With little in the way of news events to press the USD at the end of the week, the Dollar gained back slightly in the last day of trading against major currencies. But, with a neutral outlook from the FOMC expected next week–despite massive inflation concerns–we carefully anticipate the USD to see more losses over the next few days.
Look for risk appetite plays such as the AUD and NZD to stand to gain the most from a weakening Dollar while the Euro looks to again test important resistance around 1.4720. A sustained break (two D1 candles) above that mark could signify the EURUSD soaring toward the all-time highs set in 2008.
However, despite our obviously bearish USD stance, we are again cautious and concerned that market volatility could again put risk appetite on the back burner and a flight to safety (lead by an equity market sell off) moves back to the headlines and the money toward the JPY and USD.
If the equity markets do begin to falter next week before next week’s interest statement, look to the USDJPY and GBPJPY as a short seller’s favorite plays with a break of USDJPY 90.19.
In all, next week should be a telling sign of the long-term direction of this market and we have not ruled out seeing a disconnection from the strong Dollar/weak equity market correlation by the end of the year. But, that’s for another outlook–for now, our short-term outlook going into next week remains cautiously bearish USD.
Daily Currency Pair Analysis
USDJPY: The Dollar has stolen some momentum from the USDJPY downtrend, but still is sitting below the previous support at 91.72 (July 13th). Our long-term outlook is still bearish USDJPY, but if the pair moves above 91.72, we’ll remove our short-term approach. Look for a bounce of the 62 EMA on a H4 chart to sell off the top of this downward trend.
