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by Charalambos Pissouros

Strategic Report, 2019 Newsletter 33

Technical Analysis

 1. AUD/CHF WEEKLY OUTLOOK

REVIEW

AUD/CHF continues to slide, trading below its medium-term tentative downside resistance line taken from the high of April 23rd. Last week, the pair almost managed to  reach the 0.6500 hurdle, but fell shy of a few pips from doing that. The rate recovered some of its losses, but it was still not enough to close the week in the green. Given the current weakness of AUD and the ongoing investor-interest interest in safe-haven currencies, the small recovery, which we saw in the end of last week, may be considered as a temporary correction, before another leg of selling. This is why for now, we will remain somewhat bearish and aim a bit lower.

OUTLOOK (SCENARIO A / B)

A rate-fall below the 0.6556 hurdle, which is Monday’s low, could invite more sellers into the game and clear the path for AUD/CHF to drift further south, targeting the lowest point of last week, at 0.6507. Initially, the pair may stall around there, or even correct slightly higher. But if the bulls are still too weak to take full control, the bears might step in again and drag the rate to the downside, possibly bring AUD/CHF below the 0.6507 obstacle and aiming initially for the 0.6500 zone, a break of which may send the pair somewhere closer to the 0.6450 mark.

On the upside, if AUD/CHF moves suddenly above the 0.6660 barrier, marked by Thursday’s high, this may attract a few more buyers and push the pair for a larger correction to the upside. We will then examine a possible move to the 0.6747 obstacle, a break of which could lift the rate to the 0.6835 level, marked by the high of August 1st. Around there, the pair might test the aforementioned downside line as well, which could provide additional resistance for the pair. 

AUDCHF daily

 2. EUR/USD WEEKLY OUTLOOK

REVIEW

Last week, EUR/USD ended the week in the positive territory around the 1.1200 mark. The strong boost came on Monday, when the pair gained around 120 pips and broke its short-term tentative downside resistance line drawn from the high of high of June 25th. Looking at our daily chart, we can see that the pair is forming a possible pennant, which tends to break in the direction of the prevailing trend. In this case, the likely break might happen to the upside, but before we could examine higher areas, we will wait until we see a break of one of our key resistance barriers, hence why we will remain cautiously bullish for now.

OUTLOOK (SCENARIO A / B)

If, eventually, EUR/USD breaks the upper side of the pennant and moves above 1.1225 barrier, marked near Friday’s high, this could make the bears worry, as it may increase the pair’s chances of drifting further north. The next important resistance area to watch might be the 1.1250 zone, which is the high of last week. If that area is just seen as a temporary obstacle on the bull-way, a break of it would confirm a forthcoming higher high on the shorter timeframe and the rate may accelerate further towards the 1.1285 level, marked near the highs of July 11th and 15th. Slightly above that runs the 200-dy EMA, which may also provide a bit of resistance for EUR/USD. There is a chance we could see a small correction from there back down. But if the pair remains above the 1.12500 hurdle, this may attract the bulls again into the field, who could push EUR/USD up. If the rate climbs above the 200-day EMA, the next possible resistance might be seen around 1.1322 level, marked by the high of July 2nd.

Alternatively, a rate-drop below the 1.1160 hurdle may spook the bulls from field for a while, as the move may open the door to the 1.1115 obstacle, a break of which might send the pair further down. We will then target the 1.1069 zone, marked by the low of August 2nd.  

EURUSD daily

 3. GBP/JPY WEEKLY OUTLOOK

REVIEW

The British pound continues to get hammered against all of its major counterparts. The Japanese yen is no exception, as we can see by GBP/JPY, which once again closed the week in the red. After balancing above the 128.10 hurdle for almost the whole week, the pair took a strong hit on Friday and sold off, ending the week slightly below the 127.00 mark. Even though we may see a retracement back up, still, given the current weakness of the pound due to Brexit issues, we believe that any pullback might be seen as a correction before another leg of selling. This is why for now, we will remain bearish and continue aiming lower.

OUTLOOK (SCENARIO A / B)

If the pair continues to drift lower, it may end up testing the 125.91 hurdle, which is the low of October 13th, 2016. That area might stall the rate, or even help to lift it back up a bit for a small correction. But if the rate struggles to move back above the 128.10 area, this might be a sign for the bears to step in again and send the pair to the downside. They may send GBP/JPY to the 125.91 obstacle, a break of which could open the door to the 124.83 zone, marked by the low of October 11th, 2016. If the selling doesn’t end there and the pair continues to slide, there is a chance we could see a test of the lowest point of October 2016, at 122.42.

Alternatively, if we rate rising and moving above the 130.05 barrier, marked near the high of August 6th, this could invite a few more buyers into the game, who could lead the pair towards a slightly larger correction, given that GBP/JPY still remains below a short-term tentative downside resistance line taken from the high of May 21st. If there are more buyers joining in, the rate may accelerate to the 131.60 zone, a break of which could send GBP/JPY to test the aforementioned downside line, which could keep the rate down.

GBPJPY daily

 4. EUR/NOK WEEKLY OUTLOOK

REVIEW

Although we saw EUR/NOK retracing back down on Thursday and Friday, still, it wasn’t enough to close the week in the bearish territory. From the short-term perspective, the pair remains trading above its steep tentative upside line taken from the low of July 25th. At the same time, the rate is well above its medium-term upside support line drawn from the lowest point of October 2018. If EUR/NOK continues to balance above the above-mentioned upside line, we will stay bullish at least in the short run.

OUTLOOK (SCENARIO A / B)

As mentioned above, if the steep upside line holds, the bulls might re-enter the game and lift the rate back to the 10.0383 barrier, marked by Thursday’s high. The pair might stall there for a bit, but if the bulls are still feeling comfortable, a break of that barrier may send the rate closer to the highest point of last week, at 10.0965.

On the other hand, if aforementioned steep upside line fails to withhold the bear-pressure, a break of that line may open the door for a larger correction back down. Especially if the pair falls below the 9.8769 hurdle, marked by the highest point of May. This way we could start examining some lower levels, like the 9.8167 zone, which is the high of June 18th. EUR/NOK might get a hold-up around there, but if that zone eventually surrenders to the sellers, a break of it could clear the way to the 9.7140 obstacle, marked near the highs of June 25th and July 10th. That obstacle is slightly below the 200-day EMA, which may provide some additional support.

EURNOK daily

 5.  XAU/USD WEEKLY OUTLOOK

REVIEW

After investors started moving heavily out of riskier assets on Monday, gold was one of those that took a liking, as we saw the price sharply accelerating to the upside. Eventually, the precious metal managed to reach the psychological 1500 zone and even slightly overshot it, hitting the area around the 1510 level, which held the commodity down. Overall, gold is still trading above its medium-term upside support line taken from the low of May 30th. For now, we will stay positive with the short-term outlook, especially if the commodity moves above last week’s high.

OUTLOOK (SCENARIO A / B)

A push above the 1510 barrier, which is near the high of last week, would confirm a forthcoming higher high and we could see the price rising to the 1540 hurdle, which is the low of April 4th, 2013. The commodity might get a hold-up around there, or even may be forced to retrace slightly. If then the sellers are not able to push the precious metal below the 1500 zone, this could be an opportunity for the buyers to jump back in and lift gold beyond the 1540 area and target the 1590 level, marked by the high of April 9th, 2013.

Alternatively, if the price suddenly slides below the 1488 area, which is the highest point of May 2013, this could send the commodity all the way to the 1453 zone, which is the high of July 18th. Previously that zone acted as good resistance, now it may take the role of support, which could force gold to bounce back up a bit. That said, if the bulls are not able to stay in control for too long, the bears might take over and send the precious metal back down, maybe even below the 1453 area and aiming for the aforementioned upside line, which could add additional support for the price.

Gold daily

 6. WTI CRUDE OIL WEEKLY OUTLOOK

REVIEW

WTI oil sold-off in the beginning of last week, but the buyers tried to bring the price back up on Thursday and Friday and came close to Monday’s opening level. That said, still, they didn’t have enough steam to close the week in the positive territory. The commodity is trading now below a short-term tentative downside resistance line taken from the high of July 15th. Even if we see a continuation of the Friday’s move up, as long as that downside line remains intact, this up-move might be considered as a temporary correction, before another leg of selling, hence why we will stay cautiously bearish, at least for now.

OUTLOOK (SCENARIO A / B)

A push higher and a break of the 55.00 zone, or even the 55.63 hurdle, which is the high of last week, could lead the black liquid to the aforementioned downside line, which if holds, might send the price back down again. We will then aim for the 53.10 area, which is the intraday swing high of August 8th. Slightly below sits the 52.00 zone, marked by the low of the same day, which also could be tested if the price continues sliding.

Alternatively, a break of the previously-mentioned downside line could make the bears worry, as such a move might increase the commodity’s chances of drifting further north. We will start examining higher areas if we see WTI oil rising above the 200-day EMA and breaking above the 58.83 barrier, marked by the high of July 31st. This way, the next potential resistance zone could be seen around the 61.00 obstacle, which is near the highest point of July. If that obstacle eventually surrenders to the buyers, this may lift the price to the 62.60 level, marked by the inside swing low of May 20th.

WTI daily

 7. EURO STOXX 50 WEEKLY OUTLOOK

REVIEW

As we can see from our daily chart of Euro Stoxx 50, the index is trading within a slightly rising channel drawn from around the end of April. After Monday’s sell-off, the price corrected back up again and travelled all the way to the 200-day EMA, which held the index down. Taking everything into account what was said above, we will take a neutral stance for now and wait for a confirmation break through one of our levels, before getting excited about any further directional moves.

OUTLOOK (SCENARIO A / B)

If Euro Stoxx 50 continues moving in the direction of the rising channel formation, in order to get comfortable with higher levels, we will wait for a clear break above, not only the 200-day EMA, but also above Thursday’s high, at 3377. This way we will aim for our next potential resistance zone, at 3421, marked by low of August 1st and near the low of June 27th. The price might stall around there, or even correct back down a bit. But if it continues to trade above the 200-day EMA, we stay somewhat positive and aim a bit higher. A further push higher and a break above the 3421 hurdle, may clear the path to the 3477 level, marked by the high of July 31st.

In order to shift our views to the downside, we will take a more conservative approach and wait for a break of the lower side of the rising channel and a price-drop below the 3275 zone, marked by the low of last week. This way we may aim for the lowest point of June, at 3246, a break of which could send the index sliding to the 3174 level. That level marks the low of February 15th

EuroStoxx daily

 FX Weekly Market Preview 

Weekly Outlook: Aug 12 – Aug 16: US and UK CPIs, AU Jobs data and Norges Bank Decision

With investors trying to figure out whether and how aggressively the Fed may continue easing, this week, focus is likely to turn to the US CPIs for July. We get inflation data from the UK as well, where a slowdown may revive speculation that the BoE could abandon its hiking bias soon. In Australia, the spotlight is likely to fall on the employment data as market participants try to gauge the timing of the RBA’s next potential cut. We also have a Norges Bank decision, where it would be interesting to see whether the Bank would maintain plans with regards to further rate increases this year.

On Monday, the calendar is almost empty, with no major economic events or data scheduled.

On Tuesday, during the Asian morning, the NAB business survey for July is coming out. Although this is not a major market mover, bearing in mind the RBA’s emphasis on the labor market, we will pay some attention to the labor costs index, which rose further in June, to +1.5% qoq from +1.1% in May.

During the European morning, we have the German ZEW survey for August, as well as the nation’s final CPIs for July. Both the current conditions and expectations ZEW indices are expected to have slid further into the negative territory, while as it is the case most of the times, the final inflation prints are expected to confirm their preliminary estimates.

From the UK, we get the employment report for June. The unemployment rate is expected to have remained unchanged at its 45-year low of 3.8%, while average weekly earnings including bonuses are expected to have accelerated to +3.7% yoy from +3.4%. The excluding-bonuses rate is anticipated to have risen as well, to +3.8% yoy from +3.6%. According to the IHS Markit/KPMG & REC Report on Jobs for the month, permanent salaries rose sharply, but the rate was among the softest seen for two years, while temp wage inflation quickened to a seven-month high. Having this in mind, it’s hard to say where the risks of the official earning-rates are tilted to.

Later in the day, the US CPIs for July are coming out. The headline rate is forecast to have ticked up to +1.7% yoy from +1.6%, while the core rate is expected to have remained unchanged at +2.1% yoy. The narrowing of the spread between the core and the headline rate is supported by the yoy change in oil prices, which, despite staying in the negative territory, has risen somewhat.

At their latest policy gathering, FOMC policymakers decided to cut rates by 25bps, as it was already factored in, but the decision was not unanimous. Two members, Boston President Eric Rosengren and Kansas City President Esther George, argued for keeping rates untouched. At the press conference after the decision, Chair Powell said that this is not the beginning of a long series of rate cuts, rather a mid-cycle adjustment to policy. Investors pushed back their expectations with regards to further easing, but they were quick to revive those bets just the following day, when Trump threatened China with fresh tariffs.

They added even more last week, after China allowed the yuan to fall past the 7.00 per dollar mark. According to the Fed funds futures, another cut is now fully factored in for September, while a third one is priced in for October. There is also a 15% chance for a “double cut” at the September gathering. In our view, a decent set of inflation data may push that percentage down, but it is unlikely to change much the picture of what the market anticipates from the Fed beyond September. For that to change drastically, positive developments from the US-China trade front are needed, something we see unlikely for now.

On Wednesday, during the Asian morning, Australia’s Wage Price index for Q2 is due to be released, just a day ahead of the nation’s employment report. The forecast is for the qoq to have remained unmoved at +0.5%, but bearing in mind that the Labor Costs Index of the NAB business survey accelerated strongly during Q2, to +1.5% qoq in June from +0.7% in March, we see the risks surrounding the wage price index as tilted to the upside.

From China, we get fixed asset investment, industrial production and retail sales, all for July. Fixed asset investment is forecast to have risen 5.8% yoy, the same pace as in June, while industrial production and retail sales are anticipated to have slowed to +5.8% yoy and +8.6% yoy from +6.3% and +9.8% respectively.

Later, during the European morning, Germany’s preliminary GDP for Q2 is forecast to reveal a 0.1% qoq contraction after a 0.4% qoq growth in Q1, while Eurozone’s second estimate of Q2 GDP is expected to confirm its initial print of +0.2% qoq. The bloc’s industrial production for June is also coming out and it is anticipated to have slid 1.3% mom after rising 0.9%.

From Sweden, we get the CPIs for July. Both the CPI and CPIF rates are forecast to have declined to +1.5% yoy and +1.4% yoy, from +1.8% and +1.7% respectively. As always, we will pay special attention to the core CPIF rate, which rose to +1.9% yoy in June from +1.7% in May. At its latest meeting, the Riksbank decided to keep interest rates unchanged at -0.25% as was widely expected, and maintained the view that the repo rate “will be increased again towards the end of the year or at the beginning of next year.”

However, if indeed inflation slows as expected, and the core CPIF rate also pulls back, this may force officials of the world’s oldest central bank to push back their guidance on rates, perhaps closing the door to the possibility of a hike later this year. Another important factor to take into account is the ECB’s hints with regards to a potential rate cut next month, which may also be accompanied by more measures, such a restart of QE. Remember that the Riksbank has been usually following the footsteps of the ECB in recent years and thus, this increases the chances for a more cautious stance by Swedish officials.

We get CPIs from the UK as well. The headline rate is expected to have ticked down to +1.9% yoy from +2.0%, while the core rate is anticipated to have remained unchanged at +1.8% yoy. Coming on top of Friday’s disappointing GDP for Q2, which showed a 0.2% contraction, inflation below the BoE’s target of 2% may revive bets that the BoE could soon abandon its hiking bias, despite the potential acceleration in earnings on Tuesday.

Last time, the BoE kept its monetary policy unchanged and maintained the view that conditional upon a smooth Brexit, increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target. However, the risk of a no-deal Brexit has been increasing recently and all the uncertainty surrounding the form of the divorce has been already leaving marks on the UK economy. Thus, until October 31st, the deadline for leaving the EU, a BoE hike may not be warranted, even if eventually the departure is orderly.

On Thursday, Asian time, Australia’s employment report for July is scheduled to come out. The unemployment rate is forecast to have remained unchanged at 5.2%, while the net change in employment is expected to show that the economy added 14.0k jobs from 0.5k in June.

At its latest meeting, the RBA kept interest rates unchanged at +1.00% and noted that they will continue to monitor developments in the labor market closely, and ease policy further if needed to support sustainable growth and achieve their inflation target. In our view, the message remained the same as in July. The door for further easing was kept open, but policymakers seemed not in a rush to cut rates when they meet next. The probability for a September cut now stands at 42%, while a 25bps decrease remains fully priced in for October.

With all this in mind, a decent gain in July jobs, combined with accelerating wages on Wednesday, may drive the September probability further down, but an unemployment rate of 5.2%, above the 4.5% threshold which the Bank believes would start generating inflationary pressures, could still keep the door wide open for an October cut.

During the European morning, we have a Norges Bank interest rate decision. The last time Norwegian policymakers gathered, they decided to hike rates to +1.25% from +1.00% and noted that the policy rate will most likely be increased further in the course of 2019. Since then, we got inflation data for both June and July, with the headline rate declining to +1.9% yoy from +2.5% in May, and the core rate sliding to +2.2% yoy from +2.3%. Despite the decline, the headline rate remained above the Norges Bank’s projections, and although the core print fell short of its respective forecast, it is still above the Bank’s inflation aim of 2.0%. In our view, this may allow Norwegian policymakers to maintain the view with regards to further rate increases later this year.

As for the rest of Thursday’s data, we get retail sales for July from both the UK and the US. Kicking off with the UK prints, both headline and core sales are anticipated to have declined 0.3% mom and 0.2% mom, after rising 1.0% and 0.9% respectively. As for the US data, headline sales are expected to have slowed to +0.3% mom from +0.4%, while core sales are forecast to have risen 0.4% mom, the same pace as in June. The US industrial and manufacturing production rates for July are also due to be released. IP is expected to have grown 0.1% mom after stagnating in June, while MP is forecast to have contracted 0.1% mom after rising 0.4%.

Finally, on Friday, the calendar includes Eurozone’s trade balance for June, the US building permits and housing starts for July, and the preliminary UoM consumer sentiment index for August. With regards to Eurozone’s trade data, the bloc’s surplus is expected to have declined to EUR 16.3bn form EUR 23.0bn in May. In the US, both building permits and housing starts are forecast to have risen somewhat, while the UoM index is anticipated to have slid to 97.5 from 98.4.

Disclaimer:

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