EURGBP seems to be tired from its dive as the pair failed in its last two attempts to break below the .8500 level. Price has now completed a double bottom formation and is testing the neckline at .8650. A break above this resistance could send price up by 150 pips or the same height as the chart formation.
The 100 SMA just crossed above the longer-term 200 SMA to signal that the path of least resistance is to the upside. A pullback could last until the moving averages, which might hold as dynamic support around the .8550 minor psychological level.
Stochastic is turning lower to suggest that sellers are taking control of price action. Stronger bearish pressure could take EURGBP back down to the bottoms at .8500 for another test of support or perhaps a breakdown.
Economic data from the euro zone came in mostly in line with expectations last week when it came to PMI readings but the headline flash CPI estimate turned out stronger than expected. Meanwhile, PMI readings from the UK fell short, signaling that the economy may be starting to feel Brexit jitters.
German factory orders and euro zone retail PMI figures are due today. The former is expected to show a 0.6% rebound from the earlier 2.5% slide while the latter could improve from 50.4. There are no major reports due from the UK today.
Several medium-tier reports such as French industrial production and German trade balance are lined up from the euro zone for the rest of the week. UK manufacturing and industrial production numbers are scheduled for release on Friday and weak readings could spur more losses for the pound.
By Kate Curtis from Trader’s Way
GBPJPY indicated its intention to head further south by breaking below the head and shoulders neckline at 141.00. The chart pattern is approximately 300 pips tall so the resulting selloff could be of the same size.
The 100 SMA has crossed below the longer-term 200 SMA to confirm that the path of least resistance is to the downside. The gap between the moving averages is getting wider, which means that bearish pressure is getting stronger.
Stochastic is on the move up, though, suggesting that buyers could regain control of price action while bears book profits. If so, a pullback to the broken neckline support could offer a better opportunity to catch the drop.
Risk aversion has been favoring the Japanese yen this week as traders shy away from the US dollar, which is bogged down by domestic uncertainties. Data from Japan has shown improvements in consumer spending and sentiment, underscoring the BOJ’s upgraded growth forecasts.
In the UK, data is starting to turn a corner and suggest that the economy is starting to feel the Brexit jitters. Last week’s PMI releases were mostly weaker than expected while today’s BRC retail sales monitor showed a 0.6% decline.
UK Halifax HPI is due next and a meager 0.2% uptick in price levels is eyed, much slower than the earlier 1.7% gain. Manufacturing and industrial production numbers are due on Friday and downbeat reports could put more downside pressure on Guppy.
By Kate Curtis from Trader’s Way
USDCAD has formed lower highs and lower lows recently, creating a falling wedge chart pattern visible on the 4-hour chart. Price is currently testing the wedge resistance and may be due for a move back to support. If a breakout happens, the pair could move by around 500 pips, which is the same height as the chart formation.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. In addition, the gap between the moving averages is getting wider, which means that bearish pressure is strengthening. The 200 SMA is close to the wedge resistance, adding an extra layer of defense in case price pops higher.
Stochastic is already in the overbought zone, which means that buyers might want to book profits off their recent positions. Once the oscillator turns lower, USDCAD could follow suit as sellers regain control.
Economic data from Canada was mostly weaker than expected in the latest US session, as the trade surplus narrowed while building permits showed a steeper 6.6% fall compared to the estimated 3.5% drop. The Ivey PMI also posted sharper fall from 60.8 to 57.2 versus the estimated 58.3 figure.
In the US, data came in mostly in line with expectations. The trade deficit narrowed as both imports and exports picked up while the JOLTS job openings figure was mostly unchanged in December. An index for economic optimism improved, signaling stronger consumer confidence for the next six months.
In crude oil news, the US EIA lowered demand forecasts for next year while upping production estimates, possibly yielding another wave lower in prices. For this year, they kept demand forecasts unchanged while trimming production estimates.
By Kate Curtis from Trader’s Way
EURJPY is trending lower after recently breaking below its consolidation pattern with support at 121.00-121.50. Price is now moving inside a descending channel and testing support, possibly setting the stage for a pullback to the resistance.
Applying the Fib tool on the latest swing high and low shows that the 61.8% level lines up with the resistance and area of interest. If this area keeps gains in check, the pair could resume its drop to the swing low at 119.50 or much lower.
The 100 SMA is below the longer-term 200 SMA so the downtrend is likely to carry on. In addition, the moving averages are close to the channel resistance and Fibs, adding another layer of defense. Stochastic is on the move up to show that buyers are in control of price action while sellers are taking a break.
Economic data from Japan has been mixed, although the latest batch of reports printed stronger than expected results. Core machinery orders increased by 6.7% versus the projected 3.2% rise while M2 money stock also beat expectations. Prior to this, leading indicators advanced from 102.8% to 105.2% but average cash earnings fell short with a 0.1% uptick versus the projected 0.2% rise.
Euro zone data has also been mixed but ECB Governor Draghi has emphasized that they’re open to increasing the size and duration of their QE program if necessary. He downplayed inflationary pressures once again, citing the pickup in energy prices as a one-off boost.
German trade balance is due today and a larger surplus of 23.2 billion EUR is expected. In Japan, preliminary machine tool orders is up for release and another upside surprise could mean more yen gains. Note that the BOJ has upgraded its growth forecasts so no additional easing measures are expected in the near term.
By Kate Curtis from Trader’s Way
USDJPY has been trending lower on its 1-hour time frame, moving inside a descending channel since the start of the year. Price is now testing the channel resistance and might be due for a drop back to support at 111.00.
The 100 SMA is below the longer-term 200 SMA on this time frame so the path of least resistance is to the downside. However, the gap between the moving averages is narrowing so an upward crossover might be due, possibly drawing more buyers to the mix.
In that case, USDJPY could break past the channel resistance at the 113.70 area and start a reversal. However, stochastic is indicating overbought conditions and might turn lower, allowing the downtrend to resume.
The US dollar has rallied across the board when US President Trump shared that he is about to announce something “phenomenal” on taxes in the next two or three weeks. This could cover more details on his tax reform plan, which is expected to cut corporate taxes to 15-20% and lessen the tax burden on middle-class Americans.
US equity indices closed at record highs on upbeat expectations, including potential reforms in the aviation industry. Trump recently had a meeting with CEOs of US carriers who hinted that they are ready to bring more job opportunities back to the US. Trump is also meeting with Japanese Prime Minister Abe today and traders are speculating that currency manipulation might be discussed.
With that, yen bulls closed their recent positions as traders also reestablished their dollar longs. Japanese data has been upbeat and the BOJ has issued a brighter economic outlook but market sentiment and politics could play a greater role in price action from here.
By Kate Curtis from Trader’s Way
NZDUSD recently broke past a descending trend line visible on its 4-hour and daily time frames, signaling that an uptrend is due. Price zoomed past the .7300 mark before showing signs of a correction, and applying the Fib tool on the latest swing high and low shows that the 50% level lines up with the broken trend line and the .7100 major psychological support.
The 100 SMA is still above the 200 SMA so the path of least resistance is to the upside for now. However, the gap between the moving averages is narrowing so a downward crossover might be imminent. In that case, more sellers could get in the game and increase downside pressure.
Stochastic is heading south, which means that sellers are in control of NZDUSD price action for now. The oscillator is dipping into the oversold region and might turn higher soon, drawing buyers back to the mix and causing a bounce off the area of interest.
The RBNZ was slightly more dovish than expected in their latest interest rate statement, as they pushed back their projected date for achieving 2% inflation by a couple of quarters. This signals that the central bank could still be open to additional rate cuts in order to shore up price levels if needed.
In contrast, geopolitical tensions seem to have subsided as the Trump administration had a productive meeting with Japanese Prime Minister Abe. US equities are also climbing to new highs on Trump’s tax reform plans, which he plans on announcing sometime in the next two to three weeks.
Recall that Trump has talked about lowering the corporate tax rate and deregulating the financial sector, both of which are likely to mean strong gains for corporate America and the overall US economy. More details on these plans could remind traders that the Fed is looking to tighten monetary policy in order to keep growth under control so March rate hike hopes could continue propping the dollar up.
By Kate Curtis from Trader’s Way
GBPJPY has formed lower highs and higher lows, creating a symmetrical triangle pattern visible on its 4-hour time frame. Price is getting ready to test the resistance around the 142.50 minor psychological level and could be due for a bounce or a break.
The 100 SMA seems to be crossing above the longer-term 200 SMA to suggest a potential upside break. If so, the pair could climb by an additional 900 pips, which is roughly the same height as the chart formation. Similarly, a downside break below support at 140.00 could send price lower by 900 pips.
Stochastic is indicating overbought conditions and turning lower could draw more sellers to the mix, allowing the triangle resistance to keep gains in check and push GBPJPY back to the bottom of the chart pattern.
UK CPI is up for release today and analysts are expecting a gain from 1.6% to 1.9% in the headline figure and a rise in the core figure from 1.6% to 1.7%. Stronger than expected data could reinforce BOE official Forbes’ views that a rate hike should be considered to prevent inflation from rising out of control.
Later on in the week, the UK will print its jobs figures, likely showing a 1.1K rise in claimants for January and no change in the average earnings index at 2.8%. UK retail sales is expected to show a rebound from the 1.9% drop recorded in December.
As for the yen, market sentiment has been pushing the lower-yielding currency around, although it has been sensitive to currency-specific data. Over the weekend, Japan printed a weaker than expected preliminary GDP reading of 0.2% for Q4 versus expectations at 0.3%.
By Kate Curtis from Trader’s Way
AUDUSD bounced off support around the .7615 area once more and is now making its way back to the top of its short-term range visible on the 1-hour time frame. Price could find resistance near .7700 and head back to the bottom again.
The 100 SMA crossed above the longer-term 200 SMA to show that the path of least resistance is to the upside, keeping price supported until it tests the ceiling or perhaps breaks higher. In that case, the pair could head north by an additional 100 pips or roughly the same height as the chart formation.
Stochastic is also heading north so AUDUSD could follow suit but is closing in on the overbought area. Once the oscillator hits this region and turns lower, selling pressure could increase and trigger another move towards support or even a breakdown.
The US dollar has gained strong support on Fed Chairperson Yellen’s hawkish remarks, affirming that a March interest rate hike could be possible. She downplayed the recent miss in average hourly earnings, citing that tightening labor market conditions could keep upside pressure on wages. Other Fed officials and FOMC voting member Kaplan echoed this upbeat sentiment and confirmed that three rate hikes could be possible this year.
However, the Aussie has also been able to put up a strong fight, thanks to the less dovish than expected RBA statement last week. The central bank acknowledged that commodity prices have been picking up and that China’s performance continues to improve, something that was supported by the latest batch of data. Since China is Australia’s largest trading partner, this could mean higher demand for commodity products.
By Kate Curtis from Trader’s Way
AUDUSD has been trending higher on its short-term time frames, moving inside an ascending channel on its 1-hour chart. Price is currently testing the resistance at the .7700 major psychological level and might be due for a selloff back to the channel support at .7650.
The 100 SMA is above the longer-term 200 SMA on this time frame, which means that the path of least resistance is to the upside, and the gap between the two is getting wider to indicate stronger bullish momentum. In addition, the 200 SMA lines up with the channel support, adding to its strength as a floor.
Stochastic is already heading south from the overbought zone to indicate a pickup in selling pressure. However, if buyers remain in play, price could still move past the resistance and go on a sharper climb.
The dollar gave back some of its recent gains to its peers after Fed Chairperson Yellen sounded less hawkish in her second testimony. Market watchers focused on her remarks on weak investment spending and productivity, which are dampening wage growth and inflationary pressures. Data from the US, namely retail sales and CPI, all came in stronger than expected while industrial production chalked up a surprise 0.3% drop versus the estimated 0.1% uptick.*
This was less upbeat compared to her earlier speech, which revealed that she is also looking to tighten sooner rather than later. In that testimony, she pointed to the progress in terms of achieving the Fed’s dual mandate of full employment and 2% inflation. Other Fed officials are supporting this view, with a couple of voting members also citing that they could vote to hike soon.
As for the Australian dollar, the currency is enjoying strong support from the less dovish RBA statement last week and improved data from China. CPI and PPI figures beat expectations for January, signaling stronger inflationary pressures and potentially higher demand. Australia’s jobs figures also turned out stronger than expected, with the economy adding 13.5K versus 9.7K jobs in January and the jobless rate improving from 5.8% to 5.7%.
By Kate Curtis from Trader’s Way
EURAUD has been trending lower and has recently broken below support around the 1.3800-1.3850 area. Price has dipped to 1.3725 before showing signs of a correction, and applying the Fib tool on the swing high and low on the 1-hour chart shows that the 50% level lines up with the area of interest, which could keep gains in check and push price back to the swing low.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. In addition, the 200 SMA coincides with the highest Fib, adding to its strength as the line in the sand for this selloff. Stochastic is in overbought territory and looks ready to turn lower, possibly drawing more sellers to the mix.
On the other hand, a break past the 61.8% Fib and 1.3850 area could signal that buyers are putting up a fight and that a larger pullback to the 1.4000 major psychological level could be in the cards.
Economic data from Australia turned out stronger than expected, as the employment change figure came in at 13.5K versus the projected 9.7K increase. This brought the jobless rate down from 5.8% to 5.7%.
In Europe, recent top-tier reports haven’t been so upbeat as the preliminary GDP readings from its top economies turned out below expectations. German ZEW economic sentiment also fell, indicating weaker confidence in growth prospects.
Only the euro zone current account balance is lined up next and there are no other reports due from Australia for the rest of the week. Still, the commodity currency could continue to draw support from risk appetite and China’s improved economic outlook while the euro could be weighed down by financial troubles in Greece and Italy, as well as foreseen risks from France’s elections.
By Kate Curtis from Trader’s Way
USDJPY recently broke above its descending channel visible on the 1-hour time frame, indicating that it’s done with its downtrend. Price climbed up to a high of 115.00 before pulling back and applying the Fib tool on its latest swing high and low shows that the 61.8% retracement level lines up with the broken channel resistance.
The 100 SMA is above the longer-term 200 SMA on this time frame so the path of least resistance is to the upside. Price also seems to have bounced off the 200 SMA dynamic support, which is also near the channel resistance, and might be on its way back to the swing high.
Stochastic is pulling up from the oversold territory, which means that bullish pressure is building up once more. Stronger buying momentum could take USDJPY past the swing high onto the next ceiling around 115.50 and beyond.
US banks are closed for the holiday today so liquidity could be low and range-bound conditions could be in play. Over the weekend, Japan printed a weaker than expected trade surplus of 0.16T JPY compared to the estimated 0.28T JPY figure and the earlier 0.33T JPY surplus.
Japan’s flash manufacturing PMI is up for release tomorrow and a drop from 52.7 to 52.1 to reflect a slower expansion in the industry. A weaker than expected read could reflect a sharper slowdown, which could be bearish for the Japanese yen.
As for the US, the flash manufacturing PMI is due and a rise from 55.6 to 55.8 is eyed, which would be indicative of a faster pace of growth. Traders are also on the lookout for Trump’s tax reform plan as a truly “phenomenal” announcement could lead to more gains for US equities and the dollar.
By Kate Curtis from Trader’s Way
GBPUSD formed lower highs and found support at the 1.2400 major psychological level recently, creating a descending triangle chart pattern. Price just bounced off the resistance and is moving closer to testing support.
The pair is also approaching the peak of the pattern, which means that a breakout could happen sooner or later. The chart pattern is approximately 300 pips tall so the resulting breakout could be roughly the same size. The 100 SMA is currently below the longer-term 200 SMA so the path of least resistance is to the downside. In addition, the moving averages are close to the triangle resistance, adding to its strength as a ceiling.
Stochastic is on the move down, indicating a pickup in selling pressure. However, the oscillator is already dipping into the oversold region, which means that buyers could get back in the game soon and push for a bounce off support or a break higher.
The main event risk for the pound could be the Brexit debtes going on in the House of Lords, as any indication that leaders might cause additional delays would extend the period of uncertainty for the UK economy. On the other hand, clearing this hurdle fairly smoothly could spur a relief rally for the pound.
Data from the UK has been mostly weaker than expected last week, as the consumer sector showed signs of lagging on slow wages combined with rising price levels. Prior to this, industry PMI readings also showed some weakness. This week, the second GDP estimate is due and a downgrade could also increase downside pressure on GBPUSD.
As for the dollar, futures are pointing to a higher open for stocks and sustained gains for the week as top retailers are scheduled to report earnings. Traders are also looking out for Trump’s tax announcement, which might also be positive for equities and the dollar.
By Kate Curtis from Trader’s Way
EURGBP formed a long-term reversal pattern visible on its daily time frame, signaling that price is done with its climb and that a selloff could be due. The pair is still testing the neckline support at .8400-.8450 at the moment but a break lower could send it down by 700 pips or the same height as the chart formation.
The 100 SMA is still above the longer-term 200 SMA for now so the path of least resistance might still be to the upside. However, the gap between the two is narrowing, indicating that buying pressure is weakening and that a downward crossover could take place soon. Price is already moving below the 200 SMA dynamic support to show that bears are taking control.
Stochastic is close to the oversold region, which means that sellers are taking a break for now. A move higher could take the pair up for a quick bounce to the .8500 area or the 100 SMA dynamic inflection point before selling pressure picks up.
The euro has been selling off recently due to political issues in Italy and France, along with debt troubles in Greece and Italy. Even though flash manufacturing and services PMIs came in better than expected yesterday, the shared currency failed to gain any traction as it was dragged down by headlines.
On the other hand, the pound is staying resilient in hopes that the government’s Brexit plans can push through without a glitch through the House of Lords. The debates are still ongoing and traders are on edge for the outcome, but sources are saying that the timeline of triggering Article 50 by the end of next month is still a go.
UK public sector net borrowing was weaker than expected at a 9.8 billion GBP deficit while the BOE inflation report hearings confirmed that Carney isn’t sold on hiking just yet. The UK second estimate GDP is due today and any revisions to the preliminary 0.6% growth figure could push the pound in a strong direction.
By Kate Curtis from Trader’s Way
EURJPY is trending lower on its 4-hour chart, moving inside a descending channel connecting the latest highs and lows of price action. The pair is bouncing off support at the moment and may be due for a test of resistance.
The 100 SMA is below the longer-term 200 SMA on this time frame so the path of least resistance is to the downside. In addition, the gap between the moving averages is getting wider, which means that bearish pressure is getting stronger. The 100 SMA is around the mid-channel area of interest, adding to its strength as a ceiling in the event of a shallow pullback, while the 200 SMA dynamic resistance is closer to the channel top at 121.00.
Stochastic is on the move up to indicate that buyers are regaining control of price action from here, but it could be indicative of a return in bearish pressure once it reaches the overbought area and turns down.
Uncertainties all over Europe could keep gains in check for the shared currency, although the latest updates in the French political scene have led to a strong bounce. Headlines revealed that a poll gave the lead to Le Pen’s rival Macron who also gained the backing of influential French politician Bayrou. This could increase their odds of winning the run-off against Le Pen and possibly move the spotlight away from Frexit concerns.
Economic reports from the region haven’t all been bad as the latest batch of flash manufacturing and services PMIs from Germany and France printed stronger than expected results. The German IFO business climate index also beat expectations by rising from 109.9 to 111.0 instead of dipping to 109.6.
Meanwhile, data from Japan has been mixed as the all industries activity index printed a sharper than expected 0.3% decline versus the estimated 0.2% dip while the flash manufacturing PMI printer a higher than expected read of 53.5. Aside from that, the yen seems to be taking advantage of safe-haven flows while traders remain uneasy about buying the dollar.
By Kate Curtis from Trader’s Way
NZDUSD failed in its last two attempts to break below the .7150 minor psychological level, creating a double bottom formation visible on its 1-hour chart. Price has yet to break above the neckline around the .7250 level to confirm the reversal.
If that breakout materializes, NZDUSD could climb by at least 100 pips or the same height as the chart formation. The 100 SMA is below the longer-term 200 SMA, though, so the path of least resistance is to the downside. If the resistance holds, another bottom could form at .7150.
Stochastic is on the move down to reflect the presence of selling pressure, which might also bring more sellers to the mix, but buying pressure could return once the oscillator makes it out of the oversold region and turns higher.
The dollar is looking weaker against most of its peers as traders are running out of excitement for the Trump administration’s fiscal policy reform plans. According to Treasury Secretary Mnuchin, it will take until 2018 or so before the impact of the policy changes kick in and GDP growth could reach 3% at best, not the 4% expansion promised during the election campaign.
US data has been mostly in line with expectations but traders are playing it cautiously as the FOMC minutes specified that their March decision hinges mostly on the outcome of jobs and inflation reports before meeting. As such, any major disappointments could dose hopes for a hike while strong readings could revive dollar demand.
As for the Kiwi, the currency was barely hit by the 3.2% drop in dairy prices during the latest Global Dairy Trade auction. Over the weekend, New Zealand printed stronger than expected PPI input and output prices, indicating positive pressures on overall inflation down the line and lesser need for the RBNZ to cut.
By Kate Curtis from Trader’s Way
GBPUSD sold off sharply last Friday but appears to be finding support at the bottom of its short-term range at the 1.2400 major psychological level. Stochastic is already indicating oversold conditions, which means that sellers are exhausted and that buyers are likely to take over price action.
In that case, the pair could make it all the way back up to the range resistance at the 1.2570 area. The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. However, these moving averages are also oscillating to show that range-bound conditions could stay in play.
A break below support could push price down by around 170 pips or the same height as the chart formation. Similarly, a break higher could bring the pair up by 170 pips or so. The moving averages are also around the middle of the range, potentially acting as near-term areas of interest.
Over the weekend, headlines indicated that UK Prime Minister May could move to end the free movement of migrants in March, reminding market watchers that Brexit negotiations are likely to kick off around that time as well. May is also expected to announce that EU migrants who have moved to the UK before the cutoff date will have their rights protected as long as British citizens living in other parts of Europe are given the same.
In the US, anticipation for Trump’s tax plan is building up once more this week as the US President has a speech scheduled mid-week. If his announcement turns out positive for corporate America, the dollar could continue to advance against its peers since this could also be a point in favor of a March Fed rate hike.
Other event risks for the week include UK construction and services PMI, as well as the US preliminary GDP reading. FOMC policymakers Yellen, Fischer, Evans, and Powell have speeches lined up on Friday.
By Kate Curtis from Trader’s Way
EURGBP has been trending lower, moving inside a descending channel connecting the latest highs and lows on the 4-hour time frame. Price is currently testing the resistance near the .8500 major psychological level and might be due for a move back towards the channel support at .8400 or lower.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. In addition, the 100 SMA lines up with the channel resistance and is holding as a dynamic inflection point at the moment.
Stochastic is already turning lower from the overbought zone so selling pressure is kicking in, also confirming that a move towards the channel support is likely. However, if price still pops higher, the 200 SMA dynamic resistance at .8550 could keep gains in check.
The main event risk for the UK is the outcome of the Brexit debates in the House of Lords. UK PMI readings from the construction and services industries are also lined up and downbeat results or signs of a slowdown could mean more losses for the pound.
Scottish referendum talks are also weighing on sterling at the moment since this could add fresh issues to the already complicated Brexit negotiations. Scottish FM Sturgeon mentioned that they might call for a vote in reaction to the UK’s triggering of Article 50 by March.
Meanwhile, the euro is also under some selling pressure due to the happenings in French politics. Polls are suggesting that Macron could widen his lead against Le Pen and diminish odds of a Frexit, which could spark increased uncertainty in the region. French consumer spending, preliminary CPI and GDP readings are due today.
By Kate Curtis from Trader’s Way
AUDUSD recently broke below its ascending channel visible on the 1-hour and 4-hour time frames. Price has dipped to a low of .7635 before showing signs of a pullback. Applying the Fib tool on the swing high and low shows that the 50% retracement level lines up with the broken support.
This area appears to have held as resistance so far, and a continuation of the selloff could lead to a test of the swing low or a move down to the next key level at .7600. Stochastic is still heading higher, though, so there may be some buying pressure left for a higher correction.
The 100 SMA is above the 200 SMA but the gap between the moving averages is narrowing to hint at a potential downward crossover. Also, these dynamic inflection points are close to the 50% Fib, adding to its strength as near-term resistance.
Earlier today, Australia printed a stronger than expected 1.1% Q4 GDP reading versus the estimated 0.7% expansion. This also chalks up a strong rebound over the earlier period’s 0.5% contraction. Components of the report confirmed that the pickup was mostly spurred by stronger trade activity.
As for the US, the lack of upward revision on the Q4 preliminary GDP reading at 1.9% led to a few losses but it looks like traders are banking on a March Fed rate hike from all the FOMC members’ comments and expectations of fiscal stimulus from the Trump administration.
US President Trump is scheduled to announce his plans for increased infrastructure and security spending, but traders are still holding out for his tax reform announcement. Chinese PMI readings came in mostly stronger than expected so this should be a point in favor of the Australian dollar as well.
By Kate Curtis from Trader’s Way
GBPUSD bounced off the resistance at the 1.2650 minor psychological level and broke below the near-term consolidation support at 1.2400, confirming that sellers are taking over. Price is now making its way towards the long-term support at the 1.2100 major psychological level.
The 100 SMA is above the longer-term 200 SMA on the 4-hour time frame but a downward crossover seems to be looming, indicating that bearish momentum could pick up. In that case, a break below the range support could be possible, taking GBPUSD lower by 550 pips or the same height as the chart formation.
Stochastic is already indicating oversold conditions so the odds could turn in the bulls’ favor at some point, although the oscillator has yet to move higher to reflect a return in buying momentum. If that happens, a pullback to the nearby area of interest at 1.2400 could take place or a bounce back to the resistance at 1.2650 could be seen.
The pound is under heavy selling pressure as the Brexit Bill is encountering a lot of friction in the House of Lords. Amendments might need to be made, particularly when it comes to the status of UK citizens in EU nations, so this could mean a delay in PM May’s Article 50 timeline and more uncertainty for the economy.
As for economic data, UK manufacturing PMI turned out weaker than expected by falling from 55.7 to 54.6 versus the estimated rebound. The construction PMI is due today and no change to the earlier 52.2 reading is eyed, although another downbeat result could confirm that Brexit jitters are affecting business conditions. Services PMI is due on Friday and this might carry more weight.
Dollar demand seems to have returned even after Trump’s speech was a bit of disappointment without any tax reform details. Still, investors took comfort in the fact that he sounded more presidential and less divisive. Also, more FOMC speeches highlighting the need to hike in their upcoming meeting this month is keeping the dollar supported. Data has been mostly stronger than expected, with the ISM manufacturing PMI up from 56.0 to 57.7.
By Kate Curtis from Trader’s Way
EURAUD has been trending lower on its daily time frame, moving below a descending trend line connecting the latest highs of price action. Price bounced off a low of 1.3625 and looks ready for a pullback to the falling resistance level.
Applying the Fib tool on the latest swing high and low shows that the 50% level lines up with an area of interest or former support around 1.4100, which might hold as resistance. This is also close to the descending trend line, with the 61.8% Fib acting as the line in the sand around 1.4300 for this correction.
The 100 SMA is below the longer-term 200 SMA, confirming that the path of least resistance is to the downside. This is also near the 50% Fib, adding to its strength as resistance. Stochastic is moving up for now, which suggests that sellers are taking a break and allowing buyers to stay in the lead for the time being.
Economic data from Australia turned out mixed yesterday, with the trade balance printing a smaller 1.30 billion AUD surplus versus the estimated 3.82 billion AUD surplus. The previous reading was also downgraded from 3.51 billion AUD to 3.33 billion AUD to reflect weaker trade activity.
On the flip side, building approvals came in stronger than expected with a 1.8% gain instead of the estimated 0.1% downtick. Prior to this, Australia reported a stronger than expected GDP growth of 1.1% versus the projected 0.7% expansion while China’s manufacturing PMI readings beat expectations, signaling stronger demand for Australia’s raw materials.
For now, the euro is recovering as French election jitters and Frexit concerns are abating. Le Pen seems to be falling behind on the polls so investors seem less worried about instability in the region. However, news reports revealed that Greece is seeking financial assistance from the World Bank so it may be running out of options and still at risk of default.
By Kate Curtis from Trader’s Way
