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Forex Trading Signals: USDX July-August 2018

Forex Trading Signals: USDX July-August 2018

■ Market: Foreign Exchange

■ Asset: USDX

In our previous analysis (May-June 2018) we have forecasted a broad range for the US Dollar Index between 91.00 and 95.0 points. Today, USDX trades just below the upper boundary of our forecast. If the USDX manages to cross above the current levels (95.05) it will grow to 97.50 and probably even to 100.40 points in summer 2018. On the opposite scenario, USDX will seek support at 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, now what changed?" What changed is that by that time, the Fed implied a $10 billion tightening program per month or $120 billion in a yearly basis. Today, the Fed withdraws $360 billion liquidity in a yearly basis and plans to raise that number to $600 billion. At the same time, ECB adds €30 billion euros per month. As concerns interest rates, the Fed raised rates seven times in two years (2016-2018), while the ECB continues to maintain its negative rates.

The next FED interest rate hike is expected to happen in September 2018. This is our basic forecast for the remaining 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 is still very strong but the resistance at 95.05 is strong too. This is the USDX daily (D1) chart:

□ 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 manages to cross over 95.05 then it may grow fast up to 97.50 and even up to 100.40 during the summer of 2018. If the USDX moves below, it will seek support at 90.90-91.05 and even at 88.30-88.50.

Financial Updates

Key updates from all around the globe:

The Impact of an American-Chinese Trade War

Fitch Ratings warns once more about the impact of protectionist policies on global trade. Fitch estimates that the current tensions between US and China will negatively affect the likelihood of reaching an agreement on the renegotiations for the NAFTA agreement, while at the same time there is a risk of a definitive withdrawal from the US. However, Fitch notes that the most likely outcome is that the whole issue will be resolved through negotiations, but if this does not happen there is a clear reinforcement of the risk of a stronger impact in principle on both economies and then on world trade. US exports to China amounted to $187 billion in 2017. As a result, the direct impact of 25% tariffs on a product line on both sides has only a small impact, only 0.2% of US GDP and 0.3% of Chinese.

At the same time, as the company notes, the increased market uncertainty about what might happen could create some macroeconomic risks. A significant devaluation of the Chinese yuan, for example, could shock global markets and potentially affect investment and global trade flows.

The Price of Black Gold to reach $85 in 2018

Despite the extreme volatility, Morgan Stanley analysts are optimistic about the future course of black gold. According to Morgan Stanley analysts, the Brent price will reach $85, until the end of 2018. The main reason is that the US embargo against Iran will come into full force by November 2018. In other words, Iran’s production can be reduced by 1.1 million barrels/day. Furthermore, the oil production in Libya and Angola remains problematic, which will remove an additional 0.6 million barrels/day in the second half of the year. According to Morgan Stanley, production growth from Saudi Arabia is expected to reach 10.8 million barrels/day in the second half of 2018 - and Russia, the UAE, and Kuwait will fail to bring balance to the market.

The UK Construction Sector is Rising

Data coming from the construction industry in the UK during June 2018 surpassed analysts' estimates. The housing sector remained the strongest sector, as new orders rose at the fastest pace since May 2017. In addition, Markit's survey noted that there was also an acceleration in input inflation over the previous month.

■ Free Forex Trading Signals: USDX July-August 2018

G. Protonotarios, Financial Analyst, » George at Linkedin

TradingCenter (July, 5th 2018)

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