Dollar: downward trend to continue after technical correction

Trading 04 Déc 2020 Commentaire »

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The dollar index has lost 3.7% since the beginning of November, remaining less than 2.5% above the area of the lows of early 2018. Its prospects are not encouraging, as the factors do not play on the greenback's side. Leading world experts agree that the greenback will face a full-scale collapse next year. Citigroup expects devaluation at 20%, Morgan Stanley at 35%, and economists Peter Schiff and Stephen Roach announced the likelihood of a collapse of 50%.

A record economic growth or a tightening of monetary policy by the Federal Reserve can stop the dollar's fall. But none of the events will happen in the near future.

The greenback was confused by the pandemic that hit the country at the most inopportune moment - the presidential elections and the end of the 10-year cycle of economic growth. The negative impact from the spread of the coronavirus has intensified on the economy, this is also due to the trade war and the increase in the money supply. The dollar has become less attractive in its usual role as a safe haven currency. Other alternative tools are currently the most popular.

The efforts of outgoing President Donald Trump were aimed at reducing the trade deficit by imposing duties on European and Chinese goods. This should have forced some companies to relocate their production to the United States. As a result, new jobs would appear in the country and the dollar would rise. In practice, everything turned out differently, and the trade deficit grew stronger.

The influence of politics on the US economy can also be traced in the Fed's actions. There is a correlation between the rise of the stock market and the re-election of the president for the next term, so Trump was excited about the growing market. The central bank's obligations do not include support for the stock market, but it bought securities of various ETFs and, thus, supported the stock market. Along with filling the market with fresh dollar liquidity and a decrease in the refinancing rate, this led to an increase in the money supply by 22%.

The number of dollars on the market may increase in the near future, as Congress is considering a new package of assistance to the population and business. Meanwhile, the dollar index came as close as possible to a 3-year low. So far, the 90-point mark has not been broken down, but this option is not ruled out. The Fed just increased the volume of daily purchases of government bonds by five times, which may trigger a sell off in the dollar.

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In addition, the Nonfarm payroll report turned out to be worse than expected. The number of people employed in the non-agricultural sectors of the economy grew at the lowest rate since May - by 245,000. Markets expected an increase of 469,000 in the number of employees in the sector. Growth in the number of new jobs in November slowed for the fifth consecutive month. Meanwhile, the unemployment rate fell to 6.7% in November from 6.9% in October, analysts had expected a decrease to 6.8%.

The gloomy data is potentially good news for investors, as it means that the stimulus bill is likely to be passed in a fairly short time. The US stock market is in the green zone, and this is additional pressure for the dollar.

Given the pace of the dollar's weakening, the EUR/USD pair may reach the 1.25 level by the end of December. However, we do not exclude the possibility of a technical correction before that.

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The euro came close to 1.22 on Friday, and now everyone is wondering what will happen next. Technically, the euro has an opportunity to reach the 1.24 level, but it will not be as easy as it may seem at first glance. There is another factor aside from the two important December meetings – the ECB and the Fed. At some point, it can play a key role.

The dollar now acts as a funding currency, and it is unlikely that anyone will argue with this. Assets move synchronously: stock markets grow, which means the dollar falls. It is obvious that the reverse movement in the markets will abruptly change the dollar's direction, that is, cause its rapid growth. It is not clear at what point this may happen. Perhaps the signal for investors will be achieving 1% on 10-year US bonds. According to analysts, the markets are very close to such an unpleasant outcome.

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USDCAD breaks below 1.28

Trading 04 Déc 2020 Commentaire »

USDCAD has broken below our target area of 1.30-1.29 as expected when price got rejected back at 1.3150. Price slowed down yesterday around 1.2950-1.2980, but eventually bulls were unable to stop the power of selling by bears. Price has broken below key long-term support levels and looking at longer-term charts we only find horizontal support levels around 1.26.

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Green line - major support (broken)

USDCAD is in a clear weekly bearish trend making lower lows and lower highs. With price below 1.28 we can safely lower our stops to 1.30 from 1.31 and if next week price moves towards 1.26, we can lower stop to 1.2950. The weekly RSI is far from oversold levels. There will be price bounces towards resistance around 1.29, but I expect to see more selling to come and push price even lower towards 1.26.

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Gold to end the week near intra weekly highs.

Trading 04 Déc 2020 Commentaire »

Gold price made another attempt towards $1,850 today but price got rejected once again. Bulls should get worried if after a rejection price moves away too far from $1,850. Bulls should be worried if after the rejection price breaks below short-term support of $1,820.

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Blue rectangle - resistance area

Black lines -Fibonacci retracements

Gold price is trading near but below the key resistance of $1,850-60. This area was once key support and is now key resistance. I do not expect Gold to break this level, at least not now. I believe we will first see a pull back at least towards the 38% Fibonacci level if not towards the 61.8% before the resumption of the bullish move that started last week at $1,763. At current levels I prefer to be neutral if not bearish. Before weekend I avoid opening new positions. That is why I prefer to wait and see how Monday starts before jumping in the market and before choosing sides.

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EURUSD slows down pace at the end of the week

Trading 04 Déc 2020 Commentaire »

A bullish week comes at its end with price closing near the weekly highs. Trend remains bullish but next week could start with a downward move. We expect to see a pull back towards 1.21 as we explained in our last analysis and today's price action seems to confirm this view.

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Blue lines - bullish channel

Green line - expected path

Red lines - Fibonacci extensions

EURUSD is turning lower from the 1.2177 highs. Now trading at 1.2127, price has some more room to fall in order to get close to the lower channel boundary. Our expectations for the start of next week is to see price below 1.21. before turning higher again. Important support is found at 1.20. There we find the 38% Fibonacci retracement.

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Ideal scenario for bulls would be a pull back towards 1.20 and the 38% Fibonacci level before the up trend resumes towards 1.2350-1.24. The upside target will depend on the depth of the pull back we expect to see next week.The material has been provided by InstaForex Company - www.instaforex.com

U.S. Factory Orders Jump More Than Expected In October

Trading 04 Déc 2020 Commentaire »

Data released by the Commerce Department on Friday showed new orders for U.S. manufactured goods increased for the sixth consecutive month in October.

The Commerce Department said factory orders climbed by 1.0 percent in October after surging by an upwardly revised 1.3 percent in September.

Economists had expected factory orders to increase by 0.8 percent compared to the 1.1 percent jump originally reported for the previous month.

The report said orders for durable goods shot up by 1.3 percent, unchanged from the previously published increase, while orders for non-durable goods rose by 0.7 percent.

Shipments of manufactured goods also increased for the sixth consecutive month, jumping by 1.0 percent in October after rising by 0.5 percent in September.

Meanwhile, the Commerce Department said inventories ticked up by 0.2 percent in October after edging down by 0.1 percent in September.

With shipments rising by more than inventories, the inventories-to-shipments ratio slipped to 1.41 in October from 1.42 in September.


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U.S. Trade Deficit Widens As Imports Rise More Than Exports

Trading 04 Déc 2020 Commentaire »

With the value of imports rising by more than the value of exports, the Commerce Department released a report on Friday showing the U.S. trade deficit widened in the month of October.

The report said the trade deficit widened to $63.1 billion in October from a revised $62.1 billion in September. Economists had expected the deficit to widen to $64.8 billion from the $63.9 billion originally reported for the previous month.

The wider deficit came as the value of imports increased by $5.0 billion or 2.1 percent to $245.1 billion, while the value of exports climbed by $4.0 billion or 2.2 percent to $182.0 billion.

The increase in the value of imports reflected notable growth in imports of cell phones and other household goods, computer accessories and industrial supplies and materials.

Meanwhile, significant growth in exports of natural gas, organic chemicals, civilian aircraft and semiconductors contributed to the increase in the value of exports.

"With a slowdown in consumption weighing on goods imports and the recovery in production and exports still catching up, the trade deficit is likely to be little changed over the coming months," said Michael Pearce, U.S. Senior Economist at Capital Economics.

The report said the goods deficit widened to $81.4 billion in October from $80.8 billion in September, while the services surplus fell to $18.3 billion from $18.7 billion.


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*U.S. Factory Orders Jump 1.0% In October

Trading 04 Déc 2020 Commentaire »

U.S. Factory Orders Jump 1.0% In October


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Dollar Rebounds After Weak U.S. Jobs Data

Trading 04 Déc 2020 Commentaire »

The U.S. dollar recovered against its major counterparts in the European session on Friday, as a sharp slowdown in U.S. job growth for November lifted the appeal of the safe-haven currency.

Data from the Labor Department showed that the non-farm payroll employment rose by 245,000 jobs in November after jumping by a downwardly revised 610,000 jobs in October.

Economists had expected employment to increase by 469,000 jobs compared to the addition of 638,000 jobs originally reported for the previous month.

Despite the weaker than expected job growth, the unemployment rate dipped to 6.7 percent in November from 6.9 percent in October. The unemployment rate was expected to edge down to 6.8 percent.

Data from the Commerce Department showed that the U.S. trade deficit widened in the month of October.

The report said the trade deficit widened to $63.1 billion in October from a revised $62.1 billion in September. Economists had expected the deficit to widen to $64.8 billion from the $63.9 billion originally reported for the previous month.

The wider deficit came as the value of imports increased by $5.0 billion or 2.1 percent to $245.1 billion, while the value of exports climbed by $4.0 billion or 2.2 percent to $182.0 billion.

Risk sentiment improved on optimism over a swift economic recovery from the coronavirus pandemic.

House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell held discussions on a coronavirus stimulus deal as Congress races to reach an accord and avoid a government shutdown.

McConnell said there were "hopeful signs" for striking a stimulus deal before the end of the year, but he did not elaborate in detail.

The currency showed mixed performance against its major counterparts in the Asian session. While it rose against the yen, it dropped against the pound and the euro. Against the franc, it held steady.

The greenback edged up to 104.11 against the yen, after having dropped to 103.74 at 7:30 pm ET. The pair was worth 103.83 when it ended deals on Thursday. Should the greenback continues its rise, 108.00 is possibly seen as its next resistance level.

The greenback bounced off to 0.8917 against the franc, after falling as low as 0.8886, which was its weakest level since January 2015. At Thursday's close, the pair was valued at 0.8903. The greenback is seen finding resistance around the 0.92 level.

The greenback advanced to 1.2132 against the euro, from a 2-1/2-year low of 1.2178 touched at 5:45 am ET. The pair had closed Thursday's deals at 1.2139. On the upside, 1.18 is possibly seen as its next resistance level.

Data from Destatis showed that German factory orders grew at a faster pace in October.

Factory orders grew 2.9 percent on month in October, faster than September's 1.1 percent rise. Orders were forecast to climb 1.5 percent.

In contrast, the greenback declined to 1.3539 against the pound, a level unseen since May 2018. The pound-greenback pair had finished yesterday's trading session at 1.3441. The greenback is poised to find support around the 1.42 level.

Survey data from IHS Markit showed that the UK construction sector continued to expand in November as new orders grew the most since late 2014.

The IHS Markit/Chartered Institute of Procurement & Supply construction Purchasing Managers' Index rose unexpectedly to 54.7 in November from 53.1 in October.

U.S. factory orders for October are set for release at 10:00 am ET.


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U.S. Employment Rises Much Less Than Expected Amid Surge In Coronavirus Cases

Trading 04 Déc 2020 Commentaire »

Reflecting renewed restrictions amid the recent surge in new coronavirus cases, the Labor Department released a report on Friday showing U.S. job growth slowed by much more than anticipated in the month of November.

The Labor Department said non-farm payroll employment rose by 245,000 jobs in November after jumping by a downwardly revised 610,000 jobs in October.

Economists had expected employment to increase by 469,000 jobs compared to the addition of 638,000 jobs originally reported for the previous month.

The weaker than expected job growth was partly due to the loss of 99,000 government jobs amid a decline in the number of temporary census workers.

At the same time, the report also showed a decrease in retail employment as well as a significant slowdown in the pace of job growth in the leisure and hospitality sector.

The Labor Department said the increase in employment in November reflected notable job gains in transportation and warehousing, professional and business services, and healthcare.

Despite the weaker than expected job growth, the report said the unemployment rate dipped to 6.7 percent in November from 6.9 percent in October. The unemployment rate was expected to edge down to 6.8 percent.

However, the bigger than expected drop in the unemployment rate came as a 400,000-person decline in the labor force far outpaced the 74,000-person drop in the household measure of employment.

"The latter is not too much of a concern given it follows a 2.3 million gain in October, but the drop in the labor force, which is now 4 million below its pre-pandemic level, is a worrying sign that the unemployed are giving up looking for work," said Michael Pearce, U.S. Senior Economist at Capital Economics.

The report said average hourly employee earnings rose by $0.09 or 0.3 percent to $29.58 in November. Annual wage growth was unchanged from the previous month at 4.4 percent.


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U.S. Trade Deficit Widens In October

Trading 04 Déc 2020 Commentaire »

With the value of imports rising by more than the value of exports, the Commerce Department released a report on Friday showing the U.S. trade deficit widened in the month of October.

The report said the trade deficit widened to $63.1 billion in October from a revised $62.1 billion in September. Economists had expected the deficit to widen to $64.8 billion from the $63.9 billion originally reported for the previous month.

The wider deficit came as the value of imports increased by $5.0 billion or 2.1 percent to $245.1 billion, while the value of exports climbed by $4.0 billion or 2.2 percent to $182.0 billion.


The material has been provided by InstaForex Company - www.instaforex.com