Trade Hopes Are Lifting The Dollar
The US/China trade war may be coming to an end. Leaks from within the negotiation say the two sides are on the cusp of reaching an agreement to end the hostilities. The news is good on many fronts in that it will, or should, stimulate the global economy and that will have positive effects on equities, commodities, and foreign exchange. At this time it is the dollar in the spotlight as the U.S. economy is best positioned to see immediate improvement once a trade deal is struck.
The Dollar Index Is Moving On Up
The US Dollar is moving higher against the entire basket of global currencies. The DXY Index added a quarter point today and more than a full percentage point over the past week. The move is supported by technical signals as well as fundamental drivers so likely to continue moving higher in the near-term at least. The first target for resistance is near $97.50 were prices have been halted in the recent past. A move above this level would be bullish and probably result in a sustained move higher. Longer-term, if the trade deal helps boost economic activity as is expected, the DXY could easily top $100 this year. The risk is that the FOMC is not as hawkish as they could be, if the data weakens and they begin cutting rates the dollar may not move as high as forecast. Additionally, if data in the UK, EU, Japan and Australia begin to improve the DXY will likely remain range bound.
EUR/USD Forecast – Back To Support, Now What?
The EUR/USD has been trending sideways within a broad range for many months now. Most recently, the pair has moved lower within that range to test for support near the 1.1300 level. The pair is now sitting on that level and may move lower if the indicators have anything to do with it. Both MACD and stochastic are in support of a bearish move that may take the pair below this target. If so, the pair may move down to 1.12500 or even 1.1200 before next support kicks in. Longer-term I expect to see this pair bob along the bottom of this range before eventually moving higher.
GBP/USD Ratcheting Higher
The dollar is providing some resistance for the pound but hopes for a smooth Brexit are supporting the pair longer-term. Early action this week suggests a move to test support at the short-term moving average but so far, support is well above that EMA. The indicators supports a pull-back in prices within the three-month uptrend but nothing more than that. If prices fall further support is likely at the EMA, a fall below that would be bearish. If support holds and a bounce develops traders can expect to see prices move up to retest the recent high and maybe extend the rally to the 1.3400 level.