In this week’s Forex Outlook we take a look at another anticipated choppy week in the market where knowing your key levels is vitally important. In order to know when, where and how to react, we must understand the global intermarket relationships that take place and what equity markets to keep an eye on to catch the trends at the right time.
Forex and the U.S. Dollar
We start by taking a look at the U.S. Dollar which had a slightly bullish close last week due largely to the rally in the equity markets. Its highest correlation is to the Euro, Swiss franc and Japanese Yen. The dollar could be poised for a rally this week that would be triggered by the movements of the S&P 500. VantagePoint forecasts have shown this market going short since March and this trend is still holding true. The Predicted RSI indicator shows a bearish trend for the dollar but the global equity markets need to stay on the rise to keep positive momentum for the dollar.
The DAX is coming off of a strong week and its inverse relationship will play a key role in the happenings of the U.S. Dollar.
Oil continues to struggle and a continued downtrend is likely to pull the rest of the global equity markets down with it.
We could also see buyers coming into Gold with U.S. Dollar weakness continuing to show a minor boost for the metal.
These global equity markets are key factors to what is driving, impacting and influencing the prices of Forex pairs and understanding these relationships can help Forex traders be better prepared for what is likely to happen.
Outlook for Major Forex Pairs
Euro/U.S. Dollar (EUR/USD) is completely dependent on the equities as its intermarket correlation is inverse. By midweek, we should see what the equity markets will be able to do and how that will affect this pair.
U.S. Dollar/Swiss Franc (USD/CHF) is currently bullish but that may not last the entire week as it continues to run independently of the Euro.
British Pound/U.S. Dollar (GBP/USD) is heavily influenced by oil. A downtrend for oil could mean a downtrend for the Pound. Looking at yearly trends shows the Pound could be entering a strong period, especially if equities and oil can rise.
U.S. Dollar/Japanese Yen (USD/JPY) approached the VantagePoint trend level on Friday but had a more than 100 pip collapse before the end of the week. Recent trends suggest that medium and longer term equity plays are down, which will move the yen down as well.
U.S. Dollar/Canadian Dollar (USD/CAD) has been a wildcard so far in 2016. The intermarket correlations will be driving factor of this pair this week. If equities rise, this pair will inversely lower.
Australian Dollar/U.S. Dollar (AUD/USD) is a strongly commodity-based currency with correlations in the equity markets. IF equities go up, so will the Aussie with close driving relationships with the S&P 500 and the DAX.
New Zealand Dollar/U.S. Dollar (NZD/USD) is coming off another failing week with the VantagePoint lower level continuing to hold for the 2nd week. If this trend continues, it’s going to lower considerably.
If we remain cognizant of these global market relationships that affect prices in the Forex market we can get ahead of trends and become more profitable in the market.