Signs that the US economy is slowing down continue to manifest themselves in the economic releases. Two weeks ago, we had GDP growth slowing down and durable goods orders falling. Last week, we had an ISM manufacturing read below expectations and getting closer to the 50 recession limit. And most importantly, last week we saw dismal NFP numbers as compared to previous months. This sets the stage for short term bearishness in the US dollar.
Next week key events:
- The most important event is the FOMC meeting minutes to be released on Wednesday. Given that these minutes will reflect older fundamental data ("rear view mirror"), we expect them to create a dollar bullish spike.
- The BOJ and RBA meetings next week rise significantly the risks of trading the aussie pairs and yen pairs. We would recommend to stay away from them.
Most interesting currency pairs and commodities:
- GBPUSD: Daily candlesticks are very bullish. After several doji candlesticks we have a bullish candle formed on Friday with understandable fundamental reasons. The UK fundamental data is positive (solid GDP growth) while the US data is not. We expect the 1.50 barrier to be broken in the coming days. A long entry at current levels (~1.49) with stop loss around 1.48, could offer take profit targets at 1.50, 1.515, 1.53.
Fig.1 GBPUSD, daily chart.
- XAUUSD: Gold has been unable to go either down or up for several weeks, stuck in the ranges of a down trending channel (see chart below). We expect gold to continue to rally in the coming days as one of the logical dollar short trades. The upper side of this down trending channel will form a natural take profit target at around 1265.
Fig.2 Gold (XAUUSD), daily chart.
Also worth noting:
- EURUSD: This currency pair is displaying the formation of an ascending triangle pattern with upper resistance at 1.10. This pattern is bullish, but the risks around the euro are far greater than with gold and the British pound. If the pattern is triggered (daily close above 1.10) then this currency pair should move towards 1.14-1.15.
- NZDUSD: The kiwi dollar is one of the only major currency pairs that offers a high positive swap rate. Considering that the New Zealand economy remains very healthy, NZDUSD long trades are interesting to try at the moment. However, Chinese rather bearish economic data (PMIs below 50, manufacturing slowing down) indirectly impacts this currency pair, and makes long positions risky. In addition, this currency pair is currently displaying a failed double bottom pattern.
The least interesting to trade:
- AUDUSD: The RBA meeting and mixed fundamental picture makes the behavior of this currency pair next week unpredictable.
- USDJPY: Although technically bearish, the BOJ meeting adds significant risks to any yen position.
- Oil (Brent/WTI): Oil is in between two opposing fundamentals. On one side, we have the bearish Iran deal and oil oversupply. On the other hand, we have the weakening of the dollar and the conflict in Yemen, which are both bullish for the price of oil. These conflicting fundamentals are also reflected in the technical picture, and this tells us to stay away from oil next week.
Disclaimer: This article is in no way a recommendation to buy or sell any of the financial instruments mentioned. Chifbaw LLC and Dzhafer Medzhakhed are not responsible for any trading decisions or investments you make based on this article. Trade at your own risk.
