Dollar extends rally on EM, EU FX outflows
Fawad Razaqzada May 17, 2019 6:23 AM
It has been a rather good week for the US dollar, supported mainly by outflows in foreign currencies. In Europe, for example, raised Brexit uncertainty has undermined the pound and the latest news here is that cross-party talks have collapsed, according to Labour's Jeremy Corbyn. The euro, meanwhile, has come under pressure after Italy’s Deputy Prime Minister Matteo Salvini said his country should be ready to break the EU’s deficit ceiling of 3% of GDP and push debt to 140% of GDP if necessary, in order to lower the unemployment rate. Meanwhile emerging market currencies have suffered their worst week since the Turkish lira crisis last summer, with China’s renminbi taking it on the chin amid escalated trade tensions between the world’s two largest economies. The greenback has also shrugged off this week’s mixed data, with retail sales and industrial production data disappointing while a couple of housing market numbers and the Philly Fed manufacturing index beating expectations.
CHF next domino to fall among ailing European currencies?
With the GBP/USD breaking down and the EUR/USD starting to accelerate lower, the CHF/USD could be the next domino to fall among the major European currencies. That’s to say, the USD/CHF could be about to stage rally, as the Dollar Index closes in on its earlier 2019 high. The only caveat is that the Swissy is a safe haven currency, so should geopolitical risks increase further then we may not see much bullish momentum in the USD/CHF.Regardless, from a purely technical point of view, the fact that the USD/CHF is poking its head above short-term resistance at 1.0100 today is potentially a sign of things to come with the bears losing some control. Also, with equities markets rallying sharply the past couple of days, the risks are skewered to the upside for this currency pair. The key level to watch above here is at 1.0125 – a break above here could see the USD/CHF push towards this year’s high at just under 1.0240 next. Meanwhile if the break above the 1.0100 handle proves to be a false move and price closes back below this hurdle, then in this case, a potential drop below 1.0050 support could be next, with the 200-day average at just below parity being the main bearish objective.
Source: TradingView and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.