The Dollar Slams Into Resistance, Weekly Forecast

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Dollar slammed into the ground despite the U.S interest rate hike

There has been a massive confusion in the global market due pending interest rate hike decision by the FED. In the last week, the FED hike their interest rate on the basis of 25 points in the global market. Most of the retail traders were surprised to see the sharp collapse in the green bucks despite the rate hike in the last FED meeting. The leading economist is suggesting that the dollar has rallied higher in the global market prior to the rate hike decision by the FED and once the data is released the market has nothing to give to dollar bulls since more than 94.3 percent of the traders were expecting a rate hike in the last FOMC meeting minutes. During that event, some of the optimistic investors thought that Mr. Trump will push the dollar higher in the global market after the FED rate hike decision but surprisingly Mr. Trump was reality neutral in his speech which pushed the dollar furthermore in the global economy. All the major rivals in the global economy rallied higher during that event and recovered a decent loss in the global economy.

Upcoming week scenario: The upcoming week is going to be very challenging for the dollar investors as the last week closed with a strong bearish threat to the green bucks. Most of the leading investors are thinking that the bearish rally in the mighty U.S dollar will continue this week and it’s a good opportunity to short to the dollar at the current moment. However, the some of the professional traders are considering it as a golden opportunity to buy the dollar on the dips since there is plenty of support both fundamental and technically for the green bucks. The early part of this week has nothing to offer to the dollar bulls but on Thursday the U.S unemployment data will be released in the global market. And if strong positive data is released on that day than the dollar might recover some of its losses in the global market and attempt for a bullish ride. However an imminent bullish rally in the green bucks is highly unlikely since most of the consumer’s sentiment is strongly negative at the current moment. But if FED chairperson manages to come up with a hawkish speech in Thursday than there is the chance for bullish recovery in the U.S dollar in near future. However the professional experts in the reputed forex broker is expecting mixed sentiment in the market.

Dollar still remains supported: In the last week the green bucks secured a five-week low in the global market despite the interest rate hike decision. According to leading market analyst Fawad Razaqzada there is still remains a strong hope for the dollar bulls since the recent fall is considered as corrective moves for the bullish rally of the green bucks. Upon this statement, many traders are waiting for the next key support level in the U.S dollar index to buy the green bucks and ride the possible fresh bullish trend in the market. He also stated that the FED is most likely to come up with another hawkish statement in the global economy as they need another two rate hike in this year so that the U.S central bank can readjust their current inflation to an optimum level. In the last week, the dollar index dropped by 0.1 percent in the global economy and traded at 100.30 which is the five consecutive week low of the market. The low yielding Japanese Yen pushed the dollar lower for near about 0.6 percent in the global market and traded at 112.68 in the global exchange market. On the contrary, the EURUSD pair breached a critical resistance level in the global market and traded at 1.0740 after the news release.

U.S new administration: The dollar gained a strong bullish momentum in the global market after Mr. Trump become the U.S president in the last year. He pushed the dollar higher in the global economy by stating that they are going to increase the fiscal spending and include tax cut policy. But four-month have passed but there is no sign to increase the current fiscal spending and this has created an extreme level of negative U.S consumer sentiment in the global market. Most of the traders are now confused regarding the next movement of the green bucks as Mr. Trump administration is totally unpredictable and changeable. However, some of the optimistic traders are thinking that dollar will retain its former glory in the global market by the end of this. But some leading economist is suggesting that three rate hike in a single year under the unpredictable administration might create a long term adverse effect on the U.S economy. But things will turn extremely positive for the green bucks if Mr. Trump increases the current fiscal spending since it will create an extreme level of positive consumer sentiment in the U.S economy.

Summary: Trading the financial instrument has become a whole lot difficult in the recent days as the market dust is yet to settle down. Mr. Trump new administration policy s totally unclear and some of his statement is giving the dollar bulls a false hope in the market which ultimately gets wiped out by the bearish pressure of the news release. Though the current sentiment is not favoring the green bucks but the dollar remains still supported in the global economy as two more possible rate hike by the FED might create another buying pressure for the green bucks in the global market.

Currency wars
America should resist the temptation to weaken the dollar

The costs of intervention outweigh the short-term benefits

So far this is mostly a war of words, but it could easily escalate into something worse. If America concludes that its trade partners are using unfair tricks to weaken their currencies, it may claim the right to do the same. There is even speculation that direct intervention to weaken the dollar might be countenanced. A cold-eyed assessment says this would involve lots of trouble for at best a transient benefit. It would also undermine one of America’s key assets—its open capital markets.

Many of the conditions for a currency war are in place. The world economy is sluggish. The IMF this week revised down further its forecasts for GDP growth in 2020. Interest rates in the rich world are low and cannot fall much lower. There are real or imagined constraints on the use of fiscal stimulus. As a result, a cheap currency is one of the few ways left to gin up the economy.

The shock of intervention would probably take the dollar lower—for a while, at least. But interventions have a better chance of working in the longer term if the currency is way out of whack. That is not obviously the case. Currencies roughly reflect economies’ relative strengths. America’s has proved the most reliably resilient. Yields on Treasuries are still the highest in the rich world. Global investors look to America’s capital markets as the place to find the digital firms of the future, rather than to Europe, whose bourses are heavy with banks and carmakers.

Without a surge in GDP growth outside America, it would probably take a hefty intervention to keep the dollar down. Standard Chartered, a bank, puts the required commitment at $200bn-400bn. Printing dollars to sell would complicate monetary policy, but that is a trivial objection. The Federal Reserve is set to cut interest rates in any event (which might itself weaken the dollar a bit). A bigger headache is which currencies to buy. It is hard to put a lot of money to work quickly in non-dollar assets. The most liquid markets are in euros and yen, where the safest bonds have negative yields. Of those, the one large market with positive yields is Italy. If America bought Italy’s bonds, it would help cut its borrowing costs—an odd kind of punishment.

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An advantage that America has over China, its strategic rival, is its open capital markets. A one-sided intervention to weaken the dollar would undermine that. Foreign investors would think twice about betting on dollar assets if Washington reserved the right to bet against them when it sees fit. Though Mr Trump is an unlikely history student, it may be wise for America to recall Britain’s dilemma in 1967. It had dawned on Britain that having one of the world’s main currencies was at best a mixed blessing. Allowing the pound to weaken would be a salve to an economy that had trailed the rest of Europe, but it would also hurt the many foreign allies who kept their reserves in sterling. When devaluation came, there were feelings of relief but also of regret. These days sterling is a shadow of its former self.

The best remedy for the dollar’s strength is stronger economic growth outside America. Fiscal stimulus across the euro zone would help, of course. But one policy is in the gift of the White House. An end to the trade wars would lift the fog over the world economy. Sue for trade peace, Mr Trump—and watch the yuan and the euro rally against the dollar. ■

This article appeared in the Leaders section of the print edition under the headline “Do not escalate”

Fed Slams The Dollar | AUD/USD, USD/JPY

Matt Simpson July 18, 2020 10:37 PM

Dovish comments from Fed officials has put a 50bps cut in July back onto the table for markets, and markets were quick to respond.

  • Fed’s William’s said current estimates of the US neutral interest rates are around 0.5% and, if inflation gets stuck below goal, people’s expectations may push inflation lower, “reducing the Fed’s ability to be effective”.
  • Richard Clarinda, who was mostly ‘centrist’ at the June meeting, said during a live TV interview that “you don’t want to wait until data turns decisively” and “it’s important to act pre-emptively.

That these comments were said on Donald Trump’s favourite Fox News program, ‘Fox and Friends’ is also worth noting, given the Fed have been accused of bowing to the President’s pressure and therefor, not as independent as they claim. Still, what’s said is said and markets reacted accordingly.

  • USD index closed to a 2-week low amid its most bearish session in 1-month
  • Gold broke to a fresh, 6-year high (nice call Fawad)
  • AUD/USD hit a 3-month high
  • US2yr fell to 1.76%, a 9-day low and now far from its YTD lows
  • OIS markets are now pricing in a 76% chance of a 50bps cut this month, whilst CME’s FedWatch tool suggests a relatively modest 44.2%.

Starting with AUD/USD, it’s most bullish day since late January closed right on the December ’18 bearish trendline.

  • A higher high and low has materialised since the 2020 low, which could be part of an inverted head and shoulders pattern.
  • If successful, the pattern projects an approximate target around 0.727, although the 0.7200 area makes a logical interim target
  • However, the 200-day MA and eMA are nearby, so we’d want to see a clear break above 0.7100 before assuming a bullish reversal

USD/JPY looks set to re-test its lows and potentially extend its bearish trend now bearish momentum has returned.

  • The 109.02 resistance level previously highlighted has continued to be a good level to fade into, with the 50-day eMA capping as resistance
  • Intraday traders could look for shorts below the 107.54 area (but expect some noise around this level heading into the weekend)
  • The daily structure remains bearish below 109.02, but we could consider fading into moves on the daily chart below 108.38
  • Next target is 106.78 but the bias is for a break to new lows

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

The Dollar Slams Into Resistance, Weekly Forecast

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