Dollar Strengthens But Trading Ranges Dominate
The dollar has begun to strengthen once again but traders should be cautious. While the dollar is indicated higher the longer-term forecast for most pairs is range-bound. While the U.S. economy is stabilizing, reducing expectations for FOMC policy changes, so to is the rest of the world. No single economy stands out as a winner right now, the trade war has taken a toll on them all, but the U.S. is clearly in the strongest position. With the Phase One Deal in the bag, it is very likely the worlds economies will start to reaccelerate and that will cap gains in the dollar. Until then, this is what traders should expect this week.
The Bank of Japan is meeting this week, now, today, and will release their statement on Tuesday. The bank is not expected to change policy but may make statements supportive of the economy. The banks focus this week will likely be on the consumer. Consumer spending has taken a sharp downturn in the last months of 2019 following a sales-tax increase in October. The tax increase is expected to aid Japan’s government but not if sales slow significantly and remain subdued. The USD/JPY is in uptrend right now and moving higher. The pair bounced off of a strong support level at the start of the year and is indicated higher. Current resistance is at the 110.00 level, a move above that will likely take the pair up to 112.00.
The ECB Meets This Week
The ECB meets later this week and is also not expected to alter policy. While there have been some signs of economic stability within the region the data is still weak. What the bank is expected to do is double-down on its commitment to support the economy if needed. The EUR/USD is moving lower after confirming the top of a trading range at 112.00. Since then, the downtrend within the range has also confirmed with a fall from the short-term EMA. The pair is now expected to continue lower but there are support targets to worry about. the first is near 1.10750, a fall below there could go to 1.1050 and 1.1000 with quickness.
The BOE is meeting next week, concurrent with the FOMC, and is also not expected to alter policy. The BOE may come out with a positive statement about the economy, mostly due to the expected soft-Brexit, but there are still risks. The Brexit is expected to move forward at the end of the month but the drama isn’t over. The stage 2 round of negotiations will start on February 1st and shows every sign of being contentious. The GBP/USD has been trending sideways since hitting a one-year high in December. The pair is showing signs of support at the 1.300 level. This level is going to be key over the next two weeks, if it confirms as support traders can expect to see the recent high retested or surpassed. If support fails the GBP/USD could slide to 1.2800 or even 1.2600.