Forex Trading Library

How To Trade US Data During Currency Wars?

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USD Index Above 100.0 Barrier

The last trading day of last week showed a dramatic change, leading the US Dollar Index to breakthrough 100.0 barrier all the way back to 99.80’s. However, this was for a limited time, before the index managed to gain some momentum and was able to rebound above that strong support, closing last week around 100.50’s.

This is probably due to some short covering after the continuous decline since the beginning of last week. However, it’s hard to predict whether the index will be able to hold above that support in the coming days, as the upcoming data might come in with weaker readings according to the estimates.

Moreover, as noted before, the new president of the US seems to be ready to spark another round of currency wars, which would be tough to manage since Mr. Trump is considering the US Dollar is too strong and it’s “Killing US” according to his statement.

GDP Data

All of a sudden, the US economy in 2016 has slowed significantly, posting the weakest growth since 2009, growing by 1.6%, despite the fact that the estimates were above 2.0%. The net trade was one of the biggest drag on the GDP numbers. However, this is still not an excuse. Some optimists would say that these figures will be revised higher in the coming revisions.

It doesn’t matter whether they will be revised higher or not. What matters is when you spend more than 5 trillion US Dollars in QE’s and stimulus packages, that’s aside from cutting rates to zero, at the end, you get 1.6% as a return on investment? This is a joke!

Is The Fed Right?

When you get such weaker GDP figures, you would start asking questions about the Federal Reserve’s policies. So the Fed raised the rates twice in two years, once in December of 2015 and another one in December 2016. The question is, were those two rate hikes the reason behind the economic slowing down? It’s a little bit hard to answer this question now, but this is highly possible. We would prefer to wait for the final figures of the GDP before answering the question.

Today’s Economic Releases

Indicator

Forecast

Prior

Core PCE Price Index

0.1%

0.0%

Personal Spending

0.4%

0.2%

Personal Income

0.4%

0.0%

Pending Home Sales

1.6%

-2.5%

The estimates for today’s figures looking encouraging, the Core PCE Price may rise by 0.1% only after no change last month. However, what matters the most is the Core PCE Price Index YoY, which is expected to ease back 1.5%, which is the Federal Reserve’s favorable inflation index.

The rest of the data also matters, but as noted above the key figure will be the Fed’s inflation index. The Personal Spending and Income are both expected to show an improvement of 0.4% in December, which might also disappoint, especially after last week GDP, and likely to put more drag on the upcoming revisions.

Finally, the Pending Home Sales might be the only positive outcome and might save the day. The estimates show a possible increase of 1.6% in December after declining by 2.5% in November, which would be the biggest increase in almost seven months.

USD Outlook

As noted above, it’s hard to determine what would be the Dollar next move, but what we already know is that a strong dollar along with the new administration’s plan would not work, which would keep us leaning toward a weaker dollar going forward. Yet, it needs a catalyst, which might come from today’s data.

Levels To Watch

Symbol

S3 S2 S1 Pivot R1 R2 R3

EURUSD

1.0519 1.0587 1.0643 1.0711 1.0767 1.0835 1.0891

USDJPY

110.35 111.42 113.25 114.32 116.15 117.22 119.05

GBPUSD

1.2048 1.2200 1.2378 1.2530 1.2708 1.2860 1.3038

USDCHF

0.9878 0.9917 0.9958 0.9997 1.0038 1.0077 1.0118

USDCAD

1.2737 1.2894 1.3023 1.3180 1.3309 1.3466 1.3595

AUDUSD

0.7395 0.7451 0.7501 0.7557 0.7607 0.7663 0.7713

NZDUSD

0.6991 0.7068 0.7167 0.7244 0.7343 0.7420

0.7519

 

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