The Dollar Outlook Bullish With Resistance In Sight

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The Dollar Outlook: Bullish With Resistance In Sight

The Wuhan Connection

The dollar has been moving higher over the last few weeks and the outlook is bullish. The FOMC reaffirmed the U.S. economy, the FOMC chief’s testimony to Congress reaffirmed the meeting and policy statement, the data supports that outlook, and the forecast for 2020 is steady if not edging higher. Add to this growing fear of economic fallout related to the Wuhan virus and traders around the world are putting their money on the U.S.

The Dollar Index (DXY) has risen 4% since the beginning of the year and looks like it could go higher. The MACD momentum is bullish and strong with a convergence that bodes well for underlying market health. Stochastic is also bullish and firing a crossover but there some red flags present. For one, stochastic is high in overbought territory putting the market in danger of correction. For another, price action is within spitting distance of major resistance that could easily cap gains.

If the index is able to move higher it is likely to hit resistance in the range of $99.25 and $99.70, well before the $100 level. Next week’s economic calander has several items that could push the market up to that level, a perfect storm may push it up to a new high. Topping the list is the FOMC minutes release. If the FOMC sounds hawkish or like a hike is more probable than a cut this market is going to go through the roof. After the minutes there are reads on manufacturing, housing, and leading indicators to watch out for.

New Lows For The Euro Ahead

The EUR/USD broke to new lows this week and may be headed lower, weak industrial production and tepid inflation are the most likely culprits. With the pair trading at a two and half year low the next targets for support are significantly lower. The best target for firm support is near the 1.0720 level or roughly 120 pips below the current price action. The indicators are bearish and pointing lower on the weekly and daily charts so I don’t expect to see buyers step in without big news or price action hitting a key technical level. Potential market movers in next week’s news are CPI and PPI figures for the EU, due out at the end of the week, and PMI from member nations throughout the week.

Pound On Firmer Ground

The GBP/USD is on firmer ground having risen over the past week and trending sideways over the short-term. The pound and UK economy appear to be stable following the Brexit with a positive outlook associated with freer trade. The economic calendar is filled with UK data next week so there is risk of heightened day to day volatility. So long as the run doesn’t not produce any negative surprises or worse, trends, I expect to see this pair move up to the 1.3200 and 1.3370 levels.

Dollar Technical Outlook May Turn Bullish as USD/SGD, USD/MYR Rise

US Dollar, USD/SGD, USD/MYR, USD/PHP – ASEAN Technical Analysis

  • US Dollar may be on the verge of broader gains against ASEAN FX
  • USD/SGD and USD/MYR are looking at upside technical breakouts
  • USD/PHP consolidation mode prolongs after slight uptick in sentiment

US Dollar, Singapore Dollar, Malaysian Ringgit, Philippine Peso Technical Outlook

The US Dollar rose against some of its ASEAN counterparts such as the Singapore Dollar and Malaysian Ringgit. My ASEAN-based US Dollar index has thus climbed and is testing a key descending trend line from September – red line on the chart below. Increasing fears around the Wuhan virus have been fueling the haven-linked Greenback – as expected . What is the USD/SGD, USD/MYR and USD/PHP technical outlook?

ASEAN-Based US Dollar Index

Singapore DollarTechnical Outlook

The US Dollar may be on the verge of confirming an upside technical breakout against the Singapore Dollar. Earlier this week, USD/SGD climbed above key descending resistance from September . Since then, prices have struggled to confirm a further push above the psychological barrier between 1.3559 to 1.3571. Confirming an upside push may precede a reversal of the downtrend from late August. The next resistance area aligns with November peaks (1.3669 – 1.3692). Support sits below at 1.3513 followed by 1.3444.

Learn more about how the MAS conducts monetary policy and what matters for the Singapore Dollar !

USD/SGD Daily Chart

Malaysian Ringgit Technical Outlook

The US Dollar may also be on the verge of an upside reversal against the Malaysian Ringgit from a technical standpoint. USD/MYR prices have pushed above the near-term falling trend line from December following the presence of positive RSI divergence – as expected . An upside close through resistance at 4.0850 exposes the next psychological barrier at 4.1070 followed by 4.1225. Resuming the entails taking out support at 4.050 – 4.0550 which is composed of the 2020 low.

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To stay updated on fundamental developments for ASEAN currencie s , follow me on Twitter here @ddubrovskyFX

USD/MYR Daily Chart

Philippine PesoTechnical Outlook

A partial recover y in sentiment on Tuesday sent USD/PHP lower. The US Dollar thus continues to consolidate against the Philippine Peso. Resuming the former downtrend from August to November entails clearing the critical psychological barrier between 50.40 to 50.52. For a push towards the upside, resistance stands in the way between 51.13 to 51.30.

US Dollar Outlook Bullish as COVID-19 Spurs Haven Demand

US DOLLAR OUTLOOK: BULLISH

  • US Dollar may rally on haven demand as coronavirus pandemic triggers recession fear
  • Greenback is gaining despite downward pressure of swelling Fed rate cut expectations
  • Equity selloff may amplify risk aversion, boost USD amid concerns of financial stability

US DOLLAR MAY RISE ON HAVEN DEMAND FROM COVID-19 VIRUS

The US Dollar may prosper in a risk-off environment as the coronavirus spurs haven demand amid a market-wide selloff in global equities. Not surprisingly, easing expectations from central banks – notably the Fed – have swollen but have failed to drag USD down with growth prospects. This in large part has to do with the Greenback’s unparalleled liquidity and position as the world’s reserve currency; but more on that later.

Two weeks ago, the IMF Managing Director Kristalina Georgieva sent a chilling message at the G20 summit in Riyadh about the coronavirus. She warned that it is the most pressing uncertainty in the world today, and that its impact on global growth is a “stark reminder of how a fragile recovery could be threatened by unforeseen events”.

For a few months, markets enjoyed a comparatively less-uncertain environment as US-China trade tensions and concerns about a no-deal Brexit temporarily fizzled. This allowed investors a moment of respite after a politically-turbulent 2020. However, global stabilization is now at risk of being derailed by COVID-19, and the demand for easing measures will likely swell along with demand for haven assets like the US Dollar.

NONFARM PAYROLL DATA MAY INFLAME FED EASING EXPECTATIONS

Nonfarm payrolls data is expected to show 195k new jobs added for February, though pessimism around the effect of the coronavirus may be reflected in softer employment statistics. This comes after the prior report registered the strongest figures since November 2020. Consequently, this reinforced the Fed’s notion that current economic circumstances do not warrant an adjustment in interest rates. COVID-19 may change that.

COLLAPSING EQUITY MARKETS AMPLIFYING VOLATILITY, HAVEN DEMAND

Global equity markets continue to experience aggressive selloffs with the benchmark S&P 500 index dropping over 12 percent after topping on February 20. It is currently hovering at a four-month low with scope for additional losses. The upside pressure of haven demand amid risk aversion from collapsing growth-oriented assets may be strong enough to push the US Dollar higher despite mounting easing expectations.

Federal Funds Futures Implied Rate (December Contract – March Contract), S&P 500 Futures, US Dollar Index – Daily Chart

US Dollar Index chart created using TradingView

Much like throughout most of 2020, the US Dollar rallied against its G10 and emerging market counterparts despite several rate cuts from the Fed. What kept the Greenback afloat was sustained demand for a highly liquid asset amid a fundamentally deteriorating environment. Over the past few days, it appears the US Dollar has taken on this characteristic again as the growth outlook wilts in the face of the coronavirus.

WILL FED COME TO THE RESCUE, DELIVER EASING TO BUFFER COVID-19 IMPACT?

Despite growing expectations of Fed rate cuts, there is no guarantee that the central bank will be as eager to deliver stimulus as markets are hoping they will be. Consequently, if officials maintain their neutral stance, market panic may ensue and further pressure equity markets while simultaneously buoying the attraction of the anti-risk US Dollar. Fed speak throughout the week may help give a better idea on where officials stand.

Having said that, even if the Fed loosens borrowing costs, investors may still panic and boost the US Dollar amid the pandemonium. If monetary authorities fail to live up to the market’s ultra-dovish expectations, cycle-sensitive assets may experience another aggressive selloff if their hopes for liquidity injections are dashed. Consequently, the US Dollar may be in a relatively favorable position in either scenario.

USD GAINS MAY BE EXTENDED BY GROWING FINANCIAL STABILITY CONCERNS

A peripheral risk that may become a bigger issue is the stability around corporate debt which has come under greater scrutiny over the past few months. Leveraged loans and the growing market for collateralized loan obligations (CLOs) could accentuate a selloff and increase the risk of a global recession. Amid the decline in the S&P 500, credit default swap spreads on corporate entities have widened to multi-month highs.

US DOLLAR TRADING RESOURCES

  • Tune into Dimitri Zabelin’s webinar outlining geopolitical risks affecting markets in the week ahead !
  • New to trading? See our free trading guides here !
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— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

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

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

US Dollar Outlook: DXY Rips into Resistance – USD Levels to Watch

USD PRICE OUTLOOK: DXY INDEX RALLIES TO 2-WEEK HIGH, BUT TECHNICAL RESISTANCE THREATENS US DOLLAR REBOUND

  • The US Dollar could quickly pivot back lower against major currency pairs if a critical technical level prevents a sustained rebound attempt
  • Currency volatility is projected to fall next week judging by 1-week implied USD price action derived from forex options contracts with the US holiday season kicking into full gear
  • IG Client Sentiment provides real-time insight on market positioning and the bullish or bearish biases of traders on several currencies, commodities and equity indices

The US Dollar staged a healthy rebound attempt over the last 5 trading days with the DXY Index – a popularly referenced basket of major USD currency pairs – advancing to its strongest level since December 06.

In addition to lingering US-China trade deal optimism , overall solid US economic data has helped chisel away at FOMC rate cut expectations.

The recent rise in the US Dollar could also be technically explained with the 96.50 price level likely serving as a springboard for the Greenback’s bounce higher.

US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (APRIL 2020 TO DECEMBER 2020)

Next week could provide clarity on whether the rebound in the US Dollar will last or be short lived with the DXY Index approaching a key level of technical resistance.

This area of confluence that may keep a lid on further upside in the US Dollar Index is highlighted by its 50-day and 200-day simple moving averages, which seem to be foreshadowing a bearish death cross .

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (1-WEEK)

Take a look at this insight on how to trade the Top 10 Most Volatile Currency Pairs

One likely headwind faced by the US Dollar headed into next week is the plunge in expected currency volatility, which could be attributed to the historically quiet period that surrounds the Christmas holiday.

Nevertheless, this could potentially provide forex traders with range trading opportunities with little fundamental catalysts for big moves scheduled on the economic calendar.

Options-implied trading ranges are calculated using 1-standard deviation (i.e. 68% statistical probability price action is contained within the implied trading range over the specified time frame).

— Written by Rich Dvorak , Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

The Dollar Forecast Is Bullish, Get On Board While You Can

FOMC Is Hawkish, No More Cuts Are Coming

The FOMC cut rates by a quarter point this week and that was expected. What was also expected was an outlook for more cuts, possibly THREE more cuts, and that is not what we got. Quite the opposite in fact, based on the individual opinions of the member of the committee both voting and non-voting the outlook for future cuts is nil. Within the committee five were in favor of no cuts this month and another five in favor of no-more cuts this year which is enough to ensure that we won’t. Get any more cuts, that is.

The Dollar Index reflects this view. The index retreat from its recent high over the past two weeks but found support above the short-term moving average. The moving average is trending higher and the indicators are pointing to a trend-following swing in prices so I am optimistic a move to retest the recent highs is brewing. Because data in the EU, the UK, and Japan all support expected easing from the ECB, the BOE, and the BOJ, a move to new highs is also expected.

The EUR/USD is likewise consolidating at the short-term moving average for a trend-following move. The difference is this move is bearish and likely to the pair down to a new low. Stochastic is already showing a strong bearish entry signal so a move to retest the current low is expected. If MAC confirms the move a break to new lows will follow soon after. Possibly in tandem with ECB easing or economic data that supports ECB easing.

The GBP/USD looks like it might be in a bullish reversal but I don’t think so. What I see is an asset that might have reversed if not for shifting outlook and Brexit uncertainty. When it comes to the Brexit the only thing that is certain is uncertainty, the latest news is that the Supreme Court will rule on Johnson’s suspension of Parliament next week. Back to the point, the recent rally is extended and already showing signs of snapping back and well below the prime resistance target. The indicators are bullish but both are high in their ranges, show an overbought market, and poised to fire strong bearish signals. A move to retest the EMA is likely, a move below that will probably retest the recent low.

The USD/JPY is an example of what makes technical analysis so tricky. At face value, this chart is very similar to the GBP/USD but to me, the bias is bullish in favor of the dollar. While the pair remains below some resistance targets it is above the key target for reversal. At the same time, the indicators are bullish but have cooled off somewhat allowing room for another push higher in prices. The pair may retest the EMA but, if it does, it will be an opportune entry point for patient traders.

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