Forecasts

US Dollar May Gain if IMF Report, US GDP Data Fuels Haven Demand

Political economy, economic and market themes.

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DXY Price Chart

US DOLLAR FUNDAMENTAL FORECAST: BULLISH

  • US Dollar may gain on risk aversion if US GDP data undershoots forecasts
  • USD spike may be amplified if IMF report shows fragility in global economy
  • Will USD strength from higher liquidity demand crush rate cut expectations?

See our free guide to learn how to use economic news in your trading strategy!

The US Dollar will likely experience higher-than-usual volatility in the week ahead as the IMF prepares to publish its updated outlook for the world economy along with the release of critical US economic data. Depending on the nature of the data, if it falls in line with the fundamental trajectory of slower growth and increased risks to the financial system, the US Dollar may experience capital inflow from panicked investors.

The biggest event risk for the week will likely be the release of US Q2 GDP data. The report is expected to show a quarter-on-quarter annualized growth rate of 1.8 percent which would mark the slowest pace of expansion since Q1 2017. Since February, economic data out of the US has been tending to underperform relative to economists’ expectations. It would not be surprising to see GDP data fall in line with this trend.

Are Economists Overestimating the Strength of the US Economy?

US

Note: Data shown in red indicates underperformance, blue means better-than-expected

US Dollar strength may also emerge from the publication of the IMF’s World Economic Outlook update, the title of which in January was “A Weakening Global Expansion”. Given the trajectory of global growth and tense trade relations in developed and emerging markets, it is likely the updated outlook will carry the same pessimistic undertones outlined in January’s report. Only this time, the gloom and doom may be amplified.

With market participants already expecting slightly lower-than-even oddsof a 50 bp cut at the FOMC meeting in July, it leaves increasingly less room for additional dovish expectations. If GDP data undershoots and the IMF report spooks investors, the US Dollar may rise as traders shift from chasing yields to preserving capital. As such, the downward pressure of Fed rate cut bets may be overwhelmed by the desire for liquidity in uncertain times.

Chart Showing US Dollar Index and Implied Federal Funds Rate for January 2020

EURUSD

US DOLLAR TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter



Q3’19 Euro Forecast Sees Economic, Political Uncertainties Back on the Rise

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Political Pressure is on the Rise Again

There are two significant political issues in play for the Euro at present time that will garner more attention over the coming weeks and months. First, how does the relationship between Italy and Brussels evolve? The Italian government continues to be a thorn in the side of pan-European policymakers (especially as concerns grow that its new debt offering could be akin to a parallel currency to the Euro) and will likely stymy any significant fiscal policy changes. Second, will the EU revoke Switzerland’s preferential treatment for its stock exchanges? There could be ramifications for Brexit (e.g. the EU won’t treat the UK different than it treats Switzerland and vice-versa).

The next president of the European Central Bank will be decided in the coming months. Outgoing ECB President Mario Draghi has a complicated history in office, having saved the Euro from dissolution but failing to get the Eurozone over the low growth hurdle in the wake of the Global Financial Crisis. Politics is very much in play here, with French President Emmanuel Macron clearly lobbying against former German central banker Axel Weber, going so far as to extend an olive branch to noted hawk and Bundesbank president Jens Weidmann (a key opponent to QE and low rates in years past; he has since recanted those views). Read the full preview on the next ECB president.

Euro Technical Outlook Inconclusive

Euro technical positioning looks inconclusive at the mid-year mark. Breaking above resistance at the top of a bullish Falling Wedge chart formation on the bellwether EURUSD exchange rate offered a brief glimmer of hope for an upside reversal, but follow-through failed to materialize. The pair swiftly slumped back below the boundaries of the breakout, settling into a choppy range.the monthly chart offers a stark reminder that any such moves will probably prove to be short-lived. It puts prices within the bounds of a well-defined, structural downtrend guiding EURUSD

lower for over a decade. The latest leg of the decline was apparently triggered in October 2018 with a break below range top resistance-turned-support dating back to the first half of 2015.

EUR/USD Price Chart: Monthly Timeframe

EURUSD

This barrier has been recast as resistance in the 1.1449-1.1554 area once again. The next big layer of support is in the 1.0459-1.0563 zone. Prices spent nearly two years oscillating between these thresholds previously, so seeing more of the same here now is not terribly surprising. Still, it would take truly explosive gains bringing prices well north of 1.20 to make the case for true bullish trend change.



Yen Supported by Two Huge Uncertainties; USDJPY Downtrend May Extend

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Havens Still Required

The Japanese Yen has headed into a new calendar quarter on a high note, with its customary haven role underscoring demand which has brought USD/JPY down to its 2019 lows.

The currency has been supported by a range of economic uncertainties, of which two loom the largest. The first is the ongoing trade dispute between the US and China. There has been some cooling of rhetoric on this subject from both sides as May has slipped into June. A durable settlement clearly remains elusive, but any headlines suggesting that such an end is being actively and amicably sought could well see risk appetite revive, probably to the detriment of the Yen.

To read the full Japanese Yen Forecast, download the free guide from the DailyFX Trading Guides page

USDJPY

Technical Analysis: USDJPY Downtrend May Extend into Third Quarter

In the second quarter USDJPY technical forecast, I outlined a couple of brewing bullish and bearish candlestick formations that might have defined the outlook for months to come. At the time, price action hinted that the more likely scenario would be a resumption of the dominant downtrend from 2015. Heading into the third quarter of 2019, that is looking to be the more likely outcome.

To read the full Japanese Yen Forecast, download the free guide from the DailyFX Trading Guides page

USD/JPY Monthly Chart

USDJPY


British Pound Q3 Forecast: Sterling Fundamentals - Volatility Set to Rise as Brexit D-Day Nears

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Sterling (GBP) is likely to become more volatile as the clock ticks down to the latest Brexit deadline - October 31st – with both sides becoming increasingly weary and frustrated at the continued ‘cankicking’ exercise. Against this backdrop, Sterling is likely to become more volatile, a boon for traders who have had to sit back and watch most Sterling pairs trade in relatively restricted ranges over the past three months.

GBP

Chart prepared by Nick Cawley

Sterling Q3 Technical Analysis: GBPUSD: Holding Flash Crash Trendline Support

Losses persisted for GBPUSD after failing to consolidate above the 1.3000 handle. Although, at the back end of Q2, the pair had managed to find stability above 1.2500, which also coincided with the rising trendline stemming from the October 2016 flash crash. While the pair may have found a floor at 1.2500 in the near-term, momentum indicators on the longer-term timeframes (weekly & monthly) remain tilted towards a bearish bias, thus a retest of 1.2500 cannot be ruled out, particularly if a closing break below the key trendline was made, which would expose the 1.2426 January low.

GBP

Chart prepared by Justin McQueen

To read the full British Pound Forecast, download the free guide from the DailyFX Trading Guides page



Gold Price Weekly Forecast: Fed Drives Next Leg Higher

Fundamental analysis and financial markets.

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Gold Price Chart

Gold Price Fundamental Forecast: Bullish

Q3 2019 Gold Forecast and Top Trading Opportunities

Gold Boosted by a Variety of Positive Drivers

I remain bullish for gold in the short-term although current levels need to be consolidated before the next leg higher. The fundamental backdrop for the precious remains positive, with the latest boost coming from dovish commentary from NY Fed vice chair John Williams who said that the central bank should stay ahead of the curve especially if the data shows the economy weakening. While these comments were subsequently said to be from academic research, the fact that a major Fed official voiced them gives a clue into the central bank’s thinking. The next FOMC meeting is at the end of July with a 25-basis point now fully priced-in while market odds of a 50bp cut have risen sharply.

Gold has also been in demand from central banks over the past few weeks, China and Russia in particular, who have been diversifying away from the US dollar and the current trend for central banks to weaken their currency to gain competitiveness. With gold priced in US dollars, any weakness in the currency gives a boost to the price of the precious metal. Large swathes of the global bond market also now reside in negative yield territory, weakening currencies further and making fixed income, a traditional risk-off asset class, unattractive for investors.

In addition, global tensions continue with the US-China trade dispute still unresolved, and with the US now training its sights on the EU, while the US and Iran remain at loggerheads, adding to the global risk-off trade.

Against this backdrop, and with fears that equity valuations are becoming stretched, gold’s safe haven status has become attractive yet again and this will continue to underpin any move higher over the short- to medium-term.

How to Trade Gold: Top Gold Trading Strategies and Tips

Gold Price Daily Chart (October 2018 – July 19, 2019)

GOLD

The IG Client Sentiment Indicator shows traders are 63.4% net-long with the ratio of traders long to short at 1.73 to 1. The number of traders’ net-long is 0.4% higher than yesterday and 1.9% lower from last week, while the number of traders net-short is 4.5% lower than yesterday and 18.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggest Spot Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Spot Gold-bearish contrarian trading bias.

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.

What is your view on Gold – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.



Crude Oil Prices May Fall Further as Global Growth Outlook Dims

Fundamental analysis, economic and market themes.

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Crude oil price chart

CRUDE OIL PRICE FORECAST: BEARISH

  • Crude oil prices drop most in two months amid oversupply concerns
  • Slowing global growth to weigh on demand as US output stays brisk
  • ECB and IMF guidance, Q2 earnings, US GDP may prolong selloff

Get the latest crude oil forecast to see what will drive prices in the third quarter!

Crude oil prices turned sharply lower last week, suffering the largest drop in two months. Building oversupply concerns appear to be the underlying catalyst for weakness as slowing global growth cools uptake expectations while US output continues to register near record highs.

Short-term volatility aside, this has been a driving narrative for some time. The JPMorgan PMI gauge of global economic activity growth peaked in February 2018 and has trended lower since. Not surprisingly, an IEA measure of worldwide crude demand topped along with prices a mere seven months thereafter.

The recent renewal of an OPEC-led supply cut scheme has not noticeably helped. That is not surprising. Prices were likewise unimpressed when the arrangement was previously refreshed in late 2018 and only began a lasting rebound when growing Fed rate cut speculation buoyed broader risk appetite.

CRUDE OIL PRICES AT RISK AS GLOBAL GROWTH OUTLOOK SOURS FURTHER

The week ahead seemingly offers ample fodder for the selloff to continue. The IMF is likely to downgrade its global economic performance forecasts, an ECB policy announcement is expected to set the stage for easing amid the slowdown, and US GDP growth is seen hitting a three-year low in the second quarter.

A steady stream of high-profile corporate earnings releases might add to downside pressure. Bottom-line results have topped forecasts by an average of nearly 5 percent thus far in the second-quarter reporting season, with close to 15 percent of the bellwether S&P 500 in the rearview.

Markets have been more taken with decidedly downbeat forward guidance however. Some of the world’s top firms have warned that the latent effects of past Fed tightening, ongoing trade wars and geopolitical jitters like US-Iran saber-rattling and Brexit uncertainty will translate into business cycle downturn.

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

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

CRUDE OIL TRADING RESOURCES

OTHER FUNDAMENTAL FORECASTS:

Australian Dollar Gains Should Hold as Markets Still Think Fed Will Cut



Australian Dollar Gains Should Hold As Markets Still Think Fed Will Cut

Financial markets, economics, journalism and fundamental analysis.

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AUDUSD Price Chart

Fundamental Australian Dollar Forecast: Bullish

  • The prognosis of lower US rates continues to support the Greenback
  • The Aussie has props of its own, not least in ongoing labor market strength
  • It’s hard to see a near-term AUDUSD reversal, unless US data make rate cuts less likely

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 gained on its US big brother last week, a process largely but by no means solely driven by broad weakness in the latter.

The prime mover, obviously, is the expectation that the Federal Reserve will shortly begin to cut interest rates once again, whether or not it opts to do so at its next scheduled monetary policy conclave on July 31.

The Aussie does have some domestic support however.

Australia’s Jobs Miracle Endures

Labor market data released on July 18 showed an underwhelming headline net increase of just 500 jobs for June. However, there was a lot more cheer in the detail which showed an encouraging surge in full-time work as well as a steady participation rate. Investors know that the Reserve Bank of Australia places special emphasis on these numbers when it meets to set rates. The latest figures show that Australia’s enviable record of strong job creation endures.

Moreover there is a suspicion that, after back to back monthly rate cuts in June and July, the RBA has done all it intends to do on that front. Unless there is absolutely no sign that inflation is picking up, further cuts may be unlikely given the astonishing indebtedness of Australian consumers, understandable though it is after years of record-low borrowing costs.

The coming week is likely to see continued emphasis on the ‘USD’ side of the AUDUSD pair, with Fed commentary at its usual premium. Domestically markets will get a look at July’s timely Purchasing Managers Indexes for Australia.

Two RBA Leaders Due to Speak

There’s also a speech from RBA Governor Philip Lowe due, on Thursday. Assistant Governor Christopher Kent will speak on Tuesday.

It’s possible that either or both of them will have something to say about the Australian Dollar’s recent bounce from its 2019 lows. A resurgent currency won’t be much help when it comes to juicing inflation, as it will keep the price of imports down.

However, given that the underlying source of this bounce has been broad US Dollar weakness, they seem unlikely to fight it too hard. The RBA is notably pragmatic about such things.

On balance then, the Aussie looks likely to continue to gain, unless the US data round puts near-term rate cuts there in doubt. It’s a bullish call this week.

AUDUSD

Australian Dollar 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?

Classic technical analysis, macro and economic themes.

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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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