The US Dollar is now attempting some consolidation with EUR/USD trading around 1.1200. The markets are calmer after China has fixed the yuan at a stronger level than expected and the Fed’s Evans has said he is open to more stimulus.
The US Dollar Index is navigating within the negative territory in the second half of the week amidst the prevailing “flight to safety” stance in the global markets and persistent concerns over the US-China trade war. It looks sidelined in the mid-97.00s points so far. At the moment, the US Dollar Index is losing 0.08% at 97.54 points and a breakdown of 97.21 points (low August 6) would open the door to 96.92 points (200-day SMA) and then 96.67 points (low July 18). On the other hand, the next up barrier aligns at 97.92 points (10-day SMA) followed by 98.37 points (monthly high May 23) and then 98.93 points (2019 high August 1).
The correction lower in the buck came amidst a drop in yields of the US-10 year benchmark to the boundaries of 1.60%, levels last seen in the Autumn 2016. The broad-based sharp move lower in yields has also seen German 10-year Bunds and UK 10-year Gilts recording fresh all-time lows.
In the meantime, there is no news from the US-China trade front, where according to the latest news, both parties could resume talks in the US at some point in the next month. Later in the US docket, the only release of note will be the weekly Claims seconded by June’s Wholesale Inventories.
According to the economists, the US Dollar’s dominance will end if the US Federal Reserve (Fed) gives in to pressure from the White House and financial markets and reduces interest rates by 50 basis points this year. The central bank cut rates by 25 basis points last week but the US Dollar remained bid as the Fed President Powell referred to the rate cut as mid-cycle adjustment and refrained from signaling further easing. The Dollar, however, would weaken if the Fed delivers 50 basis point rate cut by year-end, as suggested by the CME Fed Watch.
Following a steady recovery seen in the Asian trades, the EUR/USD pair witnessed an up and down European session so far, but the rates remain confined in the familiar trading range between 1.1200-1250 levels.
The EUR/USD pair remains at the mercy of the price-action seen in the US Treasury yields, as it fades its latest uptick to 1.1229 highs after the Treasury yields’ rebound regained poise in Europe.
The EUR/USD needs to break above 1.1250 to unleash the next phase of the corrective rally, which began from lows near 1.1027 on August 1. A close above 1.1250 would invalidate bullish exhaustion or indecision signaled by the consecutive daily Doji candles and open the doors to levels above 1.13.
On the other hand, a daily close below 1.1167, which is the low of Tuesday’s Doji candle, would imply an end of the corrective bounce from lows near 1.1027 and shift risk in favor retest of that level.
The USD/JPY pair put brakes on the sell-off near the key 105.50 area twice this week and turned to consolidation. Trend signals remain bearish as the market action continues to take place well below simple moving averages (SMA) and the Ichimoku cloud, whilst the momentum indicators suggest that the next move in the price could be bearish-to-neutral. The MACD keeps strengthening downwards and under its red signal line, the RSI points towards its 30 oversold mark, whereas the Stochastics is sloping upwards after creating a bullish cross below the 20 oversold mark.
Immediate resistance to upside corrections could be detected within the 106.67-107.00 territory. Slightly higher, the 61.8% Fibonacci of 107.58 of the upleg from 104.64 to 112.39 and the 20-day SMA could also block the path upwards, while further up, the bulls must overcome the 50-day SMA to reach the 50% Fibonacci of 108.50.
In the negative scenario, where the market breaks below the 105.50 level, the spotlight will turn to the strong January 3 low of 104.64. In case the number proves easy to get through, support could be next found close to 103.40.
Meanwhile, in the medium-term picture, the outlook has turned even more negative following this week’s slump and only an aggressive rally above 110 could change the view to neutral.
After the previous session’s modest pullback, the GBP/USD pair regained some positive traction on Thursday and spiked to fresh session tops – around the 1.2180-85 region.
With technical indicators gaining some positive momentum on hourly charts, a follow-through buying has the potential to lift the pair towards reclaiming the 1.2200 handle. The momentum could further get extended beyond weekly tops, towards testing another resistance near the 1.2225-30 region.
Meanwhile, oscillators on the daily chart are yet to recover from the bearish territory and warrant caution for bullish traders. This coupled with the fact that the pair has struggled to register any meaningful recovery points to the emergence of fresh selling at higher levels.
Hence, any attempted recovery might still be seen as a selling opportunity and a sustained break below the 1.2100 handle will confirm a fresh bearish breakdown, paving the way for an extension of the pair’s recent downward trajectory towards challenging the key 1.2000 psychological mark.