Crunch time for DXY - Friday will be a big day!
Updated
I never trade DXY but I always have a tab open, I find this really useful when trading many pairs.
My current take on the Fed and the US economy is:
Whilst at the same time:
So, I can't fail to see super positive fundamentals from the USA, in comparison with almost everyone else?
I also think that because they moved fast and got a grip of things, unlike anyone else, they can still afford to hike without screwing their economy, unlike BoE and BNZ for instance who I believe are heading into big recessions - high interest will get to a point where it's as harmful as high inflation and will make the situation worse for the economy.
That all said, until the news this week, DXY has been on huge downtrend from it's highs, and it will take something special to break through the descending trendline around 102.
If it breaks this could be the start of a reversal if positively retested.
Like I say I don't trade DXY, but I've learned to always have it in my sights, you have to be mindful of big DXY shifts as it has an impact on many other crosses (not just USD ones). For instance the big move this week with the Thursday data had a huge effect across the board, fortunately I was expecting it...
We have a big indecision doji candle for Friday, however, off the back of last week being positive for the USD and negative for other currencies that make up the basket, I do think the dollar will court the trendline for this week, and we'll probably see a false breakout!
On the 4hr I'm seeing short term bullishness, bounce up off the 50% fib for the last bullish move:
Whatever, Friday will be a huge day, with NFP and Average Earnings released - I'm expecting DXY will have dropped back a bit by then, I'm expecting good data on Friday, but I don't think it will matter, good or bad it will lure us into a false sense of security and DXY will bounce down, hard with bad data, less so with good data, but regardless - I can't see it punching through on this juncture.
As always this is just an opinion, let's see what happens!
My current take on the Fed and the US economy is:
- They were the first to respond to growing inflation
- Their tightening has led to interest rates of 5.5% (only matched by BNZ)
- They've hawkishly indicated more hike(s)
- Consumer confidence numbers this week were strong, in spite of this
- Jobless claims continue to beat target
- GDP for June smashed target (2.4% up from 2%, despite forecasted reduction to 1.8%)
- Inflation is now 2.97%, really low compared to others
- It's looking very much like a soft landing
Whilst at the same time:
- ECB interest rate held at 4.25% with inflation at 6.4%
- BoJ interest rate held at -0.1% with inflation at 3.3%
- Swiss inflation is 1.7% with interest rates at 1.75%
- BOA interest rate held at 4.1% with inflation at 6%
- BNZ interest rate held at 5.5% with inflation 6.7%
- BoE decision this week, currently 5%, +0.25% priced in, but Dovish talk and highest inflation (7.95%)
So, I can't fail to see super positive fundamentals from the USA, in comparison with almost everyone else?
I also think that because they moved fast and got a grip of things, unlike anyone else, they can still afford to hike without screwing their economy, unlike BoE and BNZ for instance who I believe are heading into big recessions - high interest will get to a point where it's as harmful as high inflation and will make the situation worse for the economy.
That all said, until the news this week, DXY has been on huge downtrend from it's highs, and it will take something special to break through the descending trendline around 102.
If it breaks this could be the start of a reversal if positively retested.
Like I say I don't trade DXY, but I've learned to always have it in my sights, you have to be mindful of big DXY shifts as it has an impact on many other crosses (not just USD ones). For instance the big move this week with the Thursday data had a huge effect across the board, fortunately I was expecting it...
We have a big indecision doji candle for Friday, however, off the back of last week being positive for the USD and negative for other currencies that make up the basket, I do think the dollar will court the trendline for this week, and we'll probably see a false breakout!
On the 4hr I'm seeing short term bullishness, bounce up off the 50% fib for the last bullish move:
Whatever, Friday will be a huge day, with NFP and Average Earnings released - I'm expecting DXY will have dropped back a bit by then, I'm expecting good data on Friday, but I don't think it will matter, good or bad it will lure us into a false sense of security and DXY will bounce down, hard with bad data, less so with good data, but regardless - I can't see it punching through on this juncture.
As always this is just an opinion, let's see what happens!
Note
So here we are... Friday, courting the big descending trendline that stretches from the 1.14 highs, ahead of NFP.For me, NFP is a less important reading than unemployment rate and average hourly earnings today.
We saw a move up this week following ADP report on Wednesday, this smashed expectations - but if you remember, it did last month too, however the NFP was below expectation, this could happen again today.
If unemployment goes up significantly, and average hourly earnings drop, then this could cause USD to fall, and conversely.
Whatever happens we're at a major turning point with this trendline, personally I don't think we'll break it, but if we do then this looks like a reversal to me (following retest).
I'm reviewing all my trades and planning to exit them all ahead of the readings at 13.30gmt, whatever happens there will be large volatility, lots of wicking and I'd rather bank my pips.
I'll analyse everything after the announcement and get my trade plan ready for next week, I'm really interested in GBP, JPY and Gold next week.
I'm expecting GBP to start to crash, JPY to start to bounce back, and Gold to fly, if DXY does what I expect (fall) - but waiting is the key to see what happens, because if DXY breaks through there'll be many other opportunities too!
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