USD Closes Week On The Bear
Shain Vernier • 2 min read
The Greenback limped to the finish line last week, following a slew of market driving fundamentals. In many ways it was the perfect storm ― a surprisingly hawkish FED, a Trump Twitter tirade, and disappointing Non-Farms Payrolls numbers drove the USD south in a hurry. To say the least, Friday was a firesale in the United States dollar.
Three Fundamentals To Watch Facing The USD
At this point, no one is really sure which way the USD is heading. Many in the financial media view the strife of late last week as a simple pullback. However, others are projecting the Greenback’s post-FED weakness to be a hint of things to come. For now, here is what we do know about the situation:
- At the moment, it looks like the FED’s rate cut isn’t going to be the only one. The CME FEDWatch Index currently shows the odds of another ¼ point cut in September to be 96.2%. It appears that FED experts aren’t buying the “one-and-done” narrative that most in the financial media are throwing out there.
- More tariffs are bad for business ― at least in the short-term. However, if there is a positive correlation between tariff hikes and rate cuts, U.S. equities are heading much higher. On the other hand, the USD is very likely going to be on the bear as FED quantitative easing (QE) becomes the norm for quite some time.
- The 31 October Brexit Day is rapidly approaching, as is the 2020 U.S Presidential election. Over the past 20 years, one is hard-pressed to find two geopolitical events more important to the markets. Each has the potential to shake the forex to its core by driving political uncertainty to unprecedented levels.
When you add up these three factors, the picture facing the USD is, at best, murky. Brexit uncertainty should drive currency traders to the Greenback, while FED QE may flood the markets with dollars. Factor in a potential 2020 U.S. regime change and the waters become muddied even further.
Of course, as active traders, we do not have to be correct about long-term trends. All we have to do is limit risk, maximize reward, and stay disciplined. Easy, right?
EUR/USD : Technical Outlook
Thursday and Friday brought some relief to the EUR against the USD. Back-to-back winning days have returned rates north of 1.1100.
Overview: Going into Monday’s forex session, the 62% Current Wave Retracement at 1.1111 is going to be key. The daily trend for the EUR/USD is decisively bearish; if the market stalls in this area, traders may be inclined to take another look at the 1.1025 level. And, that is good for the USD ― at least for the time being.