Pound feeling better about the path forward

Next 24 hours: Euro Trying to Turn the Ship Around

Today’s report: Pound feeling better about the path forward

More risk on flow as Wednesday gets going, with US equity futures pushing even higher and that much closer to record highs seen in late 2018. On the FX front, things have been a lot less trendy and a whole lot choppier, with the latest run of US Dollar demand coming to a halt and reversing course.

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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 setbacks holding up above 1.1100 on a weekly close basis, and 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 1.1200 – Figure – Medium
  • S2 1.1176 – 7Mar/2019 low – Strong

EURUSD – fundamental overview

The Euro has swallowed up another round of softer economic data and yet, despite the data downturn, the single currency has managed to hold up yet again after dipping below 1.1200. Dealers continue to report demand from medium and longer-term accounts, while others source the positive updates from the US-China trade talk front, ongoing risk on flow and better China data, as drivers behind the Euro’s support. Looking at the economic calendar for the day, we get services PMIs out of Germany and the Eurozone, Eurozone retail sales, and US data in the form of ADP employment and ISM non-manufacturing.

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 1.2978 – 29Mar low – Medium
  • S2 1.2960 – 11Mar low  – Strong

GBPUSD – fundamental overview

The latest Brexit news has the PM looking to secure Labour support for her deal, which if successful, would result in a 4th vote to approve a deal. If the PM can not secure a deal with Labour, the next steps could be submitted proposals for the best way forward, ranked and voted on. This has helped the Pound, as it increases the possibility of a soft Brexit that could potentially keep the UK in the customs union with the EU. The Prime Minister has also suggested that a delay be granted beyond the April 12th deadline to resolve the current impasse. Looking at today's economic calendar, key standouts come in the form of UK services PMIs, US ADP employment and US ISM non manufacturing.

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 111.53– 3Apr high – Medium
  • S1 110.81 – 1Apr low – Medium
  • S2 109.71 – 25Mar 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. Updates on the US trade policy front are expected to have a major influence on direction as a consequence, and the Yen has been sold of late on some positive headlines. We’ve also seen Yen offers from better than expected China data and the ongoing bid in US equities. Looking at the calendar for the remainder of the day, the focus will be on US ADP employment and US ISM non-manufacturing.

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 – Strong
  • R1 1.1299 – 22Mar high – Medium
  • S1 1.1163 – 29Mar/2019 low – Strong
  • S2 1.1130– May 2016 high – 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 0.7053 – 2Apr low – Medium
  • S2 0.7004 – 8Mar low – Strong

AUDUSD – fundamental overview

Aussie has done a good job recuperating from Monday setbacks that came after the RBA shifted its stance to a more neutral outlook. Unlike the RBNZ, the RBA stopped short of calling for that next move to be a rate cut and was actually more balanced in its outlook than anything else. There have now been a wave of renewed bids on the back of solid China data and positive headlines from the US-China trade talk front, all while US equities keep extending their run. Looking at the calendar for the remainder of the day, the focus will be on US ADP employment and US ISM non-manufacturing.

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 1.3468 – 7Mar/2019 high – Strong
  • R1 1.3374 – 2Apr high – Medium
  • S1 1.3298 – 1Apr low – Medium
  • S2 1.3251 – 19Mar low – Strong

USDCAD – fundamental overview

Canada’s better than expected GDP print and another push in the price of OIL, have helped to drive relative outperformance in the Canadian Dollar over the past week. However, the Loonie will still be worried about how things play out with US trade policy until there is any firm clarity on the matter, which is expected to keep the currency from wanting to sustain any meaningful rallies. Monday’s Canada manufacturing came in softer than expected but hasn’t factored all that much into price action. Looking ahead, absence of first tier data out of Canada will leave the focus on US reads in the form of ADP employment and ISM non-manufacturing.

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 0.6771 – 2Apr low – Medium
  • S2 0.6745 – 7Mar low – Strong

NZDUSD – fundamental overview

Last week’s downgraded RBNZ assessment has been backed up by a round of softer economic data out of New Zealand this week. And yet, the New Zealand Dollar has done a good job holding up in the face of all of this, with the currency broadly supported in 2019 on rallying global equities and the dovish shift in Fed policy. Looking at the calendar for the remainder of the day, the focus will be on US ADP employment and US ISM non-manufacturing.

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 – Strong
  • R1 2880 – 3Apr/2019 high – Strong
  • S1 2765 – 21Feb low – Medium
  • S2 2722 – 8Feb low – Strong

US SPX 500 – fundamental overview

Although we’ve seen attempts to push the market higher in 2019, with the Fed’s more cautious outlook keeping the market propped up, 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 1286 – 2Apr low – Medium
  • S2 1277 – 4Jan/2019 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

A major breakout in the price of Bitcoin this week, with the price clearing the top of a range that had contained the market since November 2018. The break takes the immediate pressure off the downside and opens the door for a continuation of gains back into a critical previous support turned resistance zone in the $6,000 area. Look for setbacks to now be well supported ahead of $3,500.

  • R2 5,740 – 18Nov high – Strong
  • R1 5,085 – 3Apr/2019 high – Medium
  • S1 4,278 – 28Feb high – Medium
  • S2 4,000 – Psychological  – Strong

BTCUSD – fundamental overview

Bitcoin has rocketed higher, to clear some major levels, breaking back above a consolidation high from back in December, to suggest it could be thinking about turning back up again in a more meaningful way. At a time when central banks have exhausted themselves with the unprecedented printing of money to keep sentiment running high and the global economy afloat, over a decade after the crisis of 2008, it would seem, a peer to peer decentralized currency, with limited supply, and an attractive technology that it rests on, could be a compelling alternative option.

BTCUSD – Technical charts in detail

ETHUSD – technical overview

The latest break back above $170 takes the immediate pressure off the downside and opens the door for the possibility of a bullish break over the coming sessions. Look for a weekly close above $170 to strengthen the outlook, encouraging a run up towards next major resistance at $255. Setbacks are expected to be well supported ahead of $125.

  • R2 200 – Psychological – Strong
  • R1 177 – 3Apr/2019 high – Medium
  • S1 141 – 1Apr low – Strong
  • S2 126 – 4Mar low  – Strong

ETHUSD – fundamental overview

Ongoing regulatory challenges and technological obstacles are some of those headwinds that are being fleshed out into 2019. Meanwhile, fear of broad based risk liquidation in global financial markets now that the monetary policy accommodation well has dried up, is yet another worry for the more risk correlated Ether. 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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