Forex investors did an about face from earlier in the week,
ending the week by dumping higher risk assets. The sharp rise in the Yen and
the sell-off in commodity-linked currencies is a strong sign that investors are
shifting toward a risk-off trading strategy.
The Euro surged to the upside shortly after the New York opening and before the release of U.S. economic
data, briefly piercing the 1.30 level for the first time since early May.
The last thrust to the upside in the Euro was in
anticipation of weak U.S.
economic data which has been the main driving force in the Euro this week. With
traders anticipating bearish reports, the release of a weak consumer sentiment
number as well as consumer price report became a â€śbuy the rumor, sell the factâ€ť
Earlier in the week the Fed released a dovish outlook for
economy, forecasting a lower Gross Domestic Product and a sluggish jobs
outlook. The European Central Bank, on the other hand, is more upbeat about the
Euro Zone economy. The Fed is talking about renewing quantitative easing while
the ECB sounds cautiously optimistic about the Euro Zone recovery. The
difference in each central bankâ€™s assessment of its economy is sending a signal
that the ECB may be closer to raising interest rates than the Fed. This is
encouraging some light buying, but the majority of the rally in the Euro has
probably been short-covering.
Technically, the EUR USD attracted selling pressure at a
Fibonacci number at 1.2998. After a prolonged move up in both price and time,
the Euro is now trading lower, putting it in a position to post a daily closing
price reversal top. This pattern usually suggests the start of a 2 to 3 week
break or 50% of the last rally.
The weak U.S.
economic outlook is driving investors out of higher yielding assets and into
the safety of the lower yielding Japanese Yen. A sharp sell-off in the U.S. equity
markets is fueled a break in the Australian Dollar. The combination of a worse
than expected inflation report and weak U.S. stock market pressured the New
Zealand Dollar. Weak equities and crude oil triggered a break in the Canadian
Technically the lack of follow-through to the upside in the
AUD USD following the attempted breakout over the main top at .8858 helped to
pressure the Aussie on Friday. Based on the main range of .8315 to .8870,
traders should watch for a correction to .8592 to .8527.
The current chart formation in the New Zealand Dollar
suggests a correction to .7948 to .6988 is likely over the near-term.
The USD CAD continues to remain rangebound and quite choppy.
Continue to look for a choppy, two-sided trade unless the Dollar/CAD crosses
1.0678. If this scenario develops, then look for an acceleration to the upside.
This move will also be a strong indication that stocks and commodities are
The main trend is down in the USD CHF with the market
currently testing its lowest level since early April. A shift in investor
sentiment out of risky assets could trigger a turnaround in this pair. Fridayâ€™s
action suggests that a closing price reversal bottom is forming which could
lead to a massive short-covering rally next week. Based on the current chart
formation, a breakout over 1.0675 will turn the main trend to up.
The GBP USD was under pressure on Friday following a strong
weekly gain. Todayâ€™s weakness came as a surprise because this pair closed on
its high Thursday. The sudden shift in investor sentiment is most likely a sign
that investors feel the fading global recovery will hamper chances of a
recovery in the U.K.
and diminish hopes of a rate hike by the Bank of England.
Another sign that interest rates are likely to remain at
historically low levels was the strong gain in British Gilts. Like the Treasury
market is for the U.S.
economy, the Gilt market movement reflects how investors really feel about the
economy. Since Gilts rose, yields fell, thereby signaling that traders are
factoring in lower interest rates.
The week started with the focus on U.S. corporate earnings, but
quickly shifted toward the economy. While good earnings have been driving up
demand, it appears that investors have decided that the economic data should
carry more weight. The question being asked is can corporations sustain earnings
growth in the wake of a weakening economy? Todayâ€™s action seems to indicate
that the answer is no.
The key indicator to watch is the Japanese Yen. A rising Yen
will be a strong sign that investors are forecasting a weaker global economy.
Commodity-linked currencies are likely to suffer the most if investors lean
toward a risk-off environment.
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Mon 23 July 2018 A 14:00 US- Existing Homes Sales Tue 24 July 2018 AFlash PMIs Wed 25 July 2018 A 08:00 DE- IFO Survey A 14:00 US- New Homes Sales A 14:30 US- EIA Crude Thu 26 July 2018 AA 11:45 EZ- European Central Bank Decision A 12:30 US- Weekly Jobless A 12:30 US- Durable Goods Fri 27 July 2018 AA 12:30 US- GDP A 14:00 US- Final University of Michigan
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