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Market Outlook

Can the dollar stage a recovery?

Despite it being a short trading week there was still no lack of updates or movement.

The week began over Merkel losing the backing of her coalition partner FDP reducing her prospects to form the 4th consecutive government in Germany. EURUSD reached a sell-off at 1.1713, to subsequently bounce back to finish the week at 1.1930 over revived optimism on the German political situation. SDP changed stance and agreed to cooperate with Merkel; and the market buoyancy that Merkel will garner if a re-election were to take place boosted EURUSD.

Gold failed to breach the 1296 resistance level and was range-bound. Even a tumbling dollar was of no help.

GBPUSD received major support in the previous week as markets remained hopeful about a “feasible” Brexit deal shortly, although nothing significant was reported. GBPUSD was up 119 pips to close the week at 1.3337. Chancellor Phillip Hammond who presented the budget last week stressed on giving a fillip to the housing industry and declared tax breaks for younger home buyers.

USDJPY faced a sell-off following FOMC minutes and had many members nervous regarding inflation not picking up. US economic figures got mixed reviews but inflation lingered below the Fed’s target of 2.0%. USDJPY ended the week at 111.55 after it had reached a low of 111.06 in the course of the week.

USDCAD shed 52 pips in last week’s trading owing to a feeble dollar and weak retail sales data.

With the German stalemate almost resolved and robust economic growth being reported from around the Euro area, EURUSD should reach 1.2100. The forthcoming week has German and Euro area data releases lined up, with Thursday’s EU CPI being the most eagerly awaited of the lot.

Gold is short of an impetus currently that can pull it out of the range it is caught in. On charts Gold has succeeded in nearing the upside-a temporary wedge formation, but the bulls will have to acquire the $1296 level quickly for the rally to continue.

The coming week will demonstrate what development Trump’s tax reform has made as the Senate chooses its fate. Voting is tight and Trump will have to move cautiously to clinch the deal. It’s even likely that Trump might have to succumb to a few of the demands of the Senate. Tensions refused to end in the Middle East, as Hariri first flew to Paris and then to Lebanon where he condemned Hezbollah and their followers. Saudi crown prince MBS’s policies can lead to any surprise/shock in Middle Eastern politics which might be the impetus the gold bulls are expecting.

GBPUSD is still precarious as the Brexit deal continues to linger on. On charts 1.3340 is important resistance a breach of which will usher in 1.3430. GBP now follows news from Brexit negotiators and continues to be on an unsure footing.

USDJPY took out the 38.2 retracement and 100 & 200dma at 111.70 the previous week, next support would be at 110.35. Japan has several data releases next week, with Friday’s CPI being the most critical. Also, not-to-be-missed would be Thursday’s PCE index from US that should point to which way inflation is veering.

USDCAD would have its sights fixed on Thursday’s OPEC meeting as CAD fortunes rest on crude oil prices. An extension of the production cut deal is the least market expects and if OPEC delivers that then USDCAD should breach the 1.2660 support.