Crude Oil Prices Get Hit to Key Support – More Room to Fall?

Crude Oil Price Talking Points:

  • It was a rough week for oil bulls as the bearish theme took back-over following last week’s fear-driven bid.
  • Oil prices had scaled above resistance last week, but as Tropical Storm Barry was downgraded and fears around supply disruptions in the Gulf of Mexico calmed, sellers re-grabbed control of oil price action and prices have continued to fall throughout this week.
  • DailyFX Forecasts are published on a variety of markets such as Oil, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Technical Forecast for Crude Oil Prices: Bearish

Crude Oil Bears Re-Grab Control

Oil bears got back in the driver’s seat this week, pushing prices below the 60-handle and all the way down for a revisit of 55. While early July had brought a recovery bid, hastened through last week on the prospect of supply disruptions in the Gulf, this week marked a pronounced one-sided move as sellers retained control for much of the period.

Monday’s price action saw the build of a bear flag formation after prices had perched below that key resistance zone that runs from 59.64-60.00. After a quick trip back up to 60 for a resistance check, prices were smashed-lower, breaking below the flag and quickly filling-in both targets looked at in the article, Oil Price Outlook: WTI Crude Oil Price Action Builds Bear Flag.

WTI Crude Oil Hourly Price Chart

WTI Price

Chart prepared by James Stanley

At this point, WTI crude oil price action is testing a big zone of support that contains a number of Fibonacci levels. At 55.57 is the 38.2% retracement of the October-December 2018 sell-off. At 54.49 is the 50% marker of the recovery move from that sell-off, spanning from the December low up to the April high; and in between the two is the psychological level of 55, which appears to be helping to stem the bleeding after a brutal week for oil bulls. Collectively, this zone combined with corresponding price action could allow for a move-higher, but the bigger question is whether that bounce has the prospect to turn into something more? More likely, this would be a more attractive theme for short-side stances, looking for that bounce to create a lower-high from which bearish trend strategies could come back into favor.

WTI Crude Oil Four-Hour Price Chart

WTI Price

Chart prepared by James Stanley

Taking a further step back on the chart, and that zone of prior support from early-July has started to show as resistance potential. Should this current zone of resistance hold through next week’s open, the door could quickly re-open for short-side trend strategies. This would be a rather aggressive area to look for bearish exposure, particularly considering how aggressively that theme has priced-in. A bit-higher is another area of potential interest for lower-high resistance, and this runs around the same 57.50 area that was looked at coming in the month of June for short-side target potential. Since that scenario played out six weeks ago, a number of support/resistance inflections have shown here, and this keeps this area on the chart as a spot of interest.

Below current price action and should this zone of support around 55 give way, the area around the June swing lows appears attractive, and this runs from 50.54-51.64. Along the way, potential support levels around 53.25 and 52.50 could be used as shorter-term profit targets for near-term strategies.

WTI Crude Oil Eight-Hour Price Chart

Crude Oil Price

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Oil or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

GBP/USD & EUR/GBP Price Chart Outlook: Flagging at Confluence

GBP PRICE CHART TECHNICAL OUTLOOK

  • Spot GBPUSD and spot EURGBP threaten to re-test key technical levels of confluence
  • The British Pound could rise if the Sterling can catch bid again after dropping to multi-month lows against the US Dollar and Euro, but overarching GBP weakness remains a risk
  • Download the free Q3 GBP Forecast from DailyFX for comprehensive technical and fundamental insight

The British Pound Sterling (GBP) continues to succumb to Brexit risks and political uncertainty surrounding the UK Prime Minister election. GBP weakness was once again reflected by another week of downside in spot GBPUSD and upside in spot EURGBP. Yet, the prospect of GBPUSD rising off year-to-date lows is still in play from a technical perspective with key support showing signs of helping keep the Sterling bid.

GBPUSD PRICE CHART: WEEKLY TIME FRAME (JULY 10, 2016 TO JULY 19, 2019)

Spot GBPUSD Price Chart Technical Analysis

Taking a look at spot GBPUSD from a broader perspective, we can see that the 1.2600 handle has previously served as a serious level of confluence. While increased selling pressure earlier in the month drove the Pound Sterling below this technical level, which appears to have broken the bullish trend line of its upward climb over the last three years, Fibonacci support near 1.2400 provided by the 76.4% retracement of the forex rate’s 2016 low should not be taken lightly. Also, the noticeably long wicks on the weekly candles might suggest demand for spot GBPUSD at this technical support zone which could imply that a bottom is near.

GBPUSD PRICE CHART: DAILY TIME FRAME (DECEMBER 07, 2018 TO JULY 19, 2019)

Spot GBPUSD Price Chart Technical Analysis

As such, a probable scenario may be for spot GBPUSD to remain rangebound between the 1.2400 and 1.2600 price levels over the next week as the currency pair consolidates before making its next big move. Find out how to use IG Client Sentiment to identify potential range trading opportunities.

Spot GBPUSD near-term selling pressure could be waning as suggested by the RSI “oversold” level of 30 being defended adamantly. That said, the British Pound’s overwhelming downtrend risks pushing spot prices even lower. A drop below the 1.2400 price level, if held, could put spot GBPUSD in ‘freefall mode’ and open up the door to 1.2000 – or even parity with the dollar as warned by Sir Richard Branson – if selling is sustained over the longer term. Looking to the upside, however, a push above 1.2600 could see spot GBUPUSD bulls potentially target the 38.2% Fib retracement near 1.2800.

EUR/GBP PRICE CHART: DAILY TIME FRAME (NOVEMBER 18, 2018 TO JULY 19, 2019)

Spot EURGBP Price Chart Technical Analysis

Turning to spot EURGBP, the Pound Sterling is also coming off its weakest level against the Euro in 7-months since skyrocketing above the 0.9000 handle this past week. Although, a hard rejection at 0.9050 seems to solidify the price level as a noteworthy zone of technical resistance which threatens to keep spot EURGBP upside limited.

A retest of this area of confluence could serve constructive before providing spot EURGBP bears with enough conviction to begin reversing the recent uptrend. Although, with the Euro at risk ahead of the July ECB meeting, spot EURGBP bears could be provided with an opportunity to push below Fib support from the 76.4% retracement of the currency pair’s year-to-date trading range.

— Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

Gold Price Weekly Forecast: Fed Drives Next Leg Higher

Gold Price Chart

Gold Price Fundamental Forecast: Bullish

Q3 2019 Gold Forecast and Top Trading Opportunities

Gold Boosted by a Variety of Positive Drivers

I remain bullish for gold in the short-term although current levels need to be consolidated before the next leg higher. The fundamental backdrop for the precious remains positive, with the latest boost coming from dovish commentary from NY Fed vice chair John Williams who said that the central bank should stay ahead of the curve especially if the data shows the economy weakening. While these comments were subsequently said to be from academic research, the fact that a major Fed official voiced them gives a clue into the central bank’s thinking. The next FOMC meeting is at the end of July with a 25-basis point now fully priced-in while market odds of a 50bp cut have risen sharply.

Gold has also been in demand from central banks over the past few weeks, China and Russia in particular, who have been diversifying away from the US dollar and the current trend for central banks to weaken their currency to gain competitiveness. With gold priced in US dollars, any weakness in the currency gives a boost to the price of the precious metal. Large swathes of the global bond market also now reside in negative yield territory, weakening currencies further and making fixed income, a traditional risk-off asset class, unattractive for investors.

In addition, global tensions continue with the US-China trade dispute still unresolved, and with the US now training its sights on the EU, while the US and Iran remain at loggerheads, adding to the global risk-off trade.

Against this backdrop, and with fears that equity valuations are becoming stretched, gold’s safe haven status has become attractive yet again and this will continue to underpin any move higher over the short- to medium-term.

How to Trade Gold: Top Gold Trading Strategies and Tips

Gold Price Daily Chart (October 2018 – July 19, 2019)

GOLD

The IG Client Sentiment Indicator shows traders are 63.4% net-long with the ratio of traders long to short at 1.73 to 1. The number of traders’ net-long is 0.4% higher than yesterday and 1.9% lower from last week, while the number of traders net-short is 4.5% lower than yesterday and 18.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggest Spot Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Spot Gold-bearish contrarian trading bias.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on Gold – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

Australian Dollar: Is This a True Bullish Reversal?

AUDUSD Talking Points:

Technical Forecast for Australian Dollar: Bearish

Assessments are made on markets often through an individual point of reference: S&P 500 for risk; crude oil for commodities; EURUSD for the Dollar. When it comes to the picture forming around the Australian Dollar, there is hardly more prominent a baseline than AUDUSD. And, if we were to take that particular pair’s technical progress as an indication of the Australian currency’s general performance, it would seem that we are currently in the riptide of a significant shift in both activity and direction. Yet, we wouldn’t use this pair to make general judgement call on the US Dollar’s performance moving forward, so why should it qualify more aptly for the Aussie Dollar? Beyond the tempting technical staging of this key major – on the short, medium and long-term perspective – we look at the standing of the Aussie Dollar and Greenback individually to show that the recent break requires significantly more conviction for the bullish trend to catch fire.

Before looking at the undercurrent of the market, first we should appreciate the surface level technical churn that is drawing so much attention for the Australian Dollar. A daily chart of AUDUSD (below) shows the significant confluence of technical measures that we have recently seen come under significant stress – with some of the favorite quantitative elements of the pattern actually breaking. There are a few key technical structures on this chart that would individually carry significant connotation by themselves.

However, in the hierarchy, the inverse head-and-shoulders pattern arguably holds more weight. The ‘neckline’ break just below 0.7050 fits a textbook assumption that a line has been crossed that can sometimes cue one of the market’s favorite scenarios: an early reversal with momentum potential. That said, if we reduce the attention on the H&S pattern, the trendline that shaped 13-months of bear trend was only temporarily surpassed with a close bac below the barrier on Friday. Furthermore, the 200-day moving average at 0.7090 as of Friday never fell. These are good additional milestones to add to conviction, but it can be argued that they are still standing.

Chart of AUDUSD with 100-day and 200-day Moving Averages (Daily)

AUDUSD Price

When we adjust the charts down to the lower time frame, we can see the middle ground for which we are currently standing between early potential and still-pertinent technical boundaries. On the 8-hour chart below, the (inverse) head-and-shoulders structure comes in clearer. We could argue where the break point stood, but generally, the trajectory would keep the cross below 0.7050. In other words, we did have a tentative break Thursday. Yet, that 200-day moving average is still in place (600-bar in this periodicity) and the we haven’t seen the activity of the pair truly change to that of a momentum/trend bound market.

Chart of AUDUSD with 200-Day Moving Average (8-Hour)

AUDUSD Price

On a higher time frame, the potential for a technical structural reversal can be readily assessed. AUDUSD is coming off a range low that could be a double bottom with the reversal back in January 2016 – I would not consider the flash crash at the turn of this year an equivalent technical milestone. This hesitation comes in after a massive, multi-year decline from highs in 2011 equivalent to approximately 38 percent of its altitude lost. We have seen lower levels all the way back to 2009, but most technical charts will count this as a cycle low. This will carry some level of latent bias, but it doesn’t prompt a pressing time frame – meaning: a picture of this time frame can warrant far more time for basing if not properly prompted.

Chart of AUDUSD (Weekly)

AUDUSD Price

When evaluating whether a prominent technical break like AUDUSD’s will transition into a genuine trend, it can be helpful to look at the individual setup for the two participant currencies. From the US Dollar (not shown) there is little pressure on a trade- or equally-weighted index basis to suggest a full reversal is currently in play. This past Thursday’s slump from the Greenback was sharp, but it broke very few systemic technical levels with pairs like EURUSD, USDJPY or GBPUSD. For the Australian Dollar’s part, there is more appeal. An equally-weighted Aussie Dollar index (below) shows a similar inverse head-and-shoulders to AUDUSD’s but the break is noticeably absent. That is potential energy not yet kinetic.

Chart of Equally-Weighted Australian Dollar Index with 200-day and 100-day Mov Avg (Daily)

AUD Price

If we are looking for a market to overcome technical restrictions and general market conditions contrary to significant trends or momentum, it is best to find a source of speculative power that draws from influence that usually align to fundamentals. One particular high-level theme that I will watch is the trade wars influence which is best shown through USDCNH. Below, we have the Dollar-Yuan exchange rate inverted as Australia’s export relationship means a pickup in the Yuan is a boon to the Aussie Dollar.

Chart of AUDUSD with CNHUSD in Red (Daily)

AUDUSD CNHUSD Price

It is a similar consideration for the Australian Dollar to follow trade wars through emerging markets as a whole. However, there is further a caveat through the general state of risk trends, which the EEM ETF is clearly fundamentally bound. AUDJPY is a pair more consistently tied with carry trade which offers a risk perspective from the FX market. Given this relationship, a resurgence of risk appetite is not a true necessity of progress, but it would be very difficult to mount a climb for the Aussie Dollar if this blocked performance. The Aussie Dollar is a ‘carry currency’ versus many crosses and particular AUDJPY, EURAUD and AUDCHF where the counter currency has an extremely low or even negative yield.

Chart of AUDJPY with EEM Emerging Market ETF (Daily)

AUDJPY EEM Price Chart

Since we have already looked at AUDUSD and AUDJPY which are two of the favorite Aussie crosses among FX traders, we should consider another major cross with a significantly different structure: EURAUD. Aside from the fact that the Aussie Dollar is the second in the pair, and thereby the picture is inverted relative to say AUDUSD, we can see that it has less of the head-and-shoulders and looks more range in construction. The pair is at present testing trendline support which stretches back to March 2017 – though the second test in this ray isn’t until December 2018. A break could carry some technical weight, but we would still be in broad range with 1.5700 and 1.5400 significant next stages.

Chart of EURAUD (Daily)

EURAUD Price Chart

Another pair that is further down the liquidity list among the Aussie crosses but gives a significantly different view than the carry-primed interests is AUDCAD. There is an inverse head-and-shoulders pattern here as well and some trend channel resistance immediately above. What is difficult to see in the daily chart is the fact that the trendline support we tested earlier this month stretches back to 2013 and the Fibonacci level (purple) is pulled from the pair’s historical range from 1996’s high to 2008’ low.

Chart of AUDCAD and 50-Day Moving Average (Daily)

AUDCAD Price Chart

Looking to speculative positioning behind the Australian Dollar, it seems those with both long and short time frames are ready for a bigger bullish reversal – though commitment to that happening now is uneven. For those with a longer time-frame perspective, the COT (Commitment of Traders) report shows a slow creep up from its historical low point for extreme net short exposure. The last stretch to this extreme back in the fourth quarter did not prompt the full tilt reversal many likely hoped for. On the shorter time frame, retail FX traders had flipped net short when the AUDUSD trendline came into view, but this past week’s temporary break has tempted some to project a permanent break. That is unusual as retail interests usually follow short-term reversal views which confirms to the broader range.

Chart of Net Speculative Positioning in Aggregate Dollar Futures from CFTC Report (Weekly)

COT Positioning

Chart of Retail Trader Positioning from IG Clients (Daily)

AUDUSD Client Positioning

US Dollar May Gain if IMF Report, US GDP Data Fuels Haven Demand

DXY Price Chart

US DOLLAR FUNDAMENTAL FORECAST: BULLISH

  • US Dollar may gain on risk aversion if US GDP data undershoots forecasts
  • USD spike may be amplified if IMF report shows fragility in global economy
  • Will USD strength from higher liquidity demand crush rate cut expectations?

See our free guide to learn how to use economic news in your trading strategy!

The US Dollar will likely experience higher-than-usual volatility in the week ahead as the IMF prepares to publish its updated outlook for the world economy along with the release of critical US economic data. Depending on the nature of the data, if it falls in line with the fundamental trajectory of slower growth and increased risks to the financial system, the US Dollar may experience capital inflow from panicked investors.

The biggest event risk for the week will likely be the release of US Q2 GDP data. The report is expected to show a quarter-on-quarter annualized growth rate of 1.8 percent which would mark the slowest pace of expansion since Q1 2017. Since February, economic data out of the US has been tending to underperform relative to economists’ expectations. It would not be surprising to see GDP data fall in line with this trend.

Are Economists Overestimating the Strength of the US Economy?

US

Note: Data shown in red indicates underperformance, blue means better-than-expected

US Dollar strength may also emerge from the publication of the IMF’s World Economic Outlook update, the title of which in January was “A Weakening Global Expansion”. Given the trajectory of global growth and tense trade relations in developed and emerging markets, it is likely the updated outlook will carry the same pessimistic undertones outlined in January’s report. Only this time, the gloom and doom may be amplified.

With market participants already expecting slightly lower-than-even oddsof a 50 bp cut at the FOMC meeting in July, it leaves increasingly less room for additional dovish expectations. If GDP data undershoots and the IMF report spooks investors, the US Dollar may rise as traders shift from chasing yields to preserving capital. As such, the downward pressure of Fed rate cut bets may be overwhelmed by the desire for liquidity in uncertain times.

Chart Showing US Dollar Index and Implied Federal Funds Rate for January 2020

EURUSD

US DOLLAR TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

Dow Jones, Nasdaq 100, DAX 30, FTSE 100 Technical Forecast

Dow Jones, Nasdaq 100, DAX 30, FTSE 100 Technical Forecast:

  • The Dow Jones is trading within grasp of all-time highs and nearby support will look to keep it afloat
  • The Nasdaq 100 has a laundry list of earnings to watch next week which could spur volatility and see the tech-heavy Index threaten critical support
  • Interested in equity markets? Sign up for the Weekly Stock Market Outlook Webinar.

Dow Jones, Nasdaq 100, DAX 30, FTSE 100 Technical Forecast

The Dow Jones and Nasdaq 100 will look to ride the wave of volatility brought about by earnings season. Likely to be the dominant theme of the week, earnings can result in significant after-hours price moves which could see the Indices gap through important technical levels or result in another currency flash crash. That said, traders should be wary of daily closes near technical levels because they can be disposed of readily in the lower-volume trading hours.

Dow Jones Technical Forecast

The Dow Jones is within reach of all-time highs around 27,400 but nearby resistance could look to hold the Industrial Average in check. The ascending trendline marked by highs in February and April refuted price early last week but consolidation and an encouraging fundamental backdrop could see the level break upon renewed attempts. Immediate support may be enjoyed at the 27,260 level but its proximity to Friday’s close is concerning. Consequently, potential support at the 26,945 and 26,705 levels should be looked to if the initial zone succumbs to selling pressure.

Dow Jones Price Chart: 4 – Hour Time Frame (February – July) (Chart 1)

Dow Jones Price

Nasdaq 100 Technical Forecast

The tech-heavy Nasdaq will look to a series of tech earnings including key FAANG members. With that in mind, the Index could experience heightened volatility and fluctuate wildly between areas that enjoy technical merit. Topside resistance is sparse, marked by the recent record high at 7,970. Secondary resistance will likely be posed by the 8,000 psychological level.

Nasdaq 100 Price Chart: 4 – Hour Time Frame (May – July) (Chart 2)

Nasdaq Price

On the other hand, the Nasdaq 100 will look for support from an area of confluence around 7,860. Should initial support break, secondary support may reside around the 7,720 level where the 200-day moving average is on the 4-hour chart. Further, the area has proved buoyant in the past – evidenced by price action in early July.

Check out our NEW Q3 Forecasts for equities, Gold, oil and more.

DAX 30 Technical Forecast

After falling out of an ascending channel, the DAX 30 has broken through multiple levels of subsequent support. Now, the Index looks to test a final level of nearby support around 12,200. Should the horizontal support fail, secondary resistance around 12,050 may come into play. After bleeding lower during July, the DAX may look to consolidate around the ascending trendline beneath before resuming its climb higher.

DAX 30 Price Chart: 4 – Hour Time Frame (June – July) (Chart 3)

DAX Price

That said, a rebound will have to wrestle with four areas of resistance – each with varying degrees of influence. The most important is arguably the 200-day moving average on the 4-hour chart followed by horizontal resistance around 12,460. I maintain a bullish bias on the DAX and a test – followed by a subsequent rebuttal – of the ascending trendline beneath could be constructive for the interests of longer-term trend continuation.

FTSE 100 Technical Forecast

The FTSE 100 also looks to threaten a nearby trendline from late 2018. The line has guided the Index higher throughout 2019 and a break beneath could open the door to further losses. To that end, the 200-day moving average will look to work in conjunction with the trend and rebuke a move lower. Should both support levels break, the FTSE could quickly trade down to tertiary support around 7,370.

FTSE 100 Price Chart: 4 – Hour Time Frame (June – July) (Chart 4)

FTSE Price

Resistance is relatively thin, with two potential levels at 7,572 and 7,621 an area marked by recent highs in early July. As the week progresses and price action unfolds, follow @PeterHanksFX on Twitter for technical updates and fundamental analysis.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Will the Stock Market Crash in 2019?

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Crude Oil Prices May Fall Further as Global Growth Outlook Dims

Crude oil price chart

CRUDE OIL PRICE FORECAST: BEARISH

  • Crude oil prices drop most in two months amid oversupply concerns
  • Slowing global growth to weigh on demand as US output stays brisk
  • ECB and IMF guidance, Q2 earnings, US GDP may prolong selloff

Get the latest crude oil forecast to see what will drive prices in the third quarter!

Crude oil prices turned sharply lower last week, suffering the largest drop in two months. Building oversupply concerns appear to be the underlying catalyst for weakness as slowing global growth cools uptake expectations while US output continues to register near record highs.

Short-term volatility aside, this has been a driving narrative for some time. The JPMorgan PMI gauge of global economic activity growth peaked in February 2018 and has trended lower since. Not surprisingly, an IEA measure of worldwide crude demand topped along with prices a mere seven months thereafter.

The recent renewal of an OPEC-led supply cut scheme has not noticeably helped. That is not surprising. Prices were likewise unimpressed when the arrangement was previously refreshed in late 2018 and only began a lasting rebound when growing Fed rate cut speculation buoyed broader risk appetite.

CRUDE OIL PRICES AT RISK AS GLOBAL GROWTH OUTLOOK SOURS FURTHER

The week ahead seemingly offers ample fodder for the selloff to continue. The IMF is likely to downgrade its global economic performance forecasts, an ECB policy announcement is expected to set the stage for easing amid the slowdown, and US GDP growth is seen hitting a three-year low in the second quarter.

A steady stream of high-profile corporate earnings releases might add to downside pressure. Bottom-line results have topped forecasts by an average of nearly 5 percent thus far in the second-quarter reporting season, with close to 15 percent of the bellwether S&P 500 in the rearview.

Markets have been more taken with decidedly downbeat forward guidance however. Some of the world’s top firms have warned that the latent effects of past Fed tightening, ongoing trade wars and geopolitical jitters like US-Iran saber-rattling and Brexit uncertainty will translate into business cycle downturn.

— Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

CRUDE OIL TRADING RESOURCES

OTHER FUNDAMENTAL FORECASTS:

Australian Dollar Gains Should Hold as Markets Still Think Fed Will Cut

Euro Price Chart: EUR/USD Holding Multi-year Trend Support

Euro Price Chart: EUR/USD Holding Multi-year Trend Support

Euro is down more than 0.4% this week with price now testing multi-year slope support late in the month. These are the updated targets and invalidation levels that matter on the EUR/USD weekly price chart. Review my latestWeekly Strategy Webinar for an in-depth breakdown of this gold price setup and more.

New to Forex Trading? Get started with this Free Beginners Guide

Euro Price Chart – EUR/USD Weekly

Euro Price Chart: EUR/USD Holding Multi-year Trend Support

Notes:In my last EUR/USD Price Outlook we highlighted that the Euro rally was, “testing initial resistance targets here around 1.14 and while the broader focus remains higher, the advance is vulnerable near-term heading into the yearly open- Watch the weekly / monthly close. Price closed that week at 1.1368 before turning lower with EUR/USD testing a key slope support for the past three weeks.

Note that Euro has been unable to mark a weekly close below the lower parallel of the broad ascending pitchfork formation we’ve been tracking off the 2015 / 2017 lows – the focus is on a reaction off this threshold with the bears at risk while above the 61.8% retracement at 1.1186. A break / weekly close below would be needed to keep the short-bias viable targeting 1.1107 and former channel resistance, currently around ~1.1050. Resistance steady at 1.1393 with a breach above the yearly open at 1.1445 needed to suggest a larger advance is underway targeting 1.16.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line:Euro has been testing this slope support since mid-April and leaves the immediate short-bias vulnerable. From a trading standpoint, a good place to reduce short-exposure / lower protective stops – watch the weekly closes for guidance. Look for downside exhaustion ahead of 1.1186 IF prices are going to hold this slope with a breach above 1.1445 needed to shift the broader focus higher. I’ll publish an updated Euro Price Outlook once we get further clarity in near-term EUR/USD price action.

Even the most seasoned traders need a reminder every now and then-Avoid these Mistakes in your trading

Euro Trader Sentiment (EUR/USD)

EURUSD Posistioning

  • A summary of IG Client Sentiment shows traders are net-long EUR/USD – the ratio stands at +2.03 (67.0% of traders are long) – bearish reading
  • Traders have remained net-long since July 1st; price has moved 0.7% lower since then
  • Long positions are 3.5% lower than yesterday and 2.0% lower from last week
  • Short positions are 13.9% lower than yesterday and 16.0% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Euro prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in Euro retail positioning are impacting trend- Learn more about sentiment!

Key Eurozone / US Data Releases

Euro Price Chart: EUR/USD Holding Multi-year Trend Support

Economic Calendarlatest economic developments and upcoming event risk. Learn more about how we Trade the News in our Free Guide!

Previous Weekly Technical Charts

Learn how to Trade with Confidence in our Free Trading Guide

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

Expect More Dollar and Dow Volatility on Fed Speculation, Trade Wars, US GDP

Dollar Talking Points:

  • Monetary policy will take on a more significant fundamental roll into the new week with volatile Fed Speculation and the ECB decision
  • Scheduled event risk will place growth as a top theme with global PMIs for July on Wednesday and US 2Q GDP on Friday
  • Trade wars, earnings and geopolitical risks all carry the potetential to strike a nerve and charge volatility

What do the DailyFX Analysts expect from the Dollar, Euro, Equities, Oil and more through the 3Q 2019? Download forecasts for these assets and more with technical and fundamental insight from the DailyFX Trading Guides page.

Monetary Policy May Take Top Spot in Market Volatility

As we look ahead to the upcoming trading week, there is considerable fuel for a range of influential fundamental themes. If we were going by the calendar rather than accounting for headlines, it would look like growth and recession were the top theme for market-moving potential. However, recent developments will definitely change that speculative mix. This past week ended with a remarkable amount of volatility in Fed rate speculation – the largest central bank with the most traditional policy ammunition to enact serious change.

In the second half of the past week, market forecasts of Fed intent took a dramatic swing when New York Fed President John Williams issued comments that were interpreted by a hyper-vigilant market as indication that there may be support in the central bank’s ran for a 50 basis point rate cut come July 31st. Where Fed Fund futures had projected a probability for such a hefty drop at only approximately 20 percent at the start of the week, the chances of a steep cut surged to approximately 70 percent Thursday. The response was so dramatic that a spokesperson looked to clarify that the permanent voter was not advocating for an accelerating easy path. To further throw cold water on dovish speculation, perma-dove James Bullard said he was only advocating for a single 25 bp cut and that this move would not usher in an ‘easing cycle’. Move dovish of all though was Rosengren’s suggestion that he didn’t support a rate hike next this month.

Federal Reserve Rate Expectations from Overnight Swaps (Daily)

Chart of Fed Forecasts

While the Fed’s efforts carry the most weight as the largest player with the most policy room to maneuver, an eye should be kept on other policy efforts. China’s PBOC said at the end of this past week that it would take more efforts to offset financial risks – an effort at putting out fires. Most remarkably moving forward though will be the European Central Bank rate decision. The group is not expected to make any material change – and is unlikely to until the leadership swap from Draghi to Lagarde takes place at the end of October – but forward guidance may be issued nonetheless. If a tip of more government bond purchases is offered, the market will respond in kind. And, while the undertow for the Euro may be strong, make sure to consider the systemic influence in the connection of monetary policy to market stability – particularly what happens if the market starts to worry that central banks have no further recourse to stabilize the financial system.

Chart of Major Central Bank Market Outlook (Daily)

Expect More Dollar and Dow Volatility on Fed Speculation, Trade Wars, US GDP

Growth Concerns Will Find Official (GDP) and Unofficial (Earnings) Update

Another theme of heavy influence over the coming week – and which has a far more delineated release scheduled – is the outlook for economic growth. A global review of economic health is due on Wednesday when the July PMIs are due for release from Australia, Japan, Euro-area and US economies. This is as timely and comprehensive as the statistics come, and the potential is there for significant market response. A broad surprise signaling expansion or significant slowing of growth can translate into a systemic risk view. Short of that, we could also see a spark of momentum for individual currencies depending on what is printed.

A more targeted affair – and one that will act to curb volatility for much of the week – is the official US government 2Q GDP release. With a Friday release, the market will spend most of the week fretting over the eventual release. That can act to curb a speculative run in US capital markets or the Dollar until that data officially crosses the wires. As it stands, the Greenback does not seem too committed to a particular run for either the bulls or the bears.

Chart of DXY Dollar Index (Daily)

Chart of DXY Dollar Index

A different take on growth into this new week is the state of the business cycle. US earnings season will continue into the new week with a new balance of interest. While there are some notable figures from financial firms, insight into the Fed’s influence on bank revenues is not the principal interest. A far more significant theme in the accounting data ahead can come through the sheer speculative balance to be found in key tech firms. Intel will carry stand out weight similar to Microsoft this past week. That said, I will pay greater attention to Facebook, Amazon and Google (the F, A and G in FAANG) as these tickers have contributed far more to speculative appetite these past year. Further, Caterpillar will give a traditional growth update only the blue-chips are capable of while trade wars will pick through reports such as those from Boeing and Harley Davidson.

Trade Wars and Geopolitical Risks Can Take Over Trend With Little Warning

Speaking of trade wars, we cannot write off the leveraged potential of the theme simply because there are not convenient milestones to watch for moving forward. The standoff between the US and China continues with Huawei reportedly a sticking point and accusations of currency manipulation a further tripping point. The greater concern I have is the spread of trade issues from the isolated US-China spat to encompass more developed world benchmarks. Europe in particular seems at risk with the Boeing-Airbus tension rising and France pursuing a 3 percent digital tax on large tech companies (most of which are US-based). If this theme flares up – particularly for the worst – it can readily hold speculative implications.

Chart of Nasdaq 100 (Daily)

Chart of Nasdaq

Another theme of low anticipation but extreme potential impact is the state of global geopolitics. The situation between the West and Iran has only intensified this past week. Following months of economic sanctions, we have seen the situation move into the UK seizing an Iran oil tanker followed by Iran shooting down a US drone. Late this past week, the situation devolved further when it was reported that the US shot down an Iranian drone and Iran had seized a second British operated ship. This is tit-for-tat retaliation thus far and the market seems to be slow to respond whether you follow risk trends or crude oil. However, this situation could easily escalate to something far more dangerous with little or no notice. It is best to be mindful of headlines.

Chart of US Crude Oil Price and 5-Day Rate of Change (Daily)

Chart of Crude Oil Prices and Rate of Change

Top Benchmarks to Watch: EURUSD, Gold, Oil and Dow

If you are looking at the key event risk and generate state of volatility for next week, there are a few benchmarks to watch for in particular. The Dollar is one such high-profile risk. With anticipation for the Fed’s decision the following week and the US 2Q GDP on Friday, the Greenback will be heavily weight-and-see which should be interesting for EURUSD within range and AUDUSD attempting an H&S reversal. With the former pair, add the Euro’s charge through PMIs and ECB and this should be a loaded week.

Chart of EURUSD and 20-Day ATR (Daily)

Chart of EURUSD and 20-Day ATR

With political risks between Iran and the US/UK festering, the supply side of crude oil supply will post a near-constant threat to market volatility. The thing is: energy prices are far more sensitive to demand side factors than the supply issues that we are seeing flare up lately. If growth slows and risk slides, oil may drop even in the face of more direct restrictions in supply. In contrast to the clear growth reading in crude, gold will fix to financial stability specifically. The precious metal reflects expectations of financial stability more than inflation or even risk appetite. If talk of stimulus continues to build, gold will charge higher whether or not the efforts by central banks calms capital markets.

Chart of Gold Price (Daily)

Chart of Gold Prices

And, as always, the best risk asset to monitor ahead is a benchmark for US equities. This asset class is far from an ideal measure of each ebb and flow in sentiment, but it is the skew in the measure that makes it particularly interesting. With a clear preference for favorable developments in risk appetite, the Dow should be monitored closely for any notably slips in its climb. If the Dow, S&P 500 and Nasdaq were to drop back below their respective, previous resistance levels, I would be watching closely for systemic momentum for sentiment.

Chart of Dow (Daily)

Chart of Dow Price

If you want to download my Manic-Crisis calendar, you can find the updated file here.

EURUSD At the Crossroads of Most Critical Volatility Lines

EURUSD Talking Points:

  • While there have been some flashes of volatility in EURUSD, the bigger picture measures are painfully restricted
  • Key fundamental themes – from monetary policy, trade wars and growth – carry dangerous exposure for this benchmark pair
  • While volatility within controlled range is the most reasonable scenario, narrow boarders eventually fall to persistent volatility

See how retail traders are positioning in EURUSD and other liquid FX crossesusing the DailyFX speculative positioning data on the sentiment page.

EURUSD Is the Most Liquid FX Cross And One of the Most Resistant to Breakout/Trend

Most traders seek out the markets and pairs with the most movement. From volatility, the average market participant believes they can generate a significant swing for which direction and timing will simply come through their speculative prowess. Volatility and momentum are ultimately very useful; but when neither is the standard for the broader financial system, their presence is more often a source of risk than the genesis of reliable opportunities. As has been the case since soon after the turn of the year, the general course for the financial system has been congestion with a lack of clear trend intent and erratic – but sometimes sharp – volatility. It follows that when we look for opportunities, they would better fit this mold of the market.

If we are looking for volatility within range, there are few more appropriate currency pairs than EURUSD. The world’s most liquid currency pair has kept frustratingly consistent to its range. The 20-day (1-month) average true range as a measure of volatility is near the lowest since Summer 2014 – the definition of quiet market. Further, the historical range of the pair (as a percentage of range) over the past 60 days holds near the most restrictive since summer 2014 as well while 60 weeks has dropped to a record low. That is not to say that these measure have to hold, but if this remains the underlying pace, there are few more appropriate.

Chart of EURUSD and Historical 60-Week Range as Percentage of Spot (Weekly)

Chart of EURUSD Weekly with Historical 60-Week Range

If we are to break from these constraints or see significant swings within them, it is important to find activity to charge the market. There are a few high-profile events on the docket for the week ahead that can contribute to a theme like growth (or more aptly recession fears), but there is also serious potential for alternative systemic risks like monetary policy and trade wars. With a few benchmark levels to track on EURUSD, we may find some trade potential develop.

Chart of EURUSD (Daily)

Chart of EURUSD

An ECB Rate Decision and Heavy Fed Speculation

In terms of highest risk of significant movement for the EURUSD in the week ahead, the top fundamental theme on my radar is monetary policy. This past week showed how market moving the issue can be with Federal Reserve members generating enormous amounts of volatility by little more than remarks. There are few high-profile statements schedule, but attention is such that unexpected remarks can generate even more response as the market anticipates the Fed’s rate decision on July 31st.

The tangible monetary policy event in the coming week is the European Central Bank (ECB) rate decision. The world’s second biggest central bank is due to weigh on monetary policy Thursday. While it is not expected to change its policy mix at this particular meeting, speculation has picked up dramatically that a dovish turn is coming. That could encourage some preemptive signaling beforehand. Watch for reference to exploring options on excess reserves and a return to purchasing government bonds.

Monetary Policy Perception Chart

Monetary Policy Perception for Major Central Banks from Rate Hikes to Rate Cuts

Growth Measures Will Offer a More Data Driven Fundamental Swell

If we are simply following the lines of known event risk, the most easily followed theme for EURUSD this coming week will be growth. A global mix of July PMIs – a timely proxy for official GDP figures – is due on Wednesday. If there are meaningful changes in course or intensity, from either the European or US data, the impact can be significant in volatility terms for the pair. However, with an expected official 2Q US GDP reading due Friday, it would take a clear and severe reading from one or both sides to override the anticipation that will naturally draw attention to the end-of-week update.

US Dollar Calendar

Trade Wars Are a Looming Risk With Severe Consequences

Perhaps the least reliable event risk ahead as it doesn’t have any definable milestones on the calendar is the threat of trade wars expanding to the EURUSD. For the US, the pressure is relentless from the White House but the consideration is more retaliation. The risk to the Euro is whether President Trump turns his efforts towards the region. There have already been lists of products made that have been threatened for tariff – over $25 billion in European goods recently – and there have been acute flare ups. The issue between Boeing and Airbus as well as France’s move towards digital taxes on US tech firms are just a few flash points.

If you want to download my Manic-Crisis calendar, you can find the updated file here.