Forecasts

EUR/USD Rate Outlook Hinges on FOMC Forward-Guidance

Central bank policy, economic indicators, and market events.

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USD Chart

Fundamental Forecast for USD: Bullish

EURUSD Talking Points

The EUR/USD rebound following the European Central Bank (ECB) meeting appears to have stalled ahead of the Federal Reserve interest rate decision, and the failed attempt to test the monthly-high (1.1409) may bring the downside targets back on the radar as both price and the Relative Strength Index (RSI) continue to track the bearish trends from earlier this year.

The Federal Open Market Committee (FOMC) interest rate decision takes center stage even though the central bank is widely expected to keep the benchmark interest rate on hold as Fed officials are tasked with updating Summary of Economic Projections (SEP).

FOMC Chart

The fresh updates may show a further reduction in the growth and inflation outlook as the FOMC warns ‘that ‘some risks to the downside had increased, including the possibilities of a sharper-than-expected slowdown in global economic growth, particularly in China and Europe, and the committee may show a greater willingness to abandon the hiking-cycle ‘in light of global economic and financial developments and muted inflation pressures.’

Moreover, the SEP may no longer reflect a threat for above-target inflation as ‘participants noted that market-based measures of inflation compensation had moved lower in recent months,’ and the central bank may continue to alter the forward-guidance to reflect a more accommodative stance as mixed data prints coming out of the U.S. economy spur fears of a looming recession.

Fed Chart

Moreover, the FOMC may also unveil plans to taper the $50/month in quantitative tightening (QT) as Chairman Jerome Powell asserts that ‘the Committee can now evaluate the appropriate timing and approach for the end of balance sheet runoff, and a material adjustment in the monetary policy outlook may produce headwinds for the U.S. dollar amid indications of a policy error.

The sudden and abrupt shift in the Fed’s forward-guidance suggests the central bank may have done too much in 2018 after delivering one rate-hike per quarter, and Fed officials may adopt a more cautious tone over the coming months especially as the Trump administration struggles to reach a trade deal with China.

With that said, the U.S. dollar may face a bearish fate should the FOMC shows a greater willingness to abandon the hiking-cycle, but it remains to be seen if Chairman Powell & Co. will show a material revision in the interest rate dot-plot as Fed officials pledge to be ‘data dependent.’ In turn, ongoing projections for a longer-run interest rate of 2.75% to 3.00% may benefit dollar bulls, with recent price action in EUR/USD warning of range-bound conditions as the exchange rate snaps the series of higher highs & lows from earlier this week. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Looking for a technical perspective on the US Dollar? Check out the Weekly USD Technical Forecast.

EUR/USD Daily Chart

EURUSD Chart

Keep in mind, the broader outlook for EUR/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) track the bearish trends from earlier this year, but the exchange rate may continue to consolidate over the coming days as the recent rebound in the exchange rate fails to generate a run at the monthly-high (1.1409).

Lack of momentum to break/close above the 1.1340 (38.2% expansion) pivot brings the Fibonacci overlap around 1.1270 (50% expansion) to 1.1290 (61.8% expansion) back on the radar, with a break/close below the stated region raising the risk for a move back towards 1.1190 (38.2% retracement) to 1.1220 (7.86% retracement), which sits just above the yearly-low (1.1176).

Additional Trading Resources

For more in-depth analysis, check out the 1Q 2019 Forecast for EUR/USD

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 Analyst

Follow me on Twitter at @DavidJSong.

Other Weekly Fundamental Forecasts:

Australian Dollar Forecast -Australian Dollar Could Slide Again If RBA Speakers Stay Dovish

Crude Oil Forecast -Crude Oil Price Outlook Clouded by OPEC Meeting, Fed Rate Decision

British Pound Forecast - Brexit Meaningful Vote - Third Time Lucky?



Euro Forecast: Focus for EURGBP, EURUSD Turns to BOE, Fed Meetings

News events, market reactions, and macro trends.

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euro forecast

Fundamental Forecast for the Euro: Neutral

- The highest rated Euro-centric data due out this week are the ZEW surveys on Tuesday, although the March PMIs due out on Friday are likely to generate the greatest market reaction among the EUR-crosses.

- Improving European economic data may help spark a short covering rally in the EUR-crosses; per the CFTC’s COT report, speculative short positions are coming off of their highest level in three years.

- The IG Client Sentiment Indexshows that retail traders are selling EURUSD rallies – a contrarian signal that more gains may be yet to come.

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

Despite enduring significant losses at the start of the month around the March European Central Bank policy meeting, the Euro has been on a bit of a tear the past week-plus. As the calendar turned into the ides of March, only EURGBP posted a negative performance over the week, closing down by -1.29% as the latest Brexit developments pointed to a potential delay in the process beyond the original March 29 deadline.

Since hitting a fresh yearly low on March 7, EURUSD has gained in five of six sessions; meanwhile EURJPY has gained in four of the past six (its yearly low remains the January 3 Yen flash-crash low).

Economic Data Momentum Continues to Improve

An objective look at European economic data shows that conditions have continued to improve, relatively speaking, over the past few weeks. In recent days we’ve seen January German trade data and January Eurozone Industrial Production figures come in better than economists’ forecasts. As a result, heading into the coming week, the Citi Economic Surprise Index for the Eurozone has moved up to -34.1 from -49.5 one week earlier, up further from -79.7 on February 15.

Stability in Energy Prices Helping Anchor Inflation Expectations

eurozone inflation expectations, brent oil

Stability in the conditions around inflation may be helping support the Euro’s recent rebound. ECB President Mario Draghi’s preferred measure of inflation, the 5-year, 5-year inflation swap forwards, closed last week at 1.466%, slightly higher from where it was one month earlier at 1.438. The ongoing rebound in energy prices seems to be helping, with Brent Oil prices up by +1.4% since February 15.

‘Barbell’ Economic Calendar in Week Ahead for Euro

The Eurozone economic calendar for the coming week is shaped kind of like a barbell: traders will want to pay attention to data due out on Tuesday and on Friday, with little practical need to pay attention to any release in between. The March Eurozone and German ZEW Surveys on Tuesday may help shine some light on how institutional investors feel about the recent turn in economic data, particularly after the ECB’s announcement for another TLTRO program. On Friday, the preliminary March Eurozone PMI reports, on balance, are expected to show signs of a modest uptick in growth conditions (Composite due in at 52 from 51.9).

EURGBP to Stay at Center of Attention

The middle of the week will be defined by what’s happening in the secondary pair in EUR-crosses. EURGBP will be of particular interest, given the UK inflation report for February due out on Wednesday and the March Bank of England meeting on Thursday.

Furthermore, one can’t dismiss the impact that the Brexit negotiations are having on the broader EUR-complex: good Brexit news means EURGBP likely depreciates; when GBP leads EUR, other EUR-crosses have tended to outperform. And vice-versa: bad Brexit news means EURGBP likely appreciates; when EUR leads GBP, other EUR-crosses have tended to underperform.

Middle of Week Sees Fed Meeting (Among Others)

Elsewhere, EURUSD will likely see volatility swell on Wednesday with the March Fed meeting. Although no policy change is expected, a new Summary of Economic Projections (growth, inflation, unemployment, and rate forecasts) typically generates a decent reaction in FX markets. Similarly, Fed Chair Jerome Powell’s press conference should keep things interesting on Wednesday afternoon.

Beyond the two major EUR-crosses, traders will want to have EURAUD on their radar on Thursday when the February Australian jobs report is released, especially as rates markets shift pricing around the next expected Reserve Bank of Australia move (according to overnight index swaps, 54% chance of a 25-bps rate cut before August).

Lastly, with signs (including in the Eurozone) of stability in energy prices filtering through to stability in inflation readings, traders will want to pay particular attention to EURJPY on Thursday when the March Japanese inflation report is released and to EURCAD on Friday when the March Canadian inflation report is made public.

Positioning Data No Longer Lagging – Short Covering Rally Soon?

euro net non-commercial positioning, eurusd spot

Finally, looking at positioning, according to the CFTC’s COT for the week ended March 12, speculators decreased their net-short Euro positions to 75.6K contracts, down from the 78.2K net-short contracts held in the week prior. It’s worth noting that we’ve recent come off of a three-year high in net-shorts. Given the current backdrop, one can’t dismiss the possibility of a short covering rally in the coming weeks.

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.



USD/JPY Flash-Crash Rebound Looks to U.S. Retail Sales for Fuel

Central bank policy, economic indicators, and market events.

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Image of usdjpy chart

Japanese Yen Talking Points

USD/JPY may face range-bound conditions ahead of the next Federal Reserve interest rate decision on January 30 as the central bank adjusts the forward-guidance for monetary policy, but fresh data prints coming out of the U.S. economy may fuel the sharp rebound following the currency market flash-crash should the developments instill an improved outlook for growth and inflation.

Fundamental Forecast for Japanese Yen: Neutral

The Federal Open Market Committee (FOMC) appears to be withdrawing the hawkish forward-guidance as ‘changes in financial conditions appeared to reflect greater concerns about the global economic outlook,’ and the central bank may continue to change its tune over the coming months as ‘participants also reported hearing more frequent concerns about the global economic outlook from business contacts.

It seems as though the Fed is less confident the U.S. economy will be able to tolerate higher interest rates amid the slowdown in global growth, and an increasing number of central bank officials may endorse a wait-and-see approach as Chairman Jerome Powellargues that the FOMC has the ‘ability to be patient and watch patiently.’ In turn, market participants may pay increased attention to Kansas City Fed President Esther George as the 2019 FOMC voting-member is scheduled to speak ahead of the policy meeting, and a batch of cautious comments may produce headwinds for the dollar as U.S. Treasury yields come back under pressure.

Image of fed interest rate forecast

However, updates to the Retail Sales report may heighten the appeal of the greenback as private-sector spending is expected to increase another 0.2% in December, and little to no evidence of a recession may keep the FOMC on track to further normalize monetary policy as the economy sits at full-employment, while inflation holds near the 2% target. In turn, Chairman Powell & Co. may continue to project a longer-run interest rate 2.75% to 3.00%, and the narrowing balance sheet along with guidance for higher borrowing-costs may cushion USD/JPY in 2019 especially as the Bank of Japan (BoJ) remains in no rush to move away from its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control.

Image of Fed GDPNow forecast

With that said, signs of a robust economy may challenge the recent shift in central bank rhetoric as the Atlanta Fed GDPNow model forecasts a 2.8% rate of growth for the fourth-quarter of 2018, and USD/JPY may try to stage a larger correction over the coming days as long as the Relative Strength Index (RSI) holds above 30. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

USD/JPY Daily Chart

Image of usdjpy daily chart

Keep in mind, the broader outlook for USD/JPY remains tilted to the downside as both price and the RSI snap the bullish trends carried over from the previous year, but the failed attempt to test the 2018-low (104.63) may generate range-bound conditions as the momentum indicator snaps back from oversold territory.

As a result, the Fibonacci overlap around 109.40 (50% retracement) to 110.00 (78.6% expansion) sits on the radar, but the lack of momentum to hold above the 108.30 (61.8% retracement) to 108.40 (100% expansion) region raises the risk for a move back towards 106.70 (38.2% retracement) to 107.20 (61.8% retracement), with the next area of interest coming in around 105.40 (50% retracement).

For more in-depth analysis, check out the 1Q 2019 Forecast for Japanese Yen

Additional Trading Resources

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 Analyst

Follow me on Twitter at @DavidJSong.



GBP Fundamental Forecast: Brexit Meaningful Vote - Third Time Lucky?

Fundamental analysis and financial markets.

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GBP Chart

Fundamental Forecast for GBP: Neutral

Sterling (GBP) Talking Points: Brexit and the Bank of England

  • PM May is running out of options as Brexit nears.
  • Bank of England will leave policy unchanged but update on Brexit preparations.

The DailyFX Q1 GBP Forecasts are available to download including our short- and medium-term look at Sterling.

As we write, the UK remains set to leave the EU in two weeks’ time after the government lost the second Meaningful Vote on Tuesday by another sizeable majority of 249 votes. The PM has promised a third and final vote on her Withdrawal Bill – expected on Tuesday March 19 – and is likely to lose that vote as well. If this is the case, the UK will apply to the EU for an extension of Article 50. It is this potential extension of Brexit that is currently propping up Sterling at its current levels as investors believe that a second referendum or a soft Brexit become more likely. The UK will still legally leave the EU by default on March 29 unless an extension is agreed. What is becoming more likely though is that the EU will only grant an extension if a clear and workable deal is presented to them, or if the UK promises a second referendum. PM May is also coming under increasing pressure from within her party to move aside, although looks unlikely in the short-term.

While Sterling remains resilient, next week will see increased volatility as the clock winds down leaving GBP at risk of a sharp sell-off if no agreement on an extension is agreed.

The Bank of England’s latest policy announcement on Thursday will see all monetary settings left unchanged as Brexit dominates forward planning. BoE governor Carney will again update on the bank’s readiness for anything that happens post-March 29. Before this meeting, the latest UK jobs and wages data will be released on Tuesday, one day before the inflation numbers are announced.

DailyFX Economic Calendar

GBPUSD currently is benefitting from a small bid around the 1.3200, which if broken leaves 1.3177 as the next step down. Below here the 200-day moving average at 1.2940 guards the 23.6% Fib retracement at 1.2894. According to the RSI indicator, GBPUSD is neither overbought or oversold, while IG client sentiment highlights net-long and net-short positions are very evenly balanced. Overall however, the chart remains positive, suggesting higher prices ahead.

Looking for a technical perspective on the British Pound? Check out the Weekly GBP Technical Forecast.

GBPUSD Daily Price Chart (July 2018 – March 15, 2019)

GBPUSD Chart

IG Client Sentiment data show 50.6% of traders are net-long GBPUSD. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggest that GBPUSD prices may fall. However, if we factor in recent daily and weekly positional changes, we get apositive GBPUSD trading bias.

Traders may be interested in two of our trading guides, especially in times of volatilityTraits 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 Forecasts:

Australian Dollar Forecast -Australian Dollar Could Slide Again If RBA Speakers Stay Dovish

Crude Oil Forecast -Crude Oil Price Outlook Clouded by OPEC Meeting, Fed Rate Decision



Gold Price Forecast: Where Will XAUUSD Breakout Next?

Macroeconomic trends, technical analysis and capital market alerts.

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GOLD PRICE FUNDAMENTAL FORECAST – TALKING POINTS

  • XAUUSD has tiptoed around the $1,300 price area for most of 2019 but its next move could be telling if gold’s long-term uptrend will prevail or if the precious metal will start breaking lower
  • Fundamental factors like demand for the anti-risk asset and the Federal Reserve’s latest view on the economy could serve as possible catalysts that dictate gold’s next direction
  • Download the free DailyFX Gold Forecast here for comprehensive insight from our analysts on the gold market

Spot gold rose to $1,302.13 as of Friday’s close, a mere 0.32 percent gain on the week as prices remain anchored around the current level. A weak US Dollar helped boost gold prices higher early in the week, but traders shied away from the precious metal after muted CPI data hurt demand for the asset which generates appeal for its inflation-hedging properties.

Although XAUUSD price action has recently been largely dominated by technical indicators, that could quickly change as fundamental forces impacting gold come into focus next week. With the Fed’s latest stance on monetary policy and the market’s subsequent reaction to its announcement likely taking the spotlight, commodity traders will closely watch gold for a breakout – or breakdown – that looms.

SPOT GOLD PRICE CHART: DAILY TIME FRAME (AUGUST 09, 2018 TO MARCH 15, 2019)

Spot Gold Price Chart XAUUSD

The chart above shows how the price of gold has coiled between its longer-term uptrend and shorter-term downtrend. At the same time, XAUUSD has fallen below its 0.786 Fibonacci retracement line drawn from the low last August to February’s high. This line rests slightly above the $1,300 price level where prices have previously based. However, after falling below this support level, it has now become resistance which is also touching the 20-day moving average.

Meanwhile, US equities have climbed over 12 percent since the beginning of the year while anti-risk assets such as gold and Treasuries remain bid. This recent trend seems particularly unusual given the current stage of the business cycle and typical relationship between stocks, gold and yields.

SPOT GOLD VS S&P500 VS US 10-YEAR TREASURY YIELD PRICE CHART: DAILY TIME FRAME (JANUARY 02, 2019 TO MARCH 15, 2019)

Spot gold price chart overlay with US 10 Year Treasury Yield and S&P500 SPX Index

Yields have come under pressure following the Federal Reserve’s dovish shift away from tightening. In response, equities staged a roaring comeback after falling into bear market territory at the end of last year as investors celebrated the return of easy-money policy from the Fed. However, fears over slowing global growth still linger in the background and is illustrated by the persistent downward pressure on long term yields and resilience of gold.

Investor angst over how far out the next recession is could easily flare up at any moment as it did in October and December 2018. When pessimism paralyzes markets, investors race to sell risky assets like stocks and pile into safe havens like gold and bonds which drives yields down and gold prices up. With the FOMC set to meet next week for the second time this year, markets will receive an updated perspective on the Fed’s policy and its latest reading of the economy.

Further dovishness expressed by Chair Powell could send yields plummeting to their lowest level of the year, especially if growth forecasts are cut or the Fed’s dot plot projection is lowered. Although equities might get a boost from cheap money monetary policy, lower yields and slower growth is likely to push gold higher. On the contrary, no change to outlook or update on the Fed’s balance sheet tapering could disappoint gold bulls. Consequently, the upcoming FOMC meeting will likely be telling where gold prices head from here. So how are gold traders positioned headed into next week?

SPOT GOLD TRADER SENTIMENT

Spot Gold XAUUSD Trader Sentiment Client Positioning Price Chart

Check out IG’s Client Sentiment here for more detail on the bullish and bearish biases of EURUSD, GBPUSD, USDJPY, Gold, Bitcoin and S&P500.

According to IG client sentiment data, 74.1 percent of traders are net-long spot gold. This has resulted in a 2.85 long to short ratio while the number of spot gold traders net long has decreased by 9.1 percent relative to last week. Check out this free educational guide on how to analyze sentiment indicators and incorporate them into your trading strategy.

Visit our Education Center for more information on Free Trading Guides and Forecasts.

OTHER WEEKLY FUNDAMENTAL FORECASTS

Oil Forecast – Crude Oil Price Outlook Clouded by OPEC Meeting, Fed Rate Decision

USD Forecast – EUR/USD Rate Outlook Hinges on FORM Forward Guidance

GBP Forecast – Brexit Meaningful Vote: Third Time Lucky?

AUD Forecast – Australian Dollar Could Slide Again If RBA Speakers Stay Dovish

-Written by Rich Dvorak, Junior Analyst for DailyFX

-Follow @RichDvorakFX on Twitter

---



Canadian Dollar May Be Torn Between Upbeat Local and US Econ Data

Classic technical analysis, macro and economic themes.

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CAD Price Chart

Canadian Dollar Fundamental Forecast: Neutral

  • Canadian Dollar gained as relatively dovish Fed boosted stocks and crude oil prices
  • Focus next week shifts to economic data with US-China trade deal pushed back for now
  • Both local and US economic data may beat estimates, S&P 500 might struggle to rise

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

The Canadian Dollar rose this past week as a relatively dovish Fed sunk the US Dollar, boosted stocks and crude oil prices. At home, the Loonie didn’t spend much time noticing a better-than-expected GDP report. Despite the beat in the YoY rate for November 2018 (1.7% versus 1.6% expected), growth was at its slowest in two years. The MoM one contracted 0.1% which was in-line with estimates.

Probabilities of a Bank of Canada hike simultaneously dropped after the cautious tone from the FOMC meeting. Overnight index swaps were pricing in a 15.9% chance of a BoC hike by July 2019, down from almost 40% confidence at the beginning of this past week. Yet, the Loonie still stood relatively strong, which speaks directly to what it was focusing in the interim: sentiment.

There has been a noticeably strong inverse correlation between USD/CAD and both the S&P 500 and crude oil since October. The latter two have spent most of January recovering as markets grew doubtful of a hawkish Federal Reserve and optimistic about a deal between the US and China to end the trade war. With an outcome on the latter being pushed back for the “near future”, the focus shifts to economic data.

After all, both the Fed and the BoC are quite data-dependent and arguably the most hawkish of the major central banks (albeit that has diminished somewhat as of late). Next week contains Canadian employment data. Economic statistics out of the country has been tending to outperform relative to economists’ expectations, opening the door to an upside surprise.

The same also holds true in the United States. As such, the first estimate of Q4 GDP and PCE core (the Fed’s preferred measure of inflation) may also surprise better. With that in mind, the Canadian Dollar fundamental forecast will look neutral. On a side note, the S&P 500 and market sentiment could be running out of room to keep rallying which may reverse gains in oil prices and bode ill for CAD down the road.

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

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

Other Weekly Fundamental Forecasts:

Australian Dollar Forecast - Australian Dollar Could Wilt If Focus Returns To Interest Rates



Australian Dollar Could Slide Again If RBA Speakers Stay Dovish

Financial markets, economics, journalism and fundamental analysis.

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AUD Chart

Fundamental Australian Dollar Forecast: Bearish

  • The coming week brings plentiful opportunities to gauge thinking at the Reserve Bank of Australia
  • Recent history suggests that this may not be good news for Aussie bulls
  • Look out for signs of trade settlement between the US and China though

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 endured a somewhat calmer time last week than it has for much of this young year.

Admittedly-feeble official Gross Domestic Product numbers were probably the domestic focus. However, they were for the final quarter of 2018 and investors have had plenty of more current data to chew over since then, not that much of it has been particularly rosy.

In any event the currency didn’t suffer the sort of knocks it had to endure last month when the Reserve Bank of Australia admitted that record low interest rates could yet fall further, and when it made big cuts to its own growth and inflation forecasts.

The coming week will bring the minutes of the last RBA monetary policy meeting and speeches from two of its members. Deputy Governor Guy Debelle and Assistant Governor Michael Bullock will both be talking.

Given the relatively ‘dovish’ monetary policy tone of RBA speakers these days, it seems unlikely that any of these events will be especially upbeat for the Australian Dollar. Any reminders that the RBA welcomes a weaker currency or leans towards a neutral view of the likely interest rate path, could see the Aussie slip further.

Some key economic data are also due, though, of which official employment numbers will be the most important. The labor market is one of Australia’s few unarguable economic success stories, with strong job creation holding up remarkably well even as other indicators wilt. If this trend endures, Aussie bulls could well jump at it, but signs of weakness even here would probably be quite damaging to their cause.

Purchasing Managers Indexes for March will also be released. The previous month’s PMI showed the service sector in the doldrums while manufacturing continued to expand. Traders can probably expect a short-lived AUD/USD move on these data but little more given their modest bearing on inflation and, therefore, RBA policy.

All up this looks like a week when the overall lack of interest-rate support could weigh on the currency again, so it’s a bearish call. Assuming no outlandish economic weakness, however, there seems little reason to suppose that falls will be heavy, even so. Look out for trade-settlement headlines between the US and China too. Hints of progress here will very likely see AUD/USD catch a bid.

Looking for a technical perspective on the Australian Dollar? Check out the Weekly AUD Technical Forecast.

AUDUSD Chart

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!



NZD/USD Looks Vulnerable. How Dovish Will the RBNZ Turn Next Week?

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NZD

New Zealand Dollar Fundamental Forecast: Bearish

  • New Zealand Dollar depreciated as sentiment soured, jobs report boosted RBNZ rate cut bets
  • Next week contains first RBNZ rate decision since November, much has happened since then
  • The RBNZmay echo dovishness and concerns from other central banks, but by how much?

We just released our 4Q forecast for equities, which may impact NZD, in the DailyFX Trading Guides page

The pro-risk New Zealand Dollar turned lower last week along with a downturn in sentiment which saw the Dow Jones Industrial produce a bearish reversal pattern. Pessimism in markets occurred with worrying news regarding the US-China trade war front. US President Donald Trump noted that it is unlikely he will be meeting China’s President, Xi Jinping, before a deadline which – if passed - could trigger an increase in tariffs (March 1).

Arguably, the largest contributor to the decline in NZD/USD was a disappointing local jobs report however. The unemployment rate shot higher from 3.9% to 4.3% in Q4 2018 while the country added jobs at the slowest pace since Q1 2016. Looking at the chart below, RBNZ rate cut bets increased as the New Zealand Dollar weakened.

nzdusd

With that in mind, all eyes next week will be on the first Reserve Bank of New Zealand rate decision since November. A lot has happened since then. Most notably, the majority of developed central banks downgraded their views regarding economic projections. The most sudden shift to a more dovish stance came from the Fed as it went from expecting three hikes this year to perhaps none at all.

Closer to home, the Reserve Bank of Australia still held on to its neutral outlook on rates which initially boosted the Australian Dollar. However, Governor Philip Lowe then noted that they are no longer favoring a hike as their next move. This sent the Aussie Dollar collapsing and gives us a rather good idea of what could happen in the week ahead.

Unlike the RBA, the RBNZ has a more balanced view on monetary policy in the first place. Governor Adrian Orr noted back in November that they are not taking cuts off the table. He also noted that they envisioned rates rising perhaps in the third quarter of 2020 as it raised inflation expectations. With that in mind, the question here is how dovish will the RBNZ appear relative to expectations?

Overnight index swaps are pricing in about a 42% chance of a cut as soon as June 2019. If the central bank downgrades their economic projections but still surprises markets with leaving the door open to a hike, it could end up boosting the New Zealand Dollar. This is like what we saw with the Bank of England this past week. Keep in mind that Mr. Orr will then speak an hour after the interest rate decision. Cautious commentary that echoes the dovishness from other central banks could add weakness to Kiwi Dollar, making for a volatile day.

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

Other Weekly Fundamental Forecast:

Australian Dollar Forecast – Australian Dollar Could Take Some Rest On The Road Lower



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