USD continues to make a good run!

Weekly FX Outlook for October 17 - 21

As expected, this past week was slow with few important economic data releases.  FOMC Meeting Minutes on Wednesday was the primary event but yielded nothing new that we didn’t already expect – most likely a U.S. interest rate increase in December.  U.S. Retail Sales and PPI numbers came in better than expected which helped push the Dollar Index over the 98 level.  Overall, the USD maintained a positive bid tone which kept USD bulls happy as the USD/JPY peaked at 104.63 finishing the week near 104.35 and the EUR/USD slid below the 1.10 level, something not seen since late July, and finished the week near 1.0970.  Neither the European ZEW data nor Japanese machinery orders data had much affect on the market. The GBP/USD for most of the week bounced between 1.2100 and 1.2300 with every pull and push of Brexit commentary, including U.K. PM May opening up talks about how to proceed with the EU.  The USD/CAD broke above 1.33 level and later slid back to 1.3100 as Crude pressed above $51/bl and later fell back below $50/bl with an OPEC meeting in Istanbul with a pledge from Russia and then later on a larger than expected inventory build. 

The week ahead may continue to be good for the USD.  U.S. CPI, Building Permits, Empire State Mfg, Industrial Production, and Housing starts expected to be better than last month.  The USD is on a steady press higher, and as long as the data comes in line or better and Fed comments continue to lean towards a December rate increase, look for USD Long opportunities.  The ECB policy decision on Thursday is expected to remain unchanged; however, look to the ECB press conference to shed some more light on whispers of ECB QE taper.  If ECB President Draghi answers favorably to questions about QE tapering, look for the EUR/USD to make another run to 1.1200. The GBP/USD might get some much needed Brexit relief if the U.K. CPI, PPI, RPI, Claimant Count, and Retail Sales turn out better than previous.  If so, some Sterling traders expect a technical rally (a.k.a., a Short Squeeze) in the GBP/USD for two reasons – an imbalance in heavily weighted Short positions vs. Longs and a new Resistance level discovery, maybe 1.2500 as it’s getting crowded with offers.

As for the commodity based pairs, the RBNZ’s dovish tone mixed with the RBA’s hawkish tone may give traders opportunity in the AUD/USD, NZD/USD, and AUD/NZD.  Watch for NZD CPI on Tuesday followed by RBA Meeting Minutes, NZD Dairy data on Wednesday, Aussie Employment data on Thursday.  If RBA Minutes appear hawkish and Aussie Employment data is better than expected, look to trade AUD/USD and AUD/NZD Long.  The BoC interest rate decision on Wednesday is expected to remain unchanged at 0.5% and doubtful BoC Poloz comments will shed any new light on the CAD.  Therefore, continue to monitor Crude to give direction in the USD/CAD.  We may see the pair press up to 1.3400 and higher if we don’t see some form of real agreement among OPEC members to limit output.

EUR/USD:  Besides CPI data on Monday and the EU Economic summit starting on Thursday, the main event for the week is Thursday’s ECB press conference.  Let’s see if we get another Draghi squeeze and a retest of the 1.1170/1.1200 level where offers are touted.   Final CPI data on Monday is expected to come in line, but if better than expected look for EUR/USD to may start the push higher.  Overall, the technicals are bearish and momentum studies are biased down again as the EUR/USD breaks below its weekly sideways wedge.  Bids at 1.0950, 1.0920/10, 1.0880/50, 1.0800, 1.0725.  Offers at 1.1050, 1.1080, 1.1125, 1.1150, 1.1170/80, 1.1200, 1.1225, 1.1250/60.

USD/JPY:  Japanese exporters pressed above 104 again this past week, and much the same is expected this week.  There is no event risk data on tap for the JPY this week.  So, traders will look to the DXY and equity markets for direction.  If the USD remains strong, expect a retest of test of 104.50 and a push to 105 and above.  With this in mind, look for USD/JPY Long opportunities on dips.  Bids at 104.00/103.90, 103.70/50, 103.35/25, 103, 102.50/60, 102.10/00.  Offers at 104.50, 105.00, 105.25, 105.50/60. 

GBP/USD:  Given the recent flash crash, an untested floor, and an unknown ceiling, the Sterling will continue to bounce around finding its way.  Brexit Shorts look for a slide back towards the 1.1840 floor, while passive sellers, looking to enter after a Short squeeze, sit waiting patiently near 1.2500.  As mentioned before, Brexit fears have primed the pump for more GBP selling, but with a heavily weighted Short, expect a Short squeeze to bring some balance before the next drop lower.  Bids at 1.2150, 1.2100, 1.2050, 1.2000, 1.1900, 11850/40.  Offers at 1.2250, 1.2300, 1.2350/60, 1.2425/35, 1.2500.

USD/CAD:  With no policy change expected from the BoC, look for Crude to steer the direction of the pair. Expectations are for a drop in inflation forecasts but a positive outlook on growth. Comments from BoC Poloz might cause some movement, but it’s not expected to last.  Daily charts show the pair near the bottom of an uptrend channel.  Look for a bounce higher if channel maintains.  Bids at 1.3100, 1.3070, 1.3050, 1.3025, 1.3000, 1.2950.  Offers at 1.3160, 1.3200, 1.3225/35, 1.3275/80, 1.3300, 1.3350, 1.3400.

AUD/USD:  An expected hawkish tone from the RBA Meeting Minutes and better than expected Employment data release can see the Aussie strength against the USD and NZD.  Keep as eye for AUD Long opportunities as it might retest 0.7700.  Bids at 0.7560/50, 0.7530/20, 0.7480/60, 0.7420.  Offers at 0.7660/65, 0.7685, 0.7700, 0.7730.

NZD/USD:  The Kiwi starts the week with Q3 CPI inflation data on Tuesday with an expected decline followed by the Global Dairy Trade number on Wednesday which will gain some immediate attention if comes in much better than expected.  Bids at 0.7060/60, 0.7020/00, 0.6960, 0.6900, 0.6850/40.  Offers at 0.7120/35, 0.7160/70, 0.7200, 0.7230/40, 0.7250, 0.7280, 0.7310/20, 0.7350.

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

The Daily chart of the NZD/USD shows a potential Head & Shoulders pattern.  Price was pressing lower towards a flat neckline (0.6990/60) and made a small bounce off of the 0.7040 creating an upward neckline.  With this in mind, price may rise to 0.7200 or higher towards 0.7090 to form the right shoulder.  However, if the NZD weakens further against the USD, look for price to resume lower and bounce off the 0.6990/0.6960 flat neckline before making the right shoulder. 

The Traders Dynamic Index Pro shows overall sentiment (Yellow line) dropping below the 50 level while current sentiment (Green line) bounces off lows below 32.  Look the current sentiment to rise and test overall market sentiment near the 32 level, and then shift lower as overall sentiment remains intact.

 

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Good trading,

Dean  Malone

Compass FX

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.