News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bullish
Oil - US Crude
Mixed
Wall Street
Mixed
Gold
Bullish
GBP/USD
Bearish
USD/JPY
Mixed
More View more
Real Time News
  • Moving averages are extremely popular due to its easy-to-use nature and multitude of uses when trading. What are some popular moving averages and how can you use them? Find out: https://t.co/ik0wQ3MLGE https://t.co/heAYoTMDeR
  • MACD who? The Moving Average Convergence Divergence (MACD) is a technical indicator which simply measures the relationship of exponential moving averages (EMA). Find out how you can incorporate MACD into your trading strategy here:https://t.co/ZNs4Qi8ieG https://t.co/UqZBBPZiOl
  • Looking for a new way to trade reversals? One of the most used reversal candle patterns is known as the Harami. Like most candlestick formation patterns, the Harami tells a story about sentiment in the market. Get better with trading reversals here: https://t.co/rfwUWJfbz9 https://t.co/rChAkNqPL2
  • Long wick candles are recurrent within the forex market. This makes understanding the meaning behind these candles invaluable to any trader to comprehend the market dynamics during a specific period. Learn about the importance of extended wicks here: https://t.co/SIpslvhX0J https://t.co/jVxcE1QUBs
  • Safe haven stocks also allow traders to diversify their portfolio and reduce risk. Learn if safe-haven stocks are made for you here: https://t.co/MTc4tUDD6c https://t.co/DOQ6tyzep9
  • Knowing how to accurately value a stock enables traders to identify and take advantage of opportunities in the stock market. Find out the difference between a stock's market and intrinsic value, and the importance of the two here: https://t.co/QszmdZFxlk https://t.co/WQLZ1X7gIY
  • but the next major point in my view to monitor will be 52.76 - at least in the short term.
  • #Brent having broken above the pre-OPEC drop off at 45.51 is a huge deal considering it failed to crack resistance there in August (leading to the invalidation of "uptrend 2") and the psychological significance of that level https://t.co/LkEyRxFhnq
  • The New Zealand Dollar looks poised to extend its push higher against its haven-associated counterparts on robust economic data and a less dovish stance from the RBNZ. Get your $NZD market update from @DanielGMoss here:https://t.co/vytr4OR1Jy https://t.co/ZcxEUWIm8O
  • It seems the markets are riding high, but risk is always lurking around the corner. Consider your escape plan before you find yourself in collapsing market. What are the top havens for different conditions in 2020? Find out from @JohnKicklighter here: https://t.co/1oeXWEsJkb https://t.co/x8uyOHLtgE
US Dollar Price Breakout Still Possible; US-China Trade War Latest

US Dollar Price Breakout Still Possible; US-China Trade War Latest

2019-05-21 16:45:00
Christopher Vecchio, CFA, Senior Strategist
Share:

US Dollar Price Talking Points:

  • The DXY Index touched a fresh monthly high on Tuesday, drawing into focus a potential bullish breakout opportunity around the May FOMC minutes release midweek.
  • US-China trade war tensions remain, but beyond verbal jousting, no new measures appear on the horizon.
  • Retail traders are selling US Dollar strength, suggesting that the bullish breakout attempt may have legs.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

The turn through the middle of May has brought about a new wave of US Dollar strength, largely mirroring the rise in US Treasury yields in recent days. With the British Pound proving volatile around the latest Brexit headlines and the Euro proving weak in the run-up to the European parliamentary elections, The DXY Index was able to post a fresh monthly high on Tuesday, drawing into focus a potential bullish breakout opportunity around the May FOMC minutes release midweek.

US-China Trade War Latest

After surprise developments over the past few weeks, the day-to-day movement on the US-China trade war seems to have slowed considerably. But now that the Trump administration has drawn Huawei into the US-China trade war, it’s clear that we’re still in the process of further escalation, not de-escalation. That’s to say that neither country is ready to move past the impasse. For markets, indeed, US-China trade war tensions remain, but beyond verbal jousting, no new tariffs appear on the horizon.

As noted previously, market participants shoukd to keep on eye on USDCNH prices for the foreseeable future as a gauge for trade tensions: China has used devaluation as a tool to neutralize the impact of the tariffs. Accordingly, traders may see Chinese Yuan strength (USDCNH weakness) as a sign that the trade tensions are de-escalating; and that Chinese Yuan weakness (USDCNH strength) may be interpreted as a sign that the trade tensions are escalating.

Ahead of May FOMC Minutes, 2019 Rate Cut Odds Fall (Table 1)

fed rate expectations, usd rate expectations, federal reserve rate cut odds, fed rate cut odds, fed rate hike odds

During the May Fed meeting and press conference at the start of the month, Fed Chair Jerome Powell said that low inflation was “transitory” and not “persistent.At the time on May 1, market participants interpreted this as a sign that the likelihood of a 25-bps rate cut this year is lower than previously expected: odds of a cut by September had fallen to 26% and odds of a cut by December were 50%.

Now, ahead of the May FOMC minutes, Fed funds futures are pricing in a 42% chance of a 25-bps rate cut in September and a 70% chance of a cut by the end of 2019. But given that the May Fed meeting itself provoked markets to reduce expectations of a cut this year, we would expect the sentiment taken in the May FOMC minutes themselves to be more optimistic than what rates markets are currently pricing (which may serve to the US Dollar’s benefit).

US Inflation Expectations Have Dipped Alongside Oil Prices (Chart 1)

oil price, oil technical analysis, oil chart, us inflation expectations, us cpi expectations, us inflation forecast

Against a backdrop where the US Dollar has rallied over the past year (DXY Index is up 4.7% over the past 52-weeks), FX markets are a headwind for US inflationary pressures. With the oil prices moderating over the past few month, inflationary pressures have been limited. Crude oil prices fell by -5.3% between April 23 and May 21, down from 66.30 to 62.77. As a result, medium-term US inflation expectations, as measured by the 5y5y inflation swap forwards, are down by -9.3-bps from 2.299% to 2.205% over the past four-weeks. These developments may prove troublesome at the June Fed meeting, but not in the May FOMC minutes.

US Dollar Net-Long Futures Positioning Persists (Chart 2)

dxy price forecast, dxy technical analysis, dxy price chart, dxy chart, dxy price, usd price forecast, usd technical analysis, usd price chart, usd chart, usd price, usd positioning, usd futures

Looking at positioning, according to the CFTC’s COT for the week ended May 14, speculators decreased their net-long US Dollar positions to 26.7K contracts, down from the 28.2K net-long contracts held in the week prior. Net-long US Dollar positioning has barely wavered since the start of the year: traders held 32.4K net-long contracts on January 1; and positioning remains below its 2018 high set during the week ended November 13 at 40.5K net-long contracts.

DXY Index Technical Analysis: Daily Price Chart (June 2018 to May 2019) (Chart 3)

dxy price forecast, dxy technical analysis, dxy price chart, dxy chart, dxy price, usd price forecast, usd technical analysis, usd price chart, usd chart, usd price

It appears that the sideways range that the DXY Index carved out in the month of May is being tested to the upside. Price has already established a fresh monthly high today above 98.10, the bearish outside engulfing bar high from the April US NFP report release on May 3. Since the start of the month, we have not seen price close below 97.15, the low from May 1, keeping the sideways consolidation in check. A move through 98.10 increases the odds of a return back to the yearly high set on April 25 at 98.32 over the coming sessions.

Read more: Gold Price Breakout on Hold amid Return to Range; Gold Volatility Drops

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 at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES