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by Charalambos Pissouros

Strategic Report, 2019 Newsletter 29

Technical Analysis

 1. AUD/USD WEEKLY OUTLOOK

REVIEW

After the reversal to the upside around mid-June, AUD/USD started moving north, establishing a short-term tentative upside support line taken from the low of June 18th. Now it seems that there could be a bit more upside in the coming days, but one should be cautious, as this move higher could be short-lived due to the medium-term downside resistance line drawn from the high of June 31st. From the short-term perspective, we will take a cautiously-bullish stance for now.

OUTLOOK (SCENARIO A / B)

A further push in the upwards direction might help the rate to test a key resistance zone, at 0.7048, marked by the high of July 4th. The pair could stall there for a bit, or even correct back down slightly. But in order to get comfortable with higher levels, we need to see a clear break above the0.7048 mark. This way, we could consider the next potential resistance area, at 0.7070, marked by the high of April 30th, which also coincides with the 200-day EMA. If the bulls are still strong and they manage to push the pair above that zone, such a move might open the door to the 0.7115 level, which is the low of April 11th and 12th.

Alternatively, if we see the upside support line getting broken and the rate falling below the 0.6954 hurdle, marked by the low of July 11th, this could open the door to another decline. AUD/USD could then drift further south, targeting the low of last week, at 0.6910, a break of which may send the pair further south. This is when the rate could slide a bit more and test the 0.6884 area, marked by the inside swing high of June 17th.

AUDUSD daily

 2. NZD/USD WEEKLY OUTLOOK

REVIEW

Looking at the last week’s activity of NZD/USD, the pair had a good run to the upside, getting closer to the highest point of July (so far). But the rate got held by the 200-day EMA, which we will monitor now carefully. There is a possibility to see the pair drifting further north, but in order to get comfortable with higher levels, we will wait for a clear break above the 0.6725 barrier, which is the high of July 1st. This is why for now, we will stay cautiously-bullish.

OUTLOOK (SCENARIO A / B)

A break above the 0.6725 barrier would confirm a higher high and could lift the rate a bit higher, to the 0.6750 mark, which is the inside swing low of April 15th and the high of April 17th. If the pair gets a hold-up there, we may see a small correction back down again. But if NZD/USD remains above the 200-day EMA, the bulls could re-enter the field and drive the pair up again, potentially bypassing the 0.6750 hurdle and targeting the 0.6783 zone, or even the 0.6800 level. That level marks the highs of April 3rd and 4th.

On the other hand, in order to start examining lower levels, we will take a more conservative approach and wait for a violation of the aforementioned upside support line. In order to support the downside idea even more, a rate-drop below the 0.6600 could be ideal. This way more sellers could join in and drive NZD/USD to the 0.6568 obstacle, a break of which could lead the pair to the 0.6515 hurdle, marked by the high of June 17th and by the low of June 19th.

NZDUSD daily

 3. EUR/CAD WEEKLY OUTLOOK

REVIEW

Last week, EUR/CAD closed the week virtually unchanged, but the downside pressure remains, as the pair is still, overall, drifting to the downside. The rate is trading below a medium-term tentative downside resistance line taken from the highest point of January. For now, we remain sceptical about the upside, hence why we will stay somewhat bearish, especially if the rate falls below last week’s low.

OUTLOOK (SCENARIO A / B)

A drop below the 1.4636 hurdle, which is the low of last week, could open the door to further slide, potentially bringing the rate to the low of September 26th, 2017, which is at 1.4548. We may see EUR/CAD stalling around there, or even rebounding slightly up. But if the pair stays below the 1.4636 barrier, the bears might re-enter the game and send the rate lower again, possibly breaking below the 1.4548 zone and aiming for the low of September 27th, 2017, at 1.4488.

On the other hand, in order to consider a small correction to the upside, we need to see a break above the high of last week, at 1.4773. This way, more bulls could lead the pair to a larger correction to the upside, aiming for the 1.4862 obstacle, a break of which could lift EUR/CAD to the 1.4930 level, marked near the low of May 22nd and by the inside swing high of June 20th.

EURCAD daily

 4. GBP/CHF WEEKLY OUTLOOK

REVIEW

It has been the 10th week in a row when GBP/CHF closed in the red. Since peaking in the first days of May, the pair lost around a thousand pips. That said, for the third week in a row it is struggling to break below the 1.2340 hurdle. For now, we will stay cautiously-bearish and wait for a clear break below the 1.2340 area first, before aiming further down.

OUTLOOK (SCENARIO A / B)

A drop and a close of a daily candle below the 1.2340 zone, would confirm a forthcoming lower low and may open the door to the 1.2264 obstacle, which acted as a good support on July 23rd, 2017. The rate might again stall there for a bit, but if that obstacle eventually surrenders to the bears, the next potential support area could be around the low of August 28th, 2017, at 1.2220.

On the upside, if the rate accelerates and breaks above the 1.2450 barrier, marked by the high of last week, this could clear the path to slightly higher areas. The pair would then climb above the 21-day EMA and the 20-day SMA of the Bollinger bands, what could be seen as a positive sign. We will then examine the possibility to see a test of the psychological 1.2500 zone, a break of which could send GBP/CHF to the 1.2590 level, which is near the highs of June 17th and 19th

GBPCHF daily 

 5.  XAU/USD WEEKLY OUTLOOK

REVIEW

Gold ended last week in the positive territory, which could support the buyers and give them hope that the precious metal could continue drifting further north. That said, the commodity was not able to even get close to the June high, which still keeps the downside scenario on the table. Also, we can see that the price is moving inside a triangle formation, which means that gold is coiling up and could end shooting through one of the triangle sides in the short run. For now, we will remain cautious and wait for a clear break through one of the sides of that pattern, before examining a further directional move.

OUTLOOK (SCENARIO A / B)

A strong push through the June high, at 1439, would confirm a higher high and could send gold further up, aiming for the 1450 obstacle, a break of which could clear the way for higher areas. If the price-acceleration doesn’t end there, we will keep a close eye on the strong 1488 resistance barrier, marked by the highest point of May 2013. That area could stall gold, at least for a while.

Alternatively, a break of the lower side of the triangle and a price-drop below the 1382 zone, which is so far the lowest point of July, could invite more bears into the game and we could see the price sliding to the 1358 area, marked by the high of June 14th. If the commodity stalls around there, or even retraces back up, as long as it stays below the 1382 mark, we will remain bearish over the short-term outlook. If another slide brings gold below the above-mentioned 1358 area, this could send the commodity to the 1333 hurdle, marked by the low of June 17th.

Gold daily

 6. WTI CRUDE OIL WEEKLY OUTLOOK

REVIEW

It was a great week for WTI oil, as it managed to climb higher and break above the short-term downside resistance line taken from the high of April 23rd. At the same time price is now balancing above a short-term tentative upside line taken from the low of June 18th. The commodity tested the 61-dollar mark and then slid back down a bit. For now, we believe that the black liquid may continue drifting the further north, especially if it gets above the 61.00 level, hence why we will remain somewhat bullish, at least for now.

OUTLOOK (SCENARIO A / B)

As discussed above, a break above the 61.00 barrier would confirm a higher high on the shorter timeframes and could send the commodity to its next potential resistance area, at 62.60, which is the inside swing low of May 20th. WTI oil might stall around there initially, or even let the bears take control for a while. If the price stays above the tentative upside line, the possible move lower could just be seen as a temporary correction, before another leg of buying. If the commodity moves back up and rises above the 62.60 zone, this could open the door for a test of the 64.00 mark, which is the high of May 20th.

In order to examine the downside again, we need to wait for a break of the aforementioned upside support line and then the previously-discussed downside resistance line. In addition to that, a price-drop below the 57.35 level could confirm further declines, which could bring WTI oil to the 56.10 area, marked by the lows of July 2nd and 3rd. IF the selling is still strong, the 56.10 are could just be seen as a temporary obstacle on the seller’s way, a break of which could clear the path to the 55.00 mark, which is the high of June 9th.

WTI daily

 7. Nikkei 225 WEEKLY OUTLOOK

REVIEW

The Nikkei 225 index ended last week virtually unchanged. Overall, the index is still balancing slightly above its short-term upside support line taken from the low of June 4th. If the buyers manage to remain in control and the price stays above that upside line, there is a good chance that the index could continue drifting in the northern direction. But before we could aim higher, we will wait for a confirmation break of one of our key resistance barriers, hence why we will take a cautiously-bullish approach for now.

OUTLOOK (SCENARIO A / B)

Another push higher could bring the price closer to the 21825 barrier, marked by the high of July 1st. If that barrier fails to withstand the bull-pressure and breaks, this would confirm a forthcoming higher high and the index might travel to the 21912 hurdle. That hurdle acted as strong support on May 5th and 6th. We could see Nikkei 225 stalling there for a bit, or even correcting back down a bit from there. But as long as the price remains above the aforementioned upside line, we will stay positive and aim higher. A push above the 21912 mark would confirm another higher high and the index could make its way to the next potential resistance area, at 22152, marked by the high of May 7th.

Alternatively, a break of the upside support line and a rate-drop below the 21465 zone, marked by last week’s low, could spook the buyers and allow more sellers to step in. Such a move would also place the price below the 200-day EMA, which also could be seen as bearish sign. We will then aim for the 21380 obstacle, a break of which could set the stage for a further decline, targeting the 21020 mark, which is the low of June 26th.

nikkei 225 daily

 FX Weekly Market Preview 

Weekly Outlook: July 15 – July 19: RBA Minutes, AU and UK Jobs Data, NZ, UK and Canada CPIs

We don’t have any central bank meetings on this week’s agenda, but we get the minutes from the latest RBA meeting, in which we will look for clues as to when the RBA may deliver another rate cut. Given the Bank’s emphasis on the labor market, Australia’s employment data on Thursday could also shape expectations on that front. In the UK, GBP traders are likely to focus on the jobs data for May, as well as the CPIs and retail sales for June, as they try to figure out whether the BoE will indeed abandon its hike plans soon. New Zealand’s and Canada’s CPIs will also be in the limelight.

On Monday, the EU and US sessions appear to be light in terms of economic events and indicators, with the only one worth mentioning being the New York Empire State manufacturing index for July, which is expected to have returned back above zero, to +1.6 from -8.6.

On Tuesday, during the Asian morning, the RBA releases the minutes of it latest gathering, when officials decided to cut rates for the 2nd time in a row, and noted that they will continue to monitor developments in the labor market closely and adjust policy “if needed” to support sustainable growth and the achievement of the inflation target. In June, the guidance was the same but without the “if needed” part. So, in our view, its addition means that, although the door for further action is not closed, the RBA is not in a rush to cut again when it meets next. Market participants appear to hold the same view, as according to the ASX 30-day interbank cash rate futures implied yield curve, they almost fully pricing in the next quarter-point cut is to come in December. Having all these in mind, we will scan the minutes to see whether the statement was interpreted correctly, namely that the RBA is in no hurry to cut for the third consecutive time, or whether officials remained willing to hit the cut button again when they meet in August.



From New Zealand, we get inflation data for Q2. The qoq CPI rate is anticipated to have risen to +0.6%, after staying for two consecutive quarters at +0.1%, something that is likely to drive the yoy rate up to +1.7% from +1.5%. At its latest meeting, the RBNZ kept interest rates steady at +1.50%, but signaled that more easing may be underway, with investors increasing their bets with regards to a rate cut at the Bank’s upcoming gathering, scheduled for August 7th.

Even though inflation is expected to accelerate, something like that could help the Kiwi somewhat at the time of the release, a yoy CPI rate of 1.7% will be in line with the RBNZ’s latest projections and still below the midpoint of its 2-3% target range. In our view, this is likely to keep the door for an August cut wide open. For the chances of such an action to narrow down, a stronger-than-expected acceleration may be needed.

During the European day, the UK employment report for May is due to be released. The unemployment rate is expected to have remained at its 45-year low of 3.8%, while average earnings including bonuses are anticipated to have risen +3.1% yoy, the same pace as in April. The excluding-bonuses rate is forecast to have ticked up to +3.5% yoy from +3.4%. According to the IHS Markit/KPMG & REC Report on Jobs for the month, the rate of starting salary inflation was the softest in just over two years and thus, we would consider the risks surrounding the earnings forecasts as tilted somewhat to the downside.

In Germany, the ZEW survey for July is coming out. The current conditions index is expected to have declined to 5.0 from 7.8, while the economic sentiment one is anticipated to have slid further into the negative territory, to -22.1 from 21.1. Eurozone’s trade balance for May is also coming out but no forecast is currently available.

Later in the day, from the US, we get retail sales, industrial and manufacturing production, all for June. Headline and core retail sales are forecast to have slowed to +0.2% mom and +0.1% mom respectively, after both rising to +0.5% in May. IP is expected to have slowed to +0.1% mom from +0.4%, while MP is anticipated to have risen +0.2%, the same pace as in June.

On Wednesday, during the European morning, the UK CPIs are scheduled to be released. The headline rate is forecast to have held steady at the BoE’s inflation target of +2.0% yoy, while the core rate is expected to have ticked up to +1.8% yoy from +1.7%.  Following some soft UK data, including the disappointing PMIs for June, and BoE Governor Carney’s recent dovish remarks, we doubt that just an uptick in the core CPI rate would be enough for investors to reduce bets with regards to a BoE dovish shift soon. On the contrary, a small disappointment could prompt them to add to those bets, especially if wage growth disappoints the day before.

Eurozone’s final CPIs for June are also due to be released and as it is always the case, they are expected to confirm their preliminary estimates, namely, that the headline rate held steady at +1.2% yoy, and that the core one rose to +1.1% yoy from +0.8%.

We get inflation data for June from Canada as well. The headline rate is expected to have declined to +2.0% yoy from +2.4%, while no forecast is available for the core rate, which stood at +1.8% yoy in May. Despite the potential slide, a headline CPI rate of +2.0% yoy would be just a tick below the BoC’s latest projections and thus we doubt that it could materially alter policymakers’ view with regards to monetary policy. At their meeting last week, they kept interest rate unchanged and noted that the degree of accommodation provided by the current rate remains appropriate, thereby staying among the very few major central banks that have not turned their eyes to the cut button yet.

On Thursday, during the Asian day, Australia’s employment report for June is due to be released. The unemployment rate is anticipated to have held steady at 5.2%, while the net change in employment is forecast to reveal a slowdown to 9.1k from 42.3k in May. As we already noted when discussing the RBA minutes, Australian policymakers have been placing extra emphasis on the labor market lately and thus a slowdown in job gains will keep the door with regards to further rate cuts open.

During the European morning, we get the UK retail sales for June. Both the headline and core rates are expected to have risen somewhat, but to have stayed within the negative territory. Specifically, the headline rate is forecast to have risen to -0.3% mom from -0.5%, while the core rate is anticipated to have ticked up to -0.2% mom from -0.3%. Something like that would drive both the yoy rates up to +2.6% and +2.7%, from +2.3% and +2.2% respectively. Although the forecast are pointing to better numbers than in May, still they suggest declines in monthly terms, which in our view could add to speculation that the BoE may soon decide to abandon its hike bias.

Later, in the US, the Philly Fed manufacturing index for July is anticipated to have risen to 5.0 from 0.3.

Finally, on Friday, during the Asian morning, Japan’s National CPIs for June are coming out. The headline rate is expected to have stayed unchanged at +0.7% yoy, while the core one is forecast to have declined to +0.6% yoy from +0.8%. The case for an unchanged headline rate and a sliding core print is supported by the Tokyo CPIs for the month, which moved in a similar fashion.

At its latest policy meeting, the BoJ kept its ultra-loose policy and forward guidance unchanged, but at the conference following the decision, Governor Kuroda said that extra stimulus would be considered if momentum towards reaching the inflation aim is lost. His remarks were echoed a couple of weeks ago by Deputy Governor Amamiya, who said that officials are ready to ramp up stimulus if needed and will consider all policy options, including cutting rates further into the negative territory. Thus, slowing inflation, especially in underlying terms could strengthen the case for additional accommodation by the BoJ in the not-too-distant future.

During the EU session, Eurozone’s current account balance for May is coming out and expectations are for the bloc’s surplus to have increased to EUR 21.2bn from EUR 20.9bn.

From Canada, we get retail sales for May, while from the US, the preliminary UoM consumer sentiment index for July is coming out. With regards to Canada’s retail sales, both the headline and core rates are expected to have risen to +0.3% mom from +0.1%, entering the basket of data allowing the BoC maintain its neutral stance with regards to monetary policy.As far as the UoM index is concerned, expectations are for a small rise to 98.6 from 98.2.

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