders found a convenient narrative for USD sales.

The down move seems unlikely to be lasting. If sentiment holds up, the Dollar’s unrivaled yield appeal ought to be supportive. If it does not, haven demand is likely to reemerge. Getting on the other side of key event risk – i.e. the FOMC announcement – seems like the prerequisite for uptrend resumption.

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

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

US DOLLAR TRADING RESOURCES

OTHER FUNDAMENTAL FORECASTS:

New Zealand Dollar Forecast - Fed, RBNZ Risk Derailing Remarkable New Zealand Dollar Recovery

Japanese Yen Forecast - JPY Bears Eye 113 Level

Oil Forecast – Oil Firms Ahead of Algiers OPEC Meeting That May Set Stage for Q4

British Pound Forecast – Bullish Sentiment Erased by Brexit Impasse



Euro Forecast: Concerns Linger Over Italian Budget, Rising Hard Brexit Odds

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Euro Forecast: Concerns Linger Over Italian Budget, Rising Hard Brexit Odds

Fundamental Forecast for EUR/USD: Neutral

- Euro gains over the past week have largely driven by signs that the Italian government will fall in line with the European Union’s budgetary restraints.

- A surprising amount of negativity at the Brexit Salzburg summit this week knocked the British Pound lower, and dragged the Euro down alongside with it.

- The IG Client Sentiment Indexhas been upgraded to ‘bullish’ for the Euro as retail traders continue to buy the US Dollar on dips.

See our long-term forecasts for the Euro and other major currencies with the DailyFX Trading Guides.

The Euro was a top three performing major currency last week, only losing ground to the resurgent Australian and New Zealand Dollars, thanks to buoyed risk appetite around the globe. EUR/JPY led the way higher among the EUR-crosses, gaining +1.52%, while EUR/USD added +1.06% and EUR/GBP gained +1.03%. Amid a quiet economic calendar, the major catalyst for Euro gains was news that the Italian government wouldn’t run a budget deficit above 1.6% of its GDP, the threshold that European Commission officials have indicated would be necessary for approval and continued support from supranational institutions.

The key development to look out for with respect to the Italian budget will be what happens with short-term Italian debt. Recently, on August 31, the 2-year yield was as high as 1.465%; following the budget announcement this week, the 2-year yield fell as low as 0.630% (it closed the end of the week at 0.757%). It’s of no coincidence that the Euro rally in September coincided with a reduction of perceived short-term sovereign credit risk around Italy. If concerns around Italy are going to impact the Euro, it will be via another rise in short-term yields.

But if the Italian budget issue is about to fade into the background, the window between tensions is small. The return of ‘hard Brexit’ fears resulting from the surprisingly fractious Salzburg summit obviously hit the British Pound hard at the end of the week, but the spillover impact to the Euro was apparent as well. If odds of a disruptive exit from the EU increase, the uncertainty surrounding the impact to trade could be enough of a reason for the European Central Bank to push back its monetary policy timeline next year.

Elsewhere, the calendar may prove to be more of an influence this week than last. On Friday, the initial September Eurozone Core CPI is due in at +2.1% (y/y), a +0.1% increase relative to the annual pace observed in August. The core reading for Septemberis a slight increase over its Augustreading as well, due in at +1.1% from +1.0%(y/y). The Euro, on a trade-weighted basis, is essentially unchanged over the past year (after being up by over +9% y/y back in April 2018), it stands to reason that inflation has a natural cushion underneath it for the foreseeable future.

Nevertheless, with the ECB’s policy on a preset course – ending QE in December 2018 and raising rates in “summer 2019” – the impact the initial September Eurozone CPI report leaves on markets will be limited unless there is a significant deviation from expectations.

Lastly, looking at positioning, according to the CFTC’s COT for the week ended September 18, speculators remained net-long the Euro to the tune of 1.7K contracts, a drop from the 11.2K net-long contracts held in the week prior. Through September, and now likely for October, positioning is and will be a non-factor for the Euro (i.e. the risk of capitulation (covering) due to extreme positioning is extremely low).

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, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX.



JPY Rate Forecast: JPY Bears Eye 113 Level

Fundamental analysis, news events, market reactions and macro trends.

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Fundamental Forecast for JPY: Bearish

USDJPY Analysis and Talking Points:

  • Record High US Equity Markets Keeps JPY on the Backfoot
  • Key Risk Events Include: FOMC, US-Japan Trade Talks and Trump-Abe Summit

The Japanese Yen had another soft week, with the currency losing 0.5% against the US Dollar. The fundamental theme alongside the technical set up suggest that the recent weakness is set to continue. During the past week, the BoJ stuck to its ultra-loose monetary policy stance, reiterating the message that the BoJ will continue QQE until the 2% inflation target is reached. With core inflation running at sub 1%, this suggests that the exit is not expected for some yet. Consequently, US-JP bond spreads have continued to widen with the US 10yr pushing back above the key 3% level, which in turn has pushed USDJPY towards the 113.00 handle. For the upcoming week, we remain bearish on the Japanese Yen.

The beginning of the week will see the $200bln worth of tariffs on Chinese goods come into effect with a levy rate of 10%, as opposed to previously touted 25%. With price action somewhat muted for the Japanese Yen upon the announcement from the Trump administration, it is likely that the imposition will also be met with a muted reaction. Elsewhere, with the US equity markets printing fresh record highs, risks to USDJPY remain tilted to the upside as risk trends continue to spur outflows from the Yen.

Next week’s Economic Calendar

The recent rise in USDJPY faces a big test this week amid a slew of key risk events, which include the Federal Reserve rate decision, US-Japan trade talks and a summit between Trump and Abe. With the Federal expected to raise rates at the upcoming meeting and reaffirm its current rate path, the JPY is vulnerable to slipping past 113 against the Dollar. Markets will be closely watching the progress made with trade talks between the US and Japan in which failure to make progress could halt the USDJPY rise.

JPY Rate Forecast: JPY Bears Eye 113 Level

Source: DailyFX

USDJPY PRICE CHART: DAILY TIMEFRAME (April-September 2018)

JPY Rate Forecast: JPY Bears Eye 113 Level

Chart by IG

Technical Analysis

On the daily timeframe the bias continues to suggest that further upside is to be had in the pair following the breach above the 76.4% Fibonacci Retracement at 112.36. Consequently, the upside targets are at the psychological 113 handle before a test of the July peak at 113.17.

JPY TRADING RESOURCES:

--- Written by Justin McQueen, Market Analyst

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

Follow Justin on Twitter @JMcQueenFX

Other Weekly Fundamental Forecast:

New Zealand Dollar Forecast - Fed, RBNZ Risk Derailing Remarkable New Zealand Dollar Recovery



GBP: Bullish Sentiment Erased by Brexit Impasse

Fundamental analysis and financial markets.

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Fundamental Forecast for GBP: Neutral

Sterling (GBP) Talking Points:

  • Chequers plan now looks dead in the water in its current format.
  • The next two months is make-or-break for Brexit and UK PM Theresa May.

The DailyFX Q3 GBP Forecast is available to download.

The outlook for Sterling turns to neutral from bullish after a disastrous informal EU Summit meeting for UK PM Theresa May where her Chequers proposal was put to the sword by the EU 27. After starting the week well, with positive noises coming out of the EU over the proposal, the EU told the UK that the plan was unworkable and would need major revisions, something the UK has already ruled out. In normally circumstances, and these are anything but, a bearish view would be warranted but both sides still need to make an agreement as a no-deal would badly affect both economies. The sidelines remain the place to be for now.

Sterling volatility is expected to increase sharply in the coming weeks as the official EU Summit in October and the ‘emergency’ EU Summit in November come into view. The mid-November Summit is the last chance for a deal to be signed-off before the March 2019 Brexit date and is pivotal for Sterling’s short-, medium- and long-term direction. And before then the annual four-day Conservative Party conference, starting on September 30, may well see a fresh leadership challenge unless the PM can convince the party faithful to back her.

Next week’s data calendar is relatively clear aside from the final Q2 GDP release next Friday, although BoE governor Mark Carney will be on stage at a conference in Frankfurt on Thursday (14:00 GMT) and needs to be followed. GBPUSD traders should also be aware of a raft of heavyweight US economic data releases next week along with the latest FOMC meeting where US interest rates are fully expected to rise by another 0.25%.

The best Brexit-pair, EURGBP, shows how damaging the last 24 hours has been for Sterling sentiment with the pair rebounding sharply to a fresh two week high.

EURGBP Four Hour Price Chart (August 8 – September 21, 2018)

GBP: Bullish Sentiment Erased by Brexit Impasse

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

Other Weekly Fundamental Forecast:

New Zealand Dollar Forecast - Fed, RBNZ Risk Derailing Remarkable New Zealand Dollar Recovery

Japanese Yen Forecast - JPY Bears Eye 113 Level

Oil Forecast – Oil Firms Ahead of Algiers OPEC Meeting That May Set Stage for Q4



Gold Price Headed for a Break, may Turn Lower on Sour Sentiment


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Fundamental Forecast for Gold:Bearish

Gold Talking Points:

  • Gold vulnerable to a breakout lower as sentiment sours and safe haven demand wanes
  • Markets have already priced in a hike at next week’s Fed rate decision
  • Retail positioning remains bullish with 87% of clients net-long

Gold Price Beholden to Trend Lines

Gold posted a moderate rally this week, trading higher until Friday when the metal surrendered earlier established gains. Heading in to Friday’s close, gold is set to close only slightly above the week’s open. Also on Friday, the hourly chart reveals multiple tests of short-term support which dates back to mid-August.

Gold Price Chart 60-Minute Time Frame, September 14th – September 21st

Gold Price Headed for a Break, may Turn Lower on Sour Sentiment

Together with the resistance posted from gold’s decline beginning in April, the metal is quickly running out of room to trade within the two levels. Next week will see a significant development in the metal’s price when a break occurs.

Look for events like the Fed’s Rate Decision on our Economic Calendar.

A break lower would likely be stalled by the support dating back to December 2015, around the $1180 level. To the upside, gold will face resistance at the 50% Fibonacci level around $1209. A break higher would likely need a significant fundamental development to carry through with conviction, which is rather unlikely with a quiet economic calendar this next week.

Gold Price Daily Time Frame, Year-to-Date

Gold Price Headed for a Break, may Turn Lower on Sour Sentiment

However, one notable event is present Wednesday. The Federal Reserve is due to announce their decision on the interest rate range which currently rests at 1.75% to 2.00%. Although the event will be watched closely by investors, markets have already priced in a hike. Falling in line with the current trend of 25 basis point hikes, CME futures have the probability of an increase to 2.00% to 2.25% in the high 90’s.

Gold Price Headed for a Break, may Turn Lower on Sour Sentiment

Gold’s Limited Upside

Historically, gold demand wavers as equities provide strong returns. As US equities push to record heights, gold interest should dip. It could be argued the ongoing trade wars should stoke some safe haven interest but this has not been seen in the past few months, with gold posting a multi-month decline. Strong equities and waning safe haven demand has left gold the “odd man out” lately, providing few reasons for a determined move higher.

Gold Price Headed for a Break, may Turn Lower on Sour Sentiment

Conversely, retail positioning at IG remains net-long on gold. This week saw positions shift from 85% long to 87% long and because we typically view client sentiment as a contrarian indicator, gold prices may continue downward.

View how our clients are positioned on gold and other assets.

All in all, it looks as though gold is positioned for a break lower. Considering the limited upside potential, waning safe haven demand, strong equities, and priced in Fed decision, we could see gold test support dating back to 2015 in the upcoming week.

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

Contact Peter on Twitter at @PeterHanksFX

DailyFX forecasts on a variety of currencies such as the US Dollar or the Yen 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 introduction to the Forex market, check out our New to FX Guide.

Other Weekly Fundamental Forecasts:

New Zealand Dollar Forecast - Fed, RBNZ Risk Derailing Remarkable New Zealand Dollar Recovery

Japanese Yen Forecast - JPY Bears Eye 113 Level

Oil Forecast – Oil Firms Ahead of Algiers OPEC Meeting That May Set Stage for Q4

British Pound Forecast – Bullish Sentiment Erased by Brexit Impasse

US dollar Forecast – US Dollar May Resume Rising Trend After FOMC Rate Decision



CAD Rate Forecast: Loonie Awaits NAFTA Outcome for Direction

Fundamental analysis, news events, market reactions and macro trends.

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Fundamental Forecast for CAD: Neutral

USDCAD Analysis and Talking Points:

  • Canadian Dollar Awaits NAFTA Outcome
  • Widening US-Canadian 2yr Spreads Pushes USDCAD to Better Levels

See our Q3 CAD forecast to learn what will drive the CAD through the quarter.

Widening US-Canadian Bond Spreads Lifts USDCAD

The past week saw the Canadian Dollar weaken towards 1.32 against the greenback with much of the same factors contributing to the weakness. US-Canadian 2yr rate differentials continue to widen with the spread back above 60bps and thus moving in favour of USD buying vs CAD. Elsewhere, US data has outperformed relative to Canada amid strong NFP and ISM reads, while ongoing NAFTA discussions continue to cloud the outlook for the Loonie. The Bank of Canada provided a relatively balanced statement, leaving the door open for a hike in October.

US and Canadian 2yr Bond Spreads

CAD Rate Forecast: Loonie Awaits NAFTA Outcome for Direction

CAD Awaits NAFTA Outcome for Direction

As we look towards next week, the Canadian Dollar may see somewhat of a quieter week from the data front with a lack of tier 1 data to drive price action in the CAD. However, USDCAD may experience some volatility from the USD side with CPI due. Direction in CAD will likely depend on the tone regarding the ongoing NAFTA discussions with focus on whether an agreement can be reached.

Next week’s Economic Calendar

CAD Rate Forecast: Loonie Awaits NAFTA Outcome for Direction

Source: DailyFX

USDCAD PRICE CHART: DAILY TIMEFRAME (January-September 2018)

CAD Rate Forecast: Loonie Awaits NAFTA Outcome for Direction

Chart by IG

USDCAD Technical Levels

Resistance 1: 1.3180-1.32 (Resistance Area)

Resistance 2: 1.3290 (July high)

Support 1: 1.3115 (23.6% Fibonacci Retracement)

Support 2: 1.3080-90 (Trendline support)

CAD TRADING RESOURCES:

--- Written by Justin McQueen, Market Analyst

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

Follow Justin on Twitter @JMcQueenFX

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

Other Fundamental Forecast:

New Zealand Dollar Forecast - NZD/USD Prices May Fall on Swedish Election and as ECB Sinks Euro

Japanese Yen Forecast - The Japanese Yen Moves into the Tariff Conversation

Oil Forecast – Trade Wars and an Emerging Market Crisis Likely To Keep Oil Volatile

British Pound Forecast – Positive Momentum Will Continue to Drive Sterling Higher

Gold Forecast - Gold Prices Vulnerable to Sticky U.S Core CPI, Retail Sales

Australian Dollar Forecast – Australian Dollar Still Short Of Buy Signals Despite Strong Data

Chinese Yuan Forecast - Yuan Awaits China's Retaliation on US Tariffs, PBOC's Guidance



Australian Dollar Gains May Be Stymied By Fed Meet, Aftermath

Financial markets, economics, journalism and fundamental analysis.

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Fundamental Australian Dollar Forecast: Neutral

Australian Dollar Talking Points:

  • The Australian Dollar has posted some quite strong gains in the past three weeks
  • This is somewhat surprising given ongoing trade tensions
  • The coming week could see those gains level off

Find out what retail foreign exchange traders make of the Australian Dollar’s prospects right now, in real time, at the DailyFX Sentiment Page

The Australian Dollar has risen to three-week highs against its big US brother, getting perhaps even more of a respite than I predicted this time last week.

This is perhaps surprising in an environment of terrible trade relations between Washington and Beijing. Australia has after all vast economic, political and/or security ties with both nations and can sometimes seem unfortunately sandwiched between the two. Rising tensions there don’t promise Australia any good.

However, some investors are clearly betting that events will stop short of a full-blown trade war, and that might be translating into a bit of current Aussie Dollar strength. They’ll also have seen recent strong Australian economic numbers, from overall Gross Domestic Product growth to employment levels.

That said the coming week may not offer Aussie bulls a lot more to charge at. The domestic economic data slate is very sparse and the approaching Federal Reserve monetary policy meeting may remind markets that the interest-rate gulf between the US and Australia continues to yawn in the US Dollar’s favor and probably will for some time.

For all the Aussie Dollar’s current vigor, Australian rates remain at record, 1.50% lows. They have been there since August 2016 and, according to rate futures market pricing, are expected to stay put for the rest of this year and all of next. The current ‘Fedwatch’ prognosis from the Chicago Mercantile Exchange puts the chance of a US interest rate rise this week at more than 90%.

The rate gulf has kept AUD under broad pressure for much of this year and, although that long downtrend line is now perhaps under threat, it is still in place.

Australian Dollar Gains May Be Stymied By Fed Meet, Aftermath

Of course, the Australian Dollar is like all other currencies very much in thrall to global risk appetite and, if that holds up, it may well continue to gain. However, as there is no obvious data catalyst for this, and given that looming Fed meet, it’s a neutral call this week once again.

Resources for Traders

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

Other Weekly Fundamental Forecast:

New Zealand Dollar Forecast - Fed, RBNZ Risk Derailing Remarkable New Zealand Dollar Recovery

Japanese Yen Forecast - JPY Bears Eye 113 Level

Oil Forecast – Oil Firms Ahead of Algiers OPEC Meeting That May Set Stage for Q4

British Pound Forecast – Bullish Sentiment Erased by Brexit Impasse

US dollar Forecast – US Dollar May Resume Rising Trend After FOMC Rate Decision

Gold Forecast - Gold Price Headed for a Break, may Turn Lower on Sour Sentiment



Fed, RBNZ Risk Derailing Remarkable New Zealand Dollar Recovery

Classic technical analysis, macro and economic themes.

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New Zealand Dollar Fundamental Forecast: Bearish

  • NZD/USD was on pace for its best weekly performance since January 2017 on GDP data
  • Despite relatively upbeat economic growth, RBNZ may leave the door open to a rate cut
  • Fed rate hike and forward guidance for December may boost USD, weakening NZD next

Have a question about what’s in store for New Zealand Dollar next week? Join a Trading Q&A Webinar to ask it live!

Previously, the New Zealand Dollar was on pace to deliver its best performance against the US Dollar in a week this year so far. NZD/USD gained as much as 2.3 percent which was the most since January 2017. It could thank a better-than-expected New Zealand GDP report and market pre-positioning for the risk of a relatively dovish Fed.

The week ahead boasts a couple of notable event risk starting with the Reserve Bank of New Zealand interest rate announcement. Lately, the markets have been slowly pricing in an RBNZ rate cut with those odds at one point hovering around 30% for February 2019. However, last week’s upbeat local GDP data has diminished some of those dovish expectations. Overnight index swaps are now pricing in a 13.6% chance of a cut by then.

Despite the rosy GDP data, annualized rates of growth have slowed from the strong performance seen in 2016. Meanwhile the country has been experiencing mild disinflation since 2017. Adding on top of this is the central bank’s concern over weak business confidence which recently sank to its lowest since 2008. The door has been left open for a rate cut by RBNZ Governor Adrian Orr and it may very well stay that way.

Meanwhile the Fed has its own monetary policy announcement in the hours before the RBNZ. The markets are widely anticipating a rate hike and that may very well be. But they are also strongly pricing in another one for December. Those odds stand around 75%. Given that real wage growth was seen in the US, Fed Chair Jerome Powell may prepare the markets for the next move. This would help lift the US Dollar once more.

With that in mind, while the New Zealand Dollar has edged out a remarkable rally, there is the risk that it could come to a halt or reverse course. A dovish RBNZ may also help to somewhat derail the NZD’s ‘pro-risk’ ties to stock markets. So far, equities have largely brushed off news that the US will proceed with $200b in Chinese import tariffs which will begin on Monday. This could leave it failing to capitalize as much as it used to if the S&P 500 proceeds for another solid week. The outlook will be bearish.

Just getting started trading currencies? See our beginners’ guide for FX traders to learn how you can apply this in your strategy!

FX Trading Resources

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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