Dollar is recovering relatively against most currencies and gold is falling below the 1340 level
The Dollar steadied to close slightly higher against most of its Rivals following its recovery from 3-year lows. The Japanese Yen continued its retreat from a 15-month high against the Greenback following rhetoric from Japan Inc warning against further currency appreciation. Markets were subdued with the US out for the President’s holiday while China and parts of Asia continued their Lunar New Year celebrations. Canada was closed as they observed their Canadian Family Day. Global stocks slipped with Wall Street down in futures trading.
Overall sentiment remains bearish on the US Dollar with Friday’s move seen as a pause in the overall trend. Worries on the growing US budget deficit due to government spending and large corporate tax have weighed on the Greenback. Many believe the Trump administration is pursuing a weak Dollar policy. This has seen the Dollar fall 10% in 2017 and almost 3% in 2018. However, caution is advised in such a strong negative Dollar environment.
Markets will focus their attention on this week’s upcoming events and economic data. Today starts off with the release of the RBA’s February meeting minutes.
The Greenback has fallen too fast and too far. And the speculative community is still by and large short US Dollars. The risk in the short term is for a deeper correction which will lead to further Dollar upticks. The trigger or catalyst for this may be the FOMC and ECB policy meeting minutes on Thursday.
After Friday’s verbal warning, Japanese officials will continue to be vigilant and monitor the Yen’s development.
In Europe, the ECB got a new Vice President, Spain’s current finance minister De Guindos. De Guindos takes the place of former VP Constancio and is considered neither hawkish or dovish, rather a pragmatist.
USD/DXY – The Dollar Index closed with mild gains to 89.188 from 89.08 yesterday. Most of the gains came from a weaker JPY (13.6% weight) and GBP (11.9% weight).The Euro was flat. Immediate resistance for the USD/DXY lies at 89.40/50 (overnight high was 89.442). Immediate support can be found at 88.95/00 (88.955 overnight low). Expect consolidation today within a likely range of 89.00/50.
USD/JPY – a case of higher lows should see the Dollar grind higher against the Yen. The US and Japanese Ten year yields were unchanged. And we can expect more verbal intervention from Japanese officials should the USD/JPY head toward Friday night’s low of 105.50. In the short term, this could be their “line in the sand”. Likely range today 106.10-106.90. Prefer to buy USD dips.
EUR/USD – closed flat at 1.2410 (1.2409 yesterday). The Euro dipped to an overnight low of 1.23690 after failing to break above 1.2440 yesterday. Immediate support lies at 1.2370. Immediate resistance can be found at 1.2440/50. Many expect the ECB to announce an end to its tapering program in its upcoming meeting minutes release. Unlike the JPY, the speculative community remains long of Euro contracts. While the overall trend may be bullish for the Single currency, the market is long and in need of a decent correction. European and Euro Zone Manufacturing PMI’s are released later on in the week. The European economy continues to perform well. European officials do not seem to be bothered by the Euro’s recent strength. We shall see. Like the overall US Dollar fall, the Euro’s rise this year has been a little too fast. Immediate resistance for today lies at 1.2430 (1.2435 was the overnight high). Immediate support is found at 1.2370 (overnight low was 1.2369). Likely range 1.2370-1.2420. Prefer to sell rallies.
AUD/USD – little-changed in subdued trading to close at 0.7912 (0.7915 yesterday). The Aussie traded in a relatively narrow range between 0.7898 and 0.7935 overnight. We can expect more of the same today into the release of the RBA’s February meeting minutes. There should be no surprises as the Governor and some few Board members have made their views known recently. Still, traders will keep their eyes fixed on the headlines. AUD/USD has immediate resistance at 0.7935 (overnight high). Immediate support lies at 0.7900 and 0.7890. Likely range today 0.7880-0.7930. Look to sell rallies.
GBP/USD – slightly lower to 1.4007 from 1.4027 yesterday. The Pound has had a strong comeback courtesy of the US Dollar weakness. Last month, optimism on Brexit negotiations and an expectation of a BOE rate hike as early as May buoyed the Pound. The release of UK labor and wages data will be closely scrutinized by traders for clues to the pace of tightening from the Bank of England. The last BOE meeting saw a hawkish outlook which said that interest rates would have to rise sooner rather than later. A weak to flat labor report could delay any interest rate rises. Brexit negotiations have a long way to go with trade difficult to negotiate.
GBP/USD has immediate resistance at 1.4035 and 1.4050. Immediate support lies at 1.3980 and 1.3960. Likely range today 1.3970-1.4020. Prefer to sell rallies.
USD/ZAR: The local currency was trading at R11.66 to the dollar on Monday at 11:00, after opening at R11.58 to the greenback.
Last week it strengthened from just under R12/$ to an intraweek high of R11.56, on positive sentiment around what is called the swearing in of South Africa's new president as well as relative dollar weakness.
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