The Dollar Breaks Out; New Highs In Sight

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker 2020!
    Good Choice for Beginners!
    Free Trading Education, Free Demo Account!
    Get a Sign-Up Bonus Now!

  • Binomo
    Binomo

    2nd in our ranking!

U.S. Dollar Seen on Verge of Breakout to New Highs as Bond Yields Lure Investors

Image © Adobe Images

– USD tipped by Westpac for a breakout to a new high.

– Bond yields and Fed rate stance draw investors to USD.

– Mounting inflation pressure limit scope for more Fed cuts.

– Pricing-out of 2020/20 cuts could further lift USD up ahead.

The Dollar advanced against many rivals Thursday but is being tipped by Westpac to breakout to a new high over the coming days, as U.S. bond markets continue to lure international investors who’re hungry for ‘yields’ that are in such short supply elsewhere in the developed world.

Westpac says the Dollar index is poised to score a new high in the short-term because the risk of President Donald Trump being impeached and removed from office has been greatly overblown in the last week and the odds of more Dollar-negative interest rate cuts from the Federal Reserve (Fed) are lengthening. The Dollar index measures the U.S. currency against a basket of rivals, although notably the Euro, Yen, Pound Sterling and Canadian Dollar.

“DXY appears poised for a breakout to new highs near term. Trump impeachment is an overstated risk: the procedural steps to a resolution in the House are long and then there is the requirement for the Senate to vote by an almost insurmountable 2/3 majority. The prospect of a more gridlocked Congress is moot,” says Richard Franulovich, head of FX strategy at Westpac. “The hurdle for another Fed insurance cut 30 Oct is understandably high too.”

Above: Dollar Index shown at daily intervals, annotated for recent events.

The single greatest risk to the 18-month long Dollar rally of late, has been the market taking a negative view of the Fed’s earlier decisions to cut its interest rate, which now sits at 2% after having been reduced from 2.5% earlier in the year. Such moves should make the Dollar less attractive than other currencies but they’ve been accompanied by, and were the product of, a worsening global economic environment that’s left the U.S. bond market looking like the only game in town for yield hungry investors.

U.S. rates are at least twice as high those of other major central banks with the exception of those in Canada and Norway, although both the latter countries have above-average rates by virtue of either their proximity to the U.S. economy or their significant exposure to a booming but volatile oil market. Most European rates are still close to their post-crisis lows while the China-exposed antipodean central banks have cut theirs to new record lows this year.

“DXY is little changed today but recent gains have brought it within striking distance of a fresh 2Y(+) high. Ultimately, the USD remains the best house in a bad G10 neighborhood. At the same time, we think funding pressures in some markets may also be contributing to dollar strength despite recent policy efforts to provide liquidity,” says Ned Rumpeltin at TD Securities.

Without much steeper rate cuts from the Federal Reserve, or an economic recovery in another part of the world that enables other central banks to begin lifting their rates, the U.S. bond market could remain the only game in town to investors for a lot longer and the Dollar could go on strengthening.

The rub for President Donald Trump, as well as the forecasters out there who might be looking for a lower Dollar, is that both of those things have grown a bit more unlikely in recent weeks. The U.S. outlook has turned brighter given a September freeze of hositilities with China that has bolstered an already-resilient economy but Europe has, so-far at least, not got the memo.

“Even reliable 2020 voting dove Chicago President Evans said he doesn’t see a need for further cuts, while a relatively encouraging round of data of late (see over) will cement the FOMC’s central tendency for continued above trend growth,” says Westpac’s Franulovich.

Above: Market pricing for 75 basis points of Fed rate cuts (red) by January 2021. Source: Westpac.

Bad news is still flooding in thick and fast from other parts of the world while inflation pressures are now stirring in the U.S., and managing those price pressures remains the Fed’s foremost responsibility. The Fed may have cited weak global growth for its earlier rate cuts, but the full reason underlying those decisions was that slower U.S. growth would result from the global downturn and undermine America’s inflation pulse in the process.

In other words, the Fed feared U.S. inflation would be too low further down the line when it cut rates in July and August. However, and since then, evidence suggesting that inflation pressures are actually mounting in the here and now has begun to stack up. This complicates the decision making process the Fed must go through and could be said to make further rate cuts a lot less likely than financial markets would have observers believe that they are.

“The core PCE deflator was unexpectedly revised up to 1.9% from 1.7%. The monthly detail behind this revision will be published tomorrow, but in the meantime the key point here is that the new data make it even more clear that the very modest 1.1% increase in the first quarter was a fluke,” says Ian Shepherdson, chief economist at Pantheon Macroeconomics, referring to a derivative of the Fed’s preferred measure of inflation. “The trend is near 2%, and we think Q3 is on course for 2.2-to-2.4%. The Fed’s new forecasts show core PCE inflation at 1.9% y/y in Q4 this year and next; those numbers are too low.”

President Trump has repeatedly vented his frustration at the strength of the Dollar this year but the rub for him and some forecasters out there is that should the ‘core PCE price index’ jump when figures for August are released at 13:30 on Friday, then further rate cuts could become even more difficult to justify. And given the Dollar has set new highs even with investors betting heavily on a further three cuts before early 2021, there’s no telling what it’d do if those bets were abandoned and bond yields rose further as a result.

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.

Stocks: 15 20 minute delay (Cboe BZX is real-time), ET. Volume reflects consolidated markets. Futures and Forex: 10 or 15 minute delay, CT.

© 2020 Barchart.com, Inc. All Rights Reserved.

The Forex Highs / Lows pages show the 5-Day, 1-Month, 3-Month, 6-Month, 12-Month, or Year-to-Date Percent Change from the same period’s High or Low price for major forex crossrates, or for the forex market selected at the top of the page (Australian, British, Canadian, Euro FX, Japanese, Swiss, or US Dollar).

On the Main View, when you’ll see the date on which the new price or percent was made. If the contract reaches a new High or Low price for the given period during the current trading session, the price and its corresponding percent is Bolded on the page.

“Make This My Default Page”

Logged in users have the option to select a tab (Euro FX, US Dollar, etc.), select any timeframe and view, then save that page as the default page to open next time you come to the Highs/Lows page.

The Forex Highs / Lows page is updated throughout the trading day with new price information, as indicated by a “flash” on the fields with new data. However, highs and lows for the given periods (and their corresponding percents) are not updated on the page until the site performs its 10-minute update.

Data Updates

For pages showing Intraday views, we use the current session’s data, with new price data appear on the page as indicated by a “flash”. Stocks: 15 minute delay (Cboe BZX data for U.S. equities is real-time), ET. Volume reflects consolidated markets. Futures and Forex: 10 or 15 minute delay, CT.

The list of symbols included on the page is updated every 10 minutes throughout the trading day. However, new stocks are not automatically added to or re-ranked on the page until the site performs its 10-minute update.

Page Sort

Pages are initially sorted in a specific order (depending on the data presented). You can re-sort the page by clicking on any of the column headings in the table.

Views

Most data tables can be analyzed using “Views.” A View simply presents the symbols on the page with a different set of columns. Site members can also display the page using Custom Views. (Simply create a free account, log in, then create and save Custom Views to be used on any data table.)

Each View has a “Links” column on the far right to access a symbol’s Quote Overview, Chart, Options Quotes (when available), Barchart Opinion, and Technical Analysis page. Standard Views found throughout the site include:

    Main View: Symbol, Name, Last Price, Change, Percent Change, High, Low, Volume, and Time of Last Trade.

Technical View: Symbol, Name, Last Price, Today’s Opinion, 20-Day Relative Strength, 20-Day Historic Volatility, 20-Day Average Volume, 52-Week High and 52-Week Low.

Performance View: Symbol, Name, Last Price, Weighted Alpha, YTD Percent Change, 1-Month, 3-Month and 1-Year Percent Change.

  • Fundamental View: Available only on equity pages, shows Symbol, Name, Weighted Alpha, Market Cap, P/E Ratio. Earnings Per Share, Beta, Return on Equity, and Price/Sales
  • Data Table Expand

    Unique to Barchart.com, data tables contain an “expand” option. Click the “+” icon in the first column (on the left) to “expand” the table for the selected symbol. Scroll through widgets of the different content available for the symbol. Click on any of the widgets to go to the full page.

    Horizontal Scroll on Wide Tables

    Especially when using a custom view, you may find that the number of columns chosen exceeds the available space to show all the data. In this case, the table must be horizontally scrolled (left to right) to view all of the information. To do this, you can either scroll to the bottom of the table and use the table’s scrollbar, or you can scroll the table using your browser’s built-in scroll:

    • Left-click with your mouse anywhere on the table.
    • Use your keyboard’s left and right arrows to scroll the table.
    • Repeat this anywhere as you move through the table to enable horizontal scrolling.
    FlipCharts

    Also unique to Barchart, FlipCharts allow you to scroll through all the symbols on the table in a chart view. While viewing FlipCharts, you can apply a custom Chart Template, further customizing the way you can analyze the symbols. FlipCharts are a free tool available to Site Members.

    Download

    Download is a free tool available to Site Members. This tool will download a .csv file for the View being displayed. For dynamically-generated tables (such as a Stock or ETF Screener) where you see more than 1000 rows of data, the download will be limited to only the first 1000 records on the table. For other static pages (such as the Russell 3000 Components list) all rows will be downloaded.

    Free members are limited to 5 downloads per day, while Barchart Premier Members may download up to 100 .csv files per day.

    AUD/NZD Breaks Out to New 2020 Highs

    AUD/NZD has broken above 1.0729, it’s 2020 highs. Both the Australian Dollar and the New Zealand Dollar face many of the same risks from the trade war between China and the US. In a nutshell, a slowdown in China would cause a slowdown in both the Australian and New Zealand economies, as both are large exporters to China.

    So why is the Australian Dollar outpacing the New Zealand Dollar? Q2 GDP for Australia is at 0.5% (MoM), however the RBA expects growth to strengthen gradually around trend over the next couple of years. The RBA held rates steady at its last meeting at 1.00%. In contrast, the RBNZ surprised the market by cutting 50bps to 1.00% at its August 7th meeting and said that growth has slowed and that headwinds continue to strengthen. Should economic growth slow more than the RBNZ expects, they have said they are willing to lower interest rates even further. Next week, New Zealand releases GDP for Q2. Previous GDP was at 0.6% (MoM) vs expectations for 0.4% next week.

    With the 2 Central Banks hinting that their respective economics may be moving in opposite directions, it’s not surprising that AUD/NZD bottomed on the date of the last RBNZ meeting. Today the pair broke to new highs on the year (current high is 1.0785). However, there is resistance just above current levels at 1.0812, which is the 61.8% retracement from the August 2020 highs to the January 3rd spike lows. Next resistance level after that is horizontal resistance near 1.0875. Support below is at the previous highs of 1.0729. Also note the RSI has moved into overbought territory.

    Source: Tradingview, FOREX.com

    Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

    Best Binary Options Brokers 2020:
    • Binarium
      Binarium

      Best Binary Options Broker 2020!
      Good Choice for Beginners!
      Free Trading Education, Free Demo Account!
      Get a Sign-Up Bonus Now!

    • Binomo
      Binomo

      2nd in our ranking!

    Like this post? Please share to your friends:
    How To Start Binary Options Trading 2020
    Leave a Reply

    ;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: