In my previous piece last week, I saw the best possible trades for the coming week as long of the GBP/USD currency pair, and short of the USD/JPY currency pair. This worked out well in both the trades, with GBP/USD ending the week up by 1.37% while the USD/JPY fell by 1.17%, producing an average gain of 1.27%.
Last week saw some market turmoil, not in Forex but in the stock market. This has been caused partly by President Trump’s potential legal problems which I highlighted last week, but the major cause has been the President announcement of the planned imposition of tariffs on about 10% of Chinese imports. The Chinese look set to impose retaliatory tariffs. The markets do not like it, and the S&P 500 Index fell strongly during the final two days of last week. Friday’s closing price was only a couple of points above the 200-day moving average, which is seen by many analysts as a dividing line between a bull market and bear market. Friday’s close was also the lowest daily closing price in about 4 months. The major scheduled data release for the week took place with a “dovish” rate hike by the FOMC, which may have added to the weakening of the Dollar.
The overall effect of these developments was to leave the U.S. Dollar down, stock markets strongly down, and to boost the Japanese Yen, which often benefits as a safe-haven when stocks and other risk assets sell off. It is notable that Gold and Oil are also starting to make new higher prices. The market’s focus over the coming week will probably move to the Final GDP release for the U.S. economy.
Fundamental Analysis & Market Sentiment
Fundamental analysis tends to support the U.S. Dollar, while sentiment is against the U.S. Dollar, partly due to the dovish rate hike, and partly because there is a long-term trend against the U.S. Dollar which reinforces bearish sentiment. Sentiment is likely to remain unchanged until Wednesday’s Final GDP data, unless there are any new developments concerning U.S./China trade tariffs. Such news would probably have a bigger effect than any GDP number. Any surprises coming from the Mueller investigation which seems to threaten President Trump’s position could also be negative for the stock market if not necessarily for the U.S. Dollar.
