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FOMC, NFP Headline Next Week as USD Weakness Reigns Supreme

FOMC, NFP Headline Next Week as USD Weakness Reigns Supreme

2018-01-26 14:00:00
James Stanley, Strategist
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Talking Points:

- This week was marked by a hastening in the sell-off around the U.S. Dollar.

- Next week brings a loaded economic calendar, with high-impact U.S. data set to be released each day, Monday-Friday.

- Are you 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.

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Next Week's Economic Docket is Loaded

Next week’s economic docket picks up considerably, with a heavy focus on U.S. data as we get high-impact USD prints each day of the week. Special focus will likely be paid to PCE on Monday and NFP on Friday, and the first FOMC rate decision of 2018 is on the calendar for Wednesday. There will be no updated economic projections released at this meeting, and for those of you looking for press conferences and Q&A, you’re out of luck as we have to wait until the Fed’s March rate decision when Mr. Jerome Powell takes the reigns at that meeting. Also of interest for that March rate decision is the fact that markets are currently pricing in an approximate 75% chance of a hike, with Wednesday’s meeting carrying a mere 4.7% chance of a move.

Also on next week’s calendar is a heavy smattering of European data, with a considerable focus on inflation data on Tuesday and Wednesday. Next week’s high-impact economic data is listed below, and if you’d like a sortable list, you’re welcome to check out our DailyFX Economic Calendar.

DailyFX Economic Calendar, High-Impact Events

DailyFX Economic Calendar High-Impact Events for Week of January 29, 2018

Chart prepared by James Stanley

U.S. Dollar Drops to Fresh Three-Year Lows

It’s been another wild week for the U.S. Dollar, furthering a theme that dominated 2017 price action as the pain trade in the Greenback continues.

While this week’s calendar had significant Central Bank rate decisions out of both Japan and Europe, it was what wasn’t on the calendar that really seemed to grasp markets’ attention. The U.S. Dollar came into the week trading very near multi-year lows. A small semblance of support had started to build above the psychological level of 90.00; and with the very likely possibility that both the BoJ and ECB would attempt to talk their currencies lower, it made rational sense to expect some element of support to show, at least in the short-term, as markets waded through each of those Central Bank announcements.

But those rate decisions seemed to matter little as it was the drivers that weren’t on the calendar that brought in volatility. In an interview on Wednesday evening, US Treasury Secretary Steven Mnuchin said that a weaker U.S. Dollar is ‘good for us,’ indicating that the current administration has few qualms with the back-breaking weakness that’s shown in the Greenback over the past 13 months. He also went on to say that the Dollar’s value in the long-term would be determined by fundamentals, but that part didn’t seem to get much attention as markets pushed the Dollar down, to fresh three-year-lows.

U.S. Dollar via ‘DXY’ Weekly Chart: Big Extension of Bearish Move, to Fib Support

U.S. Dollar Weekly Chart with Fibonacci and Trend Channel Applied

Chart prepared by James Stanley

Despite the fact that those comments were somewhat walked-back in an interview from President Trump the following day, bears remained active. The U.S. Dollar caught a temporary reprieve yesterday afternoon, when President Trump said he thought those prior comments from Secretary Mnuchin were taken out of context. President Trump also went on to say that values should reflect fundamentals, and because the U.S. economy is doing so well, ‘the Dollar is going to get stronger and stronger.’ In response, the Dollar firmed off of those lows, albeit temporarily before sellers came back before DXY was able to re-test the 90.00 level.

U.S. Dollar Hourly Chart: Bounce After Trump Comments, Quickly Faded-Out

U.S. Dollar Hourly Chart with Trump Bounce

Chart prepared by James Stanley

With such a heavy dose of data for next week, the big question is whether the U.S. Dollar can find any semblance of strength. The key would be for traders to evaluate the way that the Greenback trades while near resistance. If we do see resistance holding at any of the below levels, the prospect of bearish continuation remains.

U.S. Dollar Four-Hour Chart: Potential Short-Term Resistance Applied

U.S. Dollar four-hour chart with resistance applied

Chart prepared by James Stanley

EUR/USD Resists 1.2500 After ECB-Fueled Run

Going along with this week’s sell-off in the U.S. Dollar has been another run of strength in the Euro. We looked into this yesterday shortly after the ECB rate decision, and despite the fact that the European Central Bank remains passive and dovish, markets are continuing to bid the Euro-higher under the anticipation that the bank will soon begin tapering QE outlays.

Next week’s inflation prints will be a strong indicator of just how motivated the ECB might be, and for market participants, the bullish structure in EUR/USD can help to guide approaches. We had looked at a series of short-term support levels in yesterday’s article with the aim of eliminating or at least reducing the need to chase. The first of those levels already came into play after the pullback that showed-up around the Trump comments yesterday afternoon, so at this point, traders may want to avoid looking for recurrent support at that level. Instead, levels around 1.2329, 1.2286 and 1.2213 could be usable for forward-looking support plays in EUR/USD.

EUR/USD Four-Hour Chart with Potential Support Applied

EUR/USD Four-Hour Chart with Support Applied

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on Euro, or the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on our EUR/USD, and U.S. Dollar pages. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

--- Written by James Stanley, Strategist for DailyFX.com

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