Euro, Yen and a U.S. Dollar: Big Questions for Next Week

Talking Points:

– It was an eventful week for markets, as a Federal Reserve hiked rates for usually a third time given 2006.

– The net impact to a Greenback was a pierce of weakness, and this highlights marginal themes in a Euro and a Yen that could sojourn thinking during a data-light calendar for subsequent week.

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This week brought quite a few drivers to markets. The Fed hiked rates on Wednesday, and a net greeting was a quick-move of USD-weakness. The Euro popped-higher on Thursday in a arise of Dutch choosing results, yet afterwards fell on Friday as French choosing check numbers indicated a aloft commission of electorate disposition towards Marine Le Pen.

Next week sees macro information delayed a bit, as we usually have 6 ‘high impact’ announcements on a docket. The RBNZ rate preference on Wednesday could be interesting, and this comes usually day after Global Dairy Prices are released, so we could see a flighty Kiwi-Dollar around a center of subsequent week.

But outward of that, information is comparatively light. This could be an well-suited time for marketplace themes to rise or for traders to conflict to this week’s moves. Below, we demeanour during 3 of a some-more engaging areas for traders to watch as we pierce by subsequent week.

Will a Dollar Find Support?

Probably one of a some-more startling events of this week was a poignant dump in a U.S. Dollar after a Federal Reserve hiked rates for usually a third time in a past 10 years. The deductive summary here was that a Fed was some-more dovish with forward-looking expectations than what markets were looking for. Given a diligence towards ‘policy normalization’ voiced by mixed Fed members in a lead-in to this week’s rate decision, and markets were expected astounded that a Fed did not use this event to boost superintendence for rate hikes going to a finish of final year. So, while rates were hiked on Wednesday, a Fed stranded to their expectancy for a series of rate hikes going to a finish of subsequent year.

Correspondingly, bonds popped-higher as a Fed did not prominence a larger profitableness towards process normalization; yet a Dollar forsaken as a awaiting of even-faster rate hikes was priced-out of markets.

The large doubt during this indicate is how prolonged this hitch of debility in a Greenback competence last. By scrolling out and holding a ‘bigger picture’ demeanour during a U.S. Dollar, we can see that cost transformation is still bullish from a monthly chart; with stream support display around a insurgency area of a operation that had traded around 2015, and insurgency entrance in during a 61.8% Fibonacci retracement of a 16-year pierce in a Greenback.

Euro, Yen and a U.S. Dollar: Big Questions for Next Week

Chart prepared by James Stanley

Looking during a shorter-term 4-hour chart, we can see a biased pierce in a Dollar as price action ran from 101.80 down to 100.25 around a Fed’s rate travel on Wednesday. We’re looking during dual opposite zones underneath stream cost transformation where support competence show-up, that could afterwards lead to a bullish position or bullish setups in a U.S. Dollar if support does, in-fact, show.

Euro, Yen and a U.S. Dollar: Big Questions for Next Week

Chart prepared by James Stanley

Is a Euro about to go ‘bullish’?

Weakness in a Euro has been a rather pervasive thesis for some time now. European QE was initial discussed in May of 2014, announced in Jul of 2014 and flattering most given afterwards there’s been a clarity of negativity wrapped around a banking due to a countless geopolitical issues that have grown around Europe.

But acceleration is ticking higher. Growth is commencement to demeanour a bit some-more consistent. And a ECB competence be impending a indicate in that they’ll no longer need QE. We’re, of course, deliberating a awaiting of a ‘taper tantrum’ as shorts hurriedly rush to cover positions as justification becomes clearer that European QE competence be finished ‘sooner rather than later’. Thus far, a ECB has finished a good pursuit of allaying this fear from markets.

But usually as we saw with a thespian dump in a value of a Euro after a ECB announced QE (but before a module indeed started in Mar of 2015), traders expected won’t wait around to start pricing-in this thesis if it is looking as yet it competence be a expected outcome. On a draft below, we can see how a bulk of a bearish transformation in EUR/USD came after a ECB announced QE, yet before it ever even started. And after QE indeed started, EUR/USD spent most of a subsequent dual years in a bear-flag formation:

Euro, Yen and a U.S. Dollar: Big Questions for Next Week

Chart prepared by James Stanley

On a hourly draft below, we’re focusing-in on a new bullish pierce in EUR/USD after final week’s ECB assembly and this week’s FOMC rate decision. We’ve identified 3 opposite support zones that could be engaging in a bid of trade a top-side delay move.

Euro, Yen and a U.S. Dollar: Big Questions for Next Week

Chart prepared by James Stanley

Is a Yen Nearing Resistance?

For those looking during appropriation long-exposure in a U.S. Dollar, a Japanese Yen expected stays an appealing counterpart. The BoJ reason a rate preference this week, yet small by approach of new information came out. The some-more dire regard here seems to be how assured a Bank of Japan competence be in a new ‘Trump Bump’ that’s enveloped tellurian markets. If a BoJ gets some-more assured around a new signs of stability, they competence scale-back their QE efforts, and this could move strength into a Yen. This is expected something that a Bank of Japan wants to avoid, and given that Japan has been singled-out by a stream administration as NOT being a banking pimp means that we could see some additional dovish transformation out of Japan.

On a daily draft below, we’re looking during a feeder section of support in USD/JPY that spans an ~80-pip operation from 111.61 adult to 112.40. This section of support has mixed Fibonacci retracement levels yet maybe some-more important, this section came in as a pivotal area of support to reason a lows of a January/February retracement. Should cost transformation revisit this section subsequent week, this could open a doorway for bullish USD/JPY setups.

Euro, Yen and a U.S. Dollar: Big Questions for Next Week

Chart prepared by James Stanley

On a hourly draft below, we can see where buyers have stepped-in to support a span above this longer-term section of interest. This has constructed a short-term operation between a estimate values of ¥113.00 and ¥113.55. For traders that wish to supplement bullish exposure, they’d expected wish to wait for possibly of a) this brief tenure insurgency to produce as justification that buyers are means to re-take control of USD/JPY cost transformation or b) a re-visit of that longer-term support section underneath stream cost action.

Euro, Yen and a U.S. Dollar: Big Questions for Next Week

Chart prepared by James Stanley

— Written by James Stanley, Analyst for DailyFX.com

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