The Dollar Is Breaking Out And Moving Up
The U.S. Dollar Index broke out of its long-term trading range this week. The move is driven by positive data and a growing belief the U.S. economy is still leading the global advance. Friday’s read on GDP underscores this belief, up 3.2% at the headline, and well above expectations. The DXY is now consolidating above resistance at the top of the range, near the $98 level, and is indicated higher.
The MACD momentum and stochastic indicators are both firing bullish signals. These signals, along with the break of resistance, set the index up for a sustained moved to a higher valuation. The price target derived by projecting the magnitude of the trading range forward puts the index at $99.50, just below a previous pocket of price turbulence. Once the index reaches this level it is likely to enter a consolidation and may become range bound again, until then the outlook is bullish.
The EUR/USD Is Heading For A Deep Decline
The EUR/USD is set up for a deep decline, fundamentally and technically. fundamentally, the ECB has turned dovish (again) while the FOMC is at least stable with data pointing toward hawkishness. This situation sets them up for a major divergence of policy that could have long-lasting affects on the EUR/USD pair. In the meantime, the pair has fallen below support targets and looks like it is going to be moving lower now. The indicators are in agreement, lower prices are coming, and the first target for support is now 1.100. A fall below 1.100 would be very bearish and will raise the possibility of parity between the Euro and the Dollar.
The Pound Is Holding Its Ground
The British Pound is under pressure from the dollar as well but it is much less bearish than the Euro. The GBP/USD has fallen below support at the 150 day moving average and looks like it is going lower but the movement is within an existing/current trading range, not at new lows. A move lower is likely to find support at 1.2500, if not a move to 1.200 is likely. Moving forward the Brexit will be the defining factor. Data from the U.S. and UK will keep the pair in motion but direction will be determined on positive/negative Brexit developments.
Safe Haven Seekers Still Love The Yen
The yen is managing to find support despite the BOJ’s policy stance and pledge to keep rate super low for at least another year. There is so much political fear in the market between Trade Talks, Brexit, Venezuela, OPEC, and Iran the yen is likely to keep finding support long into the future. That said, the USD/JPY is confirming resistance at the 112.75 level, an important pivot point over the past two years, and looks set to fall. The indicators confirm resistance and suggest a fall is coming as well. For now, the pair is above the 150-day EMA which is acting as support; a break below there will likely take the pair to 110.00 and maybe 108.00.