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by Charalambos Pissouros

Strategic Report, 2019 Newsletter 20

Technical Analysis

 1. EUR/AUD WEEKLY OUTLOOK

REVIEW

EUR/AUD ended last week in the positive territory. On Thursday, the rate hit the March high, at around 1.6122, but failed to drive above it. The pair retraced back down after that test, but was quick to recover again. Today, it looks to be headed for another test near that key hurdle. Our oscillators suggest that we may still see a continuation to the upside, as the RSI and the MACD remain somewhat positive. In addition to that, the pair is trading above its short-term upside line drawn from the low of April 21st. But, for now, we remain cautiously bullish and before we start examining further upside, we would like to see a clear break through 1.6122 barrier. 

OUTLOOK (SCENARIO A / B)

A break through the 1.6122 barrier would confirm a forthcoming higher high and we could see the rate traveling towards the 1.6190 mark, which is the inside swing low of January 2nd. Even if EUR/AUD stalls around there, or retraces back down, as long as the rate remains above the previously mentioned upside support line, we will continue aiming for slightly higher areas. Another push higher might bring the pair back to the 1.6190 zone, a break of which could send the rate towards the 1.6230 level, marked by the low of January 3rd.

Alternatively, if the aforementioned upside line breaks and we see the rate sliding below 1.6000, this could attract more sellers, who could drive the pair to the 1.5906 obstacle, marked by the low May 7th. If even that hurdle is not able to withstand the bear pressure, a drop below it might clear the path for a move to the high of April 29th, at 1.5855.

EUR/AUD Daily chart technical analysis

 2. GBP/CAD WEEKLY OUTLOOK

REVIEW

For the whole of last week, GBP/CAD kept on moving south, eventually getting held by the 1.7425 barrier and almost by the short-term tentative upside line, drawn from the low of February 14th. Given that the pair was not able to break below that barrier and that line, there is a chance for the bulls to jump back in again and drive the rate back. As long as that upside line stays intact, we will target slightly higher areas again.

OUTLOOK (SCENARIO A / B)

A push higher, away from the 1.7425 hurdle and the aforementioned short-term tentative upside line, could lift GBP/CAD to the 1.7550 obstacle, marked by the high of May 10th. If that area is no match for the bulls, a break of it could allow the buyers to drive the pair towards the 1.7615 zone, which is the high of April 4th an May 8th. Slightly above that level runs a short-term downside resistance line taken from the high of March 27th, which may help slow down the bulls, if GBP/CAD overshoots the 1.7615 area.

Alternatively, if the aforementioned short-term upside line fails to support the rate from moving lower, its break could raise concerns over the pair’s short-term upside potential. That said, in order to get comfortable with deeper extensions to the downside, a break of the 1.7315 area is required. This way, GBP/CAD would confirm a forthcoming lower low and could travel all the way to the 1.7265 obstacle, which may provide some additional support and stall the rate for a while. We could even see a small correction back up. But if the sellers are still strong, another drop to and a break of the 1.7265 mark, could send the rate further down to test the 1.7130 level, marked by the high of February 18th and the low of February 24th.

GBP/CAD Daily chart technical analysis

 3. USD/SEK WEEKLY OUTLOOK

REVIEW

USD/SEK had a great run last week, where it travelled all the way to the 9.664 barrier, but then retraced slightly lower on Friday. Nevertheless, the rate is still above its short-term upside support line taken from the low of January 9th. Even if we see the pair moving lower, as long as it remains above that upside line, we will stay somewhat positive at least in the medium term.

OUTLOOK (SCENARIO A / B)

A drop below the 9.600 hurdle could send USD/SEK a bit lower, towards the 9.545 mark, which is near the low of May 7th and marks the highs of April 26th and May 1st. This is where the rate could meet its 21 EMA and stall for a bit. If the pair struggles to move lower, we might see the buyers coming back in and pushing the rate back up to last week’s high, near the 9.664 barrier. If this time the barrier fails to resist the bulls, a break of it could lift USD/SEK a bit higher to test the 9.690 zone, which acted as the highest point of July 2002. 

If USD/SEK fails to remain above the 9.545 hurdle, this could send the pair lower, potentially testing the 9.500 support zone, marked by the peak of March 8th. A break below that support zone could change the short-term outlook to a slightly bearish one, although we would still see a cautiously positive bigger picture. More sellers could take this as a good opportunity to capture the down-move and bring the pair to the 9.455 obstacle, a break of which may lead USD/SEK towards the 9.410 area, marked by the high of March 12th and the low of April 25th. Slightly below runs the aforementioned upside line, which could also provide support for the rate.

USD/SEK Daily chart technical analysis

 4. NZD/JPY WEEKLY OUTLOOK

REVIEW

NZD/JPY continues to trade below its short-term tentative downside resistance line taken from the high of April 15th. After finding good support near the 71.83 hurdle, the pair corrected slightly to the upside. We may see a bit more upside, but if the short-term downside line holds, the selling activity might resume. This is why for now, we will stay cautiously bearish and observe the price action carefully.

OUTLOOK (SCENARIO A / B)

A push back above the 72.80 barrier could lift NZD/JPY slightly higher, to test the aforementioned short-term downside line again. If that line continues to hold the rate down, the bears might take this opportunity and drive the pair lower, potentially back to the low of last week, at 71.83. If that support area fails to withhold the rate from moving south, a break could send NZD/JPY towards the 71.25 obstacle, marked by the opening price of January 3rd.

On the other hand, a break of that short-term tentative downside line could give the opportunity for more buyers to step in and push the rate higher, possibly aiming for the 73.40 hurdle. A break of that hurdle could increase the pair’s chance for a further move higher, targeting the 74.00 obstacle, which is the high of May 3rd. The rate might receive a hold-up around that level, but if the bulls are still feeling strong, a break of that obstacle could lead the pair towards the 74.60 level, which acted as a good resistance on April 30th. 

NZD/JPY Daily chart technical analysis 

 5.  XAG/USD WEEKLY OUTLOOK

REVIEW

Although silver traded lower last week, still, the bears were not able to drive it below the lows of the week before. The commodity continues to trade below its short-term downside resistance line drawn from the high of March 21st. Taking into consideration everything mentioned above, we will take somewhat bearish approach for now, but we will wait for a break below one of our key support areas before getting comfortable with further declines.

OUTLOOK (SCENARIO A / B)

In order to examine deeper extensions to the downside, we would first like to see a break of the 14.55 support zone, marked near the low of May 2nd. This way, more sellers could start joining in, which could help them bring the price towards the 14.48 obstacle, marked by the low of December 14th. Even if silver rebounds from there, as long as it remains below the aforementioned downside line, we will continue aiming lower. If the 14.48 obstacle fails to withstand the bear pressure, a break of it could push the precious metal to the 14.34 area, marked by the low of December 6th.

Alternatively, even if we see a break above the previously mentioned downside line, we will still remain cautious. For us to get comfortable with the upside again, we need to see a break and a daily close above the 14.97 barrier, marked by the high of last week. This way, the path could be cleared towards the 15.10 obstacle, a break of which might send the commodity to the 15.25 level, which is the high of April 11th and is also near silver’s 200 EMA.

XAG/USD Daily chart technical analysis

 6. BRENT CRUDE OIL WEEKLY OUTLOOK

REVIEW

Last week, Brent oil managed to close in the positive territory, even though it failed to get above the high of the week before. But one positive aspect is that the commodity broke slightly above its short-term downside resistance line taken from the high of April 26th. Although the buyers are trying to get the black liquid back up again, still, before we see a clear break above one of our key resistance zones, we will remain side-lined for now. 

OUTLOOK (SCENARIO A / B)

A strong move back above 71.60, which is the high of last week, could open the door to a further push higher. This is when we will once again examine the 72.75 obstacle, marked by the high of April 30th. Initially, we may see the price stalling around there, but if investors continue to feel positive about Brent’s short-term outlook, a break above 72.75 might lift the commodity to the highest point of April, at 74.85 barrier.

On the other hand, if Brent oil drops below last week’s low, at 68.60, this would confirm a forthcoming lower low and send the price further down. This may result in the commodity reaching the area around the 65.90 mark, which held Brent oil from moving lower in the second half of March. If this time, the area fails to withstand the bear pressure, a break of it could drag the price towards the 64.50 zone, marked near the lows of February 26th and March 1st. 

Brent Crude oil Daily chart technical analysis

 7. NIKKEI 225 WEEKLY OUTLOOK

REVIEW

After breaking its medium-term upside support line taken from the low of December 25th, the Nikkei 225 index continued to drift lower. Last week, the Japanese index found good support near the 21060 zone, just a few points away from hitting the psychological 21000 barrier. We saw the price rebounding on Friday, but still, it wasn’t enough to get the index back into positive territory for the week. Even though we may see another push higher, as long as the price remains below the above-mentioned upside line, we will class any move upwards as a small correction, before another leg of selling.

OUTLOOK (SCENARIO A / B)

As mentioned above, a push back up could lead Nikkei 225 towards the 200 EMA, or to test the upside line. If the buyers fail to get Nikkei above it, this may result in sellers jumping in and taking advantage of the higher price. Another slide might bring the index back to 21060, or even the psychological 21000 barrier, a break of which could send the price a bit lower to test the 20855 hurdle. That hurdle marks the low of March 25th.

Alternatively, if the buyers succeed in pushing Nikkei 225 back above the aforementioned upside line and the 21910 zone, this could invite more of them may join in. If so, the index might travel to the 22225 obstacle, a break of which could open the door to the high of May 3rd, at around 22490 level.

Nikkei 225 Daily chart technical analysis

 FX Weekly Market Preview 

Weekly Outlook: May 13 – May 17: Swedish and Canadian CPIs, Australia Employment Report

With no central bank meetings on the agenda, this week appears to be lighter, at least as far as scheduled releases are concerned. With the Riksbank pushing back its hike timing at its latest policy gathering, SEK traders are likely to lock their gaze on Sweden’s inflation data. We get inflation numbers from Canada as well, and expectations are for both the headline and core rates to have increased somewhat. In Australia, the highlight is likely to be the employment report, as investors try to figure out whether, or not, the RBA will cut rates at its upcoming gathering.

Monday appears to be a light day in terms of economic data. The only noteworthy release on the agenda is Norway’s GDP for Q1 and it is already out. The headline qoq rate slid to -0.1% from an upwardly revised +0.6%, while the mainland rate declined to +0.3% qoq from +1.1%.

On Tuesdayduring the Asian morning, we get Australia’s NAB Business survey for April. Although this is not a major market mover, given the RBA’s emphasis on employment and wage growth, we will pay attention to the Labour Costs sub-index for signs as to whether wage growth continues to pick up, in line with the Bank’s expectations.

During the European morning, we get inflation data for April from Sweden. Expectations are for both the CPI and CPIF to have ticked up to +2.0% yoy and 1.9% yoy from +1.9% and +1.8% respectively. That said, as we noted several times in the past, we prefer to pay more attention to the core CPIF metric, which excludes energy. At their latest gathering, Riksbank policymakers kept their key repo rate unchanged at -0.25%, but they decided to push back the timing of when they expect interest rates to rise further. While they have previously noted that the next rate increase will be “during the second half of the year”, this time, Swedish policymakers said that “The repo rate is expected to be raised again towards the end of the year or at the beginning of next year”.

Sweden CPIs inflation

A potential slide in the core CPIF rate, which currently stands at +1.5%, may raise speculation that the Bank will dismiss the “end of the year” part, thereby joining the club of central banks that abandoned their hike-plans for 2019, like the ECB and the Fed. However, we prefer not to rush into conclusions based on this data set. The next Riksbank meeting is scheduled for July 2nd, and up until then we will have the May inflation data in hand in order to examine whether the world’s oldest central bank could alter its forward guidance again.

We get inflation numbers from Germany as well. That said, this data set will be the final estimates for April, which are expected to confirm their preliminary prints. The nation’s ZEW survey for May is also due to be released, while from Eurozone as a whole, we get industrial production for March. Kicking off with the ZEW survey, the current conditions index is expected to have rebounded to 7.5 from 5.5, after seven consecutive declines. The expectations one, after returning into positive territory in April, is expected to have risen somewhat further, to 5.1 from 3.1. Passing the ball to Eurozone’s industrial production for March, it is expected to have declined for the second consecutive month (-0.3% mom from -0.2%), which will drive the yoy rate down to -0.8% from -0.3%.

In the UK, the employment report for March is coming out. The unemployment rate is expected to have held steady at its 44-year low of 3.9%, while average weekly earnings, both including and excluding bonuses, are expected to have slowed somewhat, to +3.4% yoy and +3.3% yoy from +3.5% and 3.4% respectively. According to the IHS Markit/KPMG & REC Report on Jobs for the month, the latest increase in starting salaries was the slowest in almost two years, while temporary pay slowed to the lowest since March 2017, supporting the case for a slide in the earnings rates.

UK real wages

On Wednesdayduring the Asian morning, Australia’s wage price index for Q1 is due to be released, just a day ahead of the nation’s employment report for April. No forecast is currently available, but bearing in mind that the Labor Costs sub-index of the NAB Business Survey rose 0.6% qoq in March, we see the case for the quarterly rate of the wage price index to be close to that number.  Bearing in mind that the qoq rate for Q1 2018 – which will drop out of the yearly calculation – was at +0.5%, this may drive the yoy rate further up. In Q4 2018, the yoy rate of the index rose to 2.3% from 2.1%.

From China, we get industrial production, retail sales and fixed asset investment, all for April. The yoy rate of retail sales is expected to have ticked down to +8.6% from +8.7%, while industrial production us anticipated to see a more severe slowdown, to +6.5% yoy from +8.5%. Fixed asset investment is forecast to have accelerated somewhat, to +6.4% yoy from +6.3%. Following China’s better than expected GDP for Q1, this data set suggests that the economy may have entered Q2 on a softer footing. If this is the case, concerns with regards to the performance of the global economy may increase again, especially in the midst of all this uncertainty surrounding the US-China trade sequel. Although the door towards a deal is not closed yet, last week’s developments and the willingness of President Trump to tax all the remaining Chinese imports may keep investors on guard.

During the European day, the 2nd estimate of Eurozone’s GDP for Q1 is coming out. Expectations are for the release to confirm the 1st estimate and reveal that the Euro-area economy expanded 0.4% qoq from +0.2%. However, bearing in mind that industrial production is expected to have slid again in March, we see a chance for a downside revision. Coming on top of the disappointing Euro-area PMIs for April, something like that could increase somewhat speculation for additional stimulus measures by the ECB, beyond the new round of TLTROs, as well as for another delay in the timing of when interest rates could start rising.

Later in the day, the US retail sales and industrial production, both for April, are due to be released. Both headline and core sales are expected to have slowed to +0.2% mom and +0.7% mom, from +1.2%, while industrial production is expected to have stagnated after sliding 0.1% in March.

From Canada, we get the CPIs for April. Expectations are for the headline rate to have ticked up to +2.0% yoy from +1.9%, while the core one is anticipated to have risen to +1.8% yoy from +1.6%. Coming on top of the astonishing employment report for the month, which revealed record job gains, accelerating inflation could be encouraging news for BoC policymakers and may prompt them to adopt a more sanguine stance when they meet next, on May 29th. However, we believe that it is too early for them to start thinking about rate increases again. After all, they abandoned their hiking bias just at the previous meeting. We believe that they may prefer to wait for more evidence of improvement before they turn their eyes to the hike button.

Canada CPIs inflation

On ThursdayAsian time, Australia’s jobs data for April as scheduled to be released. The forecasts suggest that the unemployment rate held steady at 5.0% and that the employment changed slowed to 15.2k from 25.7k in March. At its latest meeting the RBA decided to keep interest rates unchanged at +1.50%, despite some speculation for a rate cut. According to the ASX 30-day interbank cash rate futures implied yield curve, investors now expect a cut in August. In our view, a slowdown in jobs growth by itself is unlikely to prompt investors to bring that timing forth, to the upcoming meeting in June, especially if Wednesday’s data reveal further pick up in wage growth. We would like to see job losses and/or slowing wages before we start examining whether officials could be tempted to hit the cut button when they meet next.

Australia unemployment rate

Later in the day, we get Eurozone’s trade balance for March, while from the US, we have building permits and housing starts for April. The Euro area trade surplus is expected to have increased to EUR +19.9bn from EUR +17.9bn, while both the US building permits and housing starts are expected to have increased after sliding in March.

Finally, on Fridaywe only get Eurozone’s final CPIs for April and the preliminary UoM consumer sentiment index for May. As it is usually the case, Eurozone’s final inflation numbers are expected to be the same as the initial estimates, while the UoM index is forecast to have risen to 97.8 from 97.2.

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