Yen Rise May Resume as Market Sentiment Sours Anew

Yen Rise May Resume as Market Sentiment Sours Anew

TALKING POINTS – YEN, DAVOS, WORLD ECONOMIC FORUM, AUSTRALIAN DOLLAR

  • Yen drops, commodity dollars rise as risk appetite firms in APAC trade
  • Anxious commentary form Davos forum may trigger risk aversion anew
  • S&P 500 futures erase early-Wed gains, bolstering case for risk-off bias

The anti-risk Japanese Yen traded broadly lower while the sentiment-geared Australian, Canadian and New Zealand Dollars rose in Asia Pacific trade. These moves appear to be corrective in the context of yesterday’s market-wide bloodletting. The Kiwi outperformed, receiving an added boost form better-than-expected inflation data.

The upbeat mood may prove to be short-lived. Anxious commentary emerging from the on-going World Economic Forum in Davos, Switzerland may trigger another rout as leading policymakers and financial market bigwigs opine on the many headwinds facing the global economy. These include the US-China trade war, accelerating quantitative tightening and wobbly politics in much of the G10.



Tellingly, bellwether S&P 500 futures have retreated to trade flat ahead of the opening bell in London having been up nearly 0.4 percent in APAC trade. That seems to reinforce the sense that de-risking remains the dominant trajectory for global markets, with the rosier dynamics recorded early Wednesday representing digestion rather than reversal.

See our market forecasts to learn what will drive currencies, commodities and stocks in Q1!

ASIA PACIFIC TRADING SESSION

Yen Rise May Resume as Market Sentiment Sours Anew

EUROPEAN TRADING SESSION

Europe Trade Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

Crude Oil Weekly Price Outlook: WTI Rally Fizzles Ahead of Resistance

Crude Oil Weekly Price Outlook: WTI Rally Fizzles Ahead of Resistance

In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. Crude Oil is on the defensive to start the week with price pulling back from six-week highs after rally of more-than 18.7% from the yearly / monthly open. While the threat of more near-term losses remains, the broader outlook remains constructive – here are the key targets & invalidation levels that matter on the WTI weekly chart.

New to Oil Trading? Get started with this Free How to Trade Crude Oil Beginners Guide

Crude Oil Weekly Price Chart (WTI)

Crude Oil Price Chart - WTI - Weekly Timeframe

Notes: In our previous Crude Oil Weekly Technical Outlook we noted that prices had rebounded from a critical support confluence with the advance targeting initial pitchfork resistance around ~50.49. “A breach above the median-line would be needed to suggest a more significant near-term low is in place with such a scenario targeting the 200-week moving average at ~52.12 and the confluence resistance zone at 55.21/53.” Crude broke higher in the following days with the advance surpassing the 200-week moving average last week.



The rally failed just ahead of confluence resistance with prices poised to register an outside-daily reversal today in New York. The immediate threat is for further losses here, but the broader outlook remains constructive while above the 61.8% retracement of the December advance at 46.91. Initial support rests at the median-line at ~48.32. Topside resistance objectives remain unchanged with a breach above 55.21/53 needed to fuel the next leg higher targeting critical confluence resistance at the 50% retracement / 2018 open at 59.61-60.06.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line:The crude oil price advance remains vulnerable near-term while below 55.21/53. From a trading standpoint, looking for a support on a larger pullback towards the median-line to offer more favorable long-entries with our broader focus weighted to the topside while above 46.91.

Even the most seasoned traders need a reminder every now and then- Avoid these Mistakes in your trading

Crude Oil Trader Sentiment

Crude Oil Trader Sentiment

  • A summary of IG Client Sentiment shows traders are net-long Crude Oil – the ratio stands at +2.16 (68.4% of traders are long) – bearish reading
  • Traders have remained net-long since October 11th; price has moved 26.7% lower since then
  • Long positions are 7.2% higher than yesterday and 10.5% lower from last week
  • Short positions are 3.7% lower than yesterday and 7.0% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Crude prices may continue to fall. Yet traders are more net-long than yesterday but less net-long from last week and the combination of current positioning and recent changes gives us a further mixed Crude Oil trading bias from a sentiment standpoint.

See how shifts in Crude Oil retail positioning are impacting trend- Learn more about sentiment!

Previous Weekly Technical Charts

Learn how to Trade with Confidence in our Free Trading Guide

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

Gold Prices Look to Davos Economic Forum for Direction

Gold Prices Look to Davos Economic Forum for Direction

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices rise as US 10yr Treasury yields fall most since January
  • Crude oil prices fall with stocks as risk appetite fizzles market-wide
  • Soundbites from Davos forum, API crude inventories data in focus

Gold prices found fuel for an advance as risk appetite fizzled across financial markets, weighing on bond yields and boosting the relative appeal of non-interest-bearing alternatives. The yellow metal was slow to pick up steam as haven-seeking flows buoyed the US Dollar, but the largest daily drop in the rate on benchmark 10-year Treasury note since the beginning of the year ultimately refused to be denied.

Crude oil prices fell alongside stocks as expected as the broad-based deterioration in sentiment undermined the spectrum of cycle-geared assets. Returning liquidity rather than any singular event seemed to account investors’ dour disposition. The rebuild after a holiday market closure in the US seemed to amplify concerns about slowing global growth, ongoing trade wars and political jitters in much of the G10 space.

SOUNDBITES FROM DAVOS MAY SOUR SENTIMENT, API DATA ON TAP



Looking ahead, the on-going World Economic Forum in Davos remains a potential source of risk aversion if the policymakers and financial market bigwigs in attendance sound the alarm on the multitude of headwinds menacing global growth. A rise in borrowing costs amid accelerating quantitative tightening, ongoing trade wars and shaky politics in much of the G10 might feature prominently.

If soundbites from the gathering sour the markets’ mood, another drop in bond yields may prove to be supportive for gold prices (although again, the move might be tempered haven-bound flows into the US Dollar). Crude oil might suffer further, with any sentiment-derived weakness compounded by API inventory flow data if it reveals a larger build than the 3.13-million-barrel inflow expected by analysts.

See our guide to learn about the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS

Gold prices managed to hold up at rising trend line support guiding the advance from mid-November lows. Resistance is marked by the January 4 highat 1298.54, with a daily close above that eyeing a minor barrier at 1323.60 next. Alternatively, a push below trend support – now at 1281.17 – exposes the 1260.80-63.76 area.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are still marking time below resistance in the 54.51-55.24 area. Breaking above it on a daily closing basis opens the door for a test of a chart inflection point at 59.05. Alternatively, a move back below support in the 49.41-50.15 zone sets the stage for another challenge of the 42.05-55 region.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DXY Index Continues Push High on Back of EUR/USD Weakness

DXY Index Continues Push High on Back of EUR/USD Weakness

Talking Points

– Weak German ZEW data coupled with more hopes of avoiding a no deal, ‘hard Brexit’ outcome have led the Euro lower and the British Pound higher on Tuesday.

– The US government shutdown has entered day 32, and no end is in sight as neither US President Trump nor Congressional Democrats appear willing to budge from their entrenched demands.



Retail traders are fading the US Dollar rally more aggressively, suggesting that it may still have legs yet.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

The US Dollar (via the DXY Index) continues to nudge higher on the first full trading day of the week, with traders continuing to downplay the impact of the US government shutdown on the economy (“no news is good news”), even as the shutdown drags into day 32. But with the US-China trade negotiations ongoing, geopolitics beginning to rear its head again, Brexit reaching a boiling point, and political instability slowing creeping across Europe, the US Dollar is simply enjoying its place as ‘the least worst option.’

The Shape of Brexit

UK Prime Minister Theresa May has presented her ‘Brexit Plan B’ to parliament and reactions have been tepid at best. It seems that the prime minister’s renewed effort to get her deal through the House of Commons differs little than her first attempt, and by judging from the reaction of parliamentarians, it seems doubtful that ‘Plan B’ will pass muster either if a vote is held by the January 29 deadline. Reports over the weekend indicated that UK PM May might attempt to renegotiate the Good Friday Agreement, a politically fraught endeavor that would undoubtedly add a new matrix of complexity to an already overbearing Brexit problem.

At this point, if a no deal, ‘hard Brexit’ is to be avoided, it would appear that an extension beyond the March 29, 2019 deadline may be necessary. However, with the European parliamentary elections due up in July, it’s doubtful any extension to the Brexit deadline would go beyond there. Late on Monday, cross-party talks produced a bill designed to thwart a no-deal, ‘hard Brexit’ scenario by forcing PM May to postpone Brexit if no deal were reached by February 26.

Eurozone Data Continues to Sour; ECB on Thursday

Among the only important economic data due out on Tuesday, the January German ZEW Survey proved disappointing, with the Current Situation coming in at +27.6 versus +43.3 expected. The weakest reading in four years confirms the deterioration seen in proximal growth trackers like the PMI surveys. While a recession isn’t in the cards yet, evidence is starting to build that Germany, alongside the rest of the Eurozone, is seeing growth prospects cool off.

Speaking of PMIs, tomorrow, Wednesday, the preliminary January Eurozone Composite PMI is due in at 51.4 from 51.1, a modest improvement but nothing that should inspire much confidence. If anything, given the backdrop of consistent data disappointments over the past month (per the Eurozone Citi Economic Surprise Index), the risk is for the PMI readings to disappoint.

At the end of 2018, Eurozone economic data was clearly weakening, a trend that has continued thus far into the New Year: the Citi Economic Surprise Index is still deep in the red at -81.7, slightly improved from -88.6 at the end of last week, but still lower than where it was one month ago at -77.5. This is a dour backdrop for ECB President Mario Draghi and the Governing Council when they announce their January rate decision on Thursday.

DXY Index Price Chart: Daily Timeframe (June 2018 to January 2019) (Chart 1)

DXY Index Continues Push High on Back of EUR/USD Weakness

Following the holiday, the full start of the week see the DXY Index maintaining elevation above the downtrend from the December 14 and January 2 highs.Per the close at the end of last week, price is above the entirety of its daily 8-, 13-, and 21-EMA envelope for the first time since December 26; the close on Friday through the daily 8-EMA came after having failed so after failing on Tuesday, Wednesday, and Thursday. Both daily MACD and Slow Stochastics are pressing high higher (albeit still in bearish territory).

To retake the rising trendline from the April and September 2018 lows, the DXY Index would need to get back above 97.30 by the end of the coming week. To this end, more price development is needed to upgrade the assessment to fully ‘bullish,’ although no doubt the US Dollar’s near-term technical prospects have seemingly brightened.

Read more: Weekly Fundamental Forecast: Trade Wars, Chinese GDP and Rate Decision Bridge Themes and Event Risk

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

US Dollar, Yen Rally May Continue as All Eyes Turn to Davos

US Dollar, Yen Rally May Continue as All Eyes Turn to Davos

TALKING POINTS – DAVOS, WORLD ECONOMIC FORUM, US DOLLAR, YEN

  • US Dollar, Yen rise as market mood sours after IMF outlook downgrade
  • Focus now turns to key leaders’ views at Davos World Economic Forum
  • Sense of anxiety among policymakers, financiers may feed risk aversion

US Dollar and the Japanese Yen were buoyed safety-seeking capital flows while the sentiment-geared Australian, Canadian and New Zealand Dollars fell alongside stocks as the markets’ mood darkened in Asia Pacific trade. The moves follow an IMF downgrade of global growth expectations and look ahead to the World Economic Forum set to begin today in Davos, Switzerland.

The gathering of economic policy and financial market bigwigs will take up the multitude of headwinds menacing the nine-year expansion following the 2009 global recession. The US-China trade war, Brexit, emerging market instability and the rise of anti-establishment populists and nationalists on the European continent are just some of key issues on the docket.



Broadly speaking, the markets will be looking to the Forum to gauge the attendees’ disposition: how worried are they about what has already transpired and what is looming on the horizon? If the overall tone of the emerging soundbites signals anxiety, that may be echoed by still further risk aversion across financial markets. A steep intraday drop in S&P 500 futures hints at pre-positioning for just such an outcome.

See our market forecasts to learn what will drive currencies, commodities and stocks in Q1!

ASIA PACIFIC TRADING SESSION

Asia Pacific Trade Session Economic Calendar

EUROPEAN TRADING SESSION

Europe Trade Session Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

Crude Oil Prices May Fall if Dour Mood in Davos Spooks Markets

Crude Oil Prices May Fall if Dour Mood in Davos Spooks Markets

CRUDE OIL & GOLD TALKING POINTS:

  • Commodity prices mark time as US MLK Day holiday saps liquidity
  • Crude oil prices may fall as dour mood at Davos spooks the markets
  • Gold prices may stall even if yields fall as haven flows favor Dollar

Commodity prices marked time yesterday in what likely reflected diminished participation with US markets offline for the Martin Luther King Jr Day holiday. A shortened day on US futures exchanges did not attract bets of conviction on crude oil and the generally hands-off backdrop left gold rudderless despite the availability of trading in the off-exchange spot market.

CRUDE OIL PRICES MAY FALL ON DOUR MOOD IN DAVOS

Looking ahead, the World Economic Forum getting underway in Davos, Switzerland looks likely to take center stage. A barrage of comments from theeconomic policy and financial market bigwigs in attendance will offer will be closely examined for the prevailing view on the global business cycle as well as the outlook going forward. If the overallmood looks to have darkened, risk appetite may sour.



Crude oil may suffer in this scenario, tracking lower alongside stock prices. Gold may struggle to capitalize even if the risk-off mood weighs on bond yields however as haven demand buoys the US Dollar, undercutting the appeal of anti-fiat alternatives. In fact, these dynamics are already on display as sentiment sours ahead of the Davos gathering in Asia Pacific trade.

See our guide to learn about the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS

Gold prices are probing below rising trend line support defining the rise from mid-November lows. Confirmation on a daily closing basis paves the way to challenge support in the 1260.80-63.76 area. A break above immediate resistance at 1298.54, the January 4 high, is needed to neutralize selling pressure.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to hover below resistance in the 54.51-55.24 zone. A break above this barrier confirmed on a daily closing basis initially exposes the chart inflection point at 59.05. Support is in the 49.41-50.15 area, with a reversal back below that ultimately setting the stage for a retest of the 42.05-55 region.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

Crude Oil Price Rise May Stall as Gold Eyes US Shutdown, Brexit

Crude Oil Price Rise May Stall as Gold Eyes US Shutdown, Brexit

CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices rise on hopes for easing of US-China trade war
  • Gold prices decline as bond yields recouple with the US Dollar
  • US market holiday closure may mute price action in commodities

Crude oil prices roared higher alongside stocks amid a broad-based recovery in risk appetite on Friday. The move seemed to reflect reports of an overture from China meant to de-escalate the trade war with the US. Investors’ rosy disposition translated into a parallel rise in bond yields and the US Dollar as the prospect of resolving a major economic headwind buoyed Fed rate hike bets. Not surprisingly, gold prices fell.

CRUDE OIL MAY STALL, GOLD PRICES EYEING HEADLINE RISK

Looking ahead, crude oil may struggle for directional progress. Trading in futures will be shortened and overall liquidity diminished by the Martin Luther King Jr. Day holidayin the US. Trading in OTC spot markets will continue, so gold may yet respond to headline flow shaping overall sentiment as the US government shutdown and the Brexit drama drag on. What this means in practice is unclear however.



See our guide to learn about the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS

Gold prices dropped to test support at a rising trend line guiding the move higher since mid-November, suggesting they may yet make good on the bearish Dark Cloud Cover candlestick pattern produced over two weeks ago. A break below this barrier, now at 1278.15, exposes the 1260.80-63.76 zone. Near-term resistance remains at 1298.54, the January 4 high.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are approaching resistance in the 54.51-55.24 zone, with a daily close above that opening the door for a test of the chart inflection point at 59.05. Support is in the 49.41-50.15 region, with a turn back below that paving the way for another challenge of the 42.05-55 area.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

British Pound May Rise if Alternative Brexit Deal Also Crumbles

British Pound May Rise if Alternative Brexit Deal Also Crumbles

TALKING POINTS – BRITISH POUND, THERESA MAY, BREXIT, YEN, CHINA, TRADE WAR

  • Brexit back in focus as UK PM May unveils “alternative” divorce deal
  • Pound may rise if this too crumbles on hopes for a second referendum
  • Japanese Yen up as hopes for US-China trade war breakthrough fizzle

The Brexit saga is back in focus at the start of the European trading week. UK Prime Minister Theresa May is due to unveil an alternative to the plan for withdrawal from the European Union, which suffered a crushing defeat in Parliament last week.

That plan was hammered out through painstaking negotiations over two years, whereas whatever update is presented today will have had the benefit of just a few days’ fine-tuning. That means it ought to be almost identical to what was on offer already, but for a few key tweaks.



Ms May reportedly hit a wall in cross-party talks with opposition Labour over the weekend, switching gears to changing the so-called “Irish backstop” provision. This was meant to assure that Brexit will not re-establish a hard border between Northern Ireland and the Republic of Ireland.

The deal as initially conceived included a workaround wherein the UK remains in the EU customs union until a solution on the Irish border is set out. Tory Brexiteers balked at the open-ended scheme while the DUP, a Northern Irish party, rejected what it saw as the singling out of the area from the rest of the UK.

Ms May’s government relies on DUP support to push through legislation after losing parliamentary majority in a snap election in 2017. If she is can’t rally it and her own party behind whatever new plan, it too will fail. That a credible offer different enough from the rejected one can achieve this seems fanciful.

For its part, the British Pound will probably welcome another failure. Indeed, as noted last week, the currency seems to rally as the government suffers consecutive defeats because each one is hoped to bring about a second referendum. Composite polling hints such a plebiscite will cancel Brexit altogether.

YEN UP AS US-CHINA TRADE WAR BREAKTHROUGH PROSPECTS FIZZLE

Risk-off cues appeared in the G10 FX space in Asia Pacific trade despite a cautiously chipper mood on regional bourses. The anti-risk Japanese Yen traded broadly higher while the sentiment-geared New Zealand Dollar fell. The Australian Dollar managed to hold flat courtesy of Chinese economic data.

This may reflect retracement of Friday’s burst of optimism. Markets celebrated an overture from China meant to de-escalate the trade war with the US. Reports over the weekend suggested the absence of progress on intellectual property assurances critical to US negotiators has stymied talks however.

See our market forecasts to learn what will drive currencies, commodities and stocks in Q1!

ASIA PACIFIC TRADING SESSION

Asia Pacific Trade Economic Calendar

EUROPEAN TRADING SESSION

European Trade Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

China GDP Menacing Markets, Trade War End Would Come with Costs

China GDP Menacing Markets, Trade War End Would Come with Costs

Asia Pacific Market Open – US China Trade War, Donald Trump, China GDP, Japanese Yen

  • China offer to alleviate trade surplus with US boosted S&P 500, foreign exchange markets diverged
  • US shutdown talks still appear to be at an impasse post weekend offer from President Donald Trump
  • Market focus shifts to China GDP next, gains in Nikkei 225 may be at risk if Fed rate hike bets rise

See our study on the history of trade wars to learn how it might influence financial markets!

Market mood considerably improved last Friday as the S&P 500 had its best day since January 4th, rising about 1.31%. Reports crossed the wires that China is planning on offering a path to eliminate the US trade imbalance. This followed conflicting cues from the White House on Thursday about possible tariff rollbacks. The markets seem to be welcoming the idea that the US-China trade war may come to an end soon.

Not only did stocks rally, but sentiment-linked crude oil prices rose and closed at their highest since November 23. Looking at foreign exchange markets, the typical ‘pro-risk’ Australian and New Zealand Dollars curiously declined. This may have been due to increased 2019 Fed rate hike expectations as US 2-year government bond yields climbed. As a result, the US Dollar appreciated (see chart below).



Divergence Between AUD/USD and the S&P 500

Financial markets react to hopes for end of US-China trade war

Chart created in TradingView

Meanwhile the Canadian Dollar outperformed as well, bolstered by a better-than-expected headline inflation report. The core measure of CPI remained mostly unchanged however. Still, local front-end government bond yields rallied, which signaled increasing Bank of Canada rate hike expectations. As such, the central bank could outpace its Australian, European and New Zealand counterparts this year as estimated in my top trading opportunities for 2019.

US President Donald Trump Made Announcement on Southern Border

Over the weekend, US President Donald Trump hosted another live broadcast about the ongoing partial government shutdown that still seems to be at an impasse. In exchange for funding a wall on the southern border, Trump offered compromises such as 3-year legislative relief for 700k DACA recipients and a 3-year extension of TPS impacting roughly 300k individuals. But Democratic House Speaker Nancy Pelosi rejected it. From here, this sets the stage for debate on Capitol Hill as the Senate votes on a funding bill perhaps this week. With that in mind, the focus for markets in the interim shifts across the Pacific Ocean.

All Eyes on China GDP

Keep a close eye on the fourth quarter Chinese GDP report as the new week begins. According to Citigroup, data out of the country has tended to increasingly underperform relative to economists’ expectations. A downside surprise may trigger a bout of risk aversion as global growth slowdown fears increase. This would bode ill for crude oil prices on weakening expectations for demand from its largest consumer. The anti-risk Japanese Yen may rise and the Australian Dollar could look particularly vulnerable. China is Australia’s largest trading partner.

Join Currency Strategist Ilya Spivak as he will be hosting live coverage of China GDP to go over the reaction in the Australian Dollar as well as talking about what you may expect ahead.

It will also be interesting to see how Asia Pacific markets react to the possibility of an end to the US China trade war. The divergence between foreign exchange markets and stocks on Friday serves a reminder of how impactful monetary policy expectations can be. Trade wars being taken off the table may alleviate some of the pressures that the Federal Reserve is anticipating in their economic projections. A sudden increase in Fed rate hike bets can spook investors, countering optimism from an end to spat between Beijing and Washington DC.

US Trading Session

US Trading Session Economic Calendar

Asia Pacific Trading Session

Asia Pacific Trading Session Economic Calendar

** All times listed in GMT. See the full economic calendar here

FX Trading Resources

— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DXY Index Inside Day Forming as Risk Appetite Improves, Gold Slips

DXY Index Inside Day Forming as Risk Appetite Improves, Gold Slips

Talking Points

– Across asset classes, including FX, investor demand for high yielding, risk-correlated assets continues to build; US equity markets are climbing a wall of worry, posting a higher daily close than open for 10 consecutive sessions.

– As the US government shutdown drags on, no end is in sight with US President Trump and Congressional Democratic leaders entrenched in their negotiation positions; US economic data releases delayed.



Retail traders are fading short-term moves, with Euro longs increasing and British Pound longs decreasing.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

After a strong performance early on, the rest of the week has proven bland for the greenback. The US Dollar (via the DXY Index) has barely budged over the past 36-hours, closing Wednesday at 96.08 and clocking in at 96.05 at the time this report was written.

Amid the ongoing US government shutdown, traders were reminded late yesterday that Federal Reserve policy is still in play, despite all the attention on the fiscal side of things. Chicago Fed President Charlie Evans (a noted dove) said, “We’re just at a good point for sort of pausing… I’m not worried about inflation getting out of hand.” But why?

Aside from the sharp decline in energy prices since the start of October 2018, in the near-term, the US-China trade war and the shutdown could have a significant impact on the economy. “The longer it goes on, I think it becomes a little bit more of a challenge, and the uncertainties mean that people are going to delay making certain types of investments, and that’s not good for the outlook either.” Historically, uncertainty over the near-term policy horizon increases volatility in markets.

Higher Stocks, Weaker Bonds Weigh on Gold

As we said yesterday, “no news is good news.” Indeed, with the flow of US economic data stemmed, signs of the US economy slowing down at the end of Q4’18 have been pushed off the headlines. Focus remains on the larger thematic themes, making the market particularly sensitive to developments in the US-China trade war or shutdown. With respect the former, a report yesterday suggesting that the US was considering removing its tariffs on China helped spark a bid in risk assets, and despite the report being refuted, markets have not come back down.

That there are false reports regarding progress in the US-China trade war negotiations caters to market’s bias of desperately seeking any evidence for a resolution. US equity markets have continued to push higher amid said hopeful speculation, and in turn, traders have reversed their flows into US Treasuries. Accordingly, the combined trio of an elevated US Dollar, higher stocks, and stronger yields is particularly disconcerting for particular Gold.

Gold Price Chart: 4-hour Timeframe (June 2018 to January 2019) (Chart 1)

DXY Index Inside Day Forming as Risk Appetite Improves, Gold Slips

Gold’s near-term price forecast has weakened in the short-term. The symmetrical triangle that formed between January 3 and 17 gave way to the downside yesterday, clearing out the swing lows from January 10 and 15. Likewise, price has started to undercut the daily 8-, 13-, and 21-EMA envelope on the daily timeframe. Broadly speaking, what is still a neutral consolidation pattern is taking on a more bearish flavor.

Here, on the 4-hour timeframe, we can see that both daily MACD and Slow Stochastics are turning lower. Signs are pointing to Gold testing the broader range lows that have encompassed price action for the entirety of 2019; in the near-term, a move down to 1276.64 can’t be ruled out. However, a more significant bearish bias would not be appropriate unless a weekly close below 1276.64 was achieved.

DXY Index Price Chart: Daily Timeframe (June 2018 to January 2019) (Chart 2)

DXY Index Inside Day Forming as Risk Appetite Improves, Gold Slips

The technical picture has not changed in the past 36-hours for the DXY Index, which is still back in the near-three-month consolidation above 95.65 range support. Price continues to reject attempts to rise above the daily 21-EMA, having failed so far today after failing on Tuesday, Wednesday, and Thursday. Concurrently, both daily MACD and Slow Stochastics have turned higher (albeit still in bearish territory). The shift to a neutral outlook for the US Dollar remains valid heading into next week.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides