Connect with us

Forex

Return of the Dollar Bulls? Options Market Shows Bigger Upside for the Greenback

Published

on

A less hawkish Federal Reserve was supposed to be the death knell for the U.S. dollar. Instead, the greenback has rallied for five consecutive days, defying a growing consensus on Wall Street that the currency is heading for darker days. Now, signals from the options market suggest more gains are likely in the short term.

Dollar Defies the Odds

The U.S. dollar index (DXY) strengthened Wednesday, reaching the highest level in almost two weeks. DXY rose 0.3% to 96.31, extending its winning streak to five days. Over that stretch, the greenback has gained 1% against a basket of its competitors. Prior to its recent run of good fortune, the dollar index had fallen to its lowest level in three weeks.

Interestingly, the rally began on Jan. 30, the day the Federal Reserve signaled a less hawkish path on monetary policy. In voting to leave interest rates unchanged, the Federal Open Market Committee (FOMC) said it will adopt a “patient” approach moving forward. Futures traders took this to mean that no further rate hikes are coming this year. In fact, Fed Fund futures prices reveal that markets believe a rate cut is more likely than a rate hike.

Futures traders may be putting too much emphasis on the Fed’s perceived dovishness. For starters, the central bank raised interest rates four times last year and signaled two upward adjustments are likely in 2019. Fundamentally, the only difference between the December rate statement and the one that was released last week was the bruising stock-market selloff. Although stocks began their long descent in October, it wasn’t until the back half of December that the turmoil reached epic proportions. Since then, stocks have rebounded more than 16%.

What’s more, Fed policy continues to diverge sharply from its counterparts in Europe and Asia. In these regions, a cocktail of stimulus measures is still being used to prop up national and regional economies.

What Options Tell Us

If one looks at the options market, they can clearly see that the dollar still has room to appreciate in the near term. As Bloomberg notes, contracts that appreciate if the greenback rises versus its competitors over the next three months are approaching their highest level since mid-December (that is, when compared to contracts protecting against a decline). Although the shift is relatively small, it could put downward pressure on competitor currencies and emerging-market assets.

As Bloomberg also noted, the dollar’s newfound strength has defied the growing consensus on Wall Street that the greenback is heading sharply lower by the summer. A median estimate of analysts polled by the news agency says the U.S. currency will fall 2.7% by June 30.

Let’s also not forget the turmoil surrounding some of the dollar’s biggest peers. The pound, which is the third-largest currency in the DXY basket, has just recorded its first weekly drop in six weeks. The declines were attributed to dismal economic data and the ongoing Brexit saga. Read more: GBP/USD Price Prediction: Cable Flood Gates Open to Fresh Wave of Sellers.

The yen is also contending with a sharp and sudden contraction in the Japanese economy. Japan’s gross domestic product (GDP) shrank 0.6% in the third quarter, the steepest fall since 2014. It was also the second time in three quarters that the economy contracted.

In the Eurozone, economic growth has virtually stalled over the last two quarters. The currency region expanded just 0.2% in Q2 and Q3.

Featured image courtesy of Shutterstock. Chart via Barchart.com.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
0 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 5 (0 votes, average: 0.00 out of 5)
You need to be a registered member to rate this.
Loading...

4.7 stars on average, based on 770 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




Feedback or Requests?

Analysis

GBP/USD Price Prediction: Cable Could be Hit Harder This Week

Published

on

  • Big fundamental data points will play a massive role in the direction of GBP this week.
  • GBP/USD downside targets are eyed at 1.2800 and then the range of 1.2750-1.2650.

It is another week where GBP takes the spotlight with a raft of key economic data points being released from the UK. This comes after an extremely volatile week where GBP/USD finished another close in the red. In an already delicate time for the UK and its domestic currency, given the Brexit palaver, this slew of key fundamental data is only going to see volatility rising.

Recap Last Week

Cable last week came under quite a large amount of selling pressure, which was initially kicked off due to weaker PMI data. Britain had produced soft construction and services PMI data, which triggered the bears to get into action. Furthermore, the Bank of England released their monetary policy decision, where they left rates unchanged; however, officials were very much dovish. They slashed their growth forecasts, citing Brexit damages. GBP managed to reverse this initial spike to the downside, after Carney essentially hinted rate rises could still come. The market read between the lines following his comment: “There is upside for UK economy if there is clarity on Brexit deal sooner”.

Critical Data Points This Week

On Monday, UK will release its GDP figures, which are expected to cool across the board. This is not too much of a surprise, given lacklustre economic data points that have been released already this year, including falling retail sales and a drop-in consumer confidence to around weakest levels in more than fives years. PMI sectors are close to recession and most recently the BOE downgraded its growth forecasts. Elsewhere, later in the week, eyes will also be on the retail sales and CPI numbers, both of which are expected to cool. Should all above-detailed data come in soft, then expect further selling pressure to continue for GBP this week.

Technical Review – GBP/USD

GBP/USD weekly chart.

The weekly chart view remains firmly bearish, following on from the last two consecutive weeks of losses. In terms of the daily, price action is currently trying to break down near-term demand. This can be observed between 1.3000 down to around 1.2915. Should the bears manage to convincingly break and close below, then eyes will be on a retest of 1.2800 to the downside. GBP/USD last traded down there on 17th January. Further downside targets would be the 1.2750-1.2650 range, where the next major area of demand can be seen. Shorts would likely be off the cards near-term if the price manages to break and close back above the psychological 1.3000 mark.

GBP/USD daily chart.

In terms of direction this week, it is very much going to be dictated by the above-listed key economic data points. The bears will likely capitalize on the described downside targets, only if the numbers disappoint market participants.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
0 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 5 (0 votes, average: 0.00 out of 5)
You need to be a registered member to rate this.
Loading...

4.6 stars on average, based on 123 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




Feedback or Requests?

Continue Reading

Analysis

GBP/USD Price Prediction: Cable Flood Gates Open to Fresh Wave of Sellers

Published

on

  • GBP/USD was under heavy attack throughout the session on Tuesday, following a poor UK services PMI data release.
  • The next major areas of support should be noted at 1.2900, 1.2870-30 and then 1.2750-00.

The British pound was hit with heavy selling pressure on Tuesday, resuming the trend which was kick-started last week. Looking at GBP/USD specifically, it saw its first weekly close in the red after six straight weeks of gains. The price ran into a heavy supply area, which can be seen tracking from the 1.3200-1.3300 range. It has not traded convincingly above this zone since June 2018, which demonstrates the significance of its strength.

Poor UK PMI Data – Economy at Risk of Stalling

The value of the pound is being heavily driven by weak fundamentals seen on both the economic data front and Brexit recoil. Today saw the release of the UK Services PMI, which makes up around 70% of the country’s entire GDP. The number produced was very much disappointing, coming in at 50.1 vs. expected 51.1 and the previous 51.2. IHS Markit chief business economist Chris Williamson had the following to say about the release:

“The latest PMI survey results indicate that the UK economy is at risk of stalling or worse as escalating Brexit uncertainty coincides with a wider slower slowdown in the global economy. “Service sector growth ground almost to a halt in January, matching similar disappointing news in the manufacturing and construction sectors. The last three months have seen the economy slip into its weakest growth spell for six year. They indicate that GDP likely stagnated at the start of 2019. This being after eking out modest growth of just 0.1% in the fourth quarter.”

Technical Review – GBP/USD

GBP/USD daily chart.

In terms of GBP/USD, the pair was slammed over 100 pips during the session on Tuesday, given the above-detailed circumstances. Downside was initially limited in the early part of the European session, which was thanks to the big psychological 1.3000 mark. This provided some comfort initially before pressure from the bears became too much. Once the sellers managed to force a breach of this territory, a fresh wave of selling pressure was seen.

A drop of almost 80 pips was seen after this support breakout, seeing the price fall to a sessions low of 1.2924. This was the lowest it has been since 22nd January during the month’s bull run. The major area of support is eyed just further south, initially at the 38.2% Fibonacci of the January rally. That corresponds to the 1.2900 territory. An area of demand is seen slightly below at 1.2870-30 range, which supported the price on several occasions, mid-January.

Should the above-detailed areas of support fail to catch the falling price, then another drop to the 1.27 territory will be eyed. Another zone for buyers can be seen tracking from 1.2750 to the round 1.2700 figure.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
0 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 50 votes, average: 0.00 out of 5 (0 votes, average: 0.00 out of 5)
You need to be a registered member to rate this.
Loading...

4.6 stars on average, based on 123 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




Feedback or Requests?

Continue Reading

Analysis

There’s Too Much Pressure On USD

Published

on

By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

There were enough statistics from the USA last Friday. The Unemployment Rate increased to 4.0% in January after being 3.9% the month before. However, the indicator wasn’t expected to change. The Average Hourly Earnings added only 0.1% m/m over the same period after expanding by 0.4% m/m in December. On YoY, the indicator was +3.2%.

The Non-Farm Employment Change was 304K in January after being 222K in the previous month and against the expected reading of 165K.

Perhaps, the USD would have paid attention to these numbers if it were not for the comments of Federal Reserve Bank of St. Louis President James Bullard, who said the U.S. no longer requires interest rate hikes. In his opinion, the current value of the federal funds rate was sufficient. At the same time, another representative of the US Federal Reserve told media that he was also in favor of pausing rate hikes.

This pressure may become a leverage over the Fed in the near future. In this light, the USD is facing a bigger potential downshift.

As we can see in the H1 chart, there was a divergence on MACD, which made EURUSD complete the ascending wave. Right now, the pair is trying to break the support line of the rising range and forming a descending channel. As for further descending movement, first of all one should pay attention to the retracement of 61.8% at 1.1376. Another thing worth mentioning is that the target is close to the support line of the projected channel. However, if the pair starts another ascending wave, the price may break the resistance line at 1.1488. In this case, the next upside target will be at 1.1577.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

Important for improving the service. Please add a comment in the comment field below explaining what you rated and why you gave it that rate. Failed Trade Recommendations should not be rated as that is considered a failure either way.
1 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 5 (1 votes, average: 5.00 out of 5)
You need to be a registered member to rate this.
Loading...

4.7 stars on average, based on 30 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




Feedback or Requests?

Continue Reading

Recent Posts

A part of CCN

Hacked.com is Neutral and Unbiased

Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

Trending