U.S. Dollar Index (DX) Futures Technical Analysis – 92.495 Support, 93.430 Next Major Upside Target

The safe-haven U.S. Dollar is trading higher against a basket of major currencies on Monday as investors grew nervous about a raging coronavirus variant that could threaten the outlook for a global economic recovery. The greenback jumped even as the benchmark U.S. 10-year Treasury yield dropped to a more than five-month low of 1.176%.

At 18:56 GMT, September U.S. Dollar Index futures are trading 92.840, up 0.153 or +0.17%.

After an initial thrust to the upside into a three-month high, the greenback pared some of its gains as the Yen and Swiss Franc, two index components, advanced with the decline in risk appetite.

The Delta variant of COVID-19 is now the dominant strain worldwide, accompanied by a surge of deaths around the United States almost entirely among unvaccinated people, U.S. officials said on Friday.

Daily September U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier in the session when buyers took out the last main top at 92.840. A trade through 92.075 will change the main trend to up.

The minor trend is also up. A trade through 92.275 will change the minor trend to down. This will shift momentum to the downside.

The index is also trading on the strong side of a pair of long-term retracement zones at 92.495, 91.950, 91.850 and 91.490, making them support. The short-term pivot at 92.280 is also support.

Daily Swing Chart Technical Forecast

The direction of the September U.S. Dollar Index into the close on Monday is likely to be determined by trader reaction to 92.690.

Bullish Scenario

A sustained move over 92.690 will indicate the presence of buyers. If this move continues to generate enough upside momentum then look for a possible retest of the intraday high at 93.050. This is a potential trigger point for an acceleration into the March 31 main top at 93.430.

Bearish Scenario

A sustained move under 92.690 will signal the presence of sellers. If this move creates enough downside momentum then look for a possible break into 92.495.

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

Dollar Declines as Fed’s Powell Maintains Dovish Message

His comments came as a report showed U.S. producer prices rose more than expected, posting their biggest annual increase in more than 10-1/2 years. A day earlier, data showed June U.S. inflation hit its highest in more than 13 years.

The strong inflation has lifted the greenback to just shy of its three-month high, as focus sharpened on when central banks around the world will begin withdrawing pandemic-era stimulus.

That focus intensified on Wednesday after the Reserve Bank of New Zealand said it was ending bond purchases, raising expectations it could raise interest rates as soon as August. The Bank of Canada said it would cut its weekly bond purchases to C$2 billion ($1.6 billion) from C$3 billion.

But Powell, at the beginning of his two-day testimony to Congress, said the Fed is firm in its belief that current price increases are tied to the economic reopening and are transitory.

“Powell maintained the dovish message, kind of pushing back against any concerns that he would change his tune, or the more patient approach that he’s been talking about, after the above expectation inflation release,” said Marvin Loh, senior global markets strategist at State Street.

“They are still on this path to slowly taper asset purchases before they even start to consider rate hikes, so we’re still a couple of years away from that tightening based on everything that we’ve heard today,” he said.

The dollar index was down 0.43% at 92.404, after rising as high as 92.832 – just below the 92.844 hit last week for the first time since April 5.

The greenback slipped 0.45% against the euro to $1.183, after touching its highest since April 5.

“The dip for the euro back below 1.18 yesterday was probably a little bit overdone and so this recovery today, I think, would have happened even without Powell’s comments,” said John Doyle, vice president of dealing and trading at Tempus Inc.

The dollar rose almost 3% last month after the Fed’s hawkish pivot forced markets to reassess when tapering and rate hikes might start. It firmed 0.6% on Tuesday after the inflation data.

The kiwi soared against the greenback after New Zealand’s central bank announced it would cut short a NZ$100 billion ($70 billion) bond-buying program. It added to the gains after Powell’s comments, standing 1.29% higher.

Analysts have brought forward calls for a rate rise to as early as August, which would put New Zealand at the forefront of countries to raise interest rates.

The divergence in monetary policy outlooks pushed the Australian dollar 0.74% lower against its New Zealand counterpart to NZ$1.0636, the lowest since early June.

The Canadian dollar slid 0.04% to $1.25065, after the Bank of Canada said it would keep interest rates unchanged until economic slack is absorbed, which is expected to happen in the second half of 2022.

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

(Additional reporting by Saikat Chatterjee; Editing by David Clarke, Steve Orlofsky and Richard Chang)

 

Dollar Edges Lower as Risk Appetite Returns

Some recent soft U.S. data, along with a surge in COVID-19 cases in many parts of the world, has fueled concerns that the global economic recovery was running out of steam, leading to an eight-day streak of declines for the 10-year Treasury yield that ended on Friday.

“This week was all about the bond market and the collapse in treasury yields,” said Edward Moya, senior market analyst for the Americas at OANDA. “Some of that move was probably overdone.”

The rise in yields supported riskier assets and currencies, with global stock markets rising and the commodity-linked Australian and New Zealand dollars catching a bid.

The Aussie rose 0.79% to $0.74905, after earlier touching a fresh low for the year at $0.7410, and the kiwi added 0.81% to $0.7002, having plunged more than 1% in the previous session.

The euro extended gains on top of a 0.45% jump on Thursday, rising 0.27% to $1.1876.

The dollar index slid 0.252% to 92.131.

The greenback’s decline was likely due in part to profit-taking ahead of key U.S. inflation data for June due next week, said Joe Manimbo, senior market analyst at Western Union Business Solutions.

“Dollar bulls are just pulling some chips off the table,” he said.

The yen, perceived as a safe-haven currency, declined as risk appetite began to recover.

“Yesterday’s decline in dollar-yen is reversing together with risk appetite in equities suggesting no wider spillover effects across markets for now – the same move is seen in the U.S. 10-year yield bouncing back above 1.3%,” said Steen Jakobsen, chief investment officer at Saxo Bank.

The yen eased 0.39% to 110.185, giving back some of its gains against the greenback from Thursday, when it had its biggest daily rise since November.

The Canadian dollar strengthened 0.61% against the U.S. dollar to $1.2453 as oil prices rose and data showed Canada added more jobs than expected in June as public health restrictions were eased in several regions of the country.

Elsewhere, the People’s Bank of China said it would cut the reserve requirement ratio (RRR) – the percentage of deposits lenders must hold on to – for all banks by 50 basis points, effective from July 15, helping spur the move back into riskier assets.

“We’re probably going to see some further momentum from this RRR cut and I think we’ll probably see some follow-through once Asia opens on Sunday,” said OANDA’s Moya.

Looking forward, U.S. retail sales numbers for June are also due next week, along with U.S. bank earnings.

Adding to the busy week ahead, U.S. Federal Reserve Chair Jerome Powell is scheduled to appear before Congress, and rate decisions by central banks in Japan, Canada and New Zealand are on tap.

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

(Reporting by John McCrank; Editing by Andrew Heavens and Alex Richardson)

 

Dollar Falls From Three-Month High as Traders Unwind Risk

The greenback was weaker against the euro, the Japanese yen and the Swiss franc, which are generally low-interest rate, stable markets that traders short, using the proceeds to buy riskier assets, said Marvin Loh, senior global markets strategist at State Street.

But with bond yields rising and equity markets tanking, riskier positions in currency markets were sold off, benefiting the euro, as well as the yen and the franc, which are also considered safe-haven currencies.

“When you have this kind of unwind going on, you’ve got strength in those currencies,” said Loh.

The euro held on to earlier gains after the European Central Bank set a new inflation target and claimed a role in fighting climate change after a strategy review, with the single currency last up 0.39% against the dollar, at 1.18365.

The dollar was 0.71% weaker against the yen at 109.825, with the yen having earlier touched 109.535, its strongest since June 11, while the Swiss franc touched 0.9134 versus the greenback, its firmest since June 17.

The dollar index, which measures the greenback against six rivals, was down 0.297% at 92.493 from Wednesday, when it reached 92.844 for the first time since April 5.

The global spread of COVID variants has added to fears that there could be some disappointment in terms of economic growth in the coming months, said Mazen Issa, senior FX strategist at TD Securities.

“While we are cautious in interpreting price action at a time of the year when liquidity is not as plentiful, we think markets are contemplating a potential growth scare as the Delta variant spreads and infections rise,” he said.

Riskier currencies, like the Australian and New Zealand dollars, tumbled, with the Aussie down 0.78% at $0.7426, touching its weakest level since mid-December, and the Kiwi dropping 1.08% to $0.6943.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose unexpectedly last week, an indication that the labor market recovery from the COVID-19 pandemic continues to be choppy.

“It’s an indication that if these numbers continue not to be anything stellar, or that we’re not moving towards full employment, that leaves the Fed room to just take it easy and not necessarily think about a tapering timeline,” Juan Perez, senior currency trader at Tempus Inc, said of the data.

Minutes of the U.S. Federal Reserve’s June policy meeting released on Wednesday showed that while the economic recovery “was generally seen as not having yet been met,” Fed officials agreed they should be poised to act if inflation or other risks materialized.

A Reuters poll expects the Fed to announce a strategy in August or September for tapering its asset purchases. While most predict the first cut to its bond-buying program will begin early next year, about a third of respondents forecast it will happen in the final quarter of this year.

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

(Reporting by John McCrank; additional reporting by Saikat Chatterjee; Editing by Kirsten Donovan, Lisa Shumaker and Sonya Hepinstall)

Vol Picks Up Heading Into Summer

Yields collapsing

The real action is taking place in the bond market where recent moves have been pretty extraordinary even by the standards of the recent past. The benchmark US 10-year treasury note yielded 1.25% on Thursday morning, plunging 20 basis points in three days. This “flattening” of the yield curve, where short term rates fall faster than interest rates further out, has dominated bond markets since the US payrolls numbers last Friday. 

The reflation tale has lost momentum in double-quick time with position adjustments being pared back at the worst of times – that is, when macro expectations are being reined in and when market liquidity is drying up ahead of the summer.  Essentially, we are seeing a recalibration of inflation expectations in the wake of the supposed Fed’s hawkish pivot at its June meeting. 

Risky currencies hammered

With concerns over the major increase in infection cases in the Delta variant, this general environment is helping safe haven JPY and CHF while the mighty dollar is taking a breather, having recently made fresh three-month highs.  The yen is on track to post one of its biggest daily increases this year as investors dump risky positions in currency markets. 

The rollback in the reflation trade is bad news for commodity-dollar currencies with AUD hitting levels last seen in early December. The Australian dollar is widely viewed as a proxy for risk appetite and has also not been helped by RBA Governor Lowe reiterating that inflation may only rise when the unemployment rate falls further and holds in the low 4% area, an outcome not expected until 2024. Of course, this comes after the bank took its first step towards QE tapering by announcing a smaller, third round of bond buying. 

OPEC+ disarray

Added to this summer cocktail for commodity currencies is an oil market which has dropped over 7% in the last few days, since the OPEC+ meeting failed to agree on production output levels for the next few months. With the rapid rising virus count in numerous countries around the world, an extended period without a deal could spur an increased amount of noncompliance. The early summer months are certainly alive with action in both financial markets and in several sporting arenas.

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U.S Dollar Bulls Take Charge on Impressive U.S Private Payrolls Report

The greenback rebounded strongly at America’s trading session, heading for its biggest monthly jump since November 2016 by an impressive U.S private payrolls report and a hawkish shift by the U.S. Federal Reserve’s rates outlook at a meeting held early in June.

DXY bulls are also increasingly gathering momentum amid growing concerns over the spread of the Delta virus variant.

The greenback has already posted gains of about 3% in June against a basket of major currencies that include the Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish krona, and Swiss franc partly in the wake of a hawkish U.S Federal Reserve Bank

All eyes are now on Friday’s U.S. Nonfarm Payrolls report for an affirmation of a shift in America’s monetary policy.

Recent macros show U.S. private payrolls surged by more than expected this month by 692,000 jobs.

Though DXY bulls gains got capped around the 92.433 index points on the account that U.S private farm payrolls for the month of May was earlier revised lower to reveal 886,000 jobs added instead of the previously reported 978,000.

Still, some market pundits had earlier predicted private payrolls would rise by 600,000 jobs, further giving DXY bulls enough gas to break temporarily above 92.4 index points.

Consequently, present chart patterns show the greenback continues to consolidate its post-FOMC gains, with the rampaging COVID-19 mutants providing some safe-haven support.

DXY bulls are also riding the price wagon high after recent fundamentals showed U.S. consumer confidence increased this month to its highest level since the pandemic started over a year ago. Such narrative lifted market sentiments on the safe haven currency positively amid expectations for stronger economic growth in the mid-term.

Though some technical indicators pre-empt currency markets might be quite choppy in the coming days amid this month and quarter-end rebalancing flows.

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

Dollar Hovers Below Two-Month Highs Ahead of U.S. Payrolls Report

The dollar index, which tracks the greenback against a basket of six major currencies, added 0.1% to 91.966 in Asia, slowly closing the gap to the high of 92.408 reached on June 18 after the Federal Open Market Committee shocked markets by predicting two interest rate hikes by end-2023.

The Fed commentary since then has put the focus on the data to determine when a tapering of asset purchases and higher rates would be appropriate, with Chair Jerome Powell saying a weak ago that policymakers would not act on just the “fear” of inflation, and will encourage a “broad and inclusive” job market recovery.

The U.S. Labor Department is expected to report a gain of 690,000 jobs in June, compared with 559,000 in May, and an unemployment rate of 5.7% versus 5.8% in the previous month, according to a Reuters poll of economists.

Investors are also looking at U.S. consumer confidence data on Tuesday and the Institute for Supply Management’s manufacturing index on Thursday for clues as to where interest rates are headed.

“Is it indeed that the dollar has bottomed and can only get stronger from here, or is it just a short-term positioning adustment? We’ve been arguing it’s more a function of the latter,” Paul Mackel, HSBC’s global head of foreign-exchange research, said in a conference call with journalists.

With countries reopening from the coronavirus pandemic, the dollar should weaken toward the end of this year, he said.

“That’s typically what happens when you have this synchronized global growth backdrop.”

The dollar weakened 0.06% to 110.545 yen, staying below a nearly 13-month high of 111.110 reached last week.

Both the dollar and yen benefited from some safe-haven demand as the more contagious Delta COVID-19 strain spread in Asia and elsewhere, stoking fears of further lockdowns.

The euro declined 0.07% to $1.19145, edging back toward the 2-1/2-month low of $1.8470 touched on June 18.

“The market had been positioned long of the single currency on optimism regarding the vaccine catch-up trade in the region (but) forecasts that the Delta variant of COVID could spread through Europe (in) the summer months could now be undermining confidence in this trade,” Rabobank strategist Jane Foley wrote in a report, cutting a one-month euro forecast to $1.19 from $1.20.

“Assuming the U.S. data remains broadly supportive, we expect the USD to grind moderately higher vs. the EUR though the course of the year.”

Elsewhere, sterling slipped back toward a two-month low, weakening 0.06% to $1.38695.

The Australian dollar, seen as a liquid proxy for risk appetite, fell 0.09% to $0.75580 after sliding 0.31% at the start of the week amid concerns over renewed COVID-19 lockdowns across parts of the country.

The kiwi dollar dropped 0.19% to $0.70280, adding to its 0.40% slide on Monday. Previously it enjoyed a five-day winning run after rebounding from the lowest level since November.

“We expect the RBNZ to start tightening monetary policy more than one year before the FOMC, which is a tailwind for the NZD,” CBA analyst Kim Mundy wrote in a client note.

“The RBNZ is the most hawkish central bank under our coverage.”

========================================================

Currency bid prices at 0532 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.1918 $1.1923 -0.04% -2.46% +1.1930 +1.1908

 

Dollar/Yen

110.5300 110.5500 +0.03% +7.06% +110.6300 +110.4700

 

Euro/Yen

131.72 131.90 -0.14% +3.78% +131.9400 +131.5900

 

Dollar/Swiss

0.9198 0.9200 +0.04% +4.02% +0.9207 +0.9196

 

Sterling/Dollar

1.3874 1.3880 -0.06% +1.53% +1.3882 +1.3859

 

Dollar/Canadian

1.2336 1.2342 -0.02% -3.09% +1.2348 +1.2333

 

Aussie/Dollar

0.7560 0.7565 -0.07% -1.72% +0.7570 +0.7550

 

NZ

Dollar/Dollar 0.7032 0.7042 -0.19% -2.12% +0.7051 +0.7023

 

 

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

 

(Reporting by Kevin Buckland; Editing by Shri Navaratnam and Himani Sarkar)

Cash Loses Its Shine in Pandemic but Still King in Switzerland

By John Revill

Around 43% of one-off payments in supermarkets and restaurants are made with cash, the most popular payment instrument, the survey said.

But cash has lost some of its appeal, with the figure dropping from the 70% level in the last SNB survey in 2017.

“In terms of the number of payments made, cash continues to be the payment instrument most frequently used by the Swiss population,” SNB Vice Chairman Fritz Zurbruegg said.

“Compared with 2017… its usage share has dropped significantly. The coronavirus pandemic has given additional impetus to this shift from cash to non-cash payment methods.”

Now a third of payments are made via debit cards, up from 22% four years ago, while credit cards are also becoming increasingly popular. Both are benefiting from the rising use of contactless payments.

Mobile payment apps like Twint and Paypal now make up 5% of transactions in Switzerland, up from almost none in 2017.

“Non-cash payment methods have…come to be considered, at least in part, as easier to use than cash,” said the study, which was carried out between August and November 2020.

Increased online shopping has boosted the popularity of cards and apps during the pandemic, as has the tendency to buy more at supermarkets during lockdowns.

While Swiss may be gradually falling out of love with using cash, the number of banknotes in circulation is on the rise. This suggests cash is increasingly being used as a store of value, the SNB said.

The report estimated individuals have stashed away cash reserves of around 10 billion francs or 12% of the notes in circulation.

Some 70% of the population keeps cash at home or in a safety deposit box, with most (77%) holding up to 1,000 francs to deal with unforeseen expenses or as a long-term store of value.

The SNB said negative Swiss interest rates were not a factor because most people had not been directly affected by them.

(Reporting by John Revill, editing by John Miller)

Dollar Surges to Two-Month High on Fed Rate-Hike Projection

On Wednesday, Fed officials projected an accelerated timetable for rate increases, began talks on how to end emergency bond-buying, and said the COVID-19 pandemic was no longer a core constraint on U.S. commerce.

A majority of 11 Fed officials penciled in at least two quarter-point rate increases for 2023, adding they would keep policy supportive for now to encourage a labor market recovery.

The dollar index, which tracks the greenback against six major currencies, was up 0.53% at 91.892, its highest since mid April. On Wednesday, the dollar surged nearly 1%, its largest daily percentage gain since March 2020.

“Coming into the Fed meeting we felt there was a risk of a more hawkish outcome which could drive some USD strength if it came to happen,” said Chuck Tomes, associate portfolio manager at Manulife Asset Management in Boston.

“Because of that, we did put some protection on in case of that happening,” he said.

Still, Tomes said he sees the dollar rangebound to weaker over the longer term.

The Fed’s new projection prompted some, including Goldman Sachs and Deutsche Bank, to abandon calls to short the dollar.

“We continue to forecast broad U.S. Dollar weakness, driven by the currency’s high valuation and a broadening global economic recovery,” analysts at Goldman Sachs wrote in a note on Wednesday.

“However, more hawkish Fed expectations and the ongoing tapering debate look likely to be a headwind to Dollar shorts over the near term,” said the analysts, closing their recommendation to go long the euro against the dollar.

The Australian dollar – seen as a proxy for risk appetite – was down 0.72% at 0.75545, its lowest since April 1..

Australia also had upbeat data, with job creation beating expectations in May and unemployment diving to pre-pandemic lows.

The dollar was 0.77% higher against the Norwegian crown after Norway’s central bank kept its key interest rate unchanged as expected, but said an increase was likely in September and steepened its trajectory of subsequent rate rises as the economy recovers from the effects of COVID-19.

The stronger dollar sent sterling below $1.40 to a fresh 5-week low.

Elsewhere, bitcoin was trading at $37,769.48, little changed on the day.

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

(Reporting by Elizabeth Howcroft; editing by John Stonestreet, Robert Birsel, Raissa Kasolowsky and David Gregorio)

 

Analysis: As Fed Wakes Sleeping Dollar, Jolted Bears May Bolster Gains

The dollar was on track for its biggest two-day percentage increase against a basket of major currencies in 15 months on Thursday and stands at its highest level since mid-April, a day after the central bank shifted its first projected rate increase into 2023 in the face of surging inflation.

Betting against the dollar has been a popular trade for months, as the Fed’s insistence that it would maintain its ultra-dovish stance despite rising inflation drove the currency to a near 3-year low earlier this year.

The slightly hawkish shift in Wednesday’s statement appears to be changing that calculus: the prospect of a sooner-than-expected rise in U.S. rates boosts the dollar’s attractiveness to yield-seeking investors over currencies such as the euro and yen. Both Goldman Sachs and Deutsche Bank, for instance, after the Fed meeting recommended investors cut their bets on the euro rising against the buck.

“I think FX markets have finally awoken to the idea of earlier normalization from the Fed,” said Simon Harvey, senior FX market analyst at Monex Europe.

Large bets against the U.S. currency may accelerate the recent move if the threat of more gains pushes investors to reverse their bearish positions. Net bets against the dollar in futures markets stood at nearly $18 billion last week, a three-month high, according to data from the CFTC.

“In the coming weeks and months, the short-dollar thesis that has been so dominant and popular for much of the past year will be severely tested,” said Stephen Jen, portfolio manager at hedge fund Eurizon SLJ.

Momtchil Pojarliev, head of currencies at BNP Asset Management in New York, bought the dollar against the Japanese yen after the Fed meeting.

“The Fed has been patient, but we all know the Fed is going (to turn hawkish) at some point,” he said. “I didn’t think that it was going to be now.”

Because of the dollar’s central position in the global financial system, its fluctuations tend to ripple through a wide range of assets.

A stronger dollar tends to weigh on the balance sheets of U.S. multinationals, making it less favorable for them to change foreign earnings back into their home currency.

A rising greenback could also help tame a blistering rally in commodity prices that has helped boost inflation this year, as many raw materials are priced in dollars and become less affordable to foreign investors when the buck appreciates.

“With our view of rising rates, risky assets and equities will have difficulties,” said Kaspar Hense, a portfolio manager at Bluebay Asset Management, which oversees $60 billion. Hense went short the euro after Wednesday’s Fed meeting.

Some market participants, however, are maintaining their bearish views on the dollar, noting that the Fed’s easy money policies, which include the purchase of $120 billion a month in Treasuries, remain in effect. Other central banks are likely to follow the Fed’s lead in slowly normalizing monetary policy, potentially narrowing the gap in rates between the U.S. and other economies.

Goldman Sachs believes a global recovery will weaken the dollar over the longer term, while a report published by Societe Generale on Thursday showed a year-end price target of $1.27 for the euro, from $1.19 on Thursday.

“Clearly there has been technical, fundamental damage to the bearish dollar story, but I would like to see how the dust settles before determining if the dollar bear story is behind us,” said Paresh Upadhyaya, director of currency strategy and portfolio manager for Amundi Pioneer Asset Management.

“Now a lot of it is going to hinge on… what do other G10 and emerging market central banks do in response.”

Upadhyaya reduced his short dollar position heading into the Fed meeting but believes the currency will eventually head lower. Harvey, of Monex Europe, wants to see whether the next few weeks’ data will bolster the case for a stronger-than- expected recovery.

Others, however, think there could be room for more dollar gains.

Shorting the dollar “has been a popular trade for both discretionary and systematic managers,” said David Gorton, chief investment officer at hedge fund DG Partners. The “hawkish surprise from the Fed has perhaps exposed just how extended some of those short positions were.”

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

(Reporting by Saqib Iqbal Ahmed in New York and Saikat Chatterjee in London; Additional reporting by Maiya Keidan and Gertrude Chavez-Dreyfuss; Editing by Ira Iosebashvili and Dan Grebler)

 

FOMC Maintains Stimulus, Brings Rate Hike Forecast Forward to 2023

New projections saw a majority of 11 Fed officials pencil in at least two quarter-point interest rate increases for 2023, even as officials in a statement after their two-day policy meeting pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

The Fed also made technical adjustments to prevent its benchmark interest rates from falling too low. It raised the interest rate it pays banks on reserves – the IOER – held at the U.S. central bank by five basis points, and also lifted to 0.05% from zero the rate it pays on overnight reverse repurchase agreements, used to set a floor on short-term interest rates.

In a question and answer period after the statement, Chairman Jerome Powell said the Fed will provide advanced notice before changing asset purchases and that considering tapering of these purchases at coming meetings would be appropriate, if progress allows.

MARKET REACTION

STOCKS: The S&P 500 extended losses to -0.83%%

BONDS: The 10-year U.S. Treasury note yield jumped to 1.5720% and the 2-year yield rose to 0.1991%

FOREX: The dollar index turned higher. It was last up 0.72%

COMMENTS

PETER TUZ, PRESIDENT, CHASE INVESTMENT COUNSEL, CHARLOTTESVILLE, VIRGINIA

“I’m not too surprised by the statement or the reaction. You would have had to have your head pretty buried in the sand not to pick up on inflation rising in many parts of the U.S. economy. So the Fed acknowledged that. The market’s reaction to the Fed acknowledging rising inflation is also not a surprise because now people are wondering if and when are you going to do something.”

STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST, MIZUHO SECURITIES USA LLC, NEW YORK

“The policy statement is verbatim from what we had last time, essentially. And that is going to drive the post-meeting press conference, which is going to drive home the point that this Fed is going to stay the course, which is not what the market wanted. A lot of people wanted the Fed to say something more aggressive and the Fed took the least aggressive tact that they could. That’s the right decision for them to make.

“If the Fed had told you that they’re going to be aggressive and start tapering, yields would have continued to move down. The fact that they’re not doing that means that yields, people were a little bit too aggressive in terms of what was going to happen.

GENNADIY GOLDBERG, INTEREST RATE STRATEGIST, TD SECURITIES, NEW YORK

“The market reacted quite hawkishly and I think that was largely to the 2023 dot actually moving up even more than we had anticipated. We had expected it to move to one hike, it actually moved to two, so certainly a bit more optimism there. The statement was a little bit more upbeat but I would say there weren’t that many changes there that warranted this kind of reaction. So really the crux of the reaction really came down to the dot.”

“On the front-end it does look like the Fed just decided to move preemptively. They effectively raised IOER and RRP and that should help support the money market complex and just prevent any further flirtation with negative rates, at least for now. I think everyone was basically anticipating this hike at some point, the move today was basically done just to be preemptive.”

JASON WARE, CHIEF INVESTMENT OFFICER & CHIEF ECONOMIST, ALBION FINANCIAL GROUP, SALT LAKE CITY

“I think the market is taking it as a bit more hawkish in the initial reaction. In the coming days we will see what investors truly think. The reason traders are a bit skittish is that in some ways the results of the meeting, at least so far in the statement and the pulling forward of the timeline of the first rate hike, just that change is enough to make those that are ultra-short-term-focused re-position. But for longer-term investors, it is still extremely loose financial conditions and ultra-accommodative for equity investors.

“Another element is they increased their headline inflation expectations which demonstrates they are paying attention to the latest CPI reports. They brought that up. That’s a good thing. That helps underscore and solidify the Fed’s credibility.”

“I think there were an increasing number of market participants that expected a more robust conversation about when tapering might begin. Our expectation is we will probably see the stage being set for tapering in August at Jackson Hole.”

STEPHEN MASSOCCA, SENIOR VICE PRESIDENT, WEDBUSH SECURITIES, SAN FRANCISCO

“Basically they are living off this theory that all these inflationary numbers are the result of a disorganized economy exiting Covid and that once the economy reorganizes price pressure will return and inflation will vanish, that is the argument they are making. I actually kind of think it is a good one. Before they react I think waiting for a few months is prudent and I think the market understands that.

“The one guy remaining in power, Powell, knows what he is doing. And if you scream PPI, look at that number, it is just because the economy is so disorganized now coming out of Covid that once it organizes that will be a mirage that goes away. It really does make a lot of sense. If it doesn’t happen that is going to be a real problem for the market. But right now that argument makes sense and everybody is buying it.”

GUY LEBAS, CHIEF FIXED INCOME STRATEGIST, JANNEY MONTGOMERY SCOTT, PHILADELPHIA

“The IOER hike is really about relieving some of the strains in the front-end of the curve related to a tsunami of cash in the financial system. Banks are overreserved, money market funds are finding it hard to get positive yield anywhere and so it addresses some of those problems. But it will also have the effect of pulling yields out the curve a little bit higher, probably out to about three years, because the relative value of a two-year or three year note is in part dependent on what a bank can get in overnight rates, which is now somewhat higher.”

“I don’t think that there’s a ton of information at this stage conveyed in the dots because you’re measuring a median forecast at a time when economic variability is massive.  It’s also a conditional forecast and I think the conditions on which the forecast is based are at best volatile and somewhat unlikely.”

KARL SCHAMOTTA, DIRECTOR OF GLOBAL PRODUCT AND MARKET STRATEGY, CAMBRIDGE GLOBAL PAYMENTS, TORONTO

“We may not be seeing a taper tantrum but we are seeing a hissy fit on currency markets. The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections.”

JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET WEALTH ADVISORS

“I think this is pretty close to what the market wanted. The market wanted the Fed to tell investors that there is nothing to see here, keep moving, nothing going on in the economy or inflation, and we’re just going to stay aggressively easy.”

“The Fed is not in complete denial, the way the market would have liked. They do recognize that they will have to respond sometime in the future. But I will call that a tilt – not a change in direction. The Fed is still maintaining its head-in-the-sand policy.”

RYAN DETRICK, SENIOR MARKET STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA

“The market’s a little lower but you see that on Fed days.

“There was a big jump in (the Fed’s) inflation expectations, a point above March projections, and with the likelihood of first rate hike now in 2023, there was a knee jerk reaction and the market is trying to digest it.

“But the market was expecting this. The market is having typical Fed day volatility.

“It’s like you get all worked up and excited when the Fed has an announcement and the market sleeps on it overnight and go the other way the very next day.

“They upped the GDP forecast, we’ve got a stronger economy and stronger inflation. Those shouldn’t be surprises to anyone.”

“The action in the bond market is pretty calm. The stock market is having typically volatile Fed day shake-out but the bond market seems to be taking it in stride, and that’s a key takeaway.

“There’s no sign of tapering, but we’ll see with the Q&A.”

FRANCES DONALD, GLOBAL CHIEF ECONOMIST, MANULIFE INVESTMENT MANAGEMENT, TORONTO

“The dot plot is now showing two rate hikes by 2023. That’s enough of a hawkish surprise for the bond market and its getting all of the attention.”

“What’s interesting here is that the Federal Reserve has increased its estimate of when the first rate hikes will come but not materially changed its 2022 and 2023 projections for growth and inflation. What that tells us is that while the outlook hasn’t dramatically changed it seems that the Fed’s confidence in returning to a normal environment has.”

“There has not been a material change of tone. This statement has only a few adjustments.

“The market is reacting to a few strands of information in the dot plot. Now it will be Powell’s time to try to dissuade the market from reading too much into the dot plot.”

TOM MARTIN, SENIOR PORTFOLIO MANAGER, GLOBALT INVESTMENTS, ATLANTA

“The market wants to see the Fed communicate that it’s going to provide the accommodation that the country will need while being on the lookout for inflation, and to me, what you got with this announcement is what the market wanted.

“On average, the market does want the Fed to be measured, which they absolutely were with this release.

“I don’t see that the movements in the S&P and Nasdaq mean much.”

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

(Compiled by the U.S. Finance & Markets Breaking News team)

 

Dollar Jumps After Fed Pulls Interest Rate Hikes Into 2023

The dollar index, which tracks the greenback against six major currencies, was up 0.63% at 91.103, its highest since May 6.

A majority of 11 Fed officials penciled in at least two quarter-point interest rate increases for 2023, even as officials in their statement pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

The projections showed the outlook for inflation jumping this year, though the price increases were still described as “transitory.” Overall economic growth is expected to hit 7%.

“The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

Against the Japanese yen, the dollar rose 0.39% to 110.49 yen, its highest since April 6.

The dollar, which slumped through much of 2020, staged a rebound earlier this year, but that relief rally appeared to run out of steam through May as investors remained convinced that the Fed will keep interest rates lower for longer as it seeks to support the economy.

While the Fed’s new language does not mean a change in policy is imminent it does provide more support for the greenback, analysts said.

“I think we’re back to talking about a mild rally in the U.S. dollar and the data becoming very important over the summer period prior to Jackson Hole and September’s meeting,” said Simon Harvey, senior FX market analyst at Monex Europe.

Risk-sensitive currencies logged a sharp reversal following the Fed announcement, with the New Zealand dollar down 0.98% at $0.7049 and the Australian dollar – which is seen as a proxy for risk appetite – up 0.95% at $0.7612.

Sterling, which had strengthened against the dollar on Wednesday after data showed British inflation unexpectedly jumped above the Bank of England’s 2% target in May, gave up those gains to trade down 0.49%.

Meanwhile, bitcoin’s recent rally appeared to run out of steam, as the world’s largest cryptocurrency fell 4.34% to $38,430.03.

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

(Reporting by Saqib Iqbal Ahmed in New York and Elizabeth Howcroft in London; Editing by Alison Williams, Will Dunham and Alex Richardson)

Stocks Continue Higher Amid Rising Prices

Asian markets are mixed and European bourses have opened up in similar fashion. That said, global equity indices are still sitting near to record / cycle highs as the Fed’s patient message continues to mean the stimulus punchbowl are still being passed around.

We had another reminder this morning about rising price pressures with China’s producer prices increasing at their fastest pace in 13 years. Soaring commodity prices as well as a low base effect after being in negative territory for most of last year has seen the index jump in recent months. This will add to global inflationary pressures and perhaps more action from the Chinese government economic planning agency who last month warned of “excessive speculation” in commodity markets and a crack down on monopolies.

Majors rangebound

Expect more quiet trade in dollar crosses today ahead of the US CPI data and ECB meeting tomorrow. Sterling is trapped in a 1.41-1.42 range with the reopening delay not unduly worrying markets that much. June 21 has been in the minds of many in the UK, but a postponement of a couple of weeks is being signalled by the government.

gbpusddaily_810

The swissie has been attracting buyers this week ahead of the ECB meeting tomorrow with USD/CHF back into its descending channel after venturing north last week above 0.9050. Bear will target the cycle low at 0.8930 unless the US inflation data prints to the topside of estimates.

Bank of Canada to stand pat

After shifting to a hawkish bias at its last meeting in April with the signalling of a rate rise in late 2022 and a second taper of its QE program, the leading hawkish central bank of the moment is set to wait for more post-lockdown data before continuing on its merry way to policy normalisation. A positive tone is expected from the Bank of Canada with an impressive vaccine rollout and strong CPI figures offset by two months of disappointing jobs data.

USD/CAD continues to consolidate above long-term support around 1.20. Any rebounds have been lacking in momentum with prices only moving above 1.22 on one occasion since mid-May. A downside break needs to develop sooner rather than later though as otherwise a deeper retracement may come into play.


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Dollar Slides to Multi-Month Lows as Fed Rate Hike Fears Fade

By Stephen Culp

U.S. Treasury yields stalled as market participants grew increasingly confident that the Federal Reserve will hold off on hiking interest rates for the time being, despite worrisome near-term inflation spikes.

“We’re seeing this dollar weakness against numerous pairs and the market is starting to believe the Fed that we’re going to have low interest rates a lot longer,” said Edward Moya, senior market analyst at OANDA in New York.

“That’s going to be bearish for the dollar. You’ll eventually see commodity-based currencies outperforming,” Moya added.

A spate of Fed policymakers are expected to speak this week and the U.S. central bank is due to release the minutes from its April policy meeting on Wednesday, which will be parsed for any signs of a shift in its economic outlook and monetary policy.

“Normally everyone gets excited for the Fed minutes, but these minutes are old,” Moya said. “We had a disappointing payrolls report and very hot CPI and PPI that happened after the meeting, most are focused on the raft of (Fed) speakers.”

The dollar index was last down 0.41% at 89.799.

The progress of COVID-19 vaccine deployment and easing of measures to contain the pandemic has lifted higher-risk currencies that stand to benefit most from economic revival.

For an interactive graphic on worldwide vaccine rollout and access, click here https://graphics.reuters.com/world-coronavirus-tracker-and-maps/vaccination-rollout-and-access.

The euro gained 0.51% to $1.2214, passing its highest level since Feb. 25, and the dollar fell 0.24% to 108.935 Japanese yen.

The British pound, buoyed by the lifting of COVID-19 restrictions, rose past the $1.42 level for the first time since Feb. 24. [GBP/]

“What really has helped the pound is reopening momentum and willingness to become vaccinated,” Moya said. “It’s suggesting (the UK) recovery is going to stick. They’re finally getting on the other side of Brexit.”

Rising oil prices supported the Norwegian crown and helped boost the Canadian dollar to a six-year high. [O/R]

Bitcoin edged higher but remained near the three-month low it hit after Tesla Inc boss Elon Musk dampened enthusiasm for the cryptocurrency over the weekend.

Rival digital currency ether jumped 3.62% to $3,404.

========================================================

Currency bid prices at 9:47AM (1347 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

89.7990 90.1840 -0.41% -0.202% +90.2040 +89.6890

Euro/Dollar

$1.2214 $1.2152 +0.51% -0.03% +$1.2234 +$1.2153

Dollar/Yen

108.9350 109.1750 -0.24% +5.44% +109.2750 +108.8550

Euro/Yen

133.04 132.73 +0.23% +4.83% +133.1600 +132.7000

Dollar/Swiss

0.8969 0.9033 -0.70% +1.38% +0.9035 +0.8961

Sterling/Dollar

$1.4199 $1.4139 +0.43% +3.94% +$1.4220 +$1.4135

Dollar/Canadian

1.2043 1.2068 -0.19% -5.41% +1.2071 +1.2014

Aussie/Dollar

$0.7795 $0.7770 +0.31% +1.31% +$0.7813 +$0.7765

Euro/Swiss

1.0952 1.0974 -0.20% +1.34% +1.0982 +1.0954

Euro/Sterling

0.8600 0.8593 +0.08% -3.77% +0.8609 +0.8582

NZ

Dollar/Dollar $0.7253 $0.7216 +0.51% +1.00% +$0.7271 +$0.7211

Dollar/Norway

8.1985 8.2570 -0.73% -4.55% +8.2580 +8.1795

Euro/Norway

10.0120 10.0345 -0.22% -4.35% +10.0530 +10.0019

Dollar/Sweden

8.2855 8.3285 -0.01% +1.09% +8.3434 +8.2750

Euro/Sweden

10.1219 10.1225 -0.01% +0.45% +10.1486 +10.1170

(Reporting by Stephen Culp; Additional reporting by Ritvik Carvalho; Editing by Paul Simao)

US Dollar Index Spikes Higher as Major Currencies Give Back Weekly Gains

The U.S. Dollar closed higher last week with all of its gains coming on Friday. The headlines said the rally was fueled by month-end profit-taking, but Treasury yields edged higher for the week and most of the U.S. economic reports beat the forecasts so there may be more to the move than end-of-the-month position-squaring.

The Fed was dovish as expected but this wasn’t news since Fed Chairman Powell and his policymaking colleagues have been telegraphing this for months. Nonetheless, the headliner writers blamed central bank policy for the weakness ahead of Friday.

Last week, the June U.S. Dollar Index settled at 91.270, up 0.431 or +0.47%.

Dollar Index Component Breakdown

Breaking down the week into the Dollar Index’s main components the Euro lost 0.63%, the British Pound fell 0.51% and the Japanese Yen closed 1.35% lower. The Canadian Dollar rose 1.46% and the Swiss Franc was up 0.07%.

The Australian and New Zealand Dollars were down 0.49% and 0.47% for the week, respectively. However, the commodity-linked currencies aren’t a component of the dollar index.

The Euro fell sharply on Friday, erasing all of its weekly gains just one day after reaching its highest level since February 26.

Reuters reported on Friday that the Euro Zone economy dipped into a second technical recession after a smaller than expected contraction in the first quarter, but is now firmly set for a recovery as pandemic curbs are lifted amid accelerating vaccination campaigns, economists said.

The British Pound also wiped out its weekly gains on Friday as investors dumped the Sterling ahead of next week’s Bank of England policy meeting. Few analysts expect major changes to the Bank of England’s policy settings next Thursday, although some see the central bank slowing its bond-buying.

The Japanese Yen was weak against the U.S. Dollar all week as rising Treasury yields helped widen the spread over Japanese Government bond yields, making the U.S. Dollar a more attractive asset.

The Canadian Dollar rose against the greenback in a move that was sparked on Wednesday as investors cheered domestic retail sales data and the Federal Reserve stuck to its dovish stance, trailing the Bank of Canada on moves to reduce emergency support for the economy.

The Fed held interest rates and its monthly bond-buying program steady, nodding to the U.S. economy’s growing strength but giving no sign it was ready to reduce its support for the recovery.

In contrast, the Bank of Canada signaled the prior week it could start hiking rates from their record lows in late 2022 and cut the pace of its bond purchases.

Essentially, Canadian Government bond yields rose faster than U.S. Government bond yields, making the Canadian Dollar a more attractive asset.

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

Gold Climbs Higher After Extremely Handsome Price Action Setup

Gold is marching higher after one of the most handsome price action setups ever.

Silver also joins the bullish party and denies the Head and Shoulders pattern.

The EURUSD climbed higher after the Inverted Head and Shoulders bounced from the 38,2% Fibonacci.

The USDCHF is in a correction mode aiming for the crucial support of 0.93.

The EURPLN dropped lower after a false bullish breakout from the ascending triangle.

The USDCAD is very close to ending a long-term bearish trend.

The GBPCHF is seeing a very sweet drop, which has a great chance to be one of the best trades in terms of risk to reward ratio.

The NZDCHF fell after the price ended a flag pattern with a head and shoulders pattern. A test of the up trendline seems imminent.

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

Weaker Dollar helps Gold to Stay Above Crucial Support

Gold is testing the ultimate long-term support again. This time, we do have a chance for a double bottom formation.

Silver is in a slightly worse situation as we are still quite far from crucial supports and a lot can happen in the meantime.

Indices are climbing higher like there is no tomorrow.

The EURUSD with a bounce from the 38,2% Fibonacci. That can be the end of USD strength.

THE USDCHF is possibly starting a bearish correction as the price is currently drawing the shooting star on a daily chart.

The GBPUSD is reversing, which is denying a quite sweet sell signal from yesterday.

The NZDCAD breaks the lower line of the flag and aims lower.

The EURPLN stays above the upper line of the triangle proving that this pattern is super effective.

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

This Is What It Looks Like When The Dollar Goes From Bearish To Bullish

In December of 2016, the dollar index rose to a high just above 103. Of course, the dollar index is literally a measurement of the United States dollar relative to six other currencies, which include the euro (57.6%), the Japanese yen (13.6%), the British pound (11.9%), the Canadian dollar (9.1%), the Swedish Krona (4.2%) and the Swiss franc (3.6%).

chart 1 dollar daily line chart

As you can see in chart 1, a line chart of the dollar index from December 2016 to current pricing, after reaching a high in December of 103, the dollar index fell to just above 88 in January, mid-February, and March 2018. The three lines represented in red magenta and green represent simple moving averages with the 50-day moving average, as the short-term green line, the 100-day moving average drawn in magenta, and the long-term 200-day moving average in red. From its fall from 103 to 88, you can see these three moving averages, for the most part, in full bearish alignment. This occurs when the order of the averages puts the 200-day as the highest value, followed by the 100-day in the middle and finally the 50-DMA as the lowest value.

After hitting the lows in March and April 2018, the dollar index began a slow and methodical climb to a higher value, and you can see the relative points between April and July 2018 when the moving average has moved into full bullish alignment. The exact opposite of bearish alignment, you have the 200-day moving average on the bottom, followed by the 100-day moving average in the middle, and finally the 50-day moving average on top. Although there are points in which the 50-day moving average crosses below and then back above the 100-day moving average, for the most part, they stayed in bullish alignment up until May 2020. By July of last year, the three moving averages moved back into full bearish alignment and maintained their respective positions up until this last week.

chart 2 dollar index current

Chart 2 is an enlargement showing the most current data. At the beginning of this year, the dollar index had still been spiraling lower until reaching a low of 89.42 in January and then moving higher to its current pricing of 92.73. That means that the dollar index gained over 3% in value in the first quarter of this year. More so, for the first time since June 2020, it appears as though the shortest-term moving average (50-day) is about to cross above the 100-day moving average. On a technical basis, this would be the first strong signal that the prevalent bearish market sentiment that has existed since March 2020 has subsided and could be signaling a shift in market sentiment from bearish to bullish.

chart 3a gold and the dollar

The obvious reason this is so important to market participants involved in gold is that the precious yellow metal is paired against the dollar, which means that there are two major factors changing the daily price of gold. The first, of course, is market sentiment, whether market participants are actively buying or selling. The second is dollar weakness or strength. Chart 3 is a line chart with gold (gold) overlaid against the U.S. dollar (green). It is clearly visible that since the beginning of 2021, we have seen dollar strength and concurrently weakness in gold pricing.

Whether or not this trend will remain will be dependent on the timeline for the United States to have an economic recovery taking it from the recession caused by the pandemic in March of last year to the strong economy that occurred prior to the pandemic.

The answer to the question posed above not as easy to answer as one might think. While it is clear that we have made incredible headway from the worst of the recession, many unknowns still exist as to how long it will take for the United States to make a full economic recovery.

For more information on our service, simply use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

Inverse Head and Shoulders Everywhere Saving the Bulls from Losses

Silver defends crucial horizontal support with a hammer and possibly, inverse head and shoulders pattern.

Brent Oil also tries to create the iH&S formation. Buy signal after the breakout of the neckline.

Dow with V-shape reversal and the bullish breakout of the upper line of the flag. That is bullish.

DAX with a very similar situation. All-time highs are very close.

The USDCHF continues the surge after a beautiful iH&S pattern.

The GBPUSD is testing crucial resistance. A bounce would bring us a very strong sell signal.

The EURPLN is breaking a very strong horizontal resistance. That can be very bullish.

The NZDCHF bounces off a crucial horizontal support with an Inverse Head and Shoulders pattern. Price action at its finest!

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

USD Flexes Muscles Again

Gold although after a bullish bounce, is still struggling to increase the bullish momentum.

Silver is aiming to test the ultimate support at 24,8.

Brent Oil is in a possible false bearish breakout.

The DOW is moving higher after a breakout of the upper line of the wedge pattern.

The DAX is still above the major support level of 14550.

The EURUSD fell after a definite breakout at the 1.1960 resistance level.

The USDCHF is aiming higher after the price broke the 28,2% Fibonacci.

The GBPUSD fell after major supports surrendered to the bearish invasion.

The EURPLN is in a ascending triangle pattern which is bad news for the PLN.

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