Dollar Choppy After Fed Statement, Evergrande Exhale Lifts Risk-Sensitive Currencies

The Federal Reserve on Wednesday cleared the way to reduce its monthly bond purchases “soon” and signaled interest rate increases may follow more quickly than expected, with half of the 18 U.S. central bank policymakers projecting borrowing costs will need to rise in 2022.

“The tapering of quantitative easing seems very likely now in November but this was something of a given and remains couched in a lot of qualifying criteria in the event that various risks emerge, whether it is the debt ceiling debate, COVID outlook, the China property market intervening,” said Steven Violin, portfolio manager at F.L.Putnam Investment Management Company in Wellesley, Massachusetts.

The dollar index rose 0.094%, alternating between gains and declines after the announcement, with the euro down 0.1% to $1.1711.

Property giant and Asia’s biggest junk bond issuer Evergrande said it “resolved” one payment due on Thursday via a private negotiation, easing concerns of default and possible contagion risk, while the People’s Bank of China injected 90 billion yuan into the banking system to support markets.

“Being able to make tomorrow’s bond coupon payment, that definitely lifted risk sentiment overnight and you saw a typical follow-through reaction in risk currencies, so Canadian dollar high, Aussie dollar higher, Kiwi dollar higher – that was kind of an understandable reaction,” said Erik Bregar, an independent FX analyst in Toronto.

Still, uncertainty remains whether the developer will be able to pay the coupon on its offshore dollar bonds, due on Thursday.

The Australian dollar rose 0.33% versus the greenback to $0.726 after rising as much as 0.49% to $0.7268 while the Canadian dollar rose 0.58% versus the greenback to 1.27 per dollar.

The offshore Chinese yuan strengthened versus the greenback to 6.4628 per dollar.

The safe-haven Japanese yen weakened 0.50% versus the greenback to 109.78 per dollar in the wake of the Bank of Japan’s decision to keep policy on hold.

Sterling was last trading at $1.3637, down 0.16% on the day ahead of a policy announcement by the Bank of England on Thursday, with expectations for a rate hike being pushed down the road by investors.

In cryptocurrencies, Bitcoin last rose 6.93% to $43,409.48 following three straight days of declines.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Chuck Mikolajczak; Editing by Will Dunham and Andrea Ricci)

EUR/USD Price Forecast – Euro Continues Choppy Behavior

The Euro has gone back and forth during the course of the trading session on Wednesday as we await the FOMC coming out of the Fed. That being said, there probably is very little coming out of that meeting, so I think at the end of the day this will probably continue to hang about in this area. The 1.17 level has offered little bit of support, but if we break down below there then I think we go looking towards 1.16 level which has been even more important in the past.

EUR/USD Video 23.09.21

On the other hand, if we turn around a break above the inverted hammer from the session on Tuesday, then it is likely that the market goes looking towards the 1.18 level. Either way, I think we are very choppy and sideways at this point, so all things being equal I think you probably are looking at a market that desperately needs to see some type of break out or break down.

Pay close attention to the US Dollar Index, as it is a major indicator of where we go not only in this currency, but several others. At this point, it is all about the US dollar, and very little to do with the Euro itself. Both of the central banks are talking about tapering, which seems to be very unlikely. That being said, the market is likely to continue to see indecision, so therefore I think that is probably how you have to look at this currency pair. In other words, I think your time is better spent and other markets, but this pair could be more or less a tertiary indicator.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD, GBP/USD Analysis & Setups 22 – 24 Sep 2021

The EUR/USD is testing a key 21 ema resistance zone on the 4 hour chart. A bullish breakout could start a larger reversal whereas a bearish bounce could test the previous bottom. The GBP/USD is expected to test the bottom again and build a descending wedge pattern.

If you think our videos, analysis, and education can help you become a better trader, then you can ask your own questions via our form and we will answer them in the weekly live webinar every Tuesday.

EUR/USD & GBP/USD Overview

The EUR/USD is in a downtrend channel but price action could be completing an ABC pattern as long as daily candlestick does not break below the bottom.

The GBP/USD is expected to decline below the 88.6% Fibonacci and test the double bottom.

Check out the video below for the full analysis and trade plans on 22 – 24 September 2021:

For a look at all of today’s economic events, check out our economic calendar.

Good trading,

Chris Svorcik
CTA

 

ECB to Mull Upping Regular Bond Purchases After Emergency Scheme: Bloomberg

“I realise that it would be a problem if there is a very sharp cliff effect at the end of the pandemic emergency purchase programme (PEPP),” the Estonian central bank chief was quoted as saying by Bloomberg.

He reportedly added that increasing the ECB’s Asset Purchase Programme would be “part of the discussion we will have on how to phase out PEPP and what it would mean for asset purchases going forward”.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting By Francesco Canepa; Editing by Kevin Liffey)

 

EUR/USD Daily Forecast – Support At 1.1720 Remains Strong

Euro Tries To Gain Ground Against U.S. Dollar

EUR/USD continues its attempts to settle back above 1.1720 while the U.S. dollar is flat against a broad basket of currencies.

The U.S. Dollar Index is currently trying to settle below 93.20. A move below this level will open the way to the test of the support at 93.10 which will be bullish for EUR/USD.

Today, foreign exchange market traders will take a look at the flash reading of Euro Area Consumer Confidence report which is projected to show that Euro Area Consumer Confidence declined from -5.3 in August to -5.8 in September.

The main event of the day is the Fed Interest Rate Decision and the subsequent commentary from Fed Chair Jerome Powell. The key question is whether Fed is ready to announce the reduction of its asset purchase program.

At this point, it looks that recent problems with the spread of the Delta variant of coronavirus and worries about potential default of China’s Evergrande may provide Fed with an opportunity to delay tapering, which will be bearish for the American currency.

Technical Analysis

eur usd september 22 2021

EUR/USD received support near 1.1720 and is trying to gain additional upside momentum. The next resistance level for EUR/USD is located at 1.1750.

If EUR/USD manages to settle above the resistance at 1.1750, it will move towards the next resistance which is located at the 20 EMA at 1.1775. A successful test of this level will push EUR/USD towards the resistance at the 50 EMA at 1.1800.

On the support side, EUR/USD needs to settle below the support at 1.1720 to have a chance to develop downside momentum in the near term. RSI remains in the moderate territory, and there is plenty of room to gain downside momentum in case the right catalysts emerge.

If EUR/USD settles below 1.1720, it will head towards the support at 1.1690. A move below this level will open the way to the test of the support at 1.1660. In case EUR/USD declines below 1.1660, it will head towards the support at 1.1630.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Forex Technical Analysis – Hawkish Surprise by Fed Could Trigger Break into 1.1664 Main Bottom

The Euro is trading flat against the U.S. Dollar early Wednesday as investors await a key policy decision by the Federal Reserve, due to be released later in the session. Traders are also keeping an eye on the potential financial market upheaval in China with its top-selling property developer Evergrande inching closer to a deadline on Thursday that could lead to a default on a major bond interest payment.

At 02:43 GMT, the EUR/USD is trading 1.1725, down 0.0001 or -0.01%.

The Fed concludes a two-day meeting on Wednesday at 18:00 GMT and a consensus shows that it will stick with broad plans for tapering this year, but will hold off providing details or a timeline for at least a month.

The risk to the Euro is a hawkish surprise by the Fed which could come in the form of a shift in projections that show rate hikes as soon as 2022. Rising Treasury yields could also weigh on the Common Currency.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum has been trending lower since September 3. A trade through 1.1664 will change the main trend to down. A move through 1.1909 will signal a resumption of the uptrend.

The minor trend is also down. This is controlling the momentum. A trade through 1.1846 will change the minor trend to up. A move through 1.1700 will indicate the selling pressure is getting stronger.

The short-term range is 1.1664 to 1.1909. The EUR/USD is currently trading on the weak side of its retracement zone at 1.1758 to 1.1787, making it resistance.

The minor range is 1.1909 to 1.1700. Its retracement zone at 1.1805 to 1.1829 is another potential resistance zone.

Daily Swing Chart Technical Forecast

The early direction of the EUR/USD on Wednesday is likely to be determined by trader reaction to 1.1725.

Bearish Scenario

A sustained move under 1.1725 will indicate the presence of sellers. If this move creates enough downside momentum, then look for a potential test of the minor bottom at 1.1700.

Taking out 1.1700 will indicate the selling pressure is getting stronger. This could trigger an acceleration into the August 20 main bottom at 1.1664. This is the last potential support before the November 4, 2020 main bottom at 1.1603.

Bullish Scenario

A sustained move over 1.1725 will signal the presence of buyers. This could generate the upside momentum needed to challenge the Fibonacci level at 1.1758. Sellers could come in following the first test of this level.

Overtaking 1.1758 will indicate the buying is getting stronger with the next targets a pair of 50% levels at 1.1787 and 1.1805.

For a look at all of today’s economic events, check out our economic calendar.

September 22nd 2021: Dollar Movement Unchanged Ahead of FOMC Meeting

Charts: Trading View

EUR/USD:

(Italics: previous analysis)

Dollar movement Tuesday—according to the US dollar index—finished considerably off session lows (93.05), forming what many technicians label a hammer candlestick pattern on the daily timeframe (bullish signal). EUR/USD, given its negative correlation with the DXY, concluded in the shape of a shooting star candle pattern on the daily chart (bearish signal).

The economic calendar offered thin pickings, though US housing starts (number of residential buildings that begun construction) came in at a little over $1.6 million (seasonally adjusted), beating economists’ forecasts of $1.55 million. On tap today, of course, is the much-awaited FOMC meeting.

Through the lens of a technical trader, EUR/USD charts are interesting.

While the H4 timeframe discovered resistance from $1.1742, a previous Quasimodo support base, lower on the curve the H1 timeframe exhibits scope to approach prime resistance coming in at $1.1767-1.1776 (joined by supply at $1.1762-1.1774 and H4 Quasimodo resistance at $1.1771).

An additional technical observation out of the H1, supposing $1.1715 intraday lows maintain grip, is the prospect of a bearish AB=CD pattern forming at $1.1762 (marked by way of a 100% Fibonacci projection). Fibonacci fans will also note a neighbouring Fib cluster around $1.1756 (61.8% and 38.2% Fibonacci retracements).

Technical studies on the bigger picture reveal price movement hovering north of prime support at $1.1473-1.1583 on the weekly timeframe. Gleaning additional technical confluence through a 100% Fib projection at $1.1613 and 1.27% Fib extension at $1.1550, this base remains a key watch, long term. With respect to trend on the weekly chart, the market has largely been bullish since the early 2020.

Meanwhile, the daily timeframe shines the technical spotlight on Quasimodo support at $1.1689. Albeit sponsoring a late August bid (black arrow), action from $1.1689 failed to find approval north of late July tops at $1.1909; therefore, this ranks $1.1689 as perhaps frail support. Assuming bearish leadership on the daily, the $1.1612 and $1.1602 (September/November 2020) lows signify downside support targets, followed by Fibonacci support between $1.1420 and $1.1522 (glued to the lower side of the weekly timeframe’s prime support at $1.1473-1.1583).

Observed Technical Levels:

Should H4 resistance at $1.1742 continue to command position, a test of the H1 timeframe’s $1.17 figure could be in the offing. However, as highlighted in our previous technical briefing, a whipsaw south of $1.17 on the H1 to daily Quasimodo support parked at $1.1689 is a potential scenario. $1.1689 bids feeding off sell-stops below $1.17 could be enough to chalk up a bullish wave.

Alternatively, if $1.1715 intraday lows hold on the H1, an AB=CD bearish pullback to prime resistance at $1.1767-1.1776 may be welcomed by sellers. This, nonetheless, implies a breach of H4 resistance mentioned above at $1.1742.

AUD/USD:

(Italics: previous analysis)

The Australian dollar eked out a fourth consecutive daily loss against the US dollar on Tuesday. Renewed AUD/USD downside emerged mid-way through London hours, weighed by the US dollar index defending 93.05.

Earlier in the session, the Reserve Bank of Australia (RBA) policy meeting minutes reiterated a similar theme: the surroundings for an increase in interest rates will not be met until 2024[1]. Ultimately, limited price movement followed.

The technical landscape watched AUD/USD’s H1 candles level off from a 61.8% Fibonacci retracement at $0.7283—a touch south of trendline resistance, taken from the high $0.7469, and neighbouring Quasimodo support-turned resistance at $0.7288. Support is present at $0.7221, placed a handful of pips above the H4 timeframe’s decision point coming in at $0.7200-0.7218. Note also this H4 base houses $0.72.

Against the backdrop of shorter-term flow, the weekly timeframe has the currency pair touching gloves with prime support at $0.6968-0.7242. Since printing a two-week recovery in late August, the pair has been fighting to entice fresh bullish interest. Failure to command position from $0.6968-0.7242 opens up support at $0.6673. Buyers regaining consciousness, nevertheless, has prime resistance at $0.7849-0.7599 to target. Trend studies on the weekly scale show we’ve been higher since early 2020. Consequently, the response from $0.6968-0.7242 could STILL be the beginnings of a dip-buying attempt to merge with the current trend.

Interestingly, the daily timeframe’s technical landscape informs traders bids are perhaps thin within weekly prime support, at least until price shakes hands with Fibonacci support at $0.7057-0.7126. Those who follow the relative strength index (RSI) will acknowledge the value journeyed through the 50.00 centreline last week and recently dipped a toe below 40.00. This highlights a bearish atmosphere until making contact with oversold territory.

Observed Technical Levels:

According to chart studies on the higher timeframes right now, sellers are in the driving seat, and unlikely to give way until daily Fibonacci support at $0.7057-0.7126.

This echoes a bearish vibe and consequently places a question mark on the H4 decision point at $0.7200-0.7218 and, by extension, the H1 timeframe’s support at $0.7221 and $0.72.

Bearish themes sub $0.7221 and $0.72?

USD/JPY:

(Italics: previous analysis)

Ahead of key Bank of Japan (BoJ) and FOMC meetings, market sentiment echoed an indecisive tone on Tuesday: global equity indexes closed higher on the session, yet safe-haven currencies also voyaged to the upside.

According to the technicals, H1 Quasimodo support at ¥109.31 relinquished position yesterday and turned the spotlight on H1 support at ¥109.11 and the ¥109 figure. This also calls attention to the H4 chart’s framework, swinging the pendulum in favour of a possible decline to the H4 double-top pattern’s (¥110.44) profit target around ¥108.71—sharing space with a 1.618% Fibonacci projection at ¥108.86 and a 1.272% Fibonacci projection at ¥108.72.

Considering the weekly timeframe, since mid-July, ¥108.40-109.41 demand has failed to stir much bullish energy. Nevertheless, recognising the area derives additional backing from neighbouring descending resistance-turned support, extended from the high ¥118.61, an advance could eventually emerge to familiar supply at ¥113.81-112.22.

The uninspiring vibe out of weekly demand is demonstrated by way of a consolidation on the daily timeframe between prime support at ¥108.96-109.34 and resistance from ¥110.86-110.27. Range support, as you can see, is currently under pressure, with a breach underscoring potential downside to a concealed Quasimodo support at ¥108.43. Based on the relative strength index (RSI), the value is confined to a similar consolidation (between 40.87 and 56.85) and the indicator is testing the mettle of the lower range limit, as we write.

Observed Technical Levels:

Recognising H1 Quasimodo support at ¥109.31 was taken, and the daily timeframe’s range support at ¥108.96-109.34 displays little sign of bullish life, further selling additional losses is possible, targeting the H4 double-top pattern’s (¥110.44) profit target around ¥108.71. Still, to reach the aforementioned profit target, sellers must marginally defeat the daily timeframe’s range support and take on any bullish interest from weekly demand at ¥108.40-109.41.

GBP/USD:

(Italics: previous analysis)

Sterling gripped four-week lows against the buck on Tuesday, pressured amidst a USD recovery phase, as market participants look towards today’s FOMC meeting and also the outcome of tomorrow’s Bank of England (BoE) meet. Many desks forecast the Fed is likely to wait until later this year regarding a taper announcement.

Settling a touch higher on Tuesday, technical observations on GBP/USD show H4 Quasimodo support-turned resistance made an entrance at $1.3693, a level organised a short distance beneath a H4 decision point at $1.3750-1.3721. Seeing buyers and seller squaring off around $1.3643 lows, probing $1.3693 and facing $1.3750-1.3721 is still on the table.

What’s technically interesting about $1.3750-1.3721 is its location on the H1 timeframe: directly above the $1.37 figure. Any technical trader worth their salt appreciates the attention a round number attracts. For that reason, a whipsaw above $1.37, movement stabbing buy-stops, could welcome robust selling from $1.3750-1.3721.

In terms of the higher timeframes, supply-turned demand at $1.3629-1.3456 on the weekly timeframe stepped forward in July. Yet, pattern traders will also note that the $1.3629-1.3456 test simultaneously closed below a double-top pattern’s neckline at $1.3669, broadcasting a relatively long-term sell signal. Conservative pattern sellers, however, are likely to pursue a candle close beneath $1.3629-1.3456 before pulling the trigger.

Behind the weekly timeframe, a closer examination of price action on the daily timeframe reveals Quasimodo support at $1.3609. It’s important to note, nevertheless, the previous $1.3609 reaction (20th August) failed to find acceptance above the 200-day simple moving average at $1.3833, suggesting $1.3609 weakness. Sub $1.3609, limited support is visible until around $1.3168. Momentum studies, on the authority of the relative strength index (RSI), shows the value below 40.00, with subsequent downside pressure to perhaps take in an oversold reading.

Observed Technical Levels:

With the daily timeframe a stone’s throw from testing Quasimodo support at $1.3609, a whipsaw through $1.37 on the H1 scale to bring in willing offers around the H4 decision point at $1.3750-1.3721 could stir a bearish theme.

A $1.3750-1.3721 reaction may witness price action zero in on H1 Quasimodo support at $1.3618, arranged north of the noted Quasimodo support on the daily timeframe.

DISCLAIMER:

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  1. https://www.rba.gov.au/monetary-policy/rba-board-minutes/2021/2021-09-07.html

It’s all Eyes on the FOMC, the Economic and Interest Rate Projections…

Earlier in the Day:

It was a particularly quiet start to the day on the economic calendar this morning. There were no major stats from the Asian session to provide the markets with direction.

While there were no stats, the BoJ is in action later this morning. The markets are not expecting any surprises, however, leaving the FOMC policy decision and projections in focus.

For the Majors

At the time of writing, the Japanese Yen was down by 0.02% to ¥109.250 against the U.S Dollar, with the Aussie Dollar up by 0.04% to $0.7234. The Kiwi Dollar was up by 0.01% to $0.7006.

The Day Ahead

For the EUR

It’s another particularly quiet day ahead on the economic calendar. There are no material stats due out of the Eurozone to provide the EUR with direction.

The lack of stats will leave the EUR in the hands of market risk appetite and sentiment towards FED monetary policy and projections due late in the day.

At the time of writing, the EUR was down by 0.01% to $1.1725.

For the Pound

It’s also a particularly quiet day ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction.

The lack of stats will leave the Pound in the hands of market risk sentiment, though there will be some consideration of Thursday’s MPC policy decision. Ahead of the disappointing retail sales figures, economic data had pointed towards a more hawkish MPC…

At the time of writing, the Pound was up by 0.02% to $1.3662.

Across the Pond

It’s also a relatively quiet day ahead. Housing sector numbers for August are due out later in the day.

We don’t expect the numbers to influence, however. The market focus will be on the FOMC monetary policy decision, projections, and the press conference.

Key areas of focus will include the timing and size of a tapering of the asset purchasing program and interest rate projections. Will the FED be looking to lift cash rates earlier than previously expected?

On Tuesday, the U.S Dollar Spot Index fell by 0.08% to end the day at $93.204.

For the Loonie

It’s a quiet day ahead for the Loonie. There are no material stats due out of Canada to provide the Loonie with direction.

Crude oil inventories and market risk sentiment will remain the key drivers on the day.

Political uncertainty, following the early election, appeared to be of little concern as Trudeau fell short of a majority.

At the time of writing, the Loonie was up by 0.05% to C$1.2814 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

Dollar Eases From Near 1-Month High as Fed, Evergrande Eyed

After reaching its highest level since Aug. 23 on Monday, the dollar straddled around the unchanged mark on the day, briefly moving higher as early gains on Wall Street’s benchmark equity indexes faded.

Investors are looking toward the Fed’s policy announcement on Wednesday for any signs of when the central bank will begin to scale back its massive bond-buying program, in a week filled with policy statements expected from a host of central banks around the globe.

“The market was trying to get a sense of was this turnaround Tuesday going to last, and if we had that continued improvement of risk appetite the dollar was going to pull back even more here,” said Edward Moya, senior market analyst at OANDA in New York.

“But there is just a lot of wait-and-see as far as what is going to happen with the Fed, what is going to happen with Evergrande. And right now if you are trying to make a dollar bet you really just want to wait until you get a better sense of what is going to happen with Evergrande and what the Chinese government is going to do.”

The dollar index fell 0.019% after reaching a high of 93.455 on Monday, while the euro was down 0.01% to $1.1724.

The greenback strengthened on Monday, along with other safe-havens such as the yen and Swiss franc, as concerns about the fallout from the possible default of China Evergrande unnerved financial markets.

Those concerns overshadowed efforts by Evergrande’s chairman to lift confidence in the embattled firm on Tuesday, as Beijing showed no signs it would intervene to stem any domino effects across the global economy.

The offshore Chinese yuan weakened versus the greenback to 6.4817 per dollar.

Before Evergrande’s debt crisis rattled markets, the dollar had been supported ahead of the Fed meeting this week, with economists surveyed in a Reuters poll expecting policymakers to signal expectations of a tapering plan to be pushed back to November.

The Japanese yen strengthened 0.13% versus the greenback, to 109.23 per dollar, while Sterling was last trading at $1.3658, up 0.01% on the day.

The Canadian dollar was poised to halt three straight days of declines against the greenback, after Canadian Prime Minister Justin Trudeau was re-elected to a third term but failed to win a majority in the parliamentary elections.

The Canadian dollar rose 0.06% versus the greenback at 1.28 per dollar.

In cryptocurrencies, bitcoin last fell 2.01% to $42,172.11.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Leslie Adler)

EUR/USD Price Forecast – Euro Bounces From Extreme Lows

The Euro has rallied a bit during the course of the trading session on Tuesday to break above the top of a hammer from Monday. That of course is a bullish sign but at this point in time it looks very likely that the market is still going to struggle above, as we have seen such a huge move into the US dollar. With the credit concerns in China, there has been a rush towards safety, which means US bonds.

EUR/USD Video 22.09.21

If we do break down below the bottom of the Monday candlestick, that opens up the move towards 1.16 underneath, which has been a very interesting support level multiple times in the past, so I would anticipate a fight at that point. The market breaking down below the 1.16 level would of course be a major break of structure, thereby opening up the market for even more persistent selling.

To the upside, if the market were to take out the 1.18 level, then we face a significant amount of resistance near the 1.1850 level that extends to the 200 day EMA. In fact, it is not truly until we break above the 1.19 level that we can make the argument for more of a “buy-and-hold” situation. That of course is a long way from here, so it is going to be difficult to get there, and it will take a certain amount of time. With this, I do not think that we will hit the bottom yet, but a short-term bounce may be in the cards. I am looking to fade this rally on signs of exhaustion but do not have that set up quite yet

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – U.S. Dollar Is Losing Some Ground Against Euro

Euro Moves Higher Against U.S. Dollar

EUR/USD has managed to get back above 1.1720 while the U.S. dollar remained flat against a broad basket of currencies.

The U.S. Dollar Index has recently made an attempt to settle below the support at 93.10 but failed to develop sufficient downside momentum and rebounded towards 93.20. The nearest resistance level for the U.S. Dollar Index is located at 93.40. In case the U.S. Dollar Index manages to settle above this level, it will head towards the resistance at 93.75 which will be bearish for EUR/USD.

It’s a quiet day on the economic calendar, so foreign exchange market traders will try to prepare for the Fed Interest Rate Decision which will be released on September 22.

The key question is whether Fed Chair Jerome Powell is ready to announce the reduction of Fed’s asset purchase program. Powell has been consistently dovish during the pandemic, and it looks that he will use any opportunity to delay tapering.

Recent economic data was inconclusive while global markets found themselves under pressure on fears about the potential default of China’s developer Evergrande. In this environment, Powell will likely keep the current policies intact, but any surprises will cause significant volatility.

Technical Analysis

eur usd september 21 2021

EUR/USD has recently made an attempt to settle below the support at 1.1720 but failed to develop sufficient downside momentum. The nearest resistance level for EUR/USD is located at 1.1750.

In case EUR/USD manages to get back above 1.1750, it will head towards the next resistance level which is located near the 20 EMA at 1.1775. A successful test of this level will push EUR/USD towards the resistance at 1.1800.

On the support side, a move below 1.1720 will open the way to the test of the support at 1.1690. If EUR/USD declines below this level, it will move towards the support at 1.1660. A successful test of the support at 1.1660 will push EUR/USD towards the next support which is located at 1.1630.

For a look at all of today’s economic events, check out our economic calendar.

Gas Price Surge, Just One More Headwind for World Economy

The gas market chaos, which has driven prices 280% higher in Europe this year and led to a 100%-plus surge in the United States, is being blamed on a range of factors from low storage levels to carbon prices to reduced Russian supplies.

So high are tensions that several European Parliament lawmakers have demanded an investigation into what they said could be market manipulation by Russia’s Gazprom.

Whatever the causes, the surge carries major market implications:

1/GROWTH

Analysts say it’s too early to downgrade economic growth forecasts but a hit to economic activity looks inevitable.

Morgan Stanley reckons the impact in the United States, the world’s biggest economy, should be small. While over a third of U.S. energy consumption in 2020 was supplied by natural gas, users were predominantly industrial, it notes.

Overall though, higher gas prices raise the risk of stagflation – high inflation, low growth.

“It is quite clear there is a growing sense of unease about the economic outlook as a growing number of companies look ahead to the prospect of rising costs,” said Michael Hewson, chief market analyst at CMC Markets.

2/INFLATION

Euro zone wholesale power prices are at record highs, potentially exacerbating inflation pressures inflicted by COVID-related supply bottlenecks. In Germany, 310,000 households face an 11.5% increase in gas bills, data showed on Monday.

Noting German factory gate prices were already the highest since 1974, Citi analysts predicted 5% hikes for electricity and gas prices in January, adding 0.25 percentage points to consumer inflation next year.

Higher food costs are another side effect, given a shortage of carbon dioxide which is used in slaughterhouses and to prolong the shelf-life of food. Cuts in fertiliser production could also lift food prices.

Goldman Sachs predicts higher oil demand, with a $5 per barrel upside risk to its fourth-quarter 2021 Brent price forecast of $80 a barrel. Brent is trading at about $74 currently. [O/R]

3/CENTRAL BANKS

Central banks are sticking with the line that the spike in inflation is temporary — European Central Bank board member Isabel Schnabel said on Monday she was happy with the broad-based rise in inflation.

But as market- and consumer-based measures of inflation expectations rise, gas prices will be on central banks’ radar.

“If we have higher inflation, transitory or structural, and have slower growth – it will be a very tricky situation for markets and central banks to assess, navigate and communicate,” said Piet Haines Christiansen, chief strategist at Danske Bank.

This week’s central bank meetings could test policymakers’ resolve. The Bank of England meeting on Thursday is in particular focus, given UK inflation has just hit a nine-year high.

With UK producer price inflation soaring, shipping costs showing little sign of cooling, commodity prices higher up and job vacancies tipping 1 million, there is a growing chance that higher prices will stick around for longer, said Susannah Streeter, senior analyst at Hargreaves Lansdown.

“If they do, more (BoE) members may move quickly to vote for a rate rise sooner than expected next year, but it would be an unpopular course of action with looming tax rises already hard to digest for many consumers,” she said.

4/ STATE BAILOUTS

Britain is considering offering state-backed loans to energy firms after big suppliers requested support to cover the cost of taking on customers from companies that went bust under the impact of gas prices. One firm, Bulb, is reportedly seeking a bailout.

France meanwhile plans one-off 100 euro ($118) payments to millions of households to help with energy bills.

“The story emerging from the UK energy sector will soon be more relevant to the European market than Evergrande,” said Althea Spinozzi, senior fixed income Strategist at Saxo Bank.

And in a week packed with central bank meetings, she added that markets were “right to fret.”

5/COMPANIES

Spain shocked the utility sector last week by redirecting billions of euros in energy companies’ profits to consumers and capping increases in gas prices. Revenue hits at Iberdrola and Endesa were estimated by RBC at one billion euros and shares in the companies sold off heavily.

Since the move, investors have fretted about contagion to other countries, Morgan Stanley said. While seeing those fears as overdone, the bank acknowledged there was a risk of margin squeezes at European utilities in coming months.

Sector shares are down for the third week straight.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Dhara Ranasinghe; graphics by Saikat Chatterjee and Dhara Ranasinghe; additional reporting by Yoruk Bahceli and Sujata Rao; Editing by Sujata Rao and Hugh Lawson)

Another Quiet Day on the Economic Calendar Leaves the FED and Risk Sentiment in the Driving Seat

Earlier in the Day:

It was a relatively quiet start to the day on the economic calendar this morning, with the China markets closed today. The Kiwi Dollar was in action in the early hours, however.

Later this morning, the RBA meeting minutes will also draw interest as the markets look to assess the impact of the latest lockdown measures on policy.

For the Kiwi Dollar

Consumer sentiment figures were in focus.

In the 3rd quarter, the Westpac Consumer Sentiment Index fell from 107.1 to 102.7.

According to the Westpac survey,

  • Confidence took a hit, with the index falling by 4.4 points as a result of the latest nationwide lockdown.
  • The decline was more modest, however, than the fall seen back in 2020.
  • While households remain secure about their personal financial situation, global supply chain disruption weighed on spending appetites.

The sub-components:

  • The Present Conditions Index fell by 2.7 points to 95.6, with the Expected Conditions Index down 5.5 points to 107.4.
  • 1-year economic outlook tumbled by 10.0 points to -5.6, with the “Good time to buy” sub-index falling by 7.2 points to -5.2.
  • 5-year economic outlook fell by 6.2 points to 11.5, while the current financial situation sub-index rose by 1.8 points to -3.6.
  • Expected financial situation saw a modest 0.6 point decline to 16.1.

The Kiwi Dollar moved from $0.70293 to $0.70260 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.26% to $0.7009.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.05% to ¥109.390 against the U.S Dollar, with the Aussie Dollar up by 0.06% to $0.7256.

The Day Ahead

For the EUR

It’s a particularly quiet day ahead on the economic calendar. There are no material stats due out of the Eurozone to provide the EUR with direction.

The lack of stats will leave the EUR in the hands of market risk appetite and sentiment towards FED monetary policy.

At the time of writing, the EUR was flat at $1.1726.

For the Pound

It’s a relatively quiet day ahead on the economic calendar. CBI Industrial Trend Orders for September are due out later today. With little else for the markets to consider, we can expect influence. The impact will be limited, however, with the Pound on the defensive ahead of Thursday’s policy decision.

At the time of writing, the Pound was up by 0.01% to $1.3658.

Across the Pond

It’s also a relatively quiet day ahead. Housing sector numbers for August are due out later in the day. With the markets focused on the FED, however, the stats are unlikely to have an impact on the day.

On Monday, the U.S Dollar Spot Index rose by 0.09% to end the day at $93.276.

For the Loonie

It’s a quiet day ahead for the Loonie. House price figures for August are due out later in the day.

We don’t expect the numbers to provide the Loonie with direction, however. Market risk sentiment will and crude oil prices will remain the key drivers on the day.

At the time of writing, the Loonie was up by 0.05% to C$1.2815 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

September 21st 2021: EUR/USD Eyes H1 Prime Resistance at $1.1767-1.1776 After $1.17 Support

Charts: Trading View

EUR/USD:

(Italics: previous analysis)

Technical studies reveal movement hovering north of prime support at $1.1473-1.1583 on the weekly timeframe. Gleaning additional technical confluence through a 100% Fib projection at $1.1613 and 1.27% Fib extension at $1.1550, this base remains a key watch, long term. With respect to trend on the weekly chart, the market has largely been bullish since the early 2020.

Meanwhile, a closer reading of price on the daily timeframe reveals Monday spiked to within a stone’s throw of Quasimodo support at $1.1689. Albeit sponsoring a late August bid (black arrow), action from $1.1689 failed to find approval north of late July tops at $1.1909; therefore, this ranks $1.1689 as perhaps frail support. Assuming bearish leadership on the daily, the $1.1612 and $1.1602 (September/November 2020) lows signify downside support targets, followed by Fibonacci support between $1.1420 and $1.1522 (glued to the lower side of the weekly timeframe’s prime support at $1.1473-1.1583).

Charted a pip ahead of the daily Quasimodo, the $1.1690-1.1705 decision point put in an appearance on Monday, encouraging H4 sellers to dial back and hand the baton to buyers. Quasimodo support-turned resistance at $1.1742 is now in range on this timeframe, with subsequent bullish interest to perhaps take aim at Quasimodo resistance from $1.1771.

Intraday action on Monday was interesting. The US dollar, in addition to other safe-haven currencies such as the Japanese yen and Swiss franc, gained traction Monday, elevated amidst clear-cut risk-off sentiment. Europe’s single currency, however, reclaimed a large slice of lost ground, aided (technically) not only by the H4 decision point mentioned above at $1.1690-1.1705, but also $1.17 on the H1. At the time of writing, H1 resistance at $1.1728 is active; rupturing the latter paves the way to $1.1742 on the H4, a level shadowed by H1 prime resistance coming in at $1.1767-1.1776, joined by supply at $1.1762-1.1774.

Observed Levels:

Extending recovery gains on short-term charts may have sellers move in on prime resistance at $1.1767-1.1776 on the H1 and supply from $1.1762-1.1774, which dovetails with H4 Quasimodo resistance at $1.1771. However, prior to this, sellers might engage with Quasimodo support-turned resistance at $1.1742 on the H4.

An alternative scenario to be mindful of is a whipsaw south of $1.17 on the H1 to daily Quasimodo support parked at $1.1689. $1.1689 bids feeding off sell-stops below $1.17 could be enough to chalk up a bullish wave.

AUD/USD:

(Italics: previous analysis)

Latest out of the weekly timeframe has AUD/USD touching gloves with prime support at $0.6968-0.7242. Since printing a two-week recovery in late August, the currency pair has been fighting to entice fresh bullish interest. Failure to command position from $0.6968-0.7242 opens up support at $0.6673. Buyers regaining consciousness, nevertheless, has prime resistance at $0.7849-0.7599 to target. Trend studies on the weekly scale show we’ve been higher since early 2020. Consequently, the response from $0.6968-0.7242 could STILL be the beginnings of a dip-buying attempt to merge with the current trend.

The daily timeframe’s technical landscape informs traders bids are perhaps thin within weekly prime support, at least until price shakes hands with Fibonacci support at $0.7057-0.7126. Those who follow the relative strength index (RSI) will note the value journeyed through the 50.00 centreline last week and had Monday dip a toe below 40.00. This highlights a bearish atmosphere until making contact with oversold territory.

Price action on the H4 timeframe came within touching distance of a half-hearted decision point at $0.7200-0.7218 on Monday. To the upside, two resistances are on the radar at $0.7281 and $0.7317.

Lower on the curve, a H1 decision point at $0.7269-0.7259 elbowed into the spotlight, an area formed in the early hours of Monday which saw price tunnel through demand at $0.7248-$0.7259. Continued interest to the downside has $0.72 to target.

Observed Levels:

Each timeframe analysed underlines a bearish energy.

Weekly prime support at $0.6968-0.7242 appears vulnerable due to the daily timeframe exhibiting scope to approach Fibonacci support at $0.7057-0.7126. This, on top of the H1 timeframe’s decision point at $0.7269-0.7259 making a show, implies a short term move to $0.72 (H1) could be in the offing (note $0.72 aligns with the lower band of the H4 decision point at $0.7200-0.7218).

USD/JPY:

(Italics: previous analysis)

Since mid-July, ¥108.40-109.41 demand has failed to stir much bullish energy on the weekly timeframe. Nevertheless, recognising the area derives additional backing from neighbouring descending resistance-turned support, extended from the high ¥118.61, an advance could eventually emerge to familiar supply at ¥113.81-112.22.

The uninspiring vibe out of weekly demand is demonstrated by way of a consolidation on the daily timeframe between prime support at ¥108.96-109.34 and resistance from ¥110.86-110.27. Range support, as you can see, is currently in the frame. In the event price deviates from range extremes, Quasimodo resistance at ¥111.11 is seen, along with a concealed Quasimodo support at ¥108.43. Based on the relative strength index (RSI), the value is confined to a consolidation surrounding the 50.00 centreline, between 40.87 and 56.85.

Broad declines observed in major US equity indexes elevated demand for the safe-haven JPY Monday. USD/JPY downside swings technical curiosity to the H4 double-top pattern’s (¥110.44) profit target around ¥108.71—sharing chart space with a 1.618% Fibonacci projection at ¥108.86 and a 1.272% Fibonacci projection at ¥108.72. However, in order to reach the aforesaid pattern target, the lower edge of the daily range support highlighted above at ¥108.96-109.34 must be taken.

Heading into early US trading on Monday, H1 crossed swords with Quasimodo resistance-turned support at ¥109.45, and clocked a ¥109.65 top before changing gears and heading towards Quasimodo support at ¥109.31. Territory below the latter reveals support at ¥109.11.

Observed Levels:

In keeping with the H4 timeframe, booking additional losses is possibly on the cards until the double-top pattern’s (¥110.44) profit target around ¥108.71. Still, to reach the aforementioned profit target, sellers must marginally defeat the daily timeframe’s range support at ¥108.96-109.34 and take on any bullish interest from weekly demand at ¥108.40-109.41.

Should we nudge through H1 Quasimodo support at ¥109.31, this could be an early sign of bearish muscle making an entrance, and with this, additional selling might take shape.

GBP/USD:

(Italics: previous analysis)

In the shape of a hammer candlestick formation (bullish signal), supply-turned demand at $1.3629-1.3456 on the weekly timeframe stepped forward in July. The aforementioned zone remains active, welcoming an additional test mid-August. Yet, pattern traders will also note August’s move closed south of a double-top pattern’s neckline at $1.3669, broadcasting a bearish vibe. Conservative pattern sellers, however, are likely to pursue a candle close beneath $1.3629-1.3456 before pulling the trigger.

Sterling kicked off the week on the ropes, clocking one-month lows versus the US dollar. GBP/USD remains comfortable beneath the 200-day simple moving average at $1.3831 and is within reach of Quasimodo support at $1.3609. Previous analysis underlined the daily chart has communicated a rangebound environment since late June between a 61.8% Fib retracement at $1.3991 and the noted Quasimodo support. Momentum, according to the relative strength index (RSI) value, extended position below the 50.00 centreline and scraped through 40.00 on Monday. This informs traders that momentum to the downside is increasing in the form of average losses exceeding average gains.

Yesterday’s bearish presence established a decision point at $1.3750-1.3721, an area forming a decision to tunnel through Quasimodo support from $1.3693 (currently serving as resistance). Daily Quasimodo support mentioned above at $1.3609 calls for attention as a downside objective also on the H4 scale.

From the H1 timeframe, mid-way through London on Monday clipped the lower side of $1.37 and also brought in resistance at $1.3689—a previous Quasimodo support level drawn from 26th August. Further softening places Quasimodo support at $1.3618 and the $1.36 figure in sight.

Observed Levels:

Having noted scope for the daily timeframe to test Quasimodo support at $1.3609, retesting either H4 resistance at $1.3693 or the H4 decision point at $1.3750-1.3721 could stir a bearish theme. Adding weight to $1.3693 is H1 resistance coming in at $1.3689 and the $1.37 figure.

The H1 Quasimodo support at $1.3618 forms a reasonable downside target, arranged just north of the noted Quasimodo support on the daily timeframe.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

World Shares Tumble as China Evergrande Contagion Fears Spread

MSCI’s gauge of stocks across the globe shed 2.09%, on pace for its biggest one-day fall since October 2020, as Wall Street’s major indexes sagged more than 2%.

Investors moved into safe havens, with U.S. Treasuries gaining in price, pulling down yields, and gold rising.

Shares in Evergrande, which has been scrambling to raise funds to pay its many lenders, suppliers and investors, closed down 10.2% at HK$2.28.

Regulators have warned that its $305 billion of liabilities could spark broader risks to China’s financial system if its debts are not stabilized.

“Investors are concerned that the Evergrande issue is going represent a domino,” said Jack Ablin, chief investment officer at Cresset Capital Management. “Investors are tending to sell first and look into it to later.”

The Dow Jones Industrial Average fell 787.6 points, or 2.28%, to 33,797.28, the S&P 500 lost 101.41 points, or 2.29%, to 4,331.58 and the Nasdaq Composite dropped 408.25 points, or 2.71%, to 14,635.71.

Economically sensitive sectors, including financials and energy, were hit particularly hard.

The pan-European STOXX 600 index lost 1.67%, with mining stocks sliding.

The selloff on Monday has seen a cumulative $2.2 trillion of value wiped off the market capitalization of world equities from a record high of $97 trillion hit on Sept. 6, according to Refinitiv data.

Worries over Evergrande follow a pullback in equities recently as investors worry over the impact of coronavirus cases on the economy, and when central banks will ease back on monetary stimulus.

The U.S. Federal Reserve is due to meet on Tuesday and Wednesday as investors look for when it will begin pulling back on its bond purchases.

Investors were also keeping an eye on other central bank meetings spanning Brazil, Britain, Hungary, Indonesia, Japan, Norway, the Philippines, South Africa, Sweden, Switzerland, Taiwan and Turkey.

The dollar index rose 0.061%, with the euro unchanged at $1.1725.

The offshore Chinese yuan weakened versus the U.S. currency to its lowest level in nearly a month.

“We are seeing a classic flight to safety in the dollar until we get some sense of clarity on whether or not it is going to be an orderly or disorderly resolution to Evergrande,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, DC.

Benchmark 10-year notes last rose 22/32 in price to yield 1.2972%, from 1.37% late on Friday.

The iShares exchange-traded fund tracking high-yield corporate bonds edged down 0.5%.

Oil prices fell but drew support from signs that some U.S. Gulf output will stay offline for months due to storm damage.

U.S. crude fell 2.18% to $70.40 per barrel and Brent was at $73.99, down 1.79% on the day.

Spot gold added 0.4% to $1,761.29 an ounce, rising off of a one-month low.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Lewis Krauskopf in New York and Tom Arnold in London; Additional reporting by Anushka Trivedi in Bengaluru, Saikat Chatterjee in London, Karen Pierog and Chuck Mikolajczak in New York and Wayne Cole in Sydney; Graphic by Sujata Rao; Editing by Jane Merriman, Mark Potter and Jan Harvey)

Analysis: Why the Fed Might Welcome a Bond Market Tantrum

Persistently low yields are a feature of bond markets across the developed world, with central banks mostly in no hurry to raise interest rates and a global savings glut that keeps debt securities in constant demand.

But it is in the United States that the contradiction between economic recovery and bond yields is starkest.

Even with growth tipped to surpass 6% this year and a “taper” in sight for the Fed’s bond-buying programme at the end of this year, 10-year yields are still stuck at just above 1.3%..

The Fed probably rejoiced at low yields in the initial stages of the economic recovery, but now needs bonds to respond to the end of pandemic-linked recession, said Padhraic Garvey, head of research for the Americas at ING Bank.

Current pricing, analysts say, looks more consistent with heightened economic uncertainty, whereas higher yields would align markets more with the signals coming from central banks.

“To facilitate that, we argue that there needs to be a tantrum. If the Fed has a taper announcement … and there is no tantrum at all, that in fact is a problem for the Fed,” ING’s Garvey said.

Analysts say a bond market tantrum would involve yields rising 75-100 basis points (bps) within a couple of months.

The original “taper tantrum” in 2013 boosted U.S. yields just over 100 bps in the four months after then Fed boss Ben Bernanke hinted at an unwinding of stimulus measures.

But that kind of sudden jump in yields looks unlikely right now, given how clearly the Fed has telegraphed its plans to taper its bond-buying. And as 2013 showed, bond market tantrums carry nasty side-effects including equity sell-offs and higher borrowing costs worldwide.

A happy medium, analysts say, might be for benchmark yields to rise 30-40 bps to 1.6-1.8%

FED AND BANKS NEED AMMUNITION

Besides wanting higher yields to better reflect the pace of economic growth, the Fed also needs to recoup some ammunition to counter future economic reversals.

The Fed funds rate – the overnight rate which guides U.S. borrowing costs – is at zero to 0.25%, and U.S. policymakers, unlike the Bank of Japan and the European Central Bank, are disinclined to take interest rates negative.

The Fed won’t want to find itself in the position of the ECB and BOJ, whose stimulus options at the moment are limited to cutting rates further into negative territory or buying more bonds to underwrite government spending.

Jim Leaviss, chief investment officer at M&G Investments for public fixed income, said policymakers would probably like the Fed fund rate to be at 2%, “so, when we end up in the next downturn, the Fed will have some space to cut interest rates without hitting the lower bound of zero quickly”.

Another reason higher yields might be welcomed is because banks would like steeper yield curves to boost the attractiveness of making longer-term loans funded with short-term borrowing from depositors or markets.

Thomas Costerg, senior economist at Pictet Wealth Management, notes that the gap between the Fed funds rate and 10-year yields of about 125 bps now is well below the average 200 bps seen during previous peaks in economic expansion.

He believes the Fed would favour a 200 bps yield slope, “not only because it would validate their view that the economic cycle is fine but also because a slope of 200 bps is healthy for the banking sector’s maturity transformation.”

GRAVITATIONAL FORCE

But even a tantrum might not bring a lasting rise in yields.

First, while the Fed may look with envy at Norway and New Zealand where yields have risen in expectation of rate rises, it has stressed that its own official rates won’t rise for a while.

Structural factors are at play too, not least global demand for the only large AAA-rated bond market with positive yields.

The Fed also, in theory at least, guides rates towards the natural rate of interest, the level where full employment coincides with stable inflation.

But this rate has shrunk steadily. Adjusted for projected inflation, the “longer-run” funds rate – the Fed’s proxy for the natural rate – has fallen to 0.5% from 2.4% in 2007. If correct, it leaves the Fed with little leeway.

Demographics and slower trend growth are cited as reasons for the decline in the natural rate though a paper https://bit.ly/3nVMxMv presented last month at the Jackson Hole symposium also blamed a rise in income inequality since the 1980s.

The paper said the rich, who are more likely to save, were taking a bigger slice of overall income and the resulting savings glut was weighing on the natural rate of interest.

“One lesson from this year is that there is massive gravitational force, a price-insensitive demand which is pressing down on Treasury yields,” Pictet’s Costerg said.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Stefano Rebaudo; Additional reporting by Dhara Ranasinghe in London and Dan Burns in New York; Editing by Sujata Rao and David Clarke)

 

EUR/USD, GBP/USD Analysis & Setups 20 – 21 Sep 2021

The EUR/USD is testing the previous bottom and key decision zone. The GBP/USD seems to be creating a triangle chart pattern if price action makes a bullish bounce.

If you think our videos, analysis, and education can help you become a better trader, then you can ask your own questions via our form and we will answer them in the weekly live webinar every Tuesday.

EUR/USD & GBP/USD Overview

The EUR/USD needs to break above the double top at 1.19 or the 88.6% Fib at 1.17 before a clear bullish or bearish swing can be expected.

The GBP/USD is probably in a triangle pattern unless there is an immediate break, pullback, and continuation below the support line.

Check out the video below for the full analysis and trade plans on 20 – 21 September 2021:

For a look at all of today’s economic events, check out our economic calendar.

Good trading,

Chris Svorcik
CTA

 

USD Bears Are Fresh Out of Honey Pots

With headline after headline attempting to knock the USD Index off of its lofty perch, I warned on Sep. 13 that dollar bears will likely run out of honey sooner rather than later.

I wrote:

While the USD Index was under fundamental fire in recent weeks, buyers eagerly hit the bid near the 38.2% Fibonacci retracement level. And after positive sentiment lifted the greenback back above the neckline of its inverse (bullish) head & shoulders pattern last week, the USDX’s medium-term outlook remains profoundly bullish.

More importantly, though, after the USD Index rallied by 0.63% last week and further validated its bullish breakout, gold, silver, and mining stocks ran in the opposite direction. And with the divergence likely to accelerate over the medium term, the swarm should sting the precious metals during the autumn months.

Please see below:

ChartDescription automatically generated

Conversely, if the USD Index encounters resistance as it attempts to make a new 2021 high, gold, silver, and mining stocks could enjoy an immaterial corrective upswing. However, the optimism will likely be short lived, and it’s likely a matter of when, not if, the USD Index reaches the illustrious milestone.

Equally bullish for the greenback, with the USD Index’s technical strength signaling an ominous ending for the Euro Index, I warned on Sep. 13 that the latter faced a tough road ahead.

I wrote:

While I have less conviction in the Euro Index’s next move relative to the USD Index, more likely than not, the Euro Index should break down once again and the bearish momentum should resume over the medium term.

And after the Euro Index sunk below the neckline of its bearish head & shoulders pattern last week, lower lows remains the most likely outcome over the medium term.

Please see below:

Chart, line chartDescription automatically generated

Adding to our confidence (don’t get me wrong, there are no certainties in any market; it’s just that the bullish narrative for the USDX is even more bullish in my view), the USD Index often sizzles in the summer sun and major USDX rallies often start during the middle of the year. Summertime spikes have been mainstays on the USD Index’s historical record and in 2004, 2005, 2008, 2011, 2014 and 2018 a retest of the lows (or close to them) occurred before the USD Index began its upward flights (which is exactly what’s happened this time around).

Furthermore, profound rallies (marked by the red vertical dashed lines below) followed in 2008, 2011 and 2014. With the current situation mirroring the latter, a small consolidation on the long-term chart is exactly what occurred before the USD Index surged in 2014. Likewise, the USD Index recently bottomed near its 50-week moving average; an identical development occurred in 2014. More importantly, though, with bottoms in the precious metals market often occurring when gold trades in unison with the USD Index (after ceasing to respond to the USD’s rallies with declines), we’re still far away from that milestone in terms of both price and duration.

Moreover, as the journey unfolds, the bullish signals from 2014 have resurfaced once again. For example, the USD Index’s RSI is hovering near a similar level (marked with red ellipses), and back then, a corrective downswing also occurred at the previous highs. More importantly, though, the short-term weakness was followed by a profound rally in 2014, and many technical and fundamental indicators signal that another reenactment could be forthcoming.

Please see below:

ChartDescription automatically generated

Just as the USD Index took a breather before its massive rally in 2014, it seems that we saw the same recently. This means that predicting higher gold prices (or the ones of silver) here is likely not a good idea.

Continuing the theme, the eye in the sky doesn’t lie. And with the USDX’s long-term breakout clearly visible, the wind still remains at the greenback’s back.

Please see below:

ChartDescription automatically generated

The bottom line?

Once the momentum unfolds, ~94.5 is likely the USD Index’s first stop, ~98 is likely the next stop after that, and the USDX will likely exceed 100 at some point over the medium or long term. Keep in mind though: we’re not bullish on the greenback because of the U.S.’ absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone, the EUR/USD accounts for nearly 58% of the movement of the USD Index, and the relative performance is what really matters.

In conclusion, the USD Index’s sweet performance left sour tastes in the precious metals’ mouths. And with the former’s bullish breakout signaling an ominous future for the latter, gold, silver, and mining stocks will likely confront new lows over the medium term. However, once the autumn months fade and the winter weather approaches, buying opportunities may present themselves. And with unprecedented monetary and fiscal policy likely to underwrite new highs in the coming years, the long-term outlook for gold, silver, and mining stocks remains extremely bright.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

EUR/USD Price Forecast – Euro Continues to Descend

The Euro has fallen a bit during the course of the trading session on Monday, to reach down towards the 1.17 level. This is an area that would attract a certain amount of attention, but quite frankly I think the main reason that we have bounced at all is due to the pair being oversold at this point. Because of this, I think this is a market that you will be looking for rallies to sell into or break down below the bottom of the candlestick for the session on Monday to signify there is even more selling coming.

EUR/USD Video 21.09.21

The US dollar of course is thought of as a safety currency, so this suggests that we are going to see a lot of noisy behavior of the next couple of days, as people worry about the credit situation in China. If that begins to become an even bigger issue, the US dollar will spike as a result. As far as Europe is concerned, the energy shortage on the continent at the moment is going to work against the currency itself, but I also recognize that we probably have somewhat limited downside anyway. The 1.16 level is massive support, so I think that comes into the picture as a potential “floor the market” even if we do see a lot of selling. To the upside, if we can take out the 1.19 level, that would be an extraordinarily bullish sign but that is not something that we will be doing anytime soon, as it would take a Herculean effort to get above there.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Mid-Session Technical Analysis for September 20, 2021

The Euro is under pressure on Monday as weaker commodity prices, worries about Chinese property company Evergrande and caution ahead of this week’s U.S. Federal Reserve meeting pressured stocks and boosted safe-haven demand for the U.S. Dollar.

The major concern for global investors is the Evergrande issue. Not only are investors worried about what the stress from Evergrande will mean for China’s economy and its growth prospects, but whether this is the start of something major that could spread to the global financial markets.

Basically, the fear of contagion is driving investors into the safety of the U.S. Dollar. Investors learned from the Euro Zone crisis and the credit market meltdowns over a decade ago that where’s there’s smoke, there’s fire and that it’s better to trim speculative positions now rather than wait for conditions to worsen.

At 12:40 GMT, the EUR/USD is trading 1.1712, down 0.0013 or -0.11%.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 1.1664 will change the main trend to down. A move through 1.1909 will signal a resumption of the uptrend.

The minor trend is down. This is controlling the momentum. A trade through 1.1846 will change the minor trend to up.

The short-term range is 1.1664 to 1.1909. The EUR/USD is currently trading on the weakside of its retracement zone at 1.1758 to 1.1787, making it new resistance.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD on Monday is likely to be determined by trader reaction to 1.1725.

Bearish Scenario

A sustained move under 1.1725 will indicate the presence of sellers. Taking out the intraday low at 1.1700 will indicate the selling pressure is getting stronger. This could trigger an acceleration into the last main bottom at 1.1664.

The trend changes to down on a trade through 1.1664. This could extend the selling into the November 4, 2020 bottom at 1.1603.

Bullish Scenario

A sustained move over 1.1725 will signal the presence of buyers. This could trigger an intraday rally into the retracement zone at 1.1758 to 1.1787, which is new resistance. Since the main trend is down, sellers could return on the first test of this area.

For a look at all of today’s economic events, check out our economic calendar.