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Free Forex Trading Signals: The US Dollar Index (USDX) December 2016

■ Market: Foreign Exchange

■ Asset: US Dollar Index (USDX)

Forex Market Outlook

The global markets are still feeling the impact of Trump’s victory. Forex market volatility in recent weeks has been very high. The US Dollar strengthened, with the USDX (US Dollar Index) reaching a 13.5-year high. There was a significant move in USD against the Japanese Yen (USDJPY), possibly indicating that the Bank of Japan is preparing for a long-term weaker Yen to counter Trump’s new trade policies. The Euro is also under pressure due to the rise of right-wing extremism worldwide. In this fast-changing environment, the Fed is expected to raise US rates, while the ECB remains uncertain about how much it will extend its large asset purchase program (QE), which ends in March 2017.

TradingCenter’s TCI on USDX

In the past few weeks, the US Dollar Index (USDX) has risen sharply, as shown in the chart below. The lower chart shows the TCI for the same period. The TCI suggests the USDX may continue to rise after a short-term price consolidation. Below you can see the TCI readings for the past 15 trading days and the forecast for the next 15 trading days.

Chart: USDX 2012-2016 (upper chart), TCI (lower chart)

Our indicator (TCI) indicates that the USDX can grow furthermore, after a short-term price consolidation.

Forex Trading Signals

Trading the Global Financial Markets in the Last Quarter of 2016

■ Forex Markets: EURUSD is expected to keep ranging, GBP may face more selling pressure, and the AUD uptrend could continue

■ Equity Markets: The focus is on the US elections, with odds favoring sellers

■ Energy Markets: A production cut of 1 million BPD is expected in late November; if Iran and Saudi Arabia confirm, crude could reach $60 per barrel

Increased Volatility Ahead of the US Elections in November

In recent weeks, global markets have been quite volatile. UK Prime Minister Theresa May set March 2017 as the start date to leave the EU, pushing the British pound lower against both the euro and the US dollar. As we’ve noted before, EURUSD is likely to keep trading in a range until the US elections. Both the ECB and Fed see the EURUSD rate as a stabilizing factor amid current financial instability.

Equities remain near record highs, but the real test will come after the US election on November 8, 2016. Oil prices have risen following a historic agreement between OPEC and non-OPEC countries to cut production by nearly 1 million BPD in late November.

Foreign Exchange Markets

The British pound dropped further after Theresa May’s announcement to begin Brexit talks by March 2017, aiming for a UK exit by 2019. The pound hit a post-Brexit low against the euro. UK Chancellor Philip Hammond warned of Brexit-related turbulence and noted that the Forex market expects the pound to weaken further.

In September, Jean-Claude Juncker announced plans to double the duration and financial strength of the European Fund for Strategic Investments. He said, “We will ensure the European Investment Fund provides at least €500 billion by 2020 and aim to reach €630 billion by 2022.”

The US Dollar remains quite strong. In September, Janet Yellen said the case for raising short-term US interest rates has grown stronger due to solid job growth. The US Dollar Index (USDX) continues to consolidate ahead of the November 2016 US elections but maintains bullish momentum, trading within the channel (A1:A2).

Forex Trading Signals

Free Forex Trading Signals: EURUSD & AUDUSD May 2016

■ Market: Foreign Exchange

■ Forecast: EURUSD to Range / Commodity Currencies to Correct in May

It seems the Foreign Exchange market has entered a new phase. Recent economic data from both sides of the Atlantic make the ECB and Fed less willing to accept further currency gains. Both central banks worry that tighter monetary policy could directly hurt the real economy. So, it’s not surprising to see EURUSD trading in a wider range between 1.05 and 1.17 for some time. Meanwhile, commodity currencies like the Canadian Dollar, Australian Dollar, and New Zealand Dollar are quickly gaining against EUR and USD. In early 2016, the Australian Dollar rose against the US Dollar from 0.68 to 0.78, and the USD dropped against the Canadian Dollar from 1.46 to 1.26. These sharp moves reflect that most commodity prices hit their lowest point in early 2016 and are now rising fast. Keep in mind, AUD is closely tied to gold prices, and CAD is closely tied to crude oil.

Our Previous TCI Trading Signal

In our early March 2016 Trading Signal, we forecasted a bullish British Pound against the US Dollar. Back then, GBPUSD was trading at 1.3913. We advised to “focus on long GBPUSD positions, targeting momentum that could push GBPUSD to 1.41 and then 1.43.” By mid-March, GBPUSD hit both targets and is now trading above 1.45. The TCI trading signal was fully confirmed.

Macroeconomic Outlook

Commodity Prices and China

Commodity prices hit their low in early 2016 and are now rising quickly. Many analysts attribute this to growing Chinese demand, tighter supply, and the chance of a weaker US Dollar. In a recent report, Citigroup stated, “There is growing evidence that nearly all commodities have hit a price bottom and are looking to return to normal.” The report also noted that oil and natural gas markets are recovering, while industrial metals are rising as China’s property market improves.

Forex Trading Signals

Free Forex Trading Signals: GBPUSD and EURUSD March-April 2016

■ Market: Forex

■ Asset: GBPUSD and EURUSD

■ TCI Forecast: GBPUSD Reversal in March and Uptrend (↑)

Nothing is discussed more these days than Brexit. Britain’s prime minister set June 23rd, 2016, as the date for a referendum on Britain’s membership in the European Union. The Forex market reacts strongly to Brexit and its possible effects.

Eurozone Challenges and What They Mean for EUR/USD

Against the general market view, I believe a potential Brexit will hurt the EU more than Britain. It will damage the EU economically, but even more politically and geopolitically. It will also create uncertainty about which country might leave next. The Eurozone will inevitably feel the effects of Brexit in the coming months. Additionally, the problem of uncontrolled immigration in the EU worsens, but can still be managed. In this uncertain environment, EURUSD is trading lower.

Major Investment Banks Forecast EURUSD in 2016

The table below shows major investment banks’ forecasts for EURUSD in 2016. The average forecast is 1.073 for Q1 and 1.053 for Q4.

Table: EURUSD rate in 2016

EURUSD

Q1 2016

Q2 2016

Q3 2016

Q4 2016

HSBC

1.15

1.16

1.18

1.20

Citigroup

1.09

1.06

1.03

1.03

Credit Suisse

1.04

1.03

1.01

1.00

Barclays

1.07

1.03

0.98

0.95

JP Morgan

1.05

1.03

1.08

1.13

Morgan Stanley

1.04

1.03

1.02

1.01

Average

1.073

1.057

1.050

1.053

Forex Trading Signals

Forex Report January 2016 –The US Dollar Index (USDX)

Our Previous Forex Trading Signal

In our previous trading signal (November 2015), we said December would be a good month for the EUR against the USD. In fact, EURUSD reached 1.05 in early December 2015 before making a strong move up to 1.1059. After the Fed raised rates in mid-December, EURUSD stayed between 1.07 and 1.098.

Fed Rates Hike – What Happens Next

In December, the Fed raised US interest rates by a quarter, ending a long period of near-zero borrowing costs. This decision affects many areas of finance, including Forex markets, USD exchange rates, bond markets, stock markets, and commodities. Remember, the price of every financial instrument competes with the risk-free returns from interest rates.

Forecasting Upcoming Rate Hikes Based on CME Futures

USD rates are expected to rise by 1.50-0.75% over the next two years. According to CME Group 30-Day Fed Fund futures prices, there is a 50.3% chance of a 0.25% rate increase in March 2016. The pace of Fed tightening might speed up in the second half of 2016. Overall, the median forecast suggests the Fed will raise rates by 0.50-0.75% in 2016 and another 1.00% in 2017.

The Impact on the US Dollar and EURUSD

In many TradingCenter Forex reports over the past 15 months, we said 2015 would be the year of the US Dollar. Indeed, 2015 was an exceptional year for the USD. But will 2016 be as good for the USD?

In four of the last five Fed rate hike cycles, the USD peaked around the first hike. This suggests that the USD tends to move opposite to Fed rate cycles. The reason is that markets often anticipate expected events before they happen.

However, keep in mind that statistics don’t tell the whole story. We cannot rule out EURUSD hitting parity (1:1) or even dropping below 0.9 in 2016-2017. In other words, a major EURUSD downtrend before a long-term turnaround is possible. Historically, USD bear markets lasting 9-10 years are followed by USD bull markets of 6-7 years. From this view, we may see two more years of a USD rise.

  1. EURUSD and USDX November 2015
  2. US Dollar Index (USDX) and EURUSD October 2015
  3. EURUSD, GBPUSD Trading Signals July-August 2015
  4. EURUSD Trading Signal May-June 2015

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