The USD moved broadly lower following the announcement that U.S. President Donald Trump intends to place a 25% tariff on steel imports and a 10% tariff on aluminium. That Powell also back-tracked slightly also didn't help the dollar's cause, but the main driver appeared to be Trump's unexpected announcement. U.S. stocks extended losses for a third session, while U.S. yields gained traction as fickle money flowed back into bonds. If these tariffs are to be implemented, our roadmap to market direction may have been laid bare for the coming months as markets reacted in a similar fashion following George W. Bush's 30% levy on steel.
So as we head for the weekend, the USD is on the back foot from a few simple words from Trump. Yet words need to be backed up by action, so failure to implement them could see a quick reversal of fortune for the dollar once more. Trump may not listen to the retort from trade partners as he seemingly enjoys global confrontation, but with mid-term elections fast approaching, he may have a more sympathetic ear for his base and domestic companies he vowed to protect. With that in mind, we’ll take a closer look at the USD pairs as sentiment towards it may have soured ahead of the weekend.
If you follow FX majors regularly, you may have noticed that they don’t always change trend or correct at the same time. Often we’ll see a pair such as USD/CAD play the ‘canary in the coal mine’ by changing trend first, before other majors follow suit and a directional twist is unleashed on the U.S. dollar. Other times, you’ll notice similar reversal patterns across the board as a jolt is sent the dollar’s way. We may have just seen one of those days, having flagged 5 daily reversal candles on majors today (6 including SGD)
AUD: Bullish Pinbar suggest failed break beneath Feb low
CAD: Shooting star below Dec 2017 highs
CHF: False break above 0.9469, now trading beneath yesterday’s low
EUR: Bullish engulfing suggest failed break beneath 1.22 and 50%
NZD: Bullish engulfing
SGD: Bearish engulfing yesterday, potential to coil up into a bearish triangle
EUR had teased bears as it balanced precariously on 1.2205 support before making a mild effort to push lower. We’d outlined the potential for a double top formation yet its failed breakout and bullish engulfing candle put this idea to bed.
Yesterday’s candle almost perfectly respected the 61.8% retracement to form a potential swing low. That the April trendline remains unchallenged while Euro trades above the 50-day average is also something for bulls to feel confident about. However, due to the Italian election over the weekend and ECB meeting on Thursday, we may get limited opportunity to trade the Euro next week as the unpredictable nature of such events removes it from our watchlist. But for a guide to USD sentient, EUR/USD certainly serves its purpose.
In focus for Europe:
Italian elections (over the weekend), GDP on Wednesday, ECB meeting on Thursday
Yesterday, AUD broke 0.7759 to hit its lowest level in 2018 – a potential headline grabber. Unfortunately, bears failed to hold onto their gains and AUD made no attempt to break its lower keltner band. Instead the session closed with a bullish pinbar accompanied with an RSI bullish divergence, literally making yesterday’s headline-grabber old news.
That said, whilst AUD may have printed a near-term reversal, the upside potential from here appears to be less compelling than others we have seen. Unless RBA surprise is with a hawkish meeting but we won’t be holding our breath just yet.
In focus for Australia:
GBP on Wednesday, Trade balance and RBS (LON:RBS) meeting on Thursday
CAD also produced a pinbar, only this time it is trading outside the upper bollinger band to warn of over-extension. It has also met resistance beneath December’s highs, which raises the potential for a retracement. However, RSI is not overbought and the daily trend structure is firmly bullish with well-defined cycle lows and timely retracements. So, in this instance, we look forward to a low volatility retracement which will hopefully allow bullish setups to be considered next week.
In focus for Canada:
GDP, Ivey PMI next Monday, BoC meeting on Wednesday and employment on Friday.
SGD trades just beneath its 50-day average after a failed break higher, and remains within an established bear trend. Furthermore, yesterday’s bearish engulfing candle may end up forming a swing high within a descending triangle.
It is difficult to say if or how this may translate into a trade within our criteria, but it is another piece of the puzzle which suggests USD may struggle over the near-term. Further out, if SGD continues to coil within a triangle, we can consider trading a break of the triangle or hone in on lower timeframes and identify bursts of bearish momentum which aligns itself with the dominant, bearish trend.
In focus for the U.S.:
Anything surrounding Trump (most likely trade or Russia related), Fed members throughout the week, consumer sentiment and ISM non-manufacturing on Monday, NFP on Friday.