With weaker-than-expected data and a dovish FOMC this week, short USD/CHF?
Trump reached a deal to reopen the government for three weeks until 15 February
Trump announced the reopening of the US government last Friday resulting in risk currencies rallying and dollar falling. The dollar weakened as investors are looking forward to an onslaught of economic releases which will corroborate the markets’ belief that the economy is slowing.
A The recent US government shutdown was the longest in history, recording at 35 days. This delayed many economic reports and left investors with only subtle hints and glimpses into how the US economy is performing. With FOMC and NFP ahead this week, it could drive the dollar either way depending on data and the tone that Powell takes.
We believe that no changes are expected during FOMC as Powell is likely to reiterate its current mantra that it can be “patient” in waiting for hikes in interest rates. Since December, inflation headed lower from 2.2% in November to 1.9% in December 2018. Similarly, consumer sentiment fell from 98.3 in December 2018 to 90.7 in January 2019 and US economic activity is slower.
The only saving grace was the labour market which remains strong with jobless claims falling to 200,000 for the first time in 49 years. Though we do not expect jobs created to surpass 310,000 which was clocked in December, an estimate of 200,000 is seen as a good sign to investors. The 800,000 federal workers that were furloughed during the shutdown will be counted as employed in the Bureau of Labour Statistics’ payroll survey.
Lastly, the US-China trade tensions continue to keep investors on edge as Chinese Vice Premier Liu He will be visiting Washington on 30 January for two days of trade negotiations with his American counterparts. If a trade deal is not reached by the March 1 deadline, the US tariffs on Chinese goods will increase from 10 to 25%. Commodities’ currency will tank if negotiations were to go south.
EUR/USD – Slightly bulish
After forming a false breakout, this pair could continue to move higher towards the 1.1470 price level.
USD/CHF – Bearish
USD/CHF was rejected at its 0.9980 resistance and with a dovish FOMC expected, it could push this pair lower.
XAU/USD (Gold) – Slightly bullish
We expect price to rise towards 1313 this week.
Fullerton Markets Research Team
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