The Dollar Oultook; Bears Rule The Market

The Dollar Is Set To Move Lower, FOMC Outlook Dovish

The Dollar Index is set to move lower. Last week the daily chart candles broke through support at the top of a previous trading range. This week the index is already confirming resistance at that level and the indications are bearish. Driving the move is the FOMC outlook, an outlook that is turning increasingly dovish. The Fed is expected to cut rates again in September and then again before the end of the year. That is three rate cuts in six months where just last December the market was still expecting more hikes this year.

The risk for traders is this week’s economic calendar. The calendar is full and skewed toward the end of the week which means early week action will be iffy and late week action volatile. Early in the week there is the CPI consumer inflation data. This data is due out on Tuesday and one of the more important in terms of FOMC outlook. We are looking for CPI near 0.2%, a deviation will impact rate cutting expectations. Later in the week, on Thursday, the market is looking for seven major reports including Retail Sales, Empire Manufacturing, Philly Fed MBOS, and the NAHB Home Builders Sentiment Index. Needless to say, there is a lot of risk in the economic data.

The safe-haven Japanese yen is experiencing an updraft in value due to trade war and growth-related fear. The USD/JPY has been moving lower steadily for the last several months and is fast-approaching a one-year low. The low is near 104.75 and will be significant when reached. A bounce from this level is likely to begin with, where it goes from there is questionable. A fall to new lows would be incredibly bearish for the dollar and likely take the USD/JPY down to 102.50 and 100.00.

The Swiss Franc, another safe-haven asset, is also trading at a long-term low. The USD/CHF pair is sitting on potential support at the 0.97 level but the indications are bearish. A move below that level would confirm a deeper move, a move that could go as far as 0.9200 in the near to short-term.

The EUR/USD is moving higher in the near-term but resistance is just above at 1.2919. The indicators are bullish so a test of resistance is likely. The caveat is that price action and the indicators are consistent with weak market movement so reversal is a risk. Longer-term, the EUR/USD will likely move sideways within a range as the FOMC and ECB outlook/actions work against each other. The ECB is expected to enact easing as soon as the next meeting and that will weaken the single-currency.