Previous Story
Dollar Strength Expected – Forex Trading Tips
We wait for the participants to rejoin the market after the weekend. Dollar strength is expected throughout this week.
Current Sentiment:
On Friday, strong jobs numbers from the US boosted the dollar across the board. With the labour market showing signs of strength, all eyes are now on the Federal Reserve as the recent report increases positive sentiment on the USD in anticipation of rate hike in coming months.
This morning has seen some key data from Asian nations. Final GDP from Japan beat expectations coming in at 1.0% versus the 0.7% expected. This led to a further reduction in bets that the BOJ will add to their QE.
Trade balance from China showed a wide surplus. However both imports and exports showed larger than expected decreases. Both iron ore and copper imports were both down since April. Waning demand for these industrial commodities is negative for the Australian economy and their dollar.
Fundamentals:
The USD remains the strongest currency in the longer term. The recent NFP reading has reaffirmed USD strength amid speculation of a rate hike by September. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against most other currencies and therefore may be susceptible to pullacks – such pullback will likely provide buying opportunities.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue. However recent inflation and unemployment numbers have signalled that a recovery is on track, which has given the currency positive sentiment. If Greece fails to make any of their imminent repayments, the euro will be pressured. Conversely, a deal with a solid resolution will precipitate a relief rally.
GBP is looking at a rate hike in the next 12 months. There is no clear sentiment on pound at present. We await some tier one data to help guide trading decisions on the currency.
AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD, however the recent RBA statement did not include any specific mention of further cuts and stated that inflation is expected to remain within target. Last week saw mixed data from Australia, with both better and worse data coming in. Overall the bias for AUD is on the bearish side of neutral, until we see more data.
NZD has a chance of decreasing interest rates on Thursday in Asia this week. The Overnight Index Swap market is pricing a 43% chance of a June 11 cut. Several major banks predict a cut in both June and July, while NZIER expects the RBNZ to remain on hold for at least the rest of the year, as they believe the central bank cannot afford to boost the overheating housing market. Inflation is very low in New Zealand and dairy prices have continued in a downward trend. There are banks of both sides of the rate cut call. It means it will likely be a close decision. NZD will likely fall leading into Thursday.
CAD remains on the weaker side of neutral. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD.
JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is major uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect. Today GDP reading dampens speculation of any additional easing.
CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.
Technicals:
We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).
Other Market Moving News:
Today the calendar is light. G7 meetings are underway. Later we see Canadian Building Permits.
To get daily market insights from Jarratt Davis delivered to your inbox simply enter your name and email below:
The post Dollar Strength Expected – Forex Trading Tips appeared first on Jarratt Davis.
