Weekly Forex Analysis
(November 25 - November 29, 2019)
Hey! This is Philip with our new weekly outlook of the Forex market.
Below I present a preview of the article. To read the full analysis just click the big blue button.
US Dollar Fundamental Outlook – Have US-China Talks Reached A Pivotal Point?; USD Maintains Moderate Bullish Trend
The greenback was able to strengthen marginally last week, as we largely expected. Although mainly external factors were at play that drove USD higher such as Euro weakness, the US economic data released over the past week wasn’t bad and even surprised positively. The Fed minutes also confirmed that the Fed is not planning to cut rates again, so certainly those were tailwinds for the USD. It still remains the best among the worst of the major currencies.
This week will be busier until Wednesday, and then US traders will go off for a holiday on Thursday while the calendar is empty for Friday. So, markets may get quieter toward the end of the week. Before then, the calendar has the following events scheduled out of the USA: the CB Consumer Confidence on Tuesday, while on Wednesday Durable Goods Orders, GDP (preliminary release), the PCE spending/inflation index, and the Chicago PMI will be released. Out of those,
GDP and PCE inflation will take the primary attention probably. If the reports overall lean to the positive again, then the Dollar should benefit and extend the rally from last week.
Finally, in these times, you can’t forget politics when trading Fx. With the latest developments in Hong Kong, it seems pivotal times are coming again for the US-China trade deal and for markets as we head into the last 4 trading weeks of the year (not counting the Christmas week). Trump will have to make some choices and announcements soon, and it seems that the probabilities are starting to turn against risk appetite. Thus, keeping a close watch on the
US-China front is important now as it can set off large and volatile movements. Overall, such a risk-off scenario shouldn’t hurt the Dollar, although it is not the primary safe-haven currency.
Japanese Yen Fundamental Outlook – Careful On Risk Appetite Here; JPY Will Win In Risk-Off
Volatility has stayed very low in recent weeks and the Yen has been very stable with a mild weakening trend. However, that may be about to change, given some of the risks on the horizon that can hurt risk appetite.
Namely, there are several aspects that warrant caution on the US-China front. Despite all the optimism in the past 3 – 4 weeks, a deal still remains elusive and there is no tangible sign that the two sides are moving toward a deal.
Additionally, the Hong Kong crisis may complicate US-China relations further. Last week US lawmakers passed the Hong Kong Human Rights and Democracy Act which is now up for President Trump’s signature. However, if he signs the bill into law, that will probably damage the prospects for a trade deal with China. On the other hand, if he bans the bill that would damage his support back home at a crucial time ahead of next year’s
elections. With Trump cornered like this, China probably won’t back down either. So, from here, it seems fairly probable that relations between the two giants will worsen again.
Such a scenario would be bullish for the Yen and other safe-haven assets. Given that optimism for a US-China trade deal seems a bit too high at this point and could turn sour again, risk-reward favors bullish JPY positions (bearish USDJPY).
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USDJPY Technical Outlook:
USDJPY traded between the 108.25 lows and the 109.00 resistance last week. The price is currently near the support trendline of the wedge pattern that we described, and there is potential for a breakout to the downside it seems. Such a breakout, if confirmed, should open a nice potential for short opportunities toward the 107.00 price zone.
Resistance is at the 109.50 highs and the upper trendline of the wedge formation. The 110.00 area, which is not far will also be resistance, so if the move higher does extend, it’s still likely to be slow and gradual as thus far within this wedge.
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