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Near-Term USD Correction?

By Kathy LienForexMay 24, 2019 02:14PM ET
www.investing.com/analysis/nearterm-usd-correction-200424983
Near-Term USD Correction?
By Kathy Lien   |  May 24, 2019 02:14PM ET
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Kathy Lien, Managing Director Of FX Strategy For BK Asset Management

Daily FX Market Roundup May 24, 2019

The US dollar hit fresh multi-month highs versus the euro, sterling, Australian and New Zealand dollars this past week, but the greenback actually ended the week lower against most of the major currencies. This reversal has many traders wondering if there could be a steeper near-term correction in the U.S. dollar. Fundamentally, the U.S. economy is performing better than its peers and slower global growth will hurt the economy less than the Eurozone, Australia or New Zealand. However, even though the FOMC minutes were upbeat, the cracks are beginning to show according to the latest economic reports as home sales and durable goods orders decline. There’s very little market-moving U.S. data next week but the ones that are scheduled for release could hurt more than help the U.S. dollar. The risk is to the downside for consumer confidence because stocks have fallen. Personal income and spending could also soften due to lower earnings growth and retail sales. Technically, USD/JPY rejected the 20-day SMA and is trading below 110, which opens the door for a move down to 109. But the primary catalyst for a near term correction in the US dollar should be short covering. Euro is a tougher call because of the unpredictability of the European elections, but GBP/USD, AUD/USD and NZD/USD should bounce.

Meanwhile we continue to operate in a headline-driven market. Investors will be watching Sunday’s European election results closely and will keep an eye on nominations for new UK Prime Minister. US markets are closed on Monday for Memorial Day so liquidity will be lower but with the election results out, this could mean greater and not lower volatility for currencies. The Swiss franc and Australian dollar were the best performers last week while sterling lagged behind. With the markets focused on Europe, we could see a further near-term recovery in AUD and NZD.

Given the importance of the election and the possibility of a gap open in EUR/USD Sunday, we are reposting our comments on the election. When the markets open on Sunday night, we could see a big move in the euro. After hitting 2-year lows this week, EUR/USD traded back above 1.12 ahead of European election results. Elections will be held in 28 countries across the European Union for seats in the 751-member European Parliament. This Parliament will make crucial decisions for the Union over the next 5 years that will include border control, national autonomy and Britain’s relationship with the EU. This is the world’s second largest democratic vote (after India’s general election) and while turnout in past years tend to be low, the races are tight and we could see greater than usual participation. Nationalist euro-skeptic movement is growing and many investors are worried that populist parties could make strong headways. By market open on Sunday, we should know whether anti-EU parties gained enough seats to block legislative business. While it is widely believed that anti-EU sentiment will be negative for the euro, populism hasn’t been negative for currencies. Just take a look at the US and Australia – protectionist policies helped rather than hurt the greenback while the Australian dollar surged after the surprise victory by Prime Minister Morrison. Populism is going strong and it hasn’t been a crushing blow for any of these currencies. Does that mean the euro will rise if there’s strong support for Eurosceptic or anti-European groups? It is hard to say but what’s clear is that we can’t assume that their victory will be negative for the currency.

Politics will continue to overshadow economics in the coming week. Euro traded higher despite softer data. According to the latest reports, service and manufacturing activity expanded at a slower pace in Germany and the Eurozone. The German IFO report also declined with the business climate index falling to its lowest level since 2014. The trade war weighed heavily on business sentiment and according to IFO President Fuest, “there is reason to worry, particularly about the manufacturing index.” Markit Economics also noted “subdued business growth amid stagnant demand.” The euro fell in response but the decline in U.S. dollar sparked a wave of end-of-week profit taking that helped EUR/USD end the week higher. German labor market, inflation and retail sales are scheduled for release next week – we are looking for softer labor-market numbers and a recovery in inflation and spending.

Near-Term USD Correction?
 

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ABDUS SATTAR HIRON
ABDUS SATTAR HIRON May 28, 2019 6:18PM ET
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I was right, as usually.. pro EU parties won. High bullish for EUR!
HelliumStar ..
HelliumStar .. May 27, 2019 12:10AM ET
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I was right, as usually.. pro EU parties won. High bullish for EUR!
Nyamdavaa Demberelsuren
Nyamdavaa Demberelsuren May 26, 2019 11:09PM ET
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Best
Chris Poulos
Chris Poulos May 26, 2019 1:49AM ET
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Just started reading your articles. Good job ...
Apiwat Sirikomut
Apiwat Sirikomut May 25, 2019 5:45PM ET
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Always awesome
DEVAa senapathi
ADEVA May 25, 2019 10:34AM ET
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Very thanks.... You are always writing that good for all.....
Chike Ifeanyi
Chike Ifeanyi May 25, 2019 8:21AM ET
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Just started reading your articles. Good one, thanks
Nhan Huynh
Nhan Huynh May 25, 2019 5:20AM ET
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Great insight. Thanks.
david tembo
david tembo May 25, 2019 12:29AM ET
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Just started reading your articles. Good insight...
Ali Sabzabadi
Ali Sabzabadi May 24, 2019 9:05PM ET
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Alway enjoy reading your report. thanks
Stephen Edegwafe
Stephen Edegwafe May 24, 2019 6:46PM ET
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You always get it right.i think I will your clues about strong EUR upward favoured next becos of EUR election.i believe you.usd/ jpy 110-114 EUR/USd should near 1.1100 or below very closely that was your clues sometime ago.it was great.iam convince that EUR will be boom next week.
brad merck
brad merck May 24, 2019 6:46PM ET
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Usdjpy 110-114 ?? The war continue
Naeem Javaid Nomi
Nomi007 May 24, 2019 5:40PM ET
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Excellent analysis, 100% right
alireza hadipoor
alireza hadipoor May 24, 2019 5:38PM ET
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yes
Dwain Hobbs
Dwain Hobbs May 24, 2019 5:24PM ET
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As always good analysis, thanks
brad merck
brad merck May 24, 2019 4:03PM ET
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a war between the US and Iran favors the dollar or the yen?
Vi Miranda
unknown314 May 24, 2019 4:03PM ET
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yen
Partap Singh
Partap Singh May 24, 2019 2:53PM ET
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thank you Kathy
 
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