US Session Forex Brief, June 17 – Quiet Markets as Traders Wait for Clues From the FED

We have seen some really interesting price action in the last few weeks. The USD has been on a bullish trend for more than a year as the global economy has slowed considerably during this time, while the US economy was holding up well. But in recent months we have seen some pretty weak economic data from the US, and the FED has turned from really bullish to sort of dovish at the moment, after hiking interest rates around 10 times in the last three years. As a result, the USD turned bearish in the last two weeks as odds of the FED cutting interest rates next month have increased considerably. The last time I checked towards the end of last week, they stood at around 88%, which is pretty high.

• No Deal With China at the G20 for Wilbur Ross – The US commerce secretary, Wilbur Ross, commented early this morning that a deal with China can be done but won’t come during G20. Negotiations are complex, will be uncertain until the finish line, people should judge US government by its results in trade negotiations. The US wants true free trade in autos market, which is aimed at EU politicians I reckon.
• ECB Ready to Intervene if Needed for Coeure – The ECB governing council member, Benoit Coeure, said this morning that the central bank has instruments and we’ve shown that we’re ready to use them. Stronger monetary policy reaction would magnify the potential downsides of rates being low for so long. Question is which instrument or combination of instruments would be best suited to deal with the circumstances. Would have to consider a tiering system if needed/necessary.
• BoJo Will Likely Be the Next PM of UK – Boris Johnson is on his way to take the lead for the Tory Party in UK and the post of Prime Minister. Michael Gove said today that Boris Johnson is the clear front-runner but he needs to be tested. Johnson is certainly capable of becoming prime minister, but the key question is who has the best record in office and the clearest vision for the future.
• Saudis Will Jeep Production in Check – The Saudi Oil minister Khalid Al-Falih says that will maintain supply constraints to balance oil market. Not seeing any slowdown of physical demand for oil. Oil demand is holding up despite trade disputes.

US Session

• US Empire State Manufacturing Index – This index was on a declining trend last year and it bottomed at 3.9 points in January. Since then, it reversed higher and it kept improving until climbing to 17.8 points last month, although it was expected to cool off again this month and decline to 12.1 points. But, the decline was much larger with the Empire State Manufacturing Index falling to -8.6 points which the lowest since 2016. New orders also turned negative at -12.0 points against +9.7 previously, employment also turned negative falling to -3.5 versus +4.7 prior, but at least the prices paid increased to +27.8 points from +26.2 previously.
• Iran Says It Dismantled CIA Network – Iran’s senior security official said the country has dismantled a CIA-run “large US cyber-espionage network”. He also said CIA agents were arrested after Tehran shared intelligence with allies. A second report in FARS cites senior Iranian lawmaker Zolnour who says Iran will exit the non-proliferation treaty if the EU fails to save the nuclear deal.
• Mario Draghi Speaks – The European Central Bank President Mario Draghi will deliver opening remarks at the ECB Forum on Central Banking, in Sintra. The economy of the Eurozone has weakened considerably and inflation is falling fast, which has forced the ECB to turn bearish but it will be interesting to see if the ECB will start easing soon after the dovish remarks from Coeure today.

Bearish EUR/USD

1. The trend has turned bearish again
2. Fundamentals are dovish
3. The retrace higher is complete
4. The 50 SMA is providing resistance

The 50 and the 200 SMAs provided resistance on the H1 chart

EUR/USD has been pretty bearish in the last two weeks, but by the middle of last week, the USD found some bids and this pair turned bearish again. EUR/USD lost around 130 pips in the last three days and was trading above 1.12 when the negative reversal in the US Empire State Manufacturing Index sent the USD down and EUR/USD around 40 pips higher. The climb ended at the 50 SMA (yellow) though, which used to be support in the last two weeks, but then turned into resistance after it was broken to the downside. The 200 SMA (purple) also helped and now this pair is overbought on the H1 chart, so I think that the bearish trend will resume again here.

In Conclusion

Markets are trading sideways and I expect them to keep this sort of price action until Wednesday evening when the FED will hold its meeting. Markets are pricing a rate cut in the July meeting but no one know it for sure. So, they will remain on the sidelines until then and try to read whatever piece of data comes out, such as the really negative empire state manufacturing index today.