The world reserve currency has been strengthening this week. First positive news for the greenback came out from US Senate, passing the vote for the tax bill. Strong economy performance, tight labour market, growing GDP and positive expectations from the tax reform drive the demand for USD assets. The stocks are also in the uptrend despite high prices. Bulls dominate on the market, being influenced by fear of missing out. Plus there is no much alternative assets to invest in. Federal Reserve also adds hawkish sentiment. Expectations of the rate hike next week are close to 100%. There are lots of rumors and talks about how many times will Fed hike the interest rate hike next year. US dollar index already added almost one percent this week.
Big event for all of the market is scheduled for 08:30 AM NY time. US Non-Farm Payrolls report is traditionally an indicator of the economy’s health and measures the pace of growth. It is also monitored very closely by FOMC, having influence on interest rate decisions. It will be crucial to watch not only the NFP figure itself, but also two other components: unemployment rate and average hourly earnings. The last one is very important for inflation growth, which has been a concern for Fed officials recently. The expectations are averaged at 200K jobs added in November. Any reading of the report around this number will support USD bulls. A disappointment figure below 150K could cause a sell-off, but the odds for such outcome are rather low. Labour market has been tight in US recently. One simple fact speaks for itself: Americans spent $7.5 Billion dollars for shopping in one single day on Black Friday. People had to make that money somewhere, right? So I expect a strong reading of the NFP report, beating the expectations and USD to go up as the result.
Technically speaking, the outlook is also positive. The daily chart below shows me signs of possible reversal. There is a bullish divergence on both MACD and RSI. The combination of these two indicators works well traditionally, especially for such high-volume traded assets. The blue line on the chart is Simple Moving Average with period of 200 days. I compressed the chart, so we can see the whole year range, starting from November 2016. As you can see, SMA200 worked well as a support on Trump’s election day volatile session (first blue arrow). We’ve seen a first test of the support in March 2017 and the bounce up after failing to break through (second blue arrow). We are definitely on bear mode since the USD index went below SMA200 in May (red arrow). But the rates do not go far from it usually, cause it counts rather big period of time of almost two thirds of the year. So I expect a come back to the SMA200 range for upcoming weeks.
You can find below H1 charts with the same settings. I’ve added one red trendline, which goes through the weekend gap, by the way. It’s resistance current and the target for bulls. But there is a potential bearish divergence on both MACD and RSI. The last indicator bounced a bit from the overbought territory, but still has rather high value. I would expect an intraday retracement before moving further north.
One of the most attractive currency pairs in such an environment is USDJPY. On the daily chart below I can see very important technical level for further direction. The price is trying to get out of the Ichimoku span. In case if the close price this Friday will be clearly above the cloud, it will open the road for new fresh highs this year.
Intraday trading strategy is the same as described above for the dollar index. Those traders who missed the signals can wait for a pullback and go long. Pivot points (06:30 AM) are: 136.26 and 112.92. Targets depend on your trading strategy and how greedy you are :-). And again, remember about main condition of the uptrend continuation, which is NFP report to be released strong today. Of course the rule ‘buy rumor, sell fact’ could take place today. So it’s always better to take your money and run.
Let the profit be with us!
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