VantagePoint Forex Weekly Outlook June 6th, 2016
In the latest Forex Weekly Outlook, we see the DXY in the midst of a bearish trend change and news of the major pairs being largely overshadowed by the threat of the Brexit causing mixed signals for the GBP/USD.
Forex and the U.S. Dollar
The U.S. Dollar Index is coming off a horrible unemployment report and has pulled back because of it with more weakness expected this week. We had a bearish close of 94.02 that was accompanied by signals from a majority of the indicators that a trending move is upcoming for the DXY.
The closely correlated relationships with the equity markets, specifically the DAX, Nikkei and the S&P 500, are a great indicator of what to expect from the DXY. If the dollar is truly going to sell off, we need to see the global equities going down as well.
We see the first sign of this in the SPY failing to break the resistance line at the 2110 point. The key VantagePoint level to keep an eye on this week is 2078.64. A close under that level this week will provide significant evidence a snowball effect could be in play that may include the DAX, Nikkei, and DXY before the dust settles.
The DAX finds itself in a similar situation with a failure to break the upper resistance trend line. The fallout of this will impact the Euro the most, putting upward pressure on the currency.
Oil is moving in direct correlation with the DXY as well, despite experts saying otherwise. Both markets have seen significant gains throughout the month of May. When the DXY was dealt a significant blow on Friday, the oil market fell too. Gasoline contracts are showing similar trends with the RBOB acting as a leading indicator for the DXY last week.
Gold made a nice upward move on Friday but is still seeing the effects of a significant bearish move since the middle of May. A continued upward trend will provide additional support for a bullish week for the EUR/USD.
This direct correlation is not typical of these markets and many traders could overlook the significance of these movements. It’s important to understand that intermarket correlations will overpower nearly all indicators or other determining factors when it comes to market trends. It is why we stress the importance of knowing and understanding the intermarket relationships between the markets.
Forex Weekly Outlook for Major Pairs
When we take a look at the major pairs this week, it’s important to keep the market relationships with equities and commodities in mind. Just because you don’t trade the equities doesn’t mean you should be oblivious to their movements and trends. Forex pairs are highly influenced but the global equities and understanding the relationships will almost certainly add to your success as a Forex trader.
Euro/U.S. Dollar (EUR/USD) is favorable to longs this week as we look at the key VantagePoint level of 1.1223 for the 18-day predicted EMA and a bullish close of 1.1366. The top of the trend line resistance comes in at 1.1600, a level well within reach this week based on the payroll report. The VantagePoint indicators support continued strength for this pair.
U.S. Dollar/Swiss Franc (USD/CHF) sees a new trend line forming around the 0.9960 level. Selling into that area is a reasonable play this week. Retracement can be expected after a bearish close of 0.9756 came in under the key VantagePoint level of at 0.9845 (18-day PEMA), 0.9877 (8-day PEMA), and 0.9835 (3-day PEMA). Minor retracement will produce some short opportunities as long as we’re below the key levels and trend line.
British Pound/U.S. Dollar (GBP/USD) is in a unique position both for this week and looking forward to the rest of the month. The Brexit vote is looming large on June 23. Brokers have already reported to increasing margin requirements across the board, suggesting they might not be able to fulfill stops. It might be a good idea to stay away from this pair for the next few weeks. If you do feel like trading this pair, the neural index signifies some upward strength but the additional VantagePoint indicators are signaling lower movement. The Brexit just paints too much of a wildcard right now to give any certainty to this week’s movement.
U.S. Dollar/Japanese Yen (USD/JPY) after a strong holiday Monday last week, this pair lost approximately 400 pips by week’s end. The VantagePoint indicators suggest more trouble is ahead with downward momentum suggested across the board. Downward movement by the global equities would all but sink this pair’s movement.
U.S. Dollar/Canadian Dollar (USD/CAD) is not going to feed off of the USD weakness. Lower gas/oil prices will weaken this pair. Heavy support is shown at the 1.28 level as we closed at 1.2933, below the trend line. The bearish close is below the key levels of 1.300 (18-day PEMA), 1.3039 (8-day PEMA, and 1.3014 (3-day PEMA). While a large drop like we saw last week rarely shows follow through, be cautious with this pair as there could be long action hidden within. Predicted difference indicators are trending down with room to expand. Shorts carry the edge as long as we are below the 1.3000 level.
Australian Dollar/U.S. Dollar (AUD/USD) will be feeding heavily off the metal equities. If Gold and the other metals push higher, it’ll bring this pair with it. Predicted MACD and RSI both signal the bullish trend to continue. The key level to watch for this week is 0.7282. We closed above this level at 0.7365 on Friday and we need to remain above that level to maintain the bullish momentum as well as a good long position.
New Zealand Dollar/U.S. Dollar (NZD/USD) is virtually the same trade as the Aussie dollar. A bullish close from Friday left this pair at 0.6954 and above the key levels. Staying above the key levels of 0.6795 (18-day PEMA), 0.6807 (8-day PEMA), and 0.6862 (3-day PEMA) is vital for the bullish bias. A retracement is anticipated on Monday and Tuesday that will allow us to reassess our long positions from there. Indicators are suggesting a long bias but other factors are in play (the nonfarm payroll). Ease into the market here and remain patient.
The Forex Weekly Outlook is designed to help traders remain aware of the intermarket correlations of these global market relationships. You can become more profitable if you know how to get ahead of the trends and understand these relationships can potentially expand your portfolio.