USD remains soft despite Powell’s speech

The USD remained soft during Friday and today’s Asian session despite Powell’s speech on Friday. Fed Chairman Powell defended the Fed’s current policy to raise interest rates ignoring president Trump’s recent criticism. Analysts mentioned that Powell may have disappointed the market’s bulls, which may have been expecting a more hawkish signal.

They also point out that the flattening of the US yield curve may continue, which is considered by some as a bearish sign for the USD. Should the US yield curve continue to flatten, we could see the USD weakening. It should be noted that the flattening yield curve and the softer dollar could be one of the fundamental reasons for gold’s rise on Friday.

The precious metal had one of its strongest upward performances in 2018 gaining over 15 USD on Friday. Should you be more interested in Gold’s movements please refer to our weekly outlook for gold later today.

EUR/USD rose on Friday, testing the 1.1623 (S1) resistance line, now turned to support and broke it during the Asian session today. The pair seems to be struggling with the prementioned support line and the upward trend line incepted since the 15th of August maintains our bullish bias.

In order for us to change our perspective we would require the pair to break that upward trend-line. Also technically, it should be noted that the RSI indicator in the 4 hour chart is testing the reading of 70, approaching a possibly overcrowded position.

Should the bulls continue to reign over the pair’s direction, we could see it reaching out for the 1.1675 (R1) resistance line and even breaching it. Should the bears be in the driver’s seat, we could see the pair breaking the 1.1623 (S1) support line and aim if not breach the 1.1537 (S2) support level.

US, Mexico close to a NAFTA deal
According to media, US and Mexico’s negotiators are close to a common stance on NAFTA and negotiations are to restart today. Mexico’s economy minister Guajardo, stated that the two sides are likely only hours away from reaching a common position. Canada, has not participated in recent discussions as it awaits bilateral US-Mexican issues to be resolved.

Upon resolving them and following Canada’s return, the three sides could require further negotiations for a week, as per US trade representative Lighthizer. Should there be further positive headlines and depending on the outcome of the issue, we could see the USD getting some support.

USD/MXN continued to trade in a sideways manner on Friday testing the 18.92 (R1) resistance line and correcting lower later on. We could see the pair continuing to trade in a sideways manner today, however the pair may prove sensitive to any further NAFTA headlines, as well as the US flattening yield curve.

It would be indicative that the RSI indicator in the 4 hour chart, remained around the area of 50, indicative of an indecisive market seeking direction. If the pair rises, it could break the 18.92 (R1) resistance line and aim for the 19.05 (R2) resistance hurdle. Should it under selling interest, we could see it breaking the 18.71 (S1) support line and aim for the 18.57 (S2) support barrier.

In today’s economic highlights:
In the European session, we get the Germany’s Ifo business climate, current conditions and expectations indicators for August.

As for the week ahead:
On Tuesday, we get the US consumer confidence for August.On Wednesday, we get the US GDP growth rate for Q2, France’s GDP growth rate for Q2 and Canada’s current account balance for Q2. On Thursday, we get Germany’s unemployment data and HICP rate for August and Canada’s GDP growth rate for Q2.

On a busy Friday, we get Japan’s unemployment rate for July, China’s Mfg PMI for August, France’s CPI (EU normalized) for August, Eurozone’s inflation data for August and Eurozone’s Unemployment rate for July.