March 22nd Morning Brief – Major Reasons For The Bearish Dollar
Dave Green • 3 min read
The U.S dollar had another rough day as it fell below the symbolic level of $100, down nearly 0.68% to trade at $99.48. Despite the optimistic macroeconomic figures from the United States, the current account deficit, (a measure of the difference in value between exports goods, services, and interest payments), fell to $112.4 billion by 3.1%.
However, the demand for the U.S dollar is still shaky as investors seem to prefer other currencies such as the Japanese Yen, the Sterling and the single currency Euro. Furhermore, a drag in the greenback caused major drops in the stock markets, while increasing the appeal for haven assets.
What’s The Reason For The Bearish Dollar?
In my opinion, there is no one answer to this question as there are many factors that are impacting the demand for the U.S dollar.
Dovish FOMC Still Shaking The Dollar
To begin, let’s recall the 16th of March Morning Brief, where I discussed the reasons behind a bearish dollar. The investors are responding to Federal Reserve officials’ "unchanged" forecast. In 2017, the rates will rise three times, which is consistent with the outlook presented in December. Perhaps the remarks from Fed Chair Yellen failed to support the greenback.
Great Britain Pound – The Upbeat Economic Figures
Secondly, as discussed in our live market update, Inflation Surges in the UK – We´re Looking at You Carney, the phenomenal changes in economic figures are causing a major shift on the part of investors from the U.S dollar to Sterling. However, that’s to be expected – investors usually rush towards the instrument with fresh and optimistic economic releases. The Cable is a center of focus for now, yet, this focus is likely to switch to the Euro.
Major Events to Watch Today
- Existing Home Sales (15:00)
- Crude Oil Inventories (15:30)
- Gov Council Member Schembri Speaks (20:45)
- Official Cash Rate (21:00)
- RBNZ Rate Statement (21:00)
EUR/USD – The Second Best Performer
Yesterday, the single currency Euro remained the second best performer amongst the major currencies. This time, the strength of the Euro isn't due to any economic figure but due to the weakness of the U.S dollar. To compound that, the strong performance by French presidential candidate Macron in the first televised debate reduced uncertainties in the European markets.
EURUSD – Technical Outlook
Assuredly, the technical standpoint of the EUR/ USD is strongly bullish. In the 4- hour chart, the pair has just completed 23.6% Fibonacci retracement at $1.0787. We can potentially expect further retracement until 38.2%, before further buying in the pair. In addition to this, the RSI (at 64) along with the 50 periods, EMA is extending a bullish support to the EUR/USD.
Trading Signal: As we know, the trend is our friend. So, it's better to have a trendy trade. I would recommend having a buy position above $1.0782, with a stop loss below $1.0747 and a take profit at $1.0826. Whereas, the 2nd take profit will be good at $1.0860.
USD/JPY – The Safe Haven Currency Pair
Aside from the Sterling and Euro, the Japanese Yen was one of the major performers yesterday. The USD/JPY pair fell nearly 130 pips throughout the day. This is mostly due to the uncertainty in the global stocks market. Although, the Bank of Japan (BOJ) maintained its stance that inflation and economic growth will occur in the near future, the drastic decline in the Japanese stock index, Nikkei, caused the panicked situation in the market. Yes, this is why Gold and the Japanese yen got fire.
USDJPY – Technical Outlook
The USD/JPY has maintained a strong bearish momentum for six consecutive days, but it has reached a double bottom support level of $111.600. The RSI is oversold, demonstrating that sellers are exhausted. Because of this situation, we may see some reversal candles here. But for a sure shot signal, we need to have patience. We need to wait a bit for the pair to close a few candles before we enter a trade.
Keep following as we are likely to share trading signals soon!