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by Darius Anucauskas

Strategic Report, 2018 Newsletter 53

Technical Analysis

1. EUR/USD WEEKLY OUTLOOK

REVIEW

EUR/USD closed last week in the green after bouncing off from its tentative short-term upside support line, drawn from the low of the 12th of November. This, of course, gives the bulls the hope that we could see some more upside in the near-term, hence why we will stick to aiming for higher levels.

OUTLOOK (SCENARIO A / B)  

Last week, EUR/USD found resistance near the 1.1475 barrier, from which the pair retraced back down a bit. If we see another attempt by the bulls to break above the 1.1475 barrier, and this time they are successful, the pair could finally test the psychological 1.1500 hurdle, a break of which could open the way to the 1.1550 resistance, marked by the high of the 22nd of October. A further acceleration of the rate may lead EUR/USD towards the 1.1625 barrier, which is the high of the 16th of October.

Alternatively, a drop back down below the aforementioned upside support line and a break of the 1.1340 support area, might interest more bears to join in and drive the pair lower. This is when we will aim for the 1.1270 obstacle, a break of which could clear the path towards the 1.1215, which was the lowest point of November.

EURUSD daily

2. GBP/JPY WEEKLY OUTLOOK

REVIEW

Last week, GBP/JPY found good support near the 139.50 area, which now will play a key role of a gateway towards lower levels. But the pair will have to break it first, if it wishes to move further down. We can see that GBP/JPY is trading below a short-term downside resistance line taken from the high of the 8th of November. As long as that line remains intact, we will continue aiming lower.

OUTLOOK (SCENARIO A / B)  

There could be a chance to see GBP/JPY retracing a bit higher, to test the aforementioned downside resistance line. If the bulls fail to drive the pair above that line, this is when the bears might step in and push GBP/JPY down towards last week’s low, at 139.50, a break of which could open the door to the next potential area of support at 138.65, marked by the low of the 12th of June 2017.

If the bulls manage to push GBP/JPY through the previously-mentioned downside resistance line and the rate gets above the 141.17 hurdle, this could give the bulls hope that the pair has a chance to move higher. The next potential target could be at 142.60, a break of which might lead to the 143.95 level, marked by the high of the 13th of December.

GBPJPY daily

3. USD/CAD WEEKLY OUTLOOK

REVIEW

For the sixth week in a row the Canadian dollar depreciated against its neighbouring US dollar. USD/CAD is trading, not only above its medium-term upside support line, taken from the low of the 1st of October, but also above its short-term one, which is running from the low of the 4th of December. For now, as long as the short-term upside line remains intact, we will continue aiming higher.

OUTLOOK (SCENARIO A / B)  

A break above last week’s strong resistance level at 1.3660 could clear the path towards the next potential area at 1.3720, which was the high of the 15th of May 2017. If this area fails to withhold the rate from rising further, the next potential target for the pair could be the 1.3795 zone, marked by the highest point of May last year.

Alternatively, a drop below the aforementioned short-term upside support line and a break through the 1.3565 support zone, could invite more bears to the table and push the rate lower. The next potential stop could be around 1.3490, a break of which could force USD/CAD to test the 1.3445 hurdle, marked by the low of the 20th of December and the high of the 6th of the same month. 

USDCAD daily

4. EUR/AUD WEEKLY OUTLOOK

REVIEW

EUR/AUD has been on a steep uprise since its reversal to the upside on the 3rd of December, and it looks like that the pair has no intention of reversing yet. EUR/AUD is also trading above its steep upside support line taken from the low of the 3rd of December. As long as the pair remains above that upside line, we will continue aiming higher. 

OUTLOOK (SCENARIO A / B)  

EUR/AUD will have a real task to try and break above the 1.6355 barrier, if it wants to continue moving higher. This is the highest point of 2018 and if the pair is not able to overcome it this Monday, then it might stay like this. In that case, this is something that we could look into next year. If the barrier finally surrenders to the bulls, this could lead to a test of the 1.6595 level, marked by the peak of the 24th of August 2015.

On the downside, if EUR/AUD drops below the aforementioned upside support line and breaks below the 1.6100 obstacle, marked by the low of the 24th of December, this could raise concerns over the pair’s upside potential in the short run. We could then see EUR/AUD moving a bit lower to the 1.6040 area, a break of which may drag the rate lower, towards the 1.5955 zone. Slightly below that lies another good potential support at 1.5880, which is the high of the 10th of December.

EURAUD daily

5.  XAU/USD WEEKLY OUTLOOK

REVIEW

Second week in a row, Gold had a great performance, where it managed to get closer to the psychological 1300 barrier. Gold found good resistance near the 1282 level, which now will be heavily monitored as the gateway towards higher levels. The precious metal is still trading above its short-term upside support line taken from the low of the 14th of November. We could see a bit of correction to the downside first, before another leg of buying, as the commodity seems to be a bit overbought.

OUTLOOK (SCENARIO A / B)  

As mentioned above, there could be a possibility to see a small correction backdown, before another push higher, especially if Gold fails to break below the 1266 hurdle, marked by the low of the 27th of December. This is when we will aim for the 1282 barrier again, a break of which may lead towards the psychological 1300 level, or slightly above, the 1309 obstacle, which was the high of the 14th of June.

Alternatively, if Gold makes a move lower, drops below the aforementioned upside support line and breaks the 1251 support zone, this may clear the path towards the 1233 area, or even the 1230 hurdle, marked by the high of the 21st of November. Slightly below runs a medium-term upside support line, drawn from the low of the 16th of August, which could provide additional support for the precious metal and stop it from sliding lower.

Gold daily

6. WTI CRUDE OIL WEEKLY OUTLOOK

REVIEW

After the bulls tried to take their chances and push WTI oil back to recovery on Wednesday last week, they still failed to maintain their position and the bears managed to close the week in the red. The commodity is still trading below a short-term downside resistance line, drawn from the high of the 10th of October. For now, as long as that line remains intact, we will continue aiming lower.

OUTLOOK (SCENARIO A / B)

We could see another attempt by the bulls to test the above-mentioned downside resistance line, but if they fail to break and close a daily candle above it, this could invite the bears again to take control of WTI oil and drive it back down. This is when we will aim for last week’s low at 42.60, a break of which may lead towards the 39.70 hurdle, marked by the lowest point of August 2016.

In order to get much more comfortable with higher levels, we need to see a break, not only above the aforementioned downside line, but also above the psychological 50.00 barrier. This way we could start aiming for a re-test of the 53.45 obstacle, a break of which may push WTI a bit higher, to the 54.90 level, marked near the highest point of December. If the bulls won’t stop there, the price could easily rise to 57.57 hurdle, which is the high of the 19th of November.

WTI daily

7. NASDAQ 100 WEEKLY OUTLOOK

REVIEW

Nasdaq 100 had a great run, last week, comparing to the week before that. It managed to end the week in the positive territory, but the overall outlook still remains bearish, as the index is trading below a short-term downside resistance line taken from the peak of the 1st of October. That said, there is a chance to see a continuation of last week’s bullishness this week as well, but with a corrective move lower first. We will also keep a close eye on the 2018 opening price, as the index found resistance last week near that area. If the previous buying activity will have a follow-through this week as well, then there is a chance for the index to turn positive for the year again..

OUTLOOK (SCENARIO A / B)

Looking at our Nasdaq 100 cash index, we might see a small retracement back down first and if the 6231 support area holds, a good rebound from it may lift the index to re-test of last week’s high, near the 6390 level. Around there we have the year’s opening price at 6393.75, which will play an important role as well. A break of that obstacle could open the door to the 6530 zone, or even the 6632 barrier, marked by the high of the 17th of December.

Alternatively, a drop below the 6103 hurdle could increase the chances of Nasdaq 100 moving back down towards the December low at 5818. But before it could travel all the way there, the index would have to overcome the psychological 6000 area first, which showed good support back in 2017 on October 25th.

Nasdaq 100 daily 

FX Weekly Market Preview

Weekly Outlook: Dec 31 – Jan 04: Some G10 PMIs and US Employment Data 

With the holiday season over in the middle of the week, the markets get back into full swing on Wednesday. China, the eurozone and the US will hit the spotlight with the release of their manufacturing PMI figures. And, of course, the New Year will kick off with Friday’s US NFP numbers.

On Monday, some of the markets around the world are closed and some will have a half day. But the US market will be open as usual and have a full trading day. In terms of economic data, during the early Asian morning, we got, what’s probably the only important data for that day, which are the Chinese manufacturing and non-manufacturing PMIs. The manufacturing sectors has contracted for the month of December, going from the previous 50.0 to 49.4, where the expectation was sat at 50.0, as the November number. The non-manufacturing sector performed slightly better in December. It managed to beat, not only expectations, which were at 53.2, but also the previous figure of 53.4. The number came out 53.8, which means that the non-manufacturing sector is still performing well.

On Tuesday all the markets are closed. Happy New Year!

Wednesday will start off with the release of the Caixin manufacturing PMI number from China, which measures the state of the country’s manufacturing sector. China needs a reading above 50, in order to see the sector expanding. The previous number came out at 50.2, but it is forecasted that the December figure could come out by a tick higher, at 50.3, which is a good sign.

Some big European countries will deliver their manufacturing PMI numbers for the December as well. Countries like Germany and the United Kingdom will show if their manufacturing sectors have grown or contracted. The German figure is expected to come out the same, at 51.5, whereas the UK one is forecasted to have dropped from 53.1 to 52.6, which is something that the British government doesn’t want to see right now, given all the tensions around Brexit. In addition to that, the eurozone will provide its overall manufacturing PMI, which is expected to have stayed the same at 51.4. This means that the sector, overall, is still expanding. Later on in the day, the US will release their manufacturing PMI number, which is currently expected to come out the same as previous, at 53.9.

Thursday should be an interesting day for UK, as the country will tell us how its construction sector has performed in the last month of 2018. According to the estimates, economists and analysts expect a small decrease in the number, going from the previous 53.4 to 52.9. The number above 50 still means that the sector is expanding, but if it comes out lower than the previous number, this will break the pattern of rising construction PMIs since September.

But everyone’s focus will be on the data, which we will get before the US opening bell, which is the ADP non-farm employment change for the month of December. The expectations are that the figure might come out almost the same as the previous 179k, just by a tick higher, at 180k. Certainly, some analysts could try to equate that to Friday’s NFP release, but we would like to remind our readers that, even though the two data releases are similar, still, one should not base their judgement of the upcoming NFPs from the ADP report.

US will also provide us with the ISM manufacturing PMI number for the month of November. The manufacturing PMI is expected to have declined from 59.3 to 58.2. But if the release will show a slightly better than expected number, but lower than the previous, then this could still mean that economy is on the right track, but with a small seasonal adjustment to the downside.

Finally, Friday should be the most exciting day of the week, as we will get the above-mentioned Non-farm Payroll numbers. In the last release in the beginning of December, the figure came out at 155k, which is not only well below than the expected 200k, but also below the previous adjusted 237k. This time the forecast is somewhat more positive, as it is believed that it could reach 181k for the month of December. Given that it was a holiday period and there tends to be a requirement for temporary workforce during that time, then we could expect the number to be higher, at least then the previous figure. But if we take into account the pattern that has been in place for the past two Januaries in a row, the number can come out higher than the previous month’s one, but it tends to fail in beating expectations. In addition to NFPs, investors will be on lookout for the overall unemployment rate and the average hourly earnings, both for December. The unemployment rate is expected to have remained the same, at 3.7%, whereas the average hourly earnings are forecasted to have declined by a tick, going from 3.1% to 3.0% on a YoY basis, but the MoM number is expected to have risen by a tenth, from 0.2% to 0.3%.

Canada is set to release its employment numbers as well. Their unemployment figure is expected to have increased from the 5.6% to 5.7% for December. If that’s the case, this would be the same, as last year’s December number, which came out at 5.7%.

But even before we start getting data from North America, Europe will show us how its preliminary inflation has shaped up in December and how the eurozone’s service sector performed in the same month. The preliminary inflation on a YoY basis is expected to have declined a bit, from +1.9% to +1.8%. The service sector is forecasted to have continued expanding at the same pace as the previous month, with the index sitting at 51.4.

Disclaimer:

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