Central Bankers have their hands on the steering wheel.

Weekly FX Outlook for September 26 - 30, 2016

Allow me to sum up last week in one quote, “Much ado about nothing.”  With all the hype leading into the week, the BoJ, FOMC, and RBNZ elected to sit on their hands with no rate change decisions and minimal policy changes.  First up, the BoJ focused on 10-yr JGB yields and suggested possible future easing if needed. The USD/JPY managed to keep its head above 100 and got a lift back to 101 with MoF comments. The FOMC, with an expected hawkish lean, disappointed USD bulls as the DXY fell briefly below 95 after enjoying a rise to 96.25 leading into the decision. This inaction puts the December FOMC meeting front and center as the FOMC will continue to watch U.S. economic data. The RBNZ hinted at future easing, but the bank was content with the recent weakness in the NZD.  Brexit fear-mongering was in full force beating the GBP/USD down to 1.2950. The USD/CAD attempted 1.3250 early in the week given sizeable draw on Crude inventory; but, the speculation of an agreement to reduce oil production at the upcoming OPEC in Algiers saw the pair slide back to 1.30 before bouncing on weaker Canadian CPI and Retail Sales data.

For the week ahead, the calendar is packed with central bank speakers and a mix bag of data. A bus load of Fed speakers are on tap - Kaplan on Monday; Bullard, Mester, George and Evans on Wednesday; Harker, Lockhart, Powell, Kashkari and finally Yellen on Thursday. BoC, BoJ, ECB and RBA speakers are scheduled throughout the week. Monitor the tone of central bank comments, dovish or hawkish, to steer the direction of the market. Forex traders have to love it when Central Bankers have their hands on the steering wheel…NOT!

A bid tone in the USD may develop if U.S. data is better than expected. This will see GBP bears aim for the post-Brexit low of 1.2795. If USD weakens, look for EUR/USD to attempt another run at 1.1300.  As for key risk data, keep an eye on German IFO, U.K. CBI and U.S. New Home sales on Monday.  Tuesday, traders will focus on U.S. Consumer Confidence with a lower forecast.  On Wednesday, European traders will monitor German Gfk Consumer Confidence and CHF Consumption while U.S. traders will eye U.S. Durable Goods and Crude Oil Inventories.  Thursday, German CPI and Unemployment Change, U.K. Net Lending, and U.S. GDP are the key events.  Friday starts off with Japanese CPI and Household Spending followed by China Caixin Mfg PMI, German Retail Sales, U.K. GDP, Eurozone CPI, and ending with Canadian GDP, U.S. Core PCE and Personal Spending.

EUR/USD:  Ends last week well bid of all the other major currencies getting a lift by cross-pair trading and settling near 1.1230.  Daily technicals, momentum studies, and price closing above 10-DMA and 21-DMA put a bullish sentiment on the pair. Also, there’s the month-end fix which generally tends to favor a Long EUR/USD. However, with no clear ECB direction, no additional QE, and the potential bid tone on the USD, the EUR/USD may top out at 1.1300 before sliding back down to range lows. ECB speakers are lined up on Monday – Mersch, Draghi and Constancio – whose comments could again steer the pair.  Bids at 1.1200, 1.1185, 1.1150/40, 1.1125, 1.1100, 1.1080/70, 1.1025, 1.1000, 1.0960 | Offers at 1.1250, 1.1280, 1.1300/10, 1.1325, 1.1350/65.

USD/JPY:  A bearish outlook is limited as the market did not break the 100 floor with semi-officials bids nearby and continued jawboning by the MoF. Japanese exporters hold Short ¥ positions ahead of month-end which could help the pair stay afloat. Overall, a 100 to 102.50 range is expected. BoJ Kuroda speaks on Monday and Thursday, but little if any movement in the pair is likely unless Kuroda throws the market a curve-ball. Of concern for USD/JPY bulls is GBP/JPY being weighed down by Brexit fears.  Bids at 101.00/100.90, 100.60/50, 100.20, 99.90/80, 99.65/50 with Sell Stops below | Offers at 101.25, 101.50/60, 102, 102.40/50, 102.75, 103, 103.20/25.

GBP/USD: The popular trade for the pair remains Short with a target at 1.2795, the post-Brexit low. A disappointing Q2 GDP number on Friday could easily press the pair into that target, especially if the USD strengthens. Should comments related to U.K. Article 50 hit the headlines again, look for EUR/GBP to make another attempt to 0.8725. BoE speakers, Haldane, Shafik, and Forbes, are scheduled to speak. Given two doves and one hawk in the midst of Brexit fears, the outlook for the pair may lean even more bearish. Speculation is growing of another BoE rate cut or monetary policy adjustment to mitigate Brexit fallout. Bids at 1.2950, 1.2920/10, 1.2875, 1.2850, 1.2825, 1.2800/1.2795 | Offers at 1.3050/35, 1.3070, 1.3120, 1.3170/80, 1.3220/35, 1.3280/90, 1.3325/35, 1.3375, 1.3400.

USD/CAD: Doubting that OPEC will reach a production-freeze agreement at the Algerian meeting on September 26-28 and the brimming oversupply in the market, the upside in Crude is limited and the outlook for the USD/CAD is bullish for another run at 1.3250 and 1.3300.  At best, WTI has only managed to reach a high of $48.94 back in August. That’s over a buck shy of the $50 forecast oil traders touted for September.  As month-end approaches, traders look to play the pair higher.  Of note, BoC Governor Poloz speaks late on Monday and August GDP, IPPI, and RMPI data on Friday.  Bids at 1.3130/20, 1.3100, 1.3080, 1.3040, 1.3010.00, 1.2950 with Sell Stops below | Offers at 1.3200, 1.3225, 1.3250/65, 1.3300/10, 1.3340/50, 1.3400 with Buy Stops above.

AUD/USD:  The Aussie may play higher again as both the CAD and Kiwi remain weak. Of note, both the AUD/CAD and the AUD/NZD have enjoyed bounces higher as the AUD remains resilient against the USD. In this case, traders look for the AUD/USD to test 0.7730, Sept. 8^th high. On the other hand, should the USD gain a bid tone and the DXY rise, look for the AUD/USD to slip back to below 0.7540.  With no major Aussie data to drive the pair, look to RBA Assistant Governor Edey comments on Wednesday and the Caixin Mfg PMI data on Friday to show direction. Bids at 0.7570, 0.7550/40, 0.7520, 0.7480, 0.7450/40 with Sell Stops below | Offers at 0.7650, 0.7665/75, 0.7700, 0.7730, 0.7750/60 with Buy Stops above.

NZD/USD: The RBNZ pointed to the global landscape and outlook as uncertain for their reasoning to hold tight and watch to see if negative risks influence inflation expectations. Technically, the pair shows bearish sentiment as price closes below the 10-DMA and 21-DMA and momentum studies descend. New Zealand's trade balance is on Monday, with building permits and NBNZ business confidence on Friday. However favorable the data might be, the Kiwi shows weakness compared to the AUD, EUR, and USD. Short-term traders eye a break of 0.7200 and a retreat to 0.7100. Bids at 0.7210/00, 0.7160, 0.7100, 0.7070/60, 0.7020/00, 0.6960 | Offers at 0.7250/60, 0.7290, 0.7310/20, 0.7340/50, 0.7365, 0.7380, 0.7400/25.

Trade Opportunity:  NZD/USD Head & Shoulders (Short Bias)

On the 4-hour chart, the NZD/USD shows a developed Head & Shoulders pattern.  Price has broken the ascending neckline near 0.7255/60.  A descending or flat neckline is preferred.  With this in mind, price may rise and test the 0.7255/60 neckline break.  If the neckline holds, look for the market to drop lower and test 0.7200.  A break of 0.7200 will eye lower targets between 0.7120 to 0.7085.

The Traders Dynamic Index Pro shows Bearish Divergence with current sentiment (Green line) falling below 32 as overall market sentiment (Yellow) is breaking below 50.  Look for the possibility of the Green line to rise and test above 32 touching the Yellow line and then descend again as the Yellow line drops.

In the event commodity pairs improve and strengthen against the USD, look for the NZD/USD to rise and retest 0.7330/20 area.

 

 

If you want to master the ability to recognize additional trade setups as market conditions change from day to day and get real-time market analysis, join the Compass FX Training Room.

 

Good trading,

Dean  Malone

 

Disclaimer:  This Weekly Outlook communication is supplied by Dean Malone, a licensed broker and Forex specialist with Compass FX, an introducing broker located in Dallas, TX, USA.  It does not represent the views or opinions of Compass FX and its employees and associates. Furthermore, this communication is for educational purpose only and does not constitute an offer to sell or the solicitation of an offer to buy.  No representation is being made that any analysis, comment, forecast, or training will guarantee profits or not result in losses from trading. Forecasts presented in this communication only reflect the author’s private opinion and should not be considered as guidance for trading. Compass FX bears no responsibility for trading results based on forecasts described in this communication.  Trading in the off-exchange Foreign Exchange market (Forex) is very speculative in nature, involves considerable risk and is not appropriate for all investors. Therefore, before deciding to participate in Foreign Exchange trading, carefully consider your investment objectives, level of experience and risk appetite. Investors should only use risk capital when trading Forex because there is always the risk of substantial loss. Most importantly, do not invest money you cannot afford to lose. There is always the potential for loss. Your trading  results may vary.   Unique experiences and past performances do not guarantee future results.