Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Last week, the US Dollar dominated the market after the Senate acquitted President Donald Trump as the US Dollar Index (DXY) went through the roof to 98.70.

After the United Kingdom officially became the first nation to leave the European Union on the last hour on January 31, it was expected that the British Pound will take a pounding in the market, especially, against the Euro. So, when the EURGBP jumped after dropping to 0.8301 to 0.8557 last Monday, nobody was surprised. Also, the return of a strong Dollar was expected amid the expectation that the Senate will acquit the sitting president in a partisan manner. Nonetheless, the DXY broke above the strong resistance around 98.40 and it was this strong only back in the middle of October 2019.

This week, the European Central Bank President Christine Lagarde will present the 2018 ECB Annual Report before the European Parliament on Tuesday at GMT 2:00 pm. An hour later, the US Federal Reserve Chairman Jerome Powell will testify on the Semiannual Monetary Policy Report before the House Financial Services Committee. And Within five minutes, the Bank of England is set to testify before the House of Lords Economic Affairs Committee. These statements from three of the most significant central bankers will likely give the market ample hints to reassess the direction of the major currencies.

Moreover, we will get to see the month-over-month GDP update from the United Kingdom on Tuesday, which is expected to bounce back to positive in December after posting negative growth in November 2019. Next, the US Bureau of Labor Statistics will provide an overview of the inflation situation in the country on Thursday, but it will likely remain unchanged. On Friday, we will get the retail sales data from the US Census Bureau, and once again, this leading indicator of consumer confidence will likely remain stable compared to the previous month.
To sum up, volatility in the global currency market will likely go up a notch as three of the most influential central bankers will deliver their remarks in three different events within a few hours of each other.

Monday
The People's Bank of China is set to release the new Yuan-denominated loan figure on Monday, which is expected to jump from 1,140 billion to 3,100 billion, representing a 172 percent increase. While the Yuan is basically a pegged currency, private loans to consumers and businesses in one of the largest economies in the world has indirect implications on the currency market. With Chinese loans soaring, it will likely increase consumption and economic activity, which means increasing demand for raw material. If the loan amount goes up, we will likely see the Australian Dollar gaining strength again major currencies as China imports the bulk of its resources from there.

Given the AUDUSD is trading near the support around 0.6670, which is low from October 2019, if the Chinese private loans soar, it will help the AUD from sliding further South. Consequently, we might see a bullish retracement going up to test the 0.6750 area.
But, keep in mind that investors will likely take the Coronavirus situation into consideration as it is likely to have an adverse effect on China’s domestic economy in the next few months. So, if we see a break below the 0.6670 level, the US Dollar will likely have a field day.

Tuesday
As we discussed earlier, on Tuesday, we will have three of the most influential central bankers delivering their views about the economy and volatility will likely remain high. Nonetheless, the most important news event will happen at GMT 9:30 a.m., when the UK’s Office for National Statistics will release the country’s GDP (m/m) and analysts are expecting it to jump from -0.3% to a 0.2% growth in December.

The last time the UK’s month-over-month GDP grew at this relatively high pace was back in July 2019, when it went up by 0.3%. Hence, we expect the Pound to gain considerably this week regardless of its recent decline due to the realization of the Brexit on January 31, 2020. Also, keep in mind that the UK’s manufacturing production is likely to grow by 0.5% compared to a -1.7% decline. So, there is an argument for a strong Pound this week.


Given that there is no technical trend in the EURGBP, as the RSI is sitting near the 50.00 reading, there is no momentum play with this pair at the moment. However, with a strong economic recovery in the UK, the EURGBP could easily go down to test the support near 0.8350 this week. A clear break below this support will likely accelerate the bearish momentum, which has dominated the pair over the last few months.

Wednesday
Besides more speaking events from central bankers, we will also see how the Reserve Bank of New Zealand (RBNZ) handles its overnight interest rate on Wednesday. While analysts are expecting the RBNZ to leave the interest rate at 1.00%, the fiscal stimulus announced by the New Zealand government recently will likely boost growth by 0.4% over the next few years. Also, there is a clear sign of heat buildup in the housing market. So, the RBNZ might surprise the market and go ahead with a quarter-point rate hike.

The NZDUSD has remained bullish since the start of 2020 and broke above the long-term downtrend line on the daily timeframe. Last week, it also broke above the resistance near 1.5500. Unless we see a surprise rate hike from the RBNZ, which is unlikely – again, thanks to the Coronavirus spreading like wildfire, we will likely see the NZDUSD is heading toward the 1.5800 area this week.

Thursday
The US Bureau of Labor Statistics will release the month-over-month US Consumer Price Index, which will remain stable at 0.2% growth. But the core CPI that excludes the food and energy prices, is set to grow by 0.2% compared to 0.1% last month. Hence, the US Dollar Index will likely go up once again on Thursday.

The daily pivot points for the DXY on Friday, February 7, 2020 could be calculated using the ForexChurch Pivot Point Calculator (https://www.forexchurch.com/pivot-point-calculator)

Given the DXY has crossed above its daily Pivot (based on daily high, low, opening and closing prices from February 7, 2020) and based on the forecast of an accelerated pace of inflation in the US economy, the Dollar Index will likely to go up to 98.81, where the R1 level is, if not reaching R2 at 98.91.

Friday
While most market participants will likely develop a negative bias against the US Dollar on Friday based on the forecast of 0.3% growth in core retail sales compared to 0.7% in the previous month, the smart money will pay more attention to the consumer sentiment figure from the University of Michigan. The UoM consumer sentiment has steadily grown over the last few months and reached 99.8 in January, highest since May 2019 when it was at 102.4. However, analysts are expecting it to adjust to 99.0 in February. Perhaps this is the only negative news for the US Dollar coming out this week.

The Bottom Line
Till Friday, expect the US Dollar to soar against most Major currencies and keep an eye on the Pivot levels of the DXY throughout the week. However, the most important news affecting the currency market this week will be qualitative in nature as four of the heads of central banks will deliver speeches in the middle of the week. Nonetheless, if we see retail sales and inflation go up by significant margins, the Dollar may rise to new yearly highs against the Euro and the Pound.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.