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US Dollar Price Outlook in EUR/USD, USD/CAD, AUD/USD and USD/JPY

Price action and Macro.

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US Dollar Price Outlook Talking Points:

US Dollar Primed for FOMC

Fed day is finally here, and there’s little more to write on the matter given the intense focus this item has received over the past couple of weeks. The general expectation is for the Fed to be more dovish at today’s meeting. The item of importance is just how dovish they might be, and this will likely be transmitted through the bank’s (SEP) Summary of Economic Projections. Markets have come to expect three hikes by the end of this year. So far, the Fed hasn’t forecasted any cuts; although the trend has been moving lower since the bank’s forecast for two hikes at last December’s meeting was cut down to zero at the March rate decision. The most recent FOMC meeting concluded on May 1, which correlates to the start of last month’s pullback in risk assets like the S&P 500. Stocks sold off for the remainder of the month, only finding support a couple of weeks ago as volatility started to show up in FX markets.

Early in June the fireworks started to show in the US Dollar after a dovish speech by Jerome Powell. That theme lasted for all of a week; at which point buyers came back-in after a big level of technical support came into play. Since then, buyers have been doing the driving, and price action has already retraced a large portion of that previous bearish move. At this point, the same 97.70 level that set resistance tops in November, December and March has come back into play as pre-FOMC resistance.

US Dollar Daily Price Chart

us dollar usd price chart

Chart prepared by James Stanley

EURUSD Digs into Support

Going along with the US Dollar’s check of a key resistance level, EURUSD has started to grind around a key support zone. This is the same zone that’s been in-play to varying degrees since last November; and this runs from Fibonacci levels at 1.1187-1.1212. The fact that the pair is holding on to this support as USD strength came rushing back last week highlights the attractiveness that EURUSD can carry for short-side USD scenarios. Similar to what was seen in the first week of June, a run of USD-weakness creates a squeeze scenario for long-term shorts. But, as fresh highs are created, stops are taken-out, and this helps to reset sentiment a bit as price action gyrates-higher: As discussed in yesterday’s webinar, if the pair can take out the 1.1500 handle the likely large number of trailed stops that sit above that price, the pair may finally be able to take-out the 1.1000 psychological level.

So, at this point, EURUSD can remain as one of the more attractive short-USD candidates; and not necessarily because of any positive appeal around the Euro, but more related to the elongated down-trend that’s vulnerable to squeeze scenarios.

EURUSD Daily Price Chart

eur usd eurusd daily price chart

Chart prepared by James Stanley

AUDUSD Bounce from Five-Month Lows

In contrast to EURUSD holding higher-low support above, AUDUSD folded down to a fresh five-month-low last week as USD-strength had come rushing back. After the resistance inflection at the .7000 big figure earlier this month, sellers have been back in control of the pair; and this can keep the door open for further short-side, particularly for strategies based around USD-strength. A bit of resistance potential remains around the prior support zone that runs from .6900-.6911.

AUDUSD Four-Hour Price Chart

aud usd audusd four hour price chart

Chart prepared by James Stanley

USDCAD Checks Support Zone After Busy Start to June

USDCAD has had a busy month of June already. After setting a fresh five-month-high in the final days of May, the pair dropped aggressively to go along with that wave of USD-weakness. But – as the Dollar scaled-back, so did USDCAD, and as looked at in this week’s FX Setups, this brought potential for a big zone of prior support to re-emerge. This zone runs from 1.3361-1.3385, and buyers have so far come back in to offer support here. This keeps the door open for topside as the pair remains one of the more attractive venues for themes of USD-strength.

USDCAD Four-Hour Price Chart

usd cad usdcad price chart

Chart prepared by James Stanley

USDJPY Holds Key Resistance

USDJPY remains of interest for bearish USD-themes. The pair has held a big zone of resistance over the past two weeks as the USD fireworks have been on full display. As strength has returned to the Dollar over the past week, USDJPY has appeared immune as price action has continued to range; highlighting the fact that the Yen has also been pretty strong over that same period of time.

This sets up the pair for interesting scenarios should USD-weakness show-up. That Yen-strength could be coupled with a falling US Dollar to look for fresh lows in the pair. The big area of interest for that next show of support appears to be around the 107-handle.

USDJPY Daily Price Chart

usdjpy daily price chart

Chart prepared by James Stanley

To read more:

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

Forex Trading Resources

DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

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

Contact and follow James on Twitter: @JStanleyFX




EURUSD May Look Past Draghi Comments with FOMC in the Spotlight

Political economy, economic and market themes.

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TALKING POINTS – EURUSD FORECAST, FOMC, FED MONETARY POLICY

  • Draghi comments at symposium may be overshadowed by FOMC
  • EURUSD will likely be focusing on Powell comments and outlook
  • If Fed is less dovish than expected, pair could test critical support

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

EURUSD fell after ECB President MarioDraghi said future rate cuts may be in the cards if the outlook does not improve, and even alluded to re-introducing QE if necessary. The symposium in Sintra, Portugal ends today and will include more commentary from the central bank President. However, the market impact of these comments may be overshadowed by the highly-anticipated FOMC rate decision.

While overnight index swaps are pricing in a meager 19 percent chance of a Fed rate cut, bets for a cuts by the July meeting jumped to a staggering 82 percent. If the Fed’s rhetoric falls in line with its previously-articulated neutrality, the less-than-dovish surprise may catch markets off-guard and send the US Dollar higher at the expense of equities and USD-crosses.

A similar reaction occurred at the April 30-June 1 meeting where market participants found themselves dealing with a surprisingly less-dovish Fed. The fall in equities was a telling story. If investors see that prevailing economic conditions are not supportive of strong economic growth, cheap credit is the next best option to boost equities. If that possibility is undermined, why stay exposed to a vulnerable index in a slowing economy?

Conversely, if the Fed strikes dovish undertones, it could send the S&P 500 index higher and potentially relieve some of the risks associated with a stronger US Dollar.However, if Chairman Jerome Powell reveals an unexpectedly pessimistic outlook for growth, it may induce risk aversion and push the Dollar higher as a premium is put on liquidity over yields.

CHART OF THE DAY: EURUSD MAY TOUCH CRITICAL SUPPORT IF FED NEUTRALITY IS MAINTAINED

Chart Showing EURUSD

FX RESOURCES

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

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




AUDUSD Post-Fed Rally May Be Shot Down by RBA as Japanese Yen Sinks

Classic technical analysis, macro and economic themes.

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Asia Pacific Market Open Talking Points

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The pro-risk Australian and New Zealand Dollars struggled picking up upside momentum after the markets fully priced in a July Fed rate cut in the aftermath of June’s hold. There was a general increase in risk appetite, with the S&P 500 rallying as US front-end government bond yields dropped alongside the US Dollar. Yet, a clear message from the central bank signalling an imminent interest rate cut seemed notably absent.

Rather, the updated Fed dot plot revealed that - compared to March - there was a downgrade in median forecasts for rates by the end of 2020. Those now stand at 2.125% compared to 2.625% prior, a downgrade of 50 basis points which reflects one rate hike being priced out and one cut now put on the table. The same forecasts envision holding rates unchanged by year-end, with one vote separating that from perhaps 2 cuts.

As such, it seems that market expectations continue to see deteriorating US economic data as the path forward, with more uncertainty on the global trade front. If US President Donald Trump and his Chinese counterpart Xi Jinping fail to come closer to an accord at the end of this month’s G20 summit, the markets will look to the Fed to save the day and keep the US economic expansion on track.

AUDUSD Technical Analysis

The near-term AUDUSD downtrend was cut short above the January 2016 low at 0.6827. Leading up to this outcome, positive RSI divergence hinted of fading downside momentum which can precede a turn higher or a pause in recent declines. Prices were unable to sustain gains above August 2015 lows at 0.6900 and it is too early to tell if there may be a near-term reversal on the cards.

AUDUSD Daily Chart

AUDUSD Post-Fed Rally May Be Shot Down by RBA as Japanese Yen Sinks

*Chart Created in TradingView

Meanwhile, the GBPUSD and USDCAD rose for their own fundamental developments. The latest round of UK CPI and PPI data helped firm hawkish Bank of England monetary policy expectations. Meanwhile, better-than-expected Canadian inflation numbers cooled near-term BoC rate cut anticipations.

Asia Pacific Thursday Session

Early into Thursday’s Asia Pacific trading session, the New Zealand Dollar is aiming sharply higher against its major counterparts after domestic first quarter GDP data surprised to the upside. There may be more room for gains to be had for the pro-risk currency as equities trade upward in the aftermath of the FOMC. S&P 500 futures are pointing cautiously higher.

As for the similarly-behaving Australian Dollar, gains could be reversed on an upcoming speech from RBAGovernorPhilip Lowe. He may continue to underpin the case for near-term rate cuts, sapping the Aussie’s appeal from a yield perspective. Meanwhile, the anti-risk Japanese Yen could weaken if the Nikkei 225 follows Wall Street to the upside.

FX Trading Resources

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

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




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