Forex Trading Signals: USDX July-August 2018

■ Market: Foreign Exchange

■ Asset: USDX

In our previous analysis (May-June 2018), we forecasted a broad range for the US Dollar Index between 91.00 and 95.00 points. Today, the USDX trades just below the upper boundary of this range. If it breaks above 95.05, it could rise to 97.50 and possibly reach 100.40 points by summer 2018. On the other hand, if it falls, support is likely around 91.00.

---

The USDX Paradox

According to Phoenix Capital, “The US Dollar was at exactly that level at the end of 2017, and it was no problem. So what changed?” The difference is that back then, the Fed planned to tighten by $10 billion per month, or $120 billion annually. Today, the Fed is withdrawing $360 billion in liquidity per year and aims to increase that to $600 billion. Meanwhile, the ECB adds €30 billion per month. Regarding interest rates, the Fed raised rates seven times from 2016 to 2018, while the ECB kept rates negative.

The next Fed rate hike is expected in September 2018. Here’s our basic forecast for the rest of the year:

□ August (1st) Meeting → No Hike

□ September (28th) Meeting → 200–225 bps (Hike)

□ November (8th) Meeting → No Hike

□ December (19th) Meeting → 200–250 bps (Probable Hike)

---

USDX Technical Analysis

The US Dollar Index remains strong, but resistance at 95.05 is also firm. Below is the USDX daily (D1) chart.

Chart: USDX Daily

□ Short-Term Resistance Levels:

(↑) 94.95-95.05 (Very-Important)

(↑) 96.20-96.25

(↑) 97.45-97.65

(↑) 99.90-100.40 (Very-Important)

□ Short-Term Support Levels:

(↓) 92.35-92.40

(↓) 90.90-91.05 (Important)

(↓) 90.40-90.45

(↓) 88.30-88.50 (Important)

If the USDX breaks above 95.05, it could quickly rise to 97.50 and even reach 100.40 by summer 2018. If it falls below that level, support is likely around 90.90–91.05 and possibly down to 88.30–88.50.

---

Financial Updates

Key updates from around the world:

The Impact of an American-Chinese Trade War

Fitch Ratings warns again about the effects of protectionist policies on global trade. Fitch believes the current tensions between the US and China will reduce the chances of successfully renegotiating the NAFTA agreement, and there is also a risk that the US may fully withdraw. However, Fitch thinks the most likely outcome is a negotiated resolution. If not, the risk of a stronger negative impact on both economies—and global trade—increases. US exports to China were $187 billion in 2017. The direct impact of 25% tariffs on product lines between the two countries would only affect 0.2% of US GDP and 0.3% of China’s GDP.

Fitch also notes that growing market uncertainty could create macroeconomic risks. For example, a significant devaluation of the Chinese yuan could shock global markets and affect investment and trade flows.

The Price of Black Gold to Reach $85 in 2018

Despite extreme volatility, Morgan Stanley analysts are optimistic about oil prices. They expect Brent crude to hit $85 by the end of 2018. The main reason is the US embargo on Iran, which will fully take effect by November 2018, cutting Iran’s oil output by 1.1 million barrels per day. Additionally, oil production problems in Libya and Angola could remove another 0.6 million barrels per day in the second half of the year. Morgan Stanley expects Saudi Arabia’s production to rise to 10.8 million barrels per day in H2 2018, but Russia, the UAE, and Kuwait are unlikely to balance the market.

The UK Construction Sector Is Rising

June 2018 data from the UK construction industry exceeded analysts’ expectations. The housing sector remained the strongest, with new orders rising at the fastest pace since May 2017. Markit’s survey also noted an acceleration in input inflation compared to the previous month.

 

■ Free Forex Trading Signals: USDX July-August 2018

G. Protonotarios, Financial Analyst, » George at Linkedin

TradingCenter (July 5th ,2018)