Wrap-Up Call 2018

Today’s report: Wrap-Up Call 2018

It’s the final day of the year and trading conditions are super thin, with nothing much going on as the countdown to 2019 kicks off. Looking at FX market performance, it was the Yen that stood out as the strongest amongst the more actively traded currencies, with the Dollar also up against the others.

Download complete report as PDF

Wake-up call

Chart talk: Technical & fundamental highlights

Choose pair:

EURUSD – technical overview

The Euro sits at a critical inflection point right now, trying to figure out whether it wants to hold up into dips for the start to a resumption of that bullish breakout from back in 2017 that led to a +3 year high earlier this year, or if it wants to keep extending this run of declines. A lot of this will hinge on how the market trades in the sessions ahead. If the major pair can hold up above 1.1215 and push through 1.1500, it sets the stage for a bigger bullish move ahead. If however the market breaks back down below 1.1215, it will open the door for fresh lows, exposing the possibility for an extension all the way down to 1.0800.

  • R2 1.1500 – 7Nov high – Strong
  • R1 1.1487 - 20Dec high – Medium
  • S1 1.1343 - 26Dec low – Medium
  • S2 1.1268 – 28Nov low – Strong

EURUSD – fundamental overview

While the ECB has stated it sees increasing downside risk to the Eurozone economy, it also continues to project more expansion. Meanwhile, there has been plenty more talk out from ECB officials about policy that is far too accommodative, with the central bank committing to a no consideration of a rate hike stance until deeper into 2019. Meanwhile, the Fed is looking like it will be forced into an even more accommodative stance in 2019, also contending with plenty of uncertainty at the White House. These developments should start to prop up the Euro, while the reemergence of soft Dollar US administration policy into 2019, should also fuel the Euro. And as the year comes to a close, the Euro is absorbing flight to safety bids from the worry around the partial government shutdown in the US.

EURUSD - Technical charts in detail

GBPUSD – technical overview

At this stage, we still view the pullback in 2018 as a correction within a developing uptrend off the 2016 low and will be looking for a higher low to carve out well ahead of 1.1840, in favour of a push back to the topside. For this to play out, the market will ideally need to hold above some meaningful support in the 1.2300s. The 78.6% fib retrace off the major 2016 high to low move, which comes in at 1.2385 is the next big level below. A break back above 1.2760 will also now be required to take the immediate pressure off the downside.

  • R2 1.2760 – 10Dec high – Strong
  • R1 1.2739 – 24Dec high – Medium
  • S1 1.2530 – 14Dec low – Medium
  • S2 1.2478 – 12Dec/2018 low  – Strong

GBPUSD – fundamental overview

Theresa May will be ending holidays five days earlier to see if she can figure out a way to get a deal done. Things have settled down for the moment as we wait for more clarity on Brexit in the early days of 2019. This has been helpful to the Pound, with the currency managing to work its way out from the recent 2018 low below 1.2500. A lot of the demand has come from the onset of some year end Dollar selling, as the market contends with a partial government shutdown in the US, while positioning for a possible Fed pause in 2019.

GBPUSD - Technical charts in detail

USDJPY – technical overview

Rallies continue to be very well capped on a medium-term basis, with the outlook still favouring lower tops and lower lows. Look for the next major downside extension towards critical support around 109.75, below which exposes a deeper setback towards the 2018 low from March in the 104s.

  • R2 112.86 – 18Dec high  – Strong
  • R1 111.47 – 21Dec high – Medium
  • S1 110.00 – Psychological – Strong
  • S2 109.78 – 21Aug low – Strong

USDJPY – fundamental overview

The major pair is correlating with the bigger picture drivers, with US Dollar yield differentials and risk sentiment dictating the flow. Renewed downside pressure in the US equities market has knocked USDJPY back down in recent weeks, while an expectation the Fed could bring the normalization process to a halt is another major driver of Yen demand. Tension between the President and Fed Chair and a partial government shutdown isn't helping matters either. On the data front, China PMI readings came in mixed on Monday.

EURCHF – technical overview

The market has been in the process of consolidating off the 2018 low, which coincided with critical support in the 1.1200 area. However, at this stage, there is no clear directional bias, with the price action deferring to a neutral state. Back above 1.1500 would get some bullish momentum going for a push to 1.2000, while back below 1.1200 would be quite bearish.
  • R2 1.1435– 16Nov high – Strong
  • R1 1.1359 – 22Nov high – Medium
  • S1 1.1224 – 18Sep low– Medium
  • S2 1.1185– 7Sep/2018 low – Strong

EURCHF – fundamental overview

The SNB remains uncomfortable with Franc appreciation and continues to remind the market it will need to be careful about any attempts at trying to force an appreciation in the currency. But the SNB will also need to be careful right now, as its strategy to weaken the Franc is facing headwinds from a less certain global outlook. Any signs of sustained risk liquidation into 2019, will likely invite a very large wave of demand for the Franc that will put the SNB in the more challenging position of needing to back up its talk with action, that ultimately, may not prove to be as effective as it once was, given where we're at in the monetary policy cycle.

AUDUSD – technical overview

A recent recovery run has stalled out, with the market remaining under pressure, just off yearly and multi-month lows. Setbacks this year have been supported ahead of a critical psychological barrier at 0.7000, which could continue to keep the pair propped up into dips. This leaves the outlook somewhat neutral, with a clear break below 0.7000 or back above 0.7400 required for clearer directional bias.

  • R2 0.7204 – 18Dec high – Strong
  • R1 0.7150 – 20Dec high – Medium
  • S1 0.7017 – 27Dec/2018 low – Medium
  • S2 0.7000 – Psychological – Strong

AUDUSD – fundamental overview

Overall, while the Australian Dollar has been contending with risk off flow, the currency has also found offsetting demand into dips on the emergence of profit taking on long US Dollar exposure into year end. The market is expecting the 2019 Fed rate outlook to be decidedly less hawkish in light of recent developments. Gold prices are also starting to firm up, another offsetting positive for the commodity currency.  On the data front, China PMI readings came in mixed on Monday.

USDCAD – technical overview

The market has extended its run through a major psychological barrier at 1.3500, breaking to fresh 2018 highs and looking for a push to that next critical level of resistance in the form of the 2017 high, up around 1.3800. However, medium-term studies suggest additional upside may be limited to this area, with risk for another sizable pullback. Still, a break back below 1.3494 would be required to take the immediate pressure off the topside.

  • R2 1.3700 – Figure – Medium
  • R1 1.3662 - 28Dec/2018 high – Medium
  • S1 1.3494 – 21Dec low – Medium
  • S2 1.3391 – 18Dec low – Strong

USDCAD – fundamental overview

The Canadian Dollar has come under a lot of pressure over the past several weeks, with USDCAD to fresh yearly highs, on the back of a massive slide in the price of OIL. The only mitigating factor is the market's selling of the US Dollar on uncertainty around the partial government shutdown, the global trade outlook and expectation the Fed will be decidedly less hawkish in 2019.

NZDUSD – technical overview

The market has been in the process of cooling off after enjoying a healthy recovery rally out from +2.5 year lows. While the bigger picture outlook still shows the market in a downtrend, as per the weekly chart, there is a case to be made for a meaningful low in place at 0.6425. As such, look for the latest setbacks to be well supported ahead of 0.6600 in anticipation of additional upside, with only a break back below to put the focus back on the multi-month low from October at 0.6425.

  • R2 0.6970 – 4Dec high – Strong
  • R1 0.6881 – 18Dec high – Medium
  • S1 0.6693 – 28Dec low – Medium
  • S2 0.6633 – 5Nov low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar has held up relatively well in the face of global risk liquidation. The commodity currency is trying its best to shrug off downside pressure in stocks, instead deferring to profit taking on USD longs from the partial government shutdown in the US and in anticipation of a possible Fed pause in 2019. On the data front, China PMI readings came in mixed on Monday.

US SPX 500 – technical overview

There have been legitimate signs of a major longer term top, with deeper setbacks projected into 2019. Any rallies should now continue to be very well capped ahead of 2800, in favour of renewed weakness that targets an eventual retest of strong longer-term resistance turned support in the form of the 2015 high at 2140. The projection is based off a measured move extension derived from the previous 2018 low from February to the record high move.

  • R2 2688 – 12Oct high – Strong
  • R1 2521 – 28Dec high – Medium
  • S1 2339 – 26Dec/2018 low – Medium
  • S2 2300 – Psychological – Strong

US SPX 500 – fundamental overview

Investor immunity to downside risk is not as strong these days. The combination of Fed policy normalisation, US protectionism, ongoing White House drama and geopolitical tension are all warning of capitulation ahead. The Fed has also finally acknowledged inflation no longer running below target in 2018, something that could very well result in even less attractive equity market valuations into 2019, given the implication on rates. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as this could be something that inspires a more aggressive decline into 2019.

GOLD (SPOT) – technical overview

There are signs that we could be seeing the formation of a more significant medium to longer-term structural shift that would be confirmed if this latest recovery can extend back through big resistance in the form of the 2016 high at 1375. Look for setbacks to be well supported ahead of 1200, with only a close back below 1150 to compromise the constructive outlook. Next key resistance comes in at the 1300 psychological barrier.

  • R2 1300 – Psychological – Strong
  • R1 1284 – 19Jun high – Medium
  • S1 1233 – 14Dec low – Medium
  • S2 1211 – 28Nov low – Strong

GOLD (SPOT) – fundamental overview

The yellow metal continues to be well supported on dips with solid demand from medium and longer-term accounts. These players are more concerned about exhausted monetary policy, extended global equities, political uncertainty, systemic risk and trade war threats. All of this should keep the commodity well supported, with many market participants also fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.

BTCUSD – technical overview

At this stage, any upside moves are classified as corrective ahead of the next downside extension and it would take a break back above previous support in the 6,000 area to take the pressure off the downside. Look for a lower top to carve out ahead of 6,000 for deeper setbacks into the 2,000-3,000 area, which coincides with the July and September 2017 lows respectively.

  • R2 5,050 – 20Nov high – Strong
  • R1 4,480 – 29Nov high – Strong
  • S1 3,212– 15Dec/2018 low –Medium
  • S2 2,975 – Sep 2017 low  – Very Strong

BTCUSD – fundamental overview

Bitcoin has gone through a tough 2018, with the cryptocurrency suffering on a number of fronts. Still, overall, the cryptocurrency and the technology it rests on continue to show a lot of potential looking out and we expect the market will regain composure over the medium to longer term.

BTCUSD - Technical charts in detail

ETHUSD – technical overview

Stretched medium-term studies have been turning back up, leading to this latest recovery. Still, it would take a sustained break back above previous support at 165 to take the pressure off the downside. The next major downside extension target comes in at a 75, a measured move extension target following a recent $90 consolidation between 165 and 255.

  • R2 200 – Psychological – Medium
  • R1 167 – Previous Support – Strong
  • S1 109 – 22Dec low – Medium
  • S2 83 – 7Dec/2018 low  – Strong

ETHUSD – fundamental overview

Overall, we've seen quite a bit of weakness in the price of Ether in 2018 and there's still legitimate risk for deeper setbacks, given technical hurdles within the protocol, ongoing regulatory challenges and a global macro backdrop exposing risk correlated projects on the Ethereum blockchain. Monetary policy normalisations around the globe and an anticipated reduction in global risk appetite are placing a tremendous strain on ERC20 projects that have yet to even produce proper use cases and proof of concept. At the same time, longer term prospects are looking quite bright and we expect significant demand will continue to emerge well ahead of $50.

Peformance chart: 2018 Performance v. US dollar

Suggested reading

Daily Reports Global FX Insights   Daily   LMAX Exchange  

Any opinions, news, research, analyses, prices or other information ("information") contained on this Blog, constitutes marketing communication and it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further, the information contained within this Blog does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of, or solicitation for, a transaction in any financial instrument. LMAX Group has not verified the accuracy or basis-in-fact of any claim or statement made by any third parties as comments for every Blog entry.

LMAX Group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. No representation or warranty is given as to the accuracy or completeness of the above information. While the produced information was obtained from sources deemed to be reliable, LMAX Group does not provide any guarantees about the reliability of such sources. Consequently any person acting on it does so entirely at his or her own risk. It is not a place to slander, use unacceptable language or to promote LMAX Group or any other FX and CFD provider and any such postings, excessive or unjust comments and attacks will not be allowed and will be removed from the site immediately.