US Dollar Forecasts Against GBP, EUR, AUD, CAD and NZD
Our analysis concerning the next potential moves in the major US dollar exchange rate pairings at the start of February.
Monday morning got off to a poor start for markets and risk currencies when Chinese Manufacturing PMI disappointed.
This has lead to dollar weakness owing to emphasis on ‘global factors’ in the January FOMC statement which suggests the US Federal Reserve could ease back on raising interets rates.
Also weighing on the USD is a below-expectations ISM Manufacturing Index reading which hit 48.2 in January; markets had expected 48.4.
"The report is consistent with our outlook for tepid activity and employment growth in the US manufacturing sector this year. The continued appreciation of the trade-weighted dollar is hurting US manufacturers’ competitiveness in many foreign markets, where demand continues to deteriorate. We expect this trend to continue in the near term," says Jesse Hurwitz at Barclays.
The GBP to USD exchange rate rose sharply to 1.4433 on the back of the news while the EUR to USD rate shot higher to 1.09 again.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3351▲ + 0.18%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2897 - 1.295 |
**Independent Specialist | 1.3164 - 1.3217 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
However, the big economic release for the US dollar exchange rate complex in the coming week is Non-Farm Payrolls on Friday.
The dollar currently enjoys the support provided by expectations for higher US interest rates over coming months; in turn the US Federal Reserve will continue to watch the employment situation when gauging whether or not further pro-USD rate rises are warranted.
Analysts appear to be looking for a result much lower than the previous months monster 292k reading, with the general consensus seeming to rest on the 170k region, as exemplified by TD Securities who wrote this about the up-and-coming piece:
“TD expects the pace of employment growth to slow to 177K, down from the brisk 292K pace in December, which would mark the slowest pace of job growth since September 2015.”
Bank of America see a similar disappointment lurking in the non-farm payroll numbers:
“We expect NFP to slow to 170K, as the impact of favourable weather fades. We see asymmetric market risks, as even a strong print could be questioned by markets.”
It’s worth bearing in mind, however, that this metric has lessened in its power to move markets as global risk factors and wages have taken over some of the ground previously the preserve of payrolls and are probably just as influential in terms of the outlook for Fed policy as NFP’s was during the ‘taper tantrum’ years.
US Dollar Forecasts: What the Charts Say
As far as the charts go, EUR/USD is still stuck in its gently-sliding, sideways channel, after the initial post-ECB booster.
Really, my forecast has not changed much, as I still see risks biased to the upside given the euro’s new role as international ‘safe-haven’ and risks still tilted to more shocks from the China-Oil complex.
Yes, things have calmed down - and everyone came together at Davos to cheer China on and wave away hard-landing fears as over-exaggerated - however, a fall in the Caixins could see the spectre of risk-aversion rise up again and this would spell dollar-weakness and EUR/USD upside.
As such Pound Sterling Live sticks to its forecast of a break above the 1.0985 Jan 15 highs leading to a probable move up to the 200-day MA at 1.1050.
This might be followed by a break above the 200-day MA and move up to a possible eventual target at the 61.8% Fibonacci extension of the height of the consolidation at 1.1150.
Such a move might be risky, but could gain confirmation from a 40-point clearance above the 200-day, with a break above 1.1090 likely to lead to a continuation higher.
GBP/USD
Cable is still oscillating higher within a corrective pattern, which resembles a rising wedge.
The wedge looks almost finished having completed the standard minimum of five internal waves.
The exchange rate has now reached the S2 Monthly Pivot providing substantial resistance at around the 1.4390 mark.
Can it break higher? If it moves clearly above S2 and the upper border of the rising wedge then it could signal the pair has broken clearly out of the pattern and will move radically higher.
Such a move would be confirmed by a break above the 1.4450 level and a target at 1.4570 where the S1 Monthly Pivot is situated.
Alternatively, a break lower is also a strong possibility given the longer-term trend down.
Such a move might gain confirmation from a break below the D wave lows at 1.4229, with a target at the 61.8% Fibonacci extension of the height of the wedge at its widest point extrapolated down from the break, giving a target at the 1.4079 lows.
Both the Chaikin Money Flow Index and Volume are falling gradually, highlighting some underlying weakness in the pattern, which supports the probability of a down-side break.
AUD/USD
The Aussie has recovered on the back of stronger oil prices and impressive domestic data, however, it has so from a record low.
The small rebound has now almost reached the 50-day MA at 0.7145 where it is expected to meet staunch resistance - then above that we have the 0.7169 resistance level from the trend-line for the recent corrective pattern higher, therefore upside is naturally capped.
The current move higher also appears to have traced out a sketchy a-b-c pattern and, that, as well as the resistance levels may indicate that it is in peril of running out of steam.
Given the strong dominant long-term down-trend it should not come as a surprise to traders if the down-trend resumed pushing the pair down to the 0.6827 lows.
A break below those key levels would confirm a continuation down to 0.6760 initially (the 100% extrapolation of the height of the previous consolidation).
A subsequent move 20 points below the 0.6760 level – so below 0.6740 handle, would probably see a continuation to the S3 Monthly Pivot at 0.6670.
NZD/USD
The kiwi-dollar exchange rate has been consolidating on the S2 Monthly Pivot after breaking down from a corrective a-b-c pattern in the midst of the strong long-term down-trend.
The pair could break either higher or lower – whilst the trend is down and expected to continue, Chaikin Money Flow is showing a bullish convergence with price, possibly indicating an upside breakout.
A move below the shooting star lows at 0.6345 would probably confirm more downside to the 100% extrapolation of the height of the previous move before it broke below the trend-line, at 0.6293.
Alternatively, if Chaikin is right and the current consolidation breaks higher, then a move above the 0.6558 Jan 21 highs, would probably lead to a move up to the 50-day MA at 0.6630.
USD/CAD
The USD/CAD continued lower after positing 3-black crows after completing a measured move.
It has now broken cleanly below the R1 Monthly Pivot, and is moving down towards the next target at 1.3858.
The move down has formed an a-b-c corrective formation, with the C leg reaching the 61.8% Fibonacci extension of leg A, which is the minimum expectation for the end of C.
The dollar-loonie will probably continue even lower, particularly as there is a bearish engulfing candle-stick pattern on the weekly chart, indicating further downside, at the very least in the short-term.
A break below the 1.3947 lows would probably confirm a move down to the 1.3858 target at the 50-day.
MACD is moving lower quite steeply supporting the mini-down-trend and arguing for lower exchange rates in the short-term.
