Let’s look at the charts for the U.S. Dollar, Gold, Crude Oil The Stock Market and the Major Pairs.
Hello everyone, welcome back, my name is Greg Firman and this is the Forex weekly outlook for the week of July 8, 2019.
Let’s get started this week with the U.S. Dollar Index. We’re coming off a non-farm payroll number, which was a surprise to some, but not to me. I looked at last month’s U6 number coming in at 7.1, which formed a gap in the labor market that the Fed was not counting on. The payroll number going up over 200,000 jobs is a very good number, meaning the probability of a rate hike coming this month is extremely unlikely.
I have been a strong advocate against rate cuts of any kind, as I don’t believe that the current economic numbers support that theory in the least. There are good retail sales numbers and a strong labor market. The ISM numbers are good too, so I’m not buying into the theory the Fed should cut 1/2 a basis point in the month of July. In fact, I don’t think they’re going to cut at all.
That lets a considerable amount of steam out of this equity rally. How that will affect the U.S. dollar remains to be seen, but the first thing we need to understand is the dollar is still within a range. It tried to break out on the downside.
After breaking through this support level, it’s bear trap down and the market’s fully recovered. So, the question is, can the dollar push higher? In my opinion, whether that payroll number is good or bad, the dollar usually sells off the following week. That’s the pattern that I’ve seen over the many years I’ve been in the foreign exchange and commodity markets.
When I’m looking at it right now, we’ve had a big rally on Friday on an upbeat payroll number, but remember, that the unemployment rate ticked up a little bit. The U6 number went from 7.1 to 7.2. So, there’s a little minor negative in there along with the positives. We have to make sure that we’re aware of that. Right now the dollar remains fully contained. We know exactly where the top of this range, which is identified by the VantagePoint as verified support and resistance zones.
We’ve got a high of 97.74, with a lower end of this range around 95.36. But, in between that, we have our key VantagePoint pivot area or T Cross Long, currently residing at 96.31. The theory is, as long as we’re above that area the dollar should hold its gains.
The Gold Market
We need to watch intermarket correlations very closely. Gold, having had a full retracement on Friday, is holding above 13.86, in a critical VantagePoint pivot area. The VantagePoint Indicators still say there’s more downside on gold. This is consistent with U.S. dollar strength.
Look for this area to hold around 13.86, then gradually gold should recover, towards the middle or latter part of next week. It’s very important to be patient with this. Our RSI is not breaking below the 40-level, meaning we’re not actually in a trend reversal yet.
I’ve been a strong advocate against buying the S&P 500 at these extremely lofty levels. The U.S. just had a holiday on Thursday, along with one in Canada on Monday.
In the holiday markets the market players were betting heavily they were going to get a bad payroll number, confirming the rate cut this month; including people saying crazy numbers from a 1/2 basis to 50-basis point cut. It’s ridiculous to suggest it would warrant that.
The U.S. economy is doing quite well. The risk for next week, on these stocks in general, is a massive exodus from the long trade here, because the market didn’t get what it wanted. It’s looking for a sub-100,000 non-farm payroll number, which we didn’t see anywhere close to that. Instead, it was at 220,000, even after revisions and everything else. The U.S. is averaging 175k a month.
This isn’t indicative of the Fed cutting 50 basis points, or, even 1/4 basis point. Once the market absorbs that information, they’ll likely get out of these stock trades very quickly. Nobody likes to get caught long. I believe of people buying at this point are in very dangerous territory. The Neural Index is turning down, along with the RSI, which is overbought.
There are warning signs that it’s not a true rally, but rather a speculative one. This is what the VantagePoint AI software is picking up on, which has also been great at picking out the long trade, to the current levels we’re at. There’s always that possibility something could change, but when we need to understand that we’ve still got buyers.
Right now our critical VantagePoint level for the S&P500 is 29.37. It’s imminent that level is going to be tested next week, after that payroll number. We’ll see how this plays out, but right now, it’s very dangerous to buy.
One of the confirming indicators that I use to gauge the stock market with VantagePoint software is sweet crude oil. There’s a strong resistance area that’s been in place for several days, at 59.93. The Medium Term is crossing the Long Term predicted difference, warning us that this was getting ready to move lower. Oil has fought its way back up above 57.10 to finish the week, but it’s unlikely it’s going to hold if the stock market starts to move lower.
Forex Weekly Outlook for Major Pairs
Euro/U.S. Dollar (EUR/USD)
It’s been a busy week for our main Forex pairs. We’ll start with EUR/USD, the most heavily traded pair in the Forex market, as well as, one of the most stable pairs in the foreign exchange market. We’re coming into very heavily verified support, starting at 111.81, continuing down to the 111 area.
After everything is said and done, the Euro is still within range. Nothing has changed. Outside of 111, or above 114.50, there’s a bigger move for the EUR/USD. I believe we’re already moving into an oversold condition. The Euro likely starts the week very neutral to a bearish, which could shift by Wednesday or Thursday of next week. Watch the indicators and be prepared for potential dollar weakness, which would fuel dollar strength.
U.S. Dollar/Swiss Franc (USD/CHF)
The Euro’s counterpart, the USD/CHF, looking at key levels on VantagePoint software, there’s been above this zone, so we’ve got to be cautious of another bull trap.
If the equity markets, specifically the S&P 500 turns lower, it will likely pull this particular pair down with it, along with USD/JPY. We’re still well within the overall range here. It’s not overbought yet, so look for an extension of this move on Monday, and possibly part on Tuesday. But, be very cautious of a potential reversal, that will be triggered by the S&P. If it turns and moves lower, this particular pair will follow. Watch the T Cross Long, 98.79, we’re closing at 99.14. It needs to hold above 98.79 if this pair has any chance of extending higher.
British Pound/U.S. Dollar (GBP/USD)
The GBP/USD, when using these verified zones, you can see we have a zone of very heavy resistance. The market has been unable to penetrate this, repeatedly failing in this particular area. This isn’t something that’s happened over a day or two, but goes back to May 21, when these verified zones started forming in the VantagePoint artificial intelligence software.
The GBP/USD has been moving up and down, back and forth, but predominantly moving lower. It’s coming into very strong support. If we back this out a little bit on our charts, looking at this over a nine-month period, you’ll notice it’s moving down into the bottom part of this range, around 124.30. The probability that we reverse and go higher near that 124.30 is extremely high. Watch that area very closely, along with the VantagePoint indicators for any sign a reversal is coming, or money may be coming out of the U.S. dollar and going into the British pound. We’re moving into an oversold condition, but there’s still room for this pair to extend lower.
U.S. Dollar/Japanese Yen (USD/JPY)
As I was stated with the USD/JPY, it’s basically is a USD/CHF trade. On the USD/JPY, put all of the numbers aside, as well as, all the indicators aside. It needs to clear 109.50 and get out of this area altogether. Until then, this pair is a very clear sell on rallies.
It’s the same as the S&P 500. When it moves higher, we short it. Try to buy in dips if the trend is strong. But, this trend, or this potential reversal, is not strong. It will be dependent on the S&P 500, so watch it very closely. For now, this blocked out red area extending into the 109.50/109.90 area is the sell zone.
The Commodities Currencies
U.S. Dollar/Canadian Dollar (USD/CAD)
Moving into our three main commodity currencies, the Canadian unemployment report that was put out on Friday was a horrible number. There’s nothing good to report from the Canadian labor market. In the U.S. though, things are looking very good. So, I would be so bold as to say if anybody’s cutting it’s going to be the Bank of Canada, not the FOMC. I think the FOMC is really going to struggle to try and make an argument for rate cuts. But, with the Fed, up is down and down is up.
The Bank of Canada’s certainly no better. But, the USD/CAD pair will be front and center stage next week as the Bank of Canada announces its interest rate. In my opinion, they’re not moving for a hike, and they’re not moving for a cut. It’ll neutral, so there’s a heavy bias for a long on this pair now. The labor report out of Canada on Friday did nothing to support any kind of action on the Bank of Canada for even the smallest of 1/4 basis hike.
Longs are going to be favored until Wednesday when we get the Bank of Canada announcement. After that, this pair will go back to its normal intermarket correlations, following gold and oil. If gold and oil move higher, USD/CAD will move lower, or vice versa. That’s the play.
Australian Dollar/U.S. Dollar (AUD/USD)
The same applies to AUD/USD and NZD/USD. It’s desperately trying to hold. There’s a very high correlation to gold with these two particular pairs. Assessing the medium term crossing, the long term predicted difference is the leading indicator to stop this pair from moving higher. As it was moving higher that indicator went off and it started moving lower.
If the predicted RSI breaks below 40, the correction will likely continue down towards the 68.30 area. There is major support sitting in this particular zone, which we touched on Friday. That level is around 69.57.
We’ll see where we’re at on Tuesday and Wednesday. If we’re holding above 69.57, we should be able to extend higher. We’ll also look for that momentum indicator, the RSI, to start turning back to the upside.
New Zealand Dollar/U.S. Dollar (NZD/USD)
The same exact thing applies to New Zealand. You can see that NZD/USD is slightly more bearish than AUD/USD. It’s breaking down below that T cross long at 66.37 and RSI is breaking below 40. This could be a leading indicator for the AUD/USD pair, but my optimism remains guarded that the AUD/USD or NZD/USD are going to sell off.
I think they’re going to struggle at the beginning of the week, then towards the middle and latter part of the week, we should see these two pairs recover with gold. That’s what we want to watch. Can gold maintain and hold its gains? If it can, we’re going to see a number of these pairs follow gold.
This is the Forex Weekly outlook for the week of July 8, 2019.