As a new week opens, a bird's eye view of the Forex market might be best appreciated if taken on the back of the US Dollar Index (DXY).
SOME FUNDAMENTAL POINTS AND OPINION:
At this point, fundamentals are expecting to carry the greenback upwards, on the general assumption that the Fed will continue to taper. We also discussed earlier weaknesses in the Chinese economy, which may weigh on the Yuan and cause a reflexive reaction among competing EM economies to pressure their own currencies downwards, thus leveraging against an upward USD pressure. Finally, there is also continued concerns in the falling value of Gold and silver, which will correlate to a buoying USD value.
In fact, our XAGUSD system is currently eyeing a bearish target of 18.651, whereas Gold has maintained a stagnant stance within our prior cautionary 1320/1330 reversal range.
TECHNICAL DATA:
The chart indicates a clear bullish trendline emanating from 28 NOV 2011 and providing a ranged support over the interim course of time. If a physical validation were to occur this week, I would look at 79.24 as a probable supportive value.
My predictive analysis and forecasting system offers the following targets and cautionary values.
First, if price continued to rise, two bullish targets are likely to act as significant resistance levels:
1 - TG-1 = 83.02
and
2 - TG-2 = 84.56
A powerful Wolve Wave pattern ("WW") remains in support of this bullish scenario, especially if the WW trader consider Point-1 at 78.99 and point-5' as the most recent candle bottom near the trendline (see pattern defined in the chart - Caveat: a purist might object that the pattern lacks a downward slope. I would then add that a 3-Drives pattern would also fit the bill).
Second: A break of the historical support trendline should concern vested bulls, and a break and close below 78.99 would open the floor to a significant support at 77.45.
OVERALL:
Several elements have favored a bullish expectation. We cited some general fundamental causes, defined technical directional biases and targets.
However, major determinants that might push the US Dollar upwards are: 1 - AFed rate hike, 2 - A combination of negative rate decision and/or QE activation from ECB, or 3 - A significant increase in short term T-bills (i.e.: 3-Mos, IRX) over mid-term T-Bonds (i.e.: 10-Yr Trys., TNX), as early indicator of broad sentiments shifts and risk aversion impacting Forex (proxy: USDJPY) - All of these are worth charting and tracking very closely.
For the time being, the directional indicator remains at NEUTRAL-TO-LONG until cleared market action and a definite bullish market reversal comes out of my system.
Cheers,
David Alcindor Predictive Analysis and Forecasting
Get my signals, analyses and forecasts on Twitter: (Alias: @4xForecaster)
------------------------------------- Disclaimer: - All my comments are founded on unshared proprietary as well as common knowledge of technical analysis: Do your own due diligence before trading any market/asset. Additionally, my signals, forecasts, analyses and directional opinions are for educational purposes only and are not trading recommendations. Again, do your own due diligence first, then seek financial advice from a licensed professional, and only then enter the market at your own perils - David Alcindor - TradingView.com Alias: 4xForecaster
(i.e.: Either FXCM-defined USDOLLAR index of top-4 currencies, the benchmark DXY's 6 reference currencies)
2015 may appear far off to the #Forex trader, as speculations abound regarding US Central bank consideration of rate hike.
Aside from tapering promises, following are 4 intermarket forces that are likely to play in the progressive recovery of the #USD strength over time. Competitive currency devaluation, Inter-G10 rate differentials; commodity price devaluation (e.g.: oil), and yes, ... safe-heaven status.
Let us quickly look at what these mean.
1 - COMPETITIVE CURRENCY DEVALUATION:
As I have explained in recent analyses, with China's weakening economy - and more recently a real global concern regarding its real estate bubble - any decline in the Yuan is likely to confer added competitive advantage to China's export-dependent economy.
With competitive partners dependent on teir own export economy, a devaluation in the Yuan may force exporting competitors to respond by decrease their own currency, which is based in USD. This competitive currency devaluation, when played out of a global scale, will augment the current currency race to the bottom and effectively force a recycling demand of USD dollars back sovereign central banks. In basic economic terms, this indirect demand will mechanically prop the USD value.
2 - RATE DIFFERENTIALS:
While one may argue that US economic data may be fabricated into an artificial landscape of socio-economic recovery, the Fed's attempt is to organize a meaningful excuse to taper its easing.
The current Forex context is that of global sovereign currency devaluation as each "race to the bottom" to gain an incremental advantage against other export competitors. As indicated above, this may force too rapid a recovery in the USD. US Central Bank would probably need to maintain a gradual intervention of its artificial currency control through delayed tapering, as it promised it would do. 2015 is now the target.
All this rate control towards tightening occurs in a larger counter-directional context, considering that US partner central banks are moving towards maintaining rate relaxation. In time, this can only accentuate a rate differential in favor of the USD, as investors will seek a higher-paying bonds and shun from weaker ones.
3 - DECLINING OIL PRICE:
Oil prices have fluctuated across the calendar, from European crises to Middle Easter conflicts, and more recently demanding technologies for more complex oil extractions. The predominant characteristic of the high US demand has been that of an oil importer.
However, with trouble in both China's production machine and a global weakening in consumption, the pulling demand on oil has decreased, thus forcing a gradual devaluation in its - as well as many other commodities - price.
Worth adding here is US's discovery of oil and gas shale, plus a geopolitical juxtaposition with Canada's own oil reserve (13% of global reserve), rivaling that of OPEC countries (18%). Venezuela owns 10% per same OPEC data, but that country, too, is physically attached to the same Americas continent.
As the US becomes feels relief from decreased reliance on oil imports and favorable oil prices, one might expect to see a gradual improvement in both its current account deficit, as well as USD valuation.
4 - SAFE HEAVEN:
Global crisis are bullish for USD. This is proven by the fact historical data, showing that net foreign buying of US Treasuries averaged over $20 billion per month prior to the 2008 financial crisis. However, in the years following the financial meltdown, that figure increased to an average $52 billion per month over 2011 (peaking as much as $94 billion in September 2011), as market concerned were at the highest at the time that the Euro Zone viability was coming into question. As concerns continued, increases in US Treasuries continued to rise with occasional peaks, such as in May 2012 when foreign buying of US Treasuries rose to $75 billion.
Here too, the beneficiary has been, and continues to be the USD.
OVERALL:
Markets are increasingly bearish, and concerns of recovery in Europe, combined with signs of bond repayment failures, housing glut, construction decline, and a failing Yuan and a most recent decline in EM currencies, has all been or is becoming beneficiary to the USD.
While there may not be an immediate spike in USD, considering continued fluctuations in oil prices, and a controlled, opaque transition central bank transition to rate tightening, one should expect a gradual rallying in the USD. May be not this week or month, but one that may become appreciable at the weekly institutional timeframe in Forex trading.
--------------------------
Get my free Forex, Metals and Indices analyses, signals and forecasts through Twitter - Alias: @4xForecaster --------------------------
4xForecaster
⋅
31 MAY 2014 - Update:
Twitter release:
"DXY remains subdued under 80.59 resistance. Pre-rally decline may lie ahead - via @TradingViewUSDEUR #forex "
David Alcindor
4xForecaster
⋅
23 MAY 2014 - Price continues to rally per forecast:
"DXY: Price continues to rally per forecast; bullish target still in force - @TradingViewUSD #USDollar GOLDEUR"
At this point, it has become clear that the USDollar is moving in the forecast direction, buoyed by a bullish rally. Next week could see some unwinding to the downside, but overall forecast sees target unchanged.
Cheers,
David Alcindor
4xForecaster
⋅
20 MAY 2014 - Update:
So far, price remained buoyant above the 1-5' line, which added support to a longer bullish trendline (green, dashed line). This prevented the fall into the low-probability (red) "TG-Lo = 77.45 - 14 APR 14" level.
At this point, the index remains a bullish outlook, suggesting that the greenback will probably outperform other major currencies. This remains in line with the predictive/forecast model as well as the fundamental reasoning offered in the original analysis above (see above: "The Case For A Strong #USDollar Indices", 29 days ago).
Expect more bearish news from China to bear down on commodities, and further validate commodity-based currencies, such as AUDUSD, USDCAD, NZDUSD.
(i.e.: Either FXCM-defined USDOLLAR index of top-4 currencies, the benchmark DXY's 6 reference currencies)
2015 may appear far off to the #Forex trader, as speculations abound regarding US Central bank consideration of rate hike.
Aside from tapering promises, following are 4 intermarket forces that are likely to play in the progressive recovery of the #USD strength over time. Competitive currency devaluation, Inter-G10 rate differentials; commodity price devaluation (e.g.: oil), and yes, ... safe-heaven status.
Let us quickly look at what these mean.
1 - COMPETITIVE CURRENCY DEVALUATION:
As I have explained in recent analyses, with China's weakening economy - and more recently a real global concern regarding its real estate bubble - any decline in the Yuan is likely to confer added competitive advantage to China's export-dependent economy.
With competitive partners dependent on teir own export economy, a devaluation in the Yuan may force exporting competitors to respond by decrease their own currency, which is based in USD. This competitive currency devaluation, when played out of a global scale, will augment the current currency race to the bottom and effectively force a recycling demand of USD dollars back sovereign central banks. In basic economic terms, this indirect demand will mechanically prop the USD value.
2 - RATE DIFFERENTIALS:
While one may argue that US economic data may be fabricated into an artificial landscape of socio-economic recovery, the Fed's attempt is to organize a meaningful excuse to taper its easing.
The current Forex context is that of global sovereign currency devaluation as each "race to the bottom" to gain an incremental advantage against other export competitors. As indicated above, this may force too rapid a recovery in the USD. US Central Bank would probably need to maintain a gradual intervention of its artificial currency control through delayed tapering, as it promised it would do. 2015 is now the target.
All this rate control towards tightening occurs in a larger counter-directional context, considering that US partner central banks are moving towards maintaining rate relaxation. In time, this can only accentuate a rate differential in favor of the USD, as investors will seek a higher-paying bonds and shun from weaker ones.
3 - DECLINING OIL PRICE:
Oil prices have fluctuated across the calendar, from European crises to Middle Easter conflicts, and more recently demanding technologies for more complex oil extractions. The predominant characteristic of the high US demand has been that of an oil importer.
However, with trouble in both China's production machine and a global weakening in consumption, the pulling demand on oil has decreased, thus forcing a gradual devaluation in its - as well as many other commodities - price.
Worth adding here is US's discovery of oil and gas shale, plus a geopolitical juxtaposition with Canada's own oil reserve (13% of global reserve), rivaling that of OPEC countries (18%). Venezuela owns 10% per same OPEC data, but that country, too, is physically attached to the same Americas continent.
As the US becomes feels relief from decreased reliance on oil imports and favorable oil prices, one might expect to see a gradual improvement in both its current account deficit, as well as USD valuation.
4 - SAFE HEAVEN:
Global crisis are bullish for USD. This is proven by the fact historical data, showing that net foreign buying of US Treasuries averaged over $20 billion per month prior to the 2008 financial crisis. However, in the years following the financial meltdown, that figure increased to an average $52 billion per month over 2011 (peaking as much as $94 billion in September 2011), as market concerned were at the highest at the time that the Euro Zone viability was coming into question. As concerns continued, increases in US Treasuries continued to rise with occasional peaks, such as in May 2012 when foreign buying of US Treasuries rose to $75 billion.
Here too, the beneficiary has been, and continues to be the USD.
OVERALL:
Markets are increasingly bearish, and concerns of recovery in Europe, combined with signs of bond repayment failures, housing glut, construction decline, and a failing Yuan and a most recent decline in EM currencies, has all been or is becoming beneficiary to the USD.
While there may not be an immediate spike in USD, considering continued fluctuations in oil prices, and a controlled, opaque transition central bank transition to rate tightening, one should expect a gradual rallying in the USD. May be not this week or month, but one that may become appreciable at the weekly institutional timeframe in Forex trading.
Cheers,
David Alcindor
Predictive Analysis & Forecasting
TradingView Moderator, alias: 4xForecaster
tradingview.com/u/4xForecaster/
--------------------------
Get my free Forex, Metals and Indices analyses, signals and forecasts through Twitter - Alias: @4xForecaster
--------------------------