EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(February 17 - February 21, 2020)
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US Dollar Fundamental Outlook: USD Remains In Sweet Spot That Keeps It Firm
Much as we expected, the Dollar extended the uptrend for another week and reached notable 3-year highs versus the Euro.
Most of the US economic data released over the past week was at or near the consensus expectations – meaning that the US economy stays on track of outperforming its peers. This data, together with the strong NFP from the prior week, will keep the Fed satisfied with the current stance of monetary policy. Fed officials also indicated that they will start to cut down on the repo purchases (aka silent QE) in the following months. The yield advantage of the US Dollar due to higher interest rates,
therefore, remains in place. On another front, the worries from the coronavirus are another factor that contributes to USD’s firmness to some extent, due to safe-haven flows.
The calendar for this week is calmer compared to the previous two and features no tier-1 events. The focus will be on the FOMC minutes on Wednesday and the speeches from several Fed Presidents throughout the week, but these events probably will not cause much volatility. Given the relatively quiet calendar, developments in other places in the world and other currencies will also affect the Dollar this week and may even be the main driver versus each of the other
currencies. Some consolidation of the USD’s uptrend after the strong rise recently also can’t be excluded for this week.
Overall, the two pillars behind the Dollar strength in the past two years, of US economic outperformance and modest risk aversion, remain as alive as back then. This is likely to keep the USD in the sweet spot for continuing its moderate and broad advance for the time being.
Euro Fundamental Outlook: Manufacturing PMIs In Front Focus This Week
The worst Eurozone economic conditions since the 2012 crisis continue to depress the single currency; the Euro reached significant multiyear lows versus the Dollar and Swiss Franc last week.
The quiet calendar of the last week will be followed by busier trading this week. Traders will be closely watching the flash manufacturing and services PMI surveys and the German ZEW economic sentiment index. Weakness in the PMI and ZEW sentiment reports wound not fare well for the Euro currency - especially if there are big disappointments, which is possible given all the coronavirus fears. In such a scenario, the bearish EUR trend is likely to extend
lower.
On the other hand, a positive surprise with a rebound in the PMIs may put a trough in the Euro, at least for the near-term. Thus, this is why this week’s PMIs are very important for how the Euro will trade.
The ECB monetary policy meeting accounts will also be released on Thursday, though, like with the Fed minutes, little movement on this report is likely.
EURUSD Technical Outlook:
The bearish trend here has accelerated quite markedly for standards of recent times and pushed the EURUSD pair to the lowest levels since April 2017. At this point, the pair is testing the “Macron gap” that occurred on the weekend when Macron won the first round of the French Presidential election. Gaps also act as mild support zones; EURUSD would fill this gap if it falls to the 1.07 area.
Looking at the daily chart, we are starting to see signs that the bearish move may be entering overextended territory. For instance, the RSI has hit oversold levels for the first time since early September. Another sign for caution at this stage is the fact that the 1.08 round number level and the lower line of the 18-month bearish channel (currently around 1.0760) are not far from the current price. Hence, buyers may
start to enter the market at this point, which may result in some bounce in EURUSD at these support zones.
To the upside, not much resistance is seen until the 1.10 zone.
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