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KTM FX Daily: GBPAUD technical forecast

GBPAUD is quiet during the Asian session with no volatility. The cross manages to keep yesterday ’s low and is not trading at 1.7335. Intraday pivotal finds at 1.7280 (today’s lo so far) coincide with early Aug low.

The cross again would be in pressure if the price could not hold 1.7280. In this case, 1.7200 Dec 03 low which coincides with earlier swing high posted in Jan 2017.

For three weeks (including this week) the cross has been consolidating in a narrow range between 1.7280-1.7750 and manage to find the foot above 100MA (Weekly).

In the near term, we focus on the support zone 1.7280-1.7200. Turning to the daily indicators, the RSI has been propelling North whereas the oscillator turned back to bearish again.

The cross hasn’t seen a weekly close below 100MA (Weekly) since mid-Jan 2018. Keeping the support zone in mind, we expect as long as 1.7200 is support look for 1.7475 and 1.7550, but the chances are remote/very low at the time of preparing this.

Also read the GBPUSD forecast and GBP/XXX charts on our KTM blog

GBPAUDWeekly.png

The flip side, downside risks heighten below 1.7200 for sub 1.7000/1.6900 its 50.0% fib reaction.

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The pound advanced on UK Prime Minister survive the confidence vote, easing trade tensions help the EM currencies to rebound, the dollar slipped but Treasuries rebounded; Palladium at a record high; Market wrap

The pound rose between 1.00-1.60% recorded the biggest intraday gain in a month as the market prepares for May’s survive on a confidence vote.
Just in: UK’s May wins the party confidence vote, post the news pound narrowed gains slightly but still holding significant intraday gains. As we noted yesterday, more clarity on Brexit means a big squeeze (not in a straight line though). What we saw on Wednesday is a trailer, to us.
  • In the EM currency space, South Africa Rand up by 1.50% and currently trading at 14.10 whereas Lira firmed at 5.35.
  • Turning to G10 currencies GBP surged more than a percent followed by EUR and DKK 0.55% each. Besides NZD lost 0.40%.
  • The dollar index rejected again at the supply zone 97.40-97.50 and traced out a triple top formation; closed at 96.95. But the yield on 10-year Treasuries closed at 2.91 up from Wednesday’s 2.89
  • Now my interesting space to trade lies on commodities where we saw massive gains overnight with Platinum 2.5% followed by Palladium 1.70% at fresh high and Silver with 1.50%. Besides gold advanced only 0.2% remains below 200MA.
  • Finally, cryptos Bitcoin and Ripple rallied more than 2.00%. Both the digital currencies manage to hold the 200MA (Weekly) so far, but the rallies are uncertain.
What’s on today?
The Swiss National Bank Monetary policy and ECB monetary policy decision will be published today. We expect both the central banks’ main policy rates to remain unchanged.

Goldman Sachs says, “we expect (1) the SNB to leave the target range for the three-month Libor unchanged, at between -1.25% and -0.25%; (2) maintain the interest rate on sight deposits with the SNB at -0.75%; and (3) resort to occasional foreign exchange market interventions to deal with short-term appreciation pressures on the Swiss Franc as is deemed necessary.”
The bank also said, “we pushed back the first expected policy rate rise for the Swiss National Bank to Q1 2020, from Q4 2019 previously.”.

Our main focus remains on the December ECB meeting (Thu). We and the market expect the ECB to leave its key policy rates on Hold. After a series of weak macroeconomic data across EA, we also assume that the meeting could be on a dovish tone.
Chart of the day: EURCHF
As long as 1.1220/1.1180 is support look for 1.1350 and 1.1450. Intraday support finds at 1.1260/1.1250, 1.1220 and 1.1180.
EURCHFDaily.png

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Prices fell across many asset classes last week; USD outperform
The disappointing UK and Chinese economic data, Weak EA PMI surveys, Dovish ECB are encouraging us to re-think about global growth rate. Besides, US retail sales were printed better than expected. On top of these, Brexit news accelerated the GBP volatility again last week.

Latest EZ PMI surveys suggest the latest flash PMI survey data indicate that growth of business activity in the euro area slowed to the weakest for over four years in December, according to the IHS Markit.

Currencies: Winners and losers last week
The dollar index (KTM symbol: USDX) breakthrough the earlier double top but failed to close above; but U.S 10Yr Treasury Yields fell back to 2.89 vs. 2.91 Thursday’s closing.

Overall, last week the dollar index closed higher in the Volatile week. Besides, equity indices fell, and Bonds rallied as Global growth fear multiples.

The NOK was the biggest loser in the G10 basket, with 1.7% against the USD, followed by GBP 1.30%, DKK by 1.00%, CHF and NZD by 0.90% each, JPY by 0.7%, CAD and SEK by 0.5% each and the AUD by 0.40% respectively.

Turning to EM currencies, South African Rand fell 1.70% and Turkish Lira down by 1.35% respectively.

Commodities:
The strong dollar always enjoys the inverse co-relation on commodities, Gold down 0.90$, Platinum down 0.80% and Silver down by 0.30% respectively. However, Palladium up 0.80%.

The Ferrari without the engines has been trading down since mid-Dec 2017. On Friday the Bitcoin closed below 3200$ mark, the lowest level since Sep 2017.

Weekly preview:
Data-packed week; Brexit chaos and the Fed meeting should dominate the headlines.
  • CPI for US and UK
  • GDP for NZ and US and Aussie labor force data
  • Fed, BOJ and BOE Interest rate.
FOMC preview:
  • Market participants are waiting for Fed’s tone and updated economic projections; besides the subject of a rate hike is already priced in. December rate hike would bring the target range of 2.25-2.50%. In case of a dovish hike, we could see a quick rally in G10 &EM currencies and commodities. However, the hawkish surprise could eventually push the dollar above 100.00 marks. In this case, we lean to further bullish on USDCHF than USDJPY.
USDX (weekly chart) =USDCHF and USDDKK for us. Based on this, we continue to see board upside for USDCHF and stay long in every dip.
  • Turning to the Bank of England’s meeting, we expect the no change. But given the risk associated around the globe and Brexit choas, our focus remains on the bank’s outlook on the economy.
  • The Bank of Japan is not expected to change in this week’s meeting. The Bank’s price stability target is to achieve the inflation rate of 2 percent, the current rate is at around 1%.
  • Australia Nov labor force data preview: The expected bounce in employment appeared in the October Labour Force Survey with a 32.8k rise. The market median was for 20k, according to Westpac.
  • NZ Q3 GDP: We expect growth to drop back to a more modest 0.5% in the September quarter as some of those one-offs are unwound, according to Westpac. The Bank’s price stability target is to achieve the inflation rate of 2 percent, the current rate is at around 1%.
  • In euro, we are particularly focusing on EZ final CPI estimate for November (Mon, 17). Moody’s Analytics said, “We expect it to conform to expectations and show that inflation pressures in the currency area eased sharply at the middle of the fourth quarter, to 2% y/y, from 2.2% previously.”
Chart of the week: USDCHF
USDCHFDaily.png

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  • Crude prices are ever-more volatile, presenting a challenge for OPEC to stabilize the market.
  • The supply and easing global growth are continuing to raise the volatility over the near and medium term.
  • The overall near-term trend is difficult to forecast, though Brent appears better placed above Nov low, whereas WTI closed below Nov low.
Since October high Oil prices have fallen more than 30.0%, Brent tumbled to 57.80$ from peak 86.60$ in just seven weeks.
Technically, the 200MA (weekly) has been offering decent support over a year. Back in July 2014, Brent oil broke the 200MA (weekly) and spent nearly three and half years below that particular moving average.

BRENTMonthly.png

Now again the price back to that MAs. We can see the same story on the monthly chart as well with 50MA.
BRENTWeekly.png

What to expect is hard to predict at the current given market conditions. As the commodity market continues to experience high volatility as usual into the year-end, the lower level buying is drying up as global growth concerns multiples.

Whenever global growth eases, commodity market volatility has the potential to change the landscape quickly.

However, International Energy Agency (IEA) kept its 2018 and 2019 oil demand unchanged at 1.3 mb/d and 1.4mb/d respectively. The Paris-based agency also said, “Time will tell how effective the new production agreement will be in re-balancing the oil market.”

The IEA monthly Oil Market report ended with “The next meeting of the Vienna Agreement countries takes place in April, and we hope that the intervening period is less volatile than has recently been the case.”.

Bringing the 200MA (Weekly) back to the picture, currently, it is sitting at 56.50$, and the Brent price is trading at 58.75$ levels.
The daily volatility and the bullish turnaround of the daily oscillator should apply the brakes around that particular MA.

A weekly close below of the particular MA and 50MA (Month) sounds tricky, and we instead see a decline to the next supports at the prior swing low at 50.75$ its Jan 2017 low and the 61.8% fib reaction of 27.00$-86.60$ rally finds at 50.00/49.70$.

The flip side, resistance stand at 60.00$, 61.20$ and 62.00$. Note that a break above 62.00$ would underpin the baby bullish momentum, paying the way to 63.75$. A successful foot above 63.75$ could trigger a sharp near-term rally 68.50/70.00$.

We still forecast a limited “downward approach.” Brent oil might have put in a meaningful bottom between 56.00$-50.00$ and could consolidate sideways for few days.

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KTM FX Daily: EURUSD technical overview


The single currency has been moving higher so far this week, supported by the weak dollar as investors bracing for Today’s Fed’s policy review. The dollar index fell below the 50MA for the first since mid-Oct but rebounded and closed above by the end of the day.
The euro traders experienced another week of weak economic data, growth concerns continued to impact, but the oversold technical levels supported the currency so far this week. EURUSD rose to 1.1400 which is our first target, a break out above Tuesday’s high needed to challenge last week’s high 1.1440.
Data review:
EA CPI printed below market expectations.
The euro area annual inflation rate was 1.9% in November 2018, down from 2.2% in October. A year earlier, the rate was 1.5%, according to Eurostat. The euro area flash estimate for November 2018, was 2.0%, according to Eurostat.

Tuesday’s headline data ifo Business Climate Index fell to 101.0 points in December from 102.00 points to November. However, the construction sector index remained at last month’s very high level. Contractors assessed their current business situation slightly more favorably, but their expectations declined somewhat, according to CES ifo.
Capture.JPG

The other key sectors pointed lower; manufacturing the business climate index fell markedly, the service sector, the business climate deteriorated considerably, the index also edged downwards in the trade sector.
Capture2.JPG

Based on the ifo Business Cycle (below chart), we forecast an optimistic view of the state of the Germany economy in 2019. Currently, the ifo Business Cycle Traffic Lights sitting in the regime of contraction, it could move to buffer zone in the next couple quarters in 2019, followed by expansion by the end of 2019 or early 2020.

Capture3.JPG


TECHNICAL OVERVIEW

Since Monday we have noted earlier this week, Pivotal/double bottom at 1.1260 tested and held so far. As a result, the price action swings higher through the first resistance and met our first target 1.1390/1.1400. Over the past two days, the support level has moved higher to 1.1330 from 1.1300 followed by 1.1260.

Now getting through Tuesday’s high could rally further to 1.1440 which is the key level to observe to forecast 1.1500.
The daily indicators are supporting higher prices, but we are cautious around 1.1440 levels.


EURUSDDaily.png

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The dollar index saw its best since 2014 as all the major currencies damaged by trade war which raised concerns over global economic growth.
How various currencies in the G10 block fared in 2018?
Nine out of ten currencies were painted red into year-end; especially commodity currencies loonie and Aussie dollar were leading the way downward. Majors Euro and Pound were down by more than 5.00% followed by Danish Krone, Swedish Krona and Norway Krone down by 5.00% each. Only one currency was favorable on the year; safe haven currency Yen was up by 2.75%.

G10.JPG
Commodities and commodity currencies tumbled as higher dollar tends to have an inverse correlation on commodity prices. However, Palladium price soared more than 18.00%, printed the best in metal space.

The Canadian dollar weakened the worst in three years among G10, fell 11.00% in 2018 vs. 18.00% in 2015 followed by an Aussie dollar with -10.00% in 2018. The commodity-based currencies AUD, CAD, and NZD need a strong Chinese economy and stabilized oil prices. The higher dollar made a massive dip in the commodity exporter of resources as Aussie dollar depends on Iron ore, Canadian dollar on Oil prices and New Zealand dollar on dairy prices.

Commodity fx.JPG
Forwarding into 2019, we believe that the continuation of the trade war could further dampen the global growth eventually dampen the commodity currencies further. Overall, the impact of trade war concerns will be the focal point in 1Q 2019. Besides in major currency pairs, there is a chance we could see further consolidation in the current ranges and most probably could face selling pressure at last week’s high.

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  • It’s been a red letter day
  • Not under control; Another day and sell-off as reverse thrust activated
We are not off to the best start this year, as downshift in global growth and Trade war pressures.
Flash crash, Apple’s plunge, and Weak ISM manufacturing data were the key factors propelled the volatility. In times of risk on mood, traders tend to flee to safety, Japanese Yen and Gold price were the beneficiaries.
The currency market already witnessed the first flash crash in 2019. The USDJPY fell as low as 103.85 its lowest level since Nov 2016. The Japanese Yen had skyrocketed against the most traded currencies especially AUDJPY dropped to the lowest level in nine years. Besides EUR, GBP and NZD fell between 1.00-1.30%.
AUDJPYMonthly2.png

The second trading day in 2019 (Thursday) started with violet sell-off across the asset classes. First, it was Apple hinted a profit warning.
“New debt king” Gundlach commented on Apple’s profit warning: This is what happens in the bear market. (CNBC)
Overnight Apple stock fell 10.00%, Dow Jones fell more than 2.5%, and Nasdaq fell 3.00%.
Turning to the macroeconomic data releases, the US ISM Manufacturing PMI printed at 54.1 vs. 59.3. It was a decrease of 5.2% compared to November reading. We learned growth in the US appears to have stopped.

In forex, EURUSD manages to hold the support zone 1.1300-1.1260. We believe the price is going to consolidate within the current range between 1.1500-1.1200 for the next few days.
We spotted a small ascending triangle pattern on the daily chart (below). Is this a reversal pattern at the end of a downtrend is the key question? In case of a bullish trendline breakout, we could see 1.1560 and 1.1590 in the coming days.
EURUSDDaily.png

In yesterday’s flash crash the kiwi dollar held early October low 0.6420 and traced out a double bottom, so far. Range: 0.6725-0.6420.

Turning to commodities Silver sits on the top with 14% from Nov 2018 lows followed by Gold 8.00%.

Silver price strengthened since laws week as protracted buying triggered a break of resistance at 15.00$, confirming upside sentiment. At the time of writing Silver is trading at 15.75$ and immediate resistance seems at 16.00$.
Readers can remind that we entered long Silver trade on mid-December targeting 15.60$. We continue to forecast Silver to head higher in the coming weeks. So we look for another opportunity to return to enter long.

XAGUSDDaily.png

The dollar index again fell back to the 100MAs, seems capped at 96.60. We believe the downside prevails as long as 96.60 is resistance. To strengthen this view, we need a close below Wednesday’s low. Besides US 10yr Treasury Yield closed at 2.44 down from Thursday’s closing 2.66.

USDXDaily.png

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The first week of 2019:
CAD rallied along with oil prices; Commodity prices had a pleasant first week of 2019; Flash crash shredded on AUDJPY, USDJPY, and AUDNZD; lower greenback against G10 currencies; equities reversed and strong US job numbers.

Overall, volatility across the asset classes rose the first week of 2019 sharply. Thes USD trading behavior over the past weeks suggests the dollar strength likely to come to an end. Besides Gold and Silver prices will rise further and EURUSD getting ready to shift the gear higher in the coming months.

Week ahead:
Event-wise, US-China trade talks (Jan 7-8 in Beijing) grab the traders’ attention. Besides FOMC and ECB minutes and Bank of Canada, Interest rate announcement and Monetary Policy Report will attract much interest. On top of these, Fed Powell’s appearance at the Economic Club Luncheon, in Washington DC will be focus firmly.

Economic data calendar:
  • Mon: ISM Non-manufacturing PMI (Dec)
    Tue: Trade balance for Aussie, Germany IP (Nov), Canada Trade, US JOLTS job openings (Nov)
    Wed: Aussie building approvals, German Trade, BOC interest rate decision and FOMC meeting minutes
    Thu: China CPI and ECB minutes
    Fri: Aussie retail sales, UK Nov GDP and Dec US CPI
The combination of ongoing trade conflicts, moderate global economic expansion and sharp correction on oil prices keeps the trader’s sidelines.

The trade war is hurting, in particular, China’s export/industrial cycle (see this piece by our China economist, Allan von Mehren). The spill-over from China and the trade war are weighing on the manufacturing cycle in the US, and Europe, Thomas Harr, Ph.D., Global Head of FI&C Research at Danske Bank said in a note to clients.

Turning to the latest round to US-China trade talks, we suggest a cautious approach on commodity currencies in the G10 block (AUD, CAD, NOK, and NZD) against the USD. At the same time, we also suggest USD is unlikely to benefit as much as seen in 2018 from the risk off conditions. Especially for CAD, oil price is the moving factor for now. In case of optimistic developments/sentiment rebounds over US-China trade talks we expect antipodeans (AUD & NZD) could rally further higher against JPY,CHF and USD.

Medium term: Considering moderate/slowdown global growth triggered by the US protactinium could translate into weakening USD in the coming months, especially low yielding currency like EUR. As we noted above EURUSD could start the next leg higher in the coming months of 2019.
Chart of the week: We expect the BOC will maintain its target for the overnight rate at one ¾ percent in the upcoming meeting. We focus on the Central Bank’s outlook for the local economy, inflation and language including a projection which will be published in the MPR. Mainly we focus on the Bank’s growth and inflation outlook.

Range: 1.3570-1.3225. Sell on rallies.
USDCADDaily.png

Last week we spotted and tweeted the “triple top pattern ” formation on USDCAD and EURCAD, they retraced 30.0% and 40.0% fib reactions respectively from recent highs.

Please check Key To Markets twitter handle for the live charts and signals.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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KTM FX Weekly: A single rate hike signal needed from ECB



G10 currencies posted strong gains on Monday against the dollar as optimism returns over US-China trade talks.
This year marks the 20th birthday of the euro. Currently, the euro settle around the purchase power parity against USD at 1.14 when it was introduced.


In forex, EURUSD manages to consolidate of its recent ranges. Besides the USD trading behavior over the past weeks suggests the dollar strength likely to come to an end. As a result, Gold and Silver prices will rise further, and EURUSD is getting ready to shift the gear higher in the coming months.
Data review:
  • Germany new orders in manufacturing had decreased in November 2018 1.0% on the previous month, according to Destatis.
  • Retail trade increased by 0.6% in the euro area (EA19) and by 0.7% in the EU28, according to estimates from Eurostat.
Data preview:

Focus remains on the ongoing US-China talks and FOMC and ECB minutes. On top of these, Fed Powell’s appearance at the Economic Club Luncheon, in Washington DC will be focus firmly. ECB’s first rate hike signal after this summer is the key driver for EURUSD. This week we don’t have any top-tier data for EUR.

On ECB minutes, Nordea wrote in a note, “We look for concessions on either TLTROs or the growth outlook in the Euro area.”

A single hike signal needed from ECB, this could boost EURUSD to 1.20 and 1.23 into the year-end. However, we expect the message could reach us only after 1H 2019. Besides, we also expect the Fed will be in a cautious mood in 2019. Especially we are watching the March Fed meeting more closely, which encounters with the Brexit deadline.

“We expect a 20bp hike in December 2019 by the ECB, driven by wage growth” Danske Bank reported in a note.

TECHNICAL OVERVIEW
We spotted a small ascending triangle pattern on the daily chart (below). Is this a reversal pattern at the end of a downtrend is the key question? In case of a bullish trendline breakout, we could see 1.1560 and 1.1590/1.1600 in the coming days.

The EURUSD has reaffirmed support since November 2018. The price action has been well supported at 1.1215 around its 61.8% fib reaction and 50MA (monthly) and a break below only ONLY may pave the way for lower prices back to 1.10 odd levels.

On the upside, the trend is supportive, but the price action needs to take out the 100MAs at 1.1500 and 20MA (Weekly) to confirm the pattern once again to 1.1600 in the near-term and 1.1800 in the medium term.

EURUSDDaily.png


It is important to always keep in mind the risks involved in trading with leveraged instruments.
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BOC to keep the rate at one ¾ percent in today’s meeting
We and the market expect the Bank of Canada will maintain its target for the overnight rate at one ¾ percent in today’s meeting. We focus on the Central Bank’s outlook for the local economy, inflation and language including a projection which will be published in the MPR. Mainly we focus on the Bank’s growth and inflation outlook. Turning to rate hike, we expect 1 to 2 hikes in 2019.

Policymakers mainly focus on the recent oil price drop, which has a character to open the downside risk to the economy. In today’s MPR the BOC will cut its inflation and growth forecast.
Currently, markets are pricing one hike in 2019. The first BOC meeting in 2019 (today) could reveal the further rate hike path. In case of a hawkish twist, CAD could strengthen further against the AUD, USD, and NZD as the hawkish tone is underpriced.

Here’s what analysts forecast:
  • ING noted “we expect two rate hikes in 1Q19 and 3Q19, taking the policy rate towards the lower end of the BoC’s estimate of the nominal neutral rate (2.5%-3.5%, based on at-target inflation).
The author James Smith also said, “We’re not ruling out a third hike next year either, depending on the strength of wage growth and if trade tensions remain in check.”
  • Wells Fargo said, “BoC hiking rates just twice this year rather than three times.”
  • Morgan Stanley is expecting a hawkish surprise. In a note to clients, MS reported “compared to the very low market expectations, we argue the risks to a hawkish surprise are rising. BoC rhetoric continues to emphasize that rates should gradually return to neutral (estimated to be 2.5-3.5% by the BoC). This would imply 3 to 7 additional rate hikes, compared to fewer than 1 implied by the market over the next two years.”.
FX:
We continue to forecast USDCAD to head lower in the coming days. Last week we forecasted a top in USDCAD and the price has dropped 2.50% from our recorded price. We exit the view at 1.3240 and will look for another opportunity to return to a sell trade again.

USDCADDaily2.png

Supports located at 1.3220/1.3200 its 50.0% fib reaction and 1.3170 its 100MA. The daily RSI is approaching oversold, but the oscillator is remaining bearish.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

What is your Technical View?
Do you have a different idea? Please leave us a comment and get an answer from our professional analysts

 
Improve risk appetite, progress in US-China trade talks, Dovish FOMC minutes, BOC on hold and cut the forecast; market wrap
The US. Equity indices again advanced and stocks rallied, Dollar index (KTM: USDX) down nearly a percent and US 10 yr Treasuries were steady.

As expected Bank of Canada kept its benchmark interest rates at 1.75% as it did in Dec 2018, but bank cut the outlook on Wednesday. The bank mentioned the recent drop in oil prices has a material impact on the Canadian outlook. The bank also raised concerns on consumer spending and housing investment.
Projections: GDP will grow by 1.7% in 2019, 0.4% slower than the October outlook.
“CPI inflation is projected to edge further down and be below 2 percent through much of 2019, owing mainly to lower gasoline prices.”
Regarding future rate hikes, the bank said, “The appropriate pace of rate increases will depend on how the outlook evolves, with a particular focus on developments in oil markets, the Canadian housing market, and global trade policy.”

The first reaction on USDCAD was negative, but tested and held the support 100MA. The setting is still bearish, but the indicators are increasingly oversold.

FX:
Against the weaker USD, EUR,NOK, and NZD sit on top of the G10 list. Turning to commodities, Gold and Silver rallied by 0.60% each, but Brent oil rallied nearly 5.00%. In Agri commodities, Sugar prices (KTM symbol: Sugar_Raw) advanced further on the fourth straight session.


SUGAR_RAWDaily.png


In majors, EURUSD run through the first target, we set last week but GBPUSD still trading below the resistance 1.2815.

Key events to watch today
We will see China inflation data in the Asian session and ECB Dec 2018 meeting minutes at 12.30 GMT. On top of these, Powell speaks in Washington followed by FOMC members Bullard and Evans.

Chart of the day: EURCHF
The cross traced out a near-term bottom near 1.1185 in Sep 2018 -Jan 2019 via the formation of a double bottom pattern. While holding 1.1200/1.1185 watch out for 1.1275, 1.1310 and 1.1340 in an extension.
EURCHFDaily.png


The flip side, if close below the double bottom could retrace further towards 1.1100-1.1050. On medium-term perspective, dip buying between 1.1100-1.1000 using sl below 1.0900 its 161.8 fe (1.1500-1.1220-1.1350. Targets at 1.1200, 1.1350 and 1.1500.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

What is your Technical View?
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Dollar dullness continues; NZD and AUD were the leaders in G10, and Brent oil price loves to make its way; Weekly Wrap.
The dollar index (KTM: USDX) declined 0.50% in the second week of 2019 against most of the G10 counterparts. NZD rose 1.5% followed by AUD 1.20%. Besides Gold made modest gains 0.30% but traced out a near-term top via triple top formation.
Brent logs the second weekly gains and rose more than 20.0% from recent lows.
Data review:
  • ISM manufacturing PMI fell to 57.6, which is 3.1 percentage points lower than the November reading of 60.7 percent according to the ISM official data. This represents continued growth in the non-manufacturing sector, at a slower rate.
  • Australia trade balance was a surplus of $1,925m in November 2018, a decrease of $88m on the surplus in October 2018, according to ABS.
  • As expected Bank of Canada kept its benchmark interest rates at 1.75% as it did in Dec 2018, but bank cut the outlook on Wednesday. The bank mentioned the recent drop in oil prices has a material impact on the Canadian outlook.
    Projections: GDP will grow by 1.7% in 2019, 0.4% slower than the October outlook.
  • In the Fed minutes of the latest FOMC meeting, committee admits that “Investors’ perceptions of downside risks to the domestic and global outlook appeared to increase over the intermeeting period, reportedly driven in part by signs of slowing in foreign economies and growing concerns over escalating trade frictions.”. We read the minutes dovish, dollar declines.
  • China official CPI readings fell in December, according to the government data.
    China’s December CPI was 1.9% YoY, the lowest in six months, forecast 2.1%vs 2.2%.
    December PPI was 0.9% YoY, the lowest since September 2016, forecast 1.6%, vs. 207%
  • The minutes of the latest ECB meeting highlighted that “Incoming data on growth had been weaker than expected, reflecting softer external demand.”
  • November Australia retail sales rose 0.4% in November 2018. This follows a rise of 0.3% in October 2018, and an increase of 0.2% in September 2018, ABS reported.
  • UK GDP grew by 0.2% in November 2018, following flat growth in September 2018 and growth of 0.1% in October 2018. GDP grew by 0.3% in the three months to November 2018.
    GBPUSD experienced a bullish breakout through the range 1.2700-1.2815. Traders focus turned towards a vote on Tuesday. UK Parliament will vote on PM May’s Brexit deal; we will experience high volatility (3-5%) on GBP assets in this week (Jan14-18).
  • As widely expected the CPI declined 0.1% in December, the U.S. Bureau of Labor Statistics reported.
FX landscape:
USDX managed to hold the 200MA/100ma (Weekly)

EURUSD run through the target, we set last week, and the price paused at 200EA.

GBPUSD: The cable experienced a bullish breakout through the range 1.2700-1.2815. We will experience high volatility (3-5%) on GBP assets in this week (Jan14-18).

AUDUSD: Settles far above 20MA (Weekly) for the first time since March 2018. Further dollar weakness could boost the Aussie dollar to 0.7315 and even 0.7400 levels in the near term. Buying the dip favors the trend.

NZDUSD: Support has raised to 0.6775 from 0.6625. This week’s range is 0.7000-0.6690.

Brent oil rallied more than 23.00% from recent lows, but still in the given resistance zone. The daily indicators are remaining bullish; dip buying offers better risk reward. Bloomberg reported, “Oil extended its winning streak to the longest in almost a decade.”


BRENTDaily.png

Turning to precious metals, Gold and Silver traced out a near-term top via triple top pattern formation at 1298.50$ and 15.80-15.90$ respectively. A move above the triple top could push to the next resistance zone 1307.00$ -1310.00$.

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KTM FX Weekly: EURUSD implied volatility to pick up

Since mid-Nov 2018 the pair has been consolidating between 1.1300-1.1500, finally produced a bullish breakout last week on account of the weak dollar and Fed’s clear signal of a pause in its rate cycle. However, the price action failed to stay above the breakout.

Ahead of the Brexit vote today and the first ECB meeting of the year (23rd Jan)) we expect the pair to trade between new range 1.1820-1.1300.

Regarding the economy, we learned from the recent PMI data underpin the downside risk. Last week‘s ECB minutes acknowledge the weaker data “Incoming data on growth had been weaker than expected, reflecting softer external demand.”

Also, economic data rereleased on Monday confirmed that Europe anchored to the downside risk.
“We now have conclusive proof that Europe is in an economic slump, and that two of its biggest economies are careering towards recession” Business Insider reported.

Now markets pay attention to the upcoming PMI surveys (due next week) and ECB meeting on 23 Jan. We expect no material changes to the communication and forward guidance. Back in December 2018 meeting, the central bank remained comfortable with the growth outlook.

We also expect the ECB’s first rate hike signal after this summer is the key driver for EURUSD.

Data review: Poor EZ data
The industrial production data released for EA down by 1.7% in November, according to the estimates from Eurostat. On YoY, the industrial production fell by 3.3% in the EA. Last week Germany industrial production data was even worse than expected, a drop of 1.9% recorded.

IP.JPG

Source:Eurostat

Technically, weak IP data for Germany and EA provided nothing new moves to either bulls or bears.
Data preview: This week we don’t have any top-tier data for EUR.

In the EA, CPI for Germany and EA are due out. Also, ECB President Draghi due to speak on the ECB’s 2017 Annual Report before the European Parliament. Besides, in the US, we have PPI along with three Fed speakers George, Quarles, and Williams.
Apart from the EA data, this week’s EURUSD price action cast on Brexit vote probably. The Guardian reported the EU is prepared to extend Article 50 until July, or perhaps even longer.

Morgan Stanley said in a note “We expect EURUSD implied volatility to pick up if the UK’s uncertain events pass.”

Natixis Bank reported “Uncertainties over Brexit and concerns over the rise of populist parties within the European Parliament following the May elections will continue to weigh on European assets, more particularly the banking sector. In such an environment, the market will increasingly price in a protracted monetary status quo on the part of the European Central Bank, which in turn is likely to weigh on the euro”.

TECHNICAL OVERVIEW
EURUSD price strengthened since early Jan low as protracted buying triggered and a break of resistance at 1.1500, confirmed upside sentiment.

The trading range is elevated from 1.1200-1.1500 to 1.1300-1.1820. Last Thursday the price ran through the target, we set before and after the new year. It halted the gains against 200EA. The 161.8 fe of A-B-C structure is pointing to 1.1640.
Now the price trade back to virtually unchanged levels, with US dollar rebounds marginally at 200MA. We expect this week’s range could be between 1.1640-1.1300.

The bearish turnaround of the oscillator should cap the rallies in the coming days.

Readers can remind that we forecast EURSUD appreciation in the end of 2018 and in the first week of this year targeting 1.1560 and 1.1590. We continue to forecast EURUSD to head higher in the coming weeks. So, we look for another opportunity to return to enter long, probably for 1.1800-1.2000.

Supports located at 1.1420/1.1400, 1.1330 and 1.1270.

EURUSDDaily.png

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The pound recovered post-May’s Brexit defeat as the outcome is widely expected and the rally continued on Wednesday led by the latest development of Brexit. May’s government won the vote of confidence.

Following the result announcement (Tue), the pound rallied against the most traded currencies; cable manages to hold the support zone 1.2700-1.2660 mid-August 2018 low and surged to the second resistance at 1.2900 its 100MA. Even though the cable broke the 100MA thrice, the price action failed to close above. It seems the cable find buyers between 1.2700-1.2600. Against the recent backdrop, the cable is seen to recover to 1.2900 ahead of the resistance at 1.2930 Friday high.

Note that only a break of last week’s high would lessen the risk of a dip back to a significant support finds zone finds between 1.2830-1.2815 (Past three days low-Dec 31 high), paving the way for a lasting recovery to 1.3000, 1.3090 its 200MA and 1.3175 Dec 07 top coincides with 100MA (Weekly) and 20MA (Monthly).

GBPUSDDaily.png

Technical stories:
GBPCAD, GBPJPY and GBPNZD-Pauses at key resistance level………..Read in KTM blog

What next?
Now the market is the focus “Plan B” which the government must submit not later than Jan 21.

  • Morten Lund analyst at Nordea said, “Theresa May will deliver a plan which involves seeking further concessions from the EU – possibly combined with a request to extend the 29 March deadline”.
  • In the short-term the pound trading range still in a difficult situation. Based on the following Brexit timeline, the volatility, and uncertainty going to steer the pound.
    Morgan Stanley analysts come out with an exhibit (below image). The analyst team expects a greater clarity by early Fed. “We expect greater clarity by early February before parliament runs out of time to hold elections before Brexit, assuming that the EU will only agree to a delay once the UK has made a decision on the way forward.”.

BRexit.JPG


  • Adrian Paul, analyst at Goldman Sachs said in a note “We think the prospect of a disorderly “no deal” Brexit has faded further. That sharper skew implies a greater probability of an extension to the 29 March Brexit deadline embedded in Article 50.”.

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  • The GBP is the most energetic performer, so far
  • Palladium at a 26-year high hit 1400$
  • It is again a headline-light Asia session
US dollar has managed to climb higher against most of the G10 currencies on Thursday except Pound and Aussie dollar. US 10Yr TY up 2bps t0 2.75.

The pound rallied this week on developments on Brexit:
The pound has outperformed again overnight, rose more than a percent against most-traded currencies. So far, GBP outperformed more than 2.00% against G10 currencies, especially against CHF and USD rallied nearly 3.00% on the latest developments on Brexit as a greater probability of an extension to the 29 March Brexit deadline. Readers can remind that we have been recommending buying pound against EUR, JPY and USD.

Read GBP trades in our KTM Blog

Besides EURUSD and NZDUSD underperformed 1.00% and 0.20% respectively, so far this week.

On the data front, the euro area annual inflation rate was 1.6% in December 2018, down from 1.9% in November according to Eurostat estimates. Looking at the most recent set of data eurozone growth anchored to the downside risk.

Market traders are waiting for data clues, PMI surveys, German ZEW Economic Sentiment and German Ifo Business due next week. On top of these, ECB meeting due 23 Jan. We expect no material changes to the communication and forward guidance. Back in December 2018 meeting, the central bank remained comfortable with the growth outlook.
We also expect the ECB’s first rate hike signal after this summer is the key driver for EURUSD.

In commodities, Palladium hit 1400$, currently trading at a 26-year high.

A day ahead: It is again a headline-light Asia session.
Once again it will be quiet in terms of market-moving data releases, and that will leave investors’ primary focus on UK Retails sales and Canada CPI.


Chart of the day: AUDUSD, upside forecast
Despite the recent backdrop the cross manages to hold the 14MA which coincides with Jan 10 low. For trading perspective (1 day) trading resistance seems to be at 0.7235. Note that a break above could outperform to 0.7300 and even 0.7400 levels in the coming days. A daily close above 0.7250 could strengthen the 0.7400 forecast.

Supports are located at 0.7145 below here would underpin bearish momentum again, paying the way for a decline to 0.7100.

Turning to daily indicators, they are signaling a breakout is imminent. However, note that AUDSUD largely cast on US-China trade developments. Furthermore, China GDP, Retail sales and IP due next week.
AUDUSDDaily.png

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FX market this week: Central Bank monetary policy meetings (BOJ and ECB) among top-tier data/events to keep forex traders busy.
Central bank meetings are likely to be the big focus point for the forex traders in this week (Jan21-25) along with other top-tier macro data points across the globe. On top of these, headlines on US-China trade talks and latest developments of Brexit are likely to keep investors busy.

Overall, this week is expected full of action with the G10 currencies, few of them namely AUD, EUR, GBP, JPY, and NZD. Near-term volatility woes will be dictated by the upcoming BOJ and ECB meetings with USDJPY and EUJPY are in the spotlight.
In Asia, this morning China’s Q4 GDP due, JPY crosses, USDCNH and Aussie dollar are in focus. Turning to Europe, it will be a light headlight session, besides US banks will be closed in observance of Martin Luther King Day.
  • “China is expected to report on Monday that economic growth cooled to its slowest in 28 years in 2018 amid weakening domestic demand and bruising U.S. tariffs” Reuters reported.
For the week (Jan 14-18) dollar dominated against the G10 counterparts with the US, 10Yr Yields closed at 2.79, the highest level in a month.

The following are the top-tier data releases and events that will keep forex traders busy:

China Q4 GDP (Mon) and IP, UK unemployment rate (Tue), German ZEW Economic Sentiment (Tue), NZ Q4 CPI (Tue), BOJ policy meeting (Wed), Canada Retail sales (Wed), Australia labor force data (Thu), EA PMI surveys (Thu), ECB policy meeting (Thu) and German Ifo Business climate (Fri).

Bank of Japan and European Central Bank meetings:
This week USDJPY and EURJPY will react to the upcoming Central Bank’s policy meeting in a broader range than usual, especially EURJPY. We expect both the banks keep the interest rates steady, but Draghi’s comments may tune dovish in the January’s meeting. Given the recent weak economic data releases, we expect Draghi will highlight the downside risk to the EA economy.
  • Nomura Research note highlighted that “the most important discussion this month relates to the TLTROs.”
    In a research note, analysts said, “We expect some indication from President Draghi that another round of TLTROs could be announced ahead of the Net Stable Funding Ratio (NSFR) regulations, which become effective from June 2019.”.
  • In contrast, Danske Bank analysts said: “After the ECB decided to end net asset purchases in December 2018, new policy signals are not warranted at next week’s meeting in our view.”.
Chart of the week: EURJPY

EURJPY must hold 123.40 to witness further up move and further bullish bias available above 125.00 for 126.60 and 127.00.
Trade: As long as 123.40 looks for the breakout with an immediate target of 126.60 and 127.00.
The flip side, it fails to hold then we could retrace back to 122.60 and 121.30.
EURJPYDaily.png

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  • Continued upward journey
  • Momentum appears to have stalled at 100MA(Weekly)
  • Technical rebound in a bearish trend
Brent crude oil rise at the start of the week at two- month high and settled above 50MA comfortably for the first time since Oct 2018. The daily RSI is parked below the equilibrium line to 50 points.

It has continued to rally last week too, with breaking the Jan 11 high 62.50$ but facing resistance at 100MA (Weekly). Last week the price showed great respect to 23.6 fib reaction and rallied further. The way the price rebounded with higher low pattern and tiny consolidation, shows the bulls have taken the control in the near-term. It will be interesting to see if we make a clean break of $64 this or next week.

Is up for a fifth straight session and fourth straight week. What next?

The price is up for a fifth straight session and a fourth consecutive week. The run last extended to four weeks (Sep 2018) and six consecutive weeks in April and May 2018. Despite the recent rally, the RSI indicator shows that Brent oil has not entered the overbought category.

The level 63.75$-64.00$its 38.2 fib reaction is in focus for me. Any break and hold above would have me looking to the 66.00$, 68.50$ and 70.00$.

According to the latest IEA’s Oil Market Report, “the journey to a balanced market will take time, and is more likely to be a marathon than a sprint. ” The report also highlighted “there are signs that market re-balancing will be gradual.”

BRENTDaily.png

Forecast: The week ahead we are going to trade in the new range 59.00-64.00$ up from 57.80$-64.00$.

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  • Gold likely to remain rangebound till support of 1276.70$ holds
  • Gold is likely to trade in a tight range due to global growth concerns.
The yellow metal traced out a near-term top near 1298-1297$ in early Jan 2019 via the formation of a double top pattern. While the resulting downtrend stalled on Tuesday, the ensuing corrective phase has just come to an end as prices pierced at a parallel support level at 1276.70$, developed a double bottom.

Selling pressure remains very strong; a descending triangle is still evident in the four-hour chart. On top of this, the daily indicators are extremely bearish, hence near-term setting is negative. Under these conditions, a recovery above Jan high still seems difficult.

At the time of preparing this, the price is trading at 1285.50$ tad below the first resistance 1287.50$. Support just has been elevated from 1279$ to 1283$.

XAUUSDH4.png


Caution will be ordered if the price does not rebound above the first resistance 1287.50$, this would pound a new downward wave (lower high) towards 1281$ and the double bottom at 1276.70$. A break below this accelerate the downward wave possibly towards 1270$ and 1264$ initially.

Three-day view: The next crucial resistance level to watch out is 1300$ on the upside while supports are located at 1280$ and 1276.70$.

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  • Taking profit on our long GBP/XXX trades
  • Focus on EURJPY and USDJPY
The pound extends the rally this week as well on continued dollar weakness and latest developments of Brexit. The pound rose between 1.50-2.30% against the most traded currencies, led by GBPCAD with 2.30%. On a monthly basis, GBPCHF, EURGBP, and GBPUSD rose 3.30% each while GBPJPY rose only 2.00%.

During the recent GBP rally EURGBP, GBPJPY, GBPAUD, GBPCAD, and GBPNZD ran through the targets we set last week. The cable recorded the most robust rally on a monthly basis, so far since Jan 2018. Moreover, the cable has been moving higher for six consecutive weeks. Back in August 2018 and December 2017 the run lasted for the same six weeks, but in August 2012 the run lasted for seven weeks.

Based on these facts, we expect the GBP appreciation theme is going to stop by tomorrow or probably in the next week. However, the chances are remote.

On Wednesday GBP and JPY sits atop the G10 FX table. This comes after the Yen underperformed Wednesday, but USDJPY and EURJPY fail to break through the key resistance levels. But USDJPY support raised to 109.00/109./15 from 107.75.

USDJPYH4.png

Gold lost 2$ overnight, failed to handle the parallel resistance (R1) in Asia-Pacific session and fell back to the support as the day progress. As we forecast on Wednesday (Tokyo session), the price failed at the resistance level. The trend remains in a tight range between 1276-1287$.

Brent crude oil lost nearly 3$ so far this week after rallied three consecutive weeks. The level 63.75$-64.00$its 38.2 fib reaction is in focus for me. Any break and hold above would have me looking to the 66.00$, 68.50$ and 70.00$.
Today’s pivotal finds around 60$ below here, focus shifts to 59.50$/59.00$ and 58.50% its 20MA. The daily oscillator has turned bearish.

Read weekly Brent forecast in KTM blog

In Asia this morning, the focus remains on Aussie December labor force data. Turning to Europe, we will see PMI surveys and ECB January policy meeting.


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  • ECB has now confirmed the downside risk in the EA, a dovish turn
  • Thursday’s PMI highlights further woes
EUR crosses running to an area of support zone, break down would trigger a downgrade. The immediate support for Gold is 1276$. If this break, then there could be a 20$ fall.

After the ECB’s Draghi comments, EURUSD fell sharply but held the support zone. EURGBP was the biggest loser down over 1.50%, followed by EURUSD with 0.80% in this week, so far. The immediate crucial support zone could be found at 1.1300-1.1260, if it breaks focus shifts to November 2018 low at 1.1215.
Ahead of today’s macroeconomic data German Ifo Business Climate, we trade between 1.1260-1.1335. Overall, the price action has struck in a narrow range of 1.1400-1.1260 and requires a significant range breakout through 1.1425 for the next leg of the rally.

EURUSDDaily.png


Today in Asia session, the price hit a session low of 1.1300. The daily RSI is parked below the 50 equilibrium but the oscillator is extremely bearish, hence setting is mixed.

• For bulls, as long as 1.1215 is supporting (Friday closing basis) look for 1.1350 and 1.1400 initially.
• For bears, close below 1.1215 means 1.1100 and 1.1000 is coming.

Here are the Key support and resistance for EUR crosses:

EUR.jpg


EURJPYH4.png

EURGBPWeekly.png

EURCHFDaily.png

EURNZDDaily.png


Turning to Gold, the immediate key support could be at 1276$; if the price breaks that level, we could expect a sharp fall in the coming days. According to the below chart, intraday pivotal finds at 1279$ followed by 1276$ triple bottom. On the upside key resistance levels are placed at 1283$ and followed by 1287$ Wednesday high.

XAUUSDH4.png


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