Forex Update: Dollar Bounces Back as German Industrial Production Collapses

Forex Market Snapshot

Asset Current Value Daily Change
EUR/USD 1.1457 0.15%
GBP/USD 1.2738 0.20%
USD/JPY 108.70 -0.03%
AUD/USD 0.7159 0.28%
GOLD 1,286 0.01%
WTI Crude Oil 49.96 0.36%
BTC/USD 3,997 0.05%

Financial markets had another active day, and although the main driver is still Friday’s crucial dovish shift by Fed Chair Jerome Powell, the Dollar’s decline has been halted by a dismal German Industrial Production number, which gave yet another confirmation of the sharp global economic slowdown. The major currency pairs will have another important day tomorrow with the Fed’ meeting minutes being at the center of attention.

Besides that, the ongoing round in the US-Chinese trade talks will also likely end tomorrow, after being extended by one day, and we still think that both sides are eager to show progress in light of the recent turmoil in financial markets and the very weak Chinese economic numbers.

In the main other asset classes, the risk-on rally continued, with crude oil gaining ground for the 7th day in a row, and with US stocks extending their bounce again, hitting almost three-week highs thanks to the Fed’s capitulation, and the deeply oversold momentum readings that developed following the December rout.

Technical Analysis

EUR/JPY, 4-Hour Chart Analysis

While the Euro got hit by the very weak German economic release, the EUR/JPY pair, which has been one of the best risk measures lately, barely budged, continuing the post-flash-crash rebound and holding on its recent gains.

The oversold short-term readings are now cleared, but the counter-trend move will likely continue after the outsized decline, and the pair could breach the dominant trendline and test the resistance level near 125.80 in the coming week. With the broader downtrend being intact, we traders should be looking for an entry point on the short side in the coming period, as we expect the sell-off to resume after the correction runs its course.

S&P 500 Futures, 4-Hour Chart Analysis

US stocks are quickly approaching the zone of the October lows, which will likely provide very strong resistance and could end the counter-trend move, even in light of the Fed’s dovish shift, that likely won’t be enough to stop the bearish trend that developed in global risk assets.

The lows of the 2018 spring correction are also near the current price levels, and as the oversold readings have already been cleared in the major indices, bearish risks are starting to mount. Tomorrow’s Fed minutes could provide the catalyst for the next bearish wave, but a positive surprise regarding the US-Chinese trade talks might extend the rally by a few days.

AUD/USD, 4-Hour Chart Analysis

The Aussie has been riding the wave of the oversold bounce in risk assets, while the recovery in oil and the post-flash-crash pullback in the Yen also helped the currency’s bounce. The AUD/USD pair is already close to the strong resistance zone between 0.7165 and 0.72, but after the spike to 0.6750, during the flash crash, a move above zone is in the cards.

Although we still expect the broader downtrend to continue, for now, we would wait for evidence of technical weakness before re-entering the market on the short-side, despite the already overbought short-term momentum readings.

Gold Futures, 4-Hour Chart Analysis

Gold entered the overbought correction that we were expecting last week, and it’s now trading in a bullish consolidation pattern, holding on above the $1280 level. While the current price action is positive, a spike below that primary support level could be ahead before the uptrend resumes.

That said, with the long-term fundamentals still positive for the precious metal, both traders and investors could already be looking for entry points, with a rally to the resistance zone near $1360 likely in the coming months, and with strong support zones found between $1255 and $1260 and in the $1240-$1245 area.

Key Economic Events Tomorrow

ChartBook

Forex

EUR/USD, 4-Hour Chart Analysis

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/JPY, 4-Hour Chart Analysis

GBP/JPY, 4-Hour Chart Analysis

USD/CHF, 4-Hour Chart Analysis

USD/CNH, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Major Stock Indices

DAX 30 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

 

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.