The past few weeks have been loaded with economic drivers that have kept FX markets on the move. The economic docket for this week is considerably lighter, as we have but a handful of ‘high impact’ announcements on the calendar, and this can be an ideal time for traders to read price action in the effort of seeing where those next big themes might develop. Below, we look at three of the more pursing themes along with what traders might want to watch out for in the week ahead.
The U.S. Dollar: Strength to Stay or Will Buyers Stand at Bay?
Last week was the first that the U.S. Dollar didn’t lose value since the first week of July, and most of that movement came on the final day of the week after a solid NFP report squeezed USD-shorts. As we walk into this news-light week ahead, this is likely the theme that’s on the forefront of traders’ minds, as the jaw-dropping run of weakness in the U.S. Dollar so far this year hastened throughout the month of July and showed few signs of abating until Friday’s NFP report.
U.S. Dollar Daily Chart via ‘DXY’: Channel Support Test After a Brutal July
Chart prepared by James Stanley
From the weekly chart, we can see the Doji that printed last week after prices had breached the prior swing around the 93-handle. This was the final downside target in our Q3 forecast for the U.S. Dollar, and on the chart below, we can see how there was but one remaining swing from 2016 price action that has yet to be taken-out, and this resides at 91.92, which was the May, 2016 low.
U.S. Dollar Weekly Chart via ‘DXY’: Doji Prints after Breach of 93-handle
Chart prepared by James Stanley
The big question for FX markets as we move into this news-light calendar is whether or not Dollar bulls have more than a one-day showing. As we discussed last week, the Dollar had moved to extreme-oversold levels by a variety of metrics after the first seven months of the year saw more than 10% taken-out. This heavy short-side sentiment was likely a contributing factor to the pop in prices on Friday after a solid NFP report, but are we at a stage where diminished expectations for U.S. data are going to become easier to beat?
