In this webinar, we looked across FX setups in the US Dollar using price action to dig into the various scenarios facing traders as we move into the second-half of 2018. US Dollar strength came back in a very big way in Q2; but after EUR/USD has tried and failed to set a fresh low for a month, might the move have a retracement in its future? Relevant to EUR/USD is what happened last October/November, when a stimulus extension in October was offset a couple of weeks later by a red-hot German GDP report, bringing buyers back into the pair before EUR/USD eventually challenged the 1.2500 level. Of recent, European inflation has been growing, and this came-in at the ECB’s target of 2% in the month of June; producing a backdrop that could create a redux of the October/November scenario from last year.
US DOLLAR HOLDS STRENGTH AS Q3, 2H 2018 BEGINS
The biggest take-away from last quarter was the shift into US Dollar strength. The Dollar was bearish for over a year as more than -15% of its value was taken out from the January, 2017 high down to the February, 2018 low. While this was happening, the Fed was one of the few hawkish Central Banks and the US was continuing to show decent economic fundamentals, thereby keeping the door open for more rate hikes. But markets seemed to care little as the selling just continued in the US Dollar. We’d previously suggested that this selling was being driven by a larger fiscal theme, and that remains as a possibility.
What’s happened more recently is rate expectations around Europe have shifted lower. The ECB effectively split the prospect of stimulus taper from the idea of short-term rate hikes, and as the ECB announced stimulus taper, this effectively pushed the Euro lower as higher rates were getting priced further-out into the future. Deductively, this popped USD up to fresh 11-month highs, but the big question now is whether this theme can continue, or whether we’re heading for another redux of the October/November 2017 theme.
The US Dollar remains bullish above the June swing-low around 93.20-93.30, and there’s a closer area of support that can be used to substantiate bullish plays that runs from 94.20-94.30.
US DOLLAR VIA ‘DXY’ FOUR-HOUR CHART: BULLISH CONTINUATION PROSPECTS