The dollar’s choppiness has been a dominant theme for several weeks now, but as we come to the business end of this week, it could finally make a more decisive move in one or the other direction. The indecisiveness is a reflection of a tired bullish trend: market participants have been piling in on the greenback for several months amid an improving macro picture in the United States and speculation over further rate hikes from the Federal Reserve.
Dollar bulls were absent during Tuesday’s trading session as investors remained on the sidelines ahead of the Federal Reserve’s two-day monetary policy meeting. Markets could offer a muted response to the meeting, especially when considering how there will be no updated economic projections or post-announcement press conference by Federal Reserve Chairman Jerome Powell.
As my colleague Fawad Razaqzada noted on Friday, this week promises to be an interesting one for forex traders, with the Bank of England, Bank of Japan, Federal Reserve all set to meet, in addition to the always-noteworthy monthly Non-Farm Payrolls report on Friday.
The U.S. dollar looks rather fatigued and we think it may be set for a correction of some sort in the coming days. After a three-month rally, the dollar Index is flat so far in July and with just one more day of the month left, we can’t see it staging a late rally now. Undoubtedly, the dollar’s hesitation this month is largely due to profit-taking after it rose sharply in the previous months on the back of stronger macro data, which cemented expectations that there will at least be two more rate hikes from the Federal Reserve before the year is out.
All three of these currency pairs--the euro/U.S. dollar (EUR/USD), Aussie dollar/U.S. dollar (AUD/USD) and the British pound/U.S. dollar (GBP/USD) -- currency look great and are easy to count. Looking first at the GBP/USD, we see a five-wave drop in play down from 1.3213 area which is a trait of a bearish impulse, and which suggest where the intra-day trend can be going.
Market sentiment received a solid boost after US President Donald Trump obtained concessions from the European Union to avert a transatlantic trade war. The United States and Europe have reached a deal to work towards “zero tariffs, barriers and subsidies on non-auto industrial goods” in a bid to defuse escalating trade tensions.
The general theme in our recent posts has been about a possible correction or a retracement of some sort in US dollar. The greenback has indeed stopped going up but it hasn’t exactly sold off. Well, at least not yet anyway.
When it comes to the forex market, the New Zealand dollar punches well above its weight. New Zealand famously has a larger population of sheep than people, and the country’s GDP ranked just 70th among individual countries last year (behind powerhouses such as Greece, Uzbekistan and Ecuador).