Closing Out a Choppy, Directionless Q1 2019

Today’s report: Closing Out a Choppy, Directionless Q1 2019

The US Dollar has been in demand in this latter portion of the week and this latest wave of buying has come from downside risk abroad, after Thursday’s economic data out of Europe was soft and the Pound could not ignore some new uncertainty around the state of Brexit. Watch out for added volatility on month-end, quarter-end flow.

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Wake-up call

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The market has been confined to choppy trading conditions over the past several weeks. We are however coming off an intense round of setbacks since topping out at a +3 year high in 2018, with the drop taking the price back into an area that roughly coincides with a bullish breakout zone from 2017. This suggests that additional setbacks could continue to be very well supported, with the greater risk from here, for the formation of a meaningful higher low, ahead of a push back to the topside. At this point, we will need to see a break back above the current 2019 high around 1.1570 to encourage this prospect.

  • R2 1.1449 – 20Mar high – Strong
  • R1 1.1332– 25Mar low – Medium
  • S1 1.1214 – 28Mar low – Medium
  • S2 1.1176 – 7Mar/2019 low – Strong

EURUSD – fundamental overview

Softer Eurozone data has contributed to Euro weakness into Friday, after Thursday’s economic confidence readings came in at their lowest level since 2016 and German inflation reads were soft. We’ve also seen the German 2-10 spread narrowing to its lowest point since 2016. Looking ahead, we get some second tier Eurozone releases, followed up by an anticipated US core PCE read later in the day. The market will also be watching those month-end, quarter-end flows, along with updates out from Brexit and US-China trade talks.

EURUSD – Technical charts in detail

GBPUSD – technical overview

The major pair has put in an impressive recovery off the multi-month low in early January, helping to support the case for a longer-term developing uptrend off the 2016 low. Pullbacks are now viewed as corrective on the daily chart, with dips expected to be supported ahead of 1.2700. Look for a weekly close back above 1.3400 to strengthen the outlook.

  • R2 1.3270– 27Mar high – Strong
  • R1 1.3212 – 28Mar high – Medium
  • S1 1.3035 – 22Mar low – Medium
  • S2 1.3004 – 21Mar low  â€“ Strong

GBPUSD – fundamental overview

On the Brexit front, the Prime Minister’s plan for a third vote on her deal was approved for today, but with the DUP leader already saying she was unable to support it, there was little room for the Pound to feel good. Ultimately, while Brexit uncertainty remains, elimination of the walking of the edge of a cliff risk that had been overly priced into the Pound from mid-2018 into January of this year, should leave the Pound well bid on dips and in position to outperform and reprice itself higher going forward. Looking at the calendar, we’ll get some added activity on month end, quarter end flow, and the market will continue to pay close attention to developments relating to US-China trade talks. On the data side, we get a batch of UK releases highlighted by first tier UK GDP. Later in the day, we get US core PCE.

USDJPY – technical overview

The major pair has stalled out after an impressive run up from the 2019 low. Look for this topside failure to set the stage for the next major downside extension back towards the 2019 flash crash low down in the 104.00s. The recent break back bellow 110.00 strengthens the bearish outlook. Ultimately, only back above 112.15 delays the bearish outlook.

  • R2 112.14 – 5Mar high – Strong
  • R1 110.96 – 21Mar high – Medium
  • S1 109.71 – 25Mar low – Medium
  • S2 109.44 – 4Feb low – Strong

USDJPY – fundamental overview

Overall, the major pair should continue to place a bigger focus on global risk sentiment and US Dollar yield differentials. Fiscal, year end flows in Japan are mostly complete and haven’t even factored all that much into price action. The primary focus on Friday will be on risk implications relating to renewed US-China trade talks, along with updates out from the Brexit front. On the economic data side of things, US core PCE stands out on the calendar.

EURCHF – technical overview

The market has broken down below an important consolidation base, opening the door for the possibility of the start to an intensified wave of bearish momentum back down towards the 1.0600 area. At this stage, it will be important to see how the market responds to trading below 1.1200, with any quick recovery above to put the market back into this medium-term consolidation.

  • R2 1.1394 – 27Feb high â€“ Strong
  • R1 1.1299 – 22Mar high – Medium
  • S1 1.1165 – 29Mar/2019 low – Strong
  • S2 1.1130– May 2016 high â€“ 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 in 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

The market has been very well supported since breaking down in early January to multi-year lows. The price action suggests we could be seeing the formation of a major base, though it would take a clear break back above 0.7400 to strengthen this outlook. Look for setbacks to continue to be well supported ahead of 0.7000.

  • R2 0.7207 – 21Feb high – Strong
  • R1 0.7169 – 21Mar high – Medium
  • S1 0.7057 – 20Mar low â€“ Medium
  • S2 0.7004 – 8Mar low â€“ Strong

AUDUSD – fundamental overview

The Australian Dollar has been supported on the recent dovish shift in Fed policy and this latest wave of cross related demand in reaction to this week’s dovish RBNZ decision. The primary focus on Friday will be on risk implications relating to renewed US-China trade talks, along with updates out from the Brexit front. On the economic data side of things, US core PCE stands out on the calendar.

USDCAD – technical overview

Overall, the structure remains constructive, with dips expected to be well supported for fresh upside back above the 2018/multi-month high at 1.3665. Back below the psychological barrier at 1.3000 would be required to delay the outlook.

  • R2 1.3500 – Psychological – Strong
  • R1 1.3468 – 7Mar/2019 high – Medium
  • S1 1.3350 – 22Mar low – Medium
  • S2 1.3251 – 19Mar low â€“ Strong

USDCAD – fundamental overview

The Canadian Dollar Dollar has managed to stabilise this week, after the currency took a hit in the previous week on worrying US-China trade talk updates and softer Canada retail sales. We have seen an ongoing offer in the Loonie overall and this week’s softer Canada trade data has contributed to the flow. At the same time, OIL is holding up well following an impressive recovery in Q1 2019, and this, along with a dovish shift in Fed policy, have helped to prevent the Canadian Dollar from a more intensified pullback.  Looking ahead, The primary focus on Friday will be on risk implications relating to renewed US-China trade talks, along with updates out from the Brexit front. On the economic data side of things, Canada GDP and US core PCE stand out on the calendar.

NZDUSD – technical overview

While the bigger picture outlook still shows the market in a downtrend, as per the weekly chart, there’s a case to be made for a meaningful low in place at 0.6425. As such, look for setbacks to be well supported ahead of 0.6500 in anticipation of additional upside, with only a break back below 0.6500 to put the focus back on the multi-month low from October at 0.6425. A push through 0.7000 will strengthen the constructive outlook.

  • R2 0.6942 – 1Feb/2019 high – Strong
  • R1 0.6900 –  Figure – Medium
  • S1 0.6786 – 10Mar low â€“ Medium
  • S2 0.6745 – 7Mar low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is trying to recover from an intense round of setbacks after the RBNZ surprised with a dovish communication in this week’s policy decision. RBNZ Governor was out clearing up any doubts about this position after confirming the shift to an easing bias was not a miscommunication. Overall, we believe the bigger surprise here is in the RBNZ’s ability to deliver a message like this in a timely manner after the Fed had recently reversed its policy outlook. But the fact that Kiwi would be moving in this direction in light of the bigger macro picture shouldn’t be as surprising. This helps reconcile the support into the post RBNZ dips. Earlier today, consumer confidence readings came in above forecast, lending some more support off the RBNZ  sell off low. The primary focus on Friday will be on risk implications relating to renewed US-China trade talks, along with updates out from the Brexit front. On the economic data side of things, US core PCE stands out on the calendar.

US SPX 500 – technical overview

There have been legitimate signs of a major longer term top, with deeper setbacks projected in the months ahead. Any rallies should now continue to be very well capped, 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. Next key support comes in at 2722, with a break to strengthen the outlook.

  • R2 2900 – Psychological â€“ Strong
  • R1 2863 – 21Mar/2019 high – Strong
  • S1 2765 – 21Feb low – Medium
  • S2 2722 – 8Feb low – Strong

US SPX 500 – fundamental overview

Although we have seen attempts to push the market higher in Q1 2019, on the Fed’s more cautious outlook, exhausted monetary policy tools post 2008 crisis suggest the prospect for fresh record highs at this point in the cycle are not realistic. We recommend keeping a much closer eye on the equities to ten year yield comparative going forward, as the movement here is something that could be a major stress to the financial markets looking out.

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, with only a close back below 1250 to compromise the constructive outlook.

  • R2 1347– 20Feb/2019 high – Strong
  • R1 1321 – 21Mar high – Medium
  • S1 1288 – 29Mar low â€“ Medium
  • S2 1277 â€“ 4Jan/2019 low â€“ 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 what could be the next downside extension and bearish continuation. It would take a break back above the December high at 4385 to take the immediate pressure off the downside. Next critical support comes in the form of the July and September 2017 lows, around 2,000 and 2,975 respectively.

  • R2 4,278 – 24Feb/2019 high – Strong
  • R1 4,153 – 16Mar high – Strong
  • S1 3,763– 4Mar low – Strong
  • S2 3,570 – 13Feb low  â€“ Strong

BTCUSD – fundamental overview

Bitcoin is showing signs of stability in Q1 2019 after an abysmal performance in 2018. At the moment, the market still faces headwinds in the form of regulatory uncertainty and ready to go front end applications with meaningful use cases, though looking out, there continue to be many encouraging signs the market is here to stay and will be seeing increased adoption.

BTCUSD – Technical charts in detail

ETHUSD – technical overview

Recovery rally attempts have stalled out into a meaningful previous support zone, to keep the pressure on the downside, with risk for a bearish continuation below 100, towards the next critical support zone in the 50-75 area. At this point, it would take a sustained break back above 170 to take the immediate pressure off the downside.

  • R2 170 – 24Feb/2019 high – Strong
  • R1 148 – 16Mar high – Strong
  • S1 126 – 4Mar low – Strong
  • S2 102 – 6Feb low  â€“ Strong

ETHUSD – fundamental overview

Ongoing regulatory challenges, technological obstacles and a global economic downturn are some of those headwinds that need to be considered in the months ahead. At the same time, longer term prospects are looking quite bright and valuations are increasingly attractive with adoption showing signs of ramping up over the longer term.

Peformance chart: Performance v. US dollar this week

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