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by Charalambos Pissouros

Strategic Report, 2019 Newsletter 45

Technical Analysis

 1. EUR/USD WEEKLY OUTLOOK

REVIEW

EUR/USD seems to be struggling to overcome its 200-day EMA and the 1.1180 barrier, marked by the highest point of October. That said, the pair is balancing now above its newly-established upside support line taken from the low of October 1st. As long as that line remains intact, we will aim a bit higher. But to get comfortable with further upside, at least in the short run, a break of the 1.1180 barrier is required. We will remain cautiously-bullish, for now.

OUTLOOK (SCENARIO A / B)

A strong push above the aforementioned 1.1180 hurdle could invite more bulls into the field. First, we will target the 1.1191 barrier, a break of which could lift the rate to the high of August 13th, at 1.1228. Initially, EUR/USD might stall around there for a bit, or even correct back down slightly. However, as long as the pair remains above the 1.1180 hurdle, we will continue aiming north. The pair may rise again and move in the direction of the 1.1228 obstacle, a break of which could set the stage for a test of the 1.1249 level, marked by the high of August 6th.

On the other hand, if EUR/USD breaks the previously-mentioned upside line and then also moves back below the 1.1128 area, which is Friday’s low, this could lead to a deeper slide. We will then aim for the 1.1107 obstacle, a break of which could clear the path to the 1.1073 zone, which held the rate from moving lower on October 25th and 29th. Slightly below that sits another potential support area, at 1.1064, marked near the high of October 11th and 17th.

EUR/USD daily chart technical analysis

 2. AUD/JPY WEEKLY OUTLOOK

REVIEW

Overall, AUD/JPY continues to trade above its short-term tentative upside support line drawn from the low of August 25th. Given that the pair had distanced itself quite a bit from that line and that the rate got held by the 200-day EMA last week, there is a chance we could see a small correction back down before another leg of buying. 

OUTLOOK (SCENARIO A / B)

If the rate slides slightly lower, tests the 74.31 area and also fails to move below the 21-day EMA, this could invite the bulls back into the field and the pair may rise again, potentially drifting to the 200-day EMA, or to the high of last week, at 75.30. If this time that barrier fails to keep the bulls down, its break might open the door to some higher levels. One of the important ones to watch could be the 76.15 area, marked by the highs of July 16th and 22nd. Slightly above it lies another possible resistance zone, at 76.28, which is the high of June 30th.

Alternatively, if the pair suddenly breaks the aforementioned upside line and falls below the 73.00 territory, which marks the lows of October 14th, this could clear the path towards even lower levels, as more bears could see this as a good opportunity to step in. This is when we will aim for the 72.54 obstacle, a break of which might send AUD/JPY to the 71.73 level, which is near the lowest point of October.  

AUD/JPY daily chart technical analysis

 3. NZD/CHF WEEKLY OUTLOOK

REVIEW

NZD/CHF was seen trading in a moderate way, last week, without any huge swings. The bulls managed to stay in control and closed the week in the positive territory, above its short-term tentative upside support line drawn from the low of October 1st. As long as NZD/CHF doesn’t close a daily candle below it, we will stay somewhat positive, at least over the near-term outlook.

OUTLOOK (SCENARIO A / B)

This morning, we are seeing another strong move higher, which has placed the pair above its key barrier, at 0.6364, marked by the high of October 23rd. This is now opening the path to some higher resistance areas, like the 0.6403, which is the highest point of September. If the buying doesn’t stop there, a further push up could test the 0.6480 level, marked by the low of June 17th and by the high of June 21st.

On the downside, if the aforementioned upside line breaks and the rate falls below the 0.6290 zone, marked by the low of last week, this could temporarily spook the bulls from the field and the bears could push the pair further down. We will then examine the 0.6220 hurdle, as the next potential area of support. But if that hurdle is just seen as a temporary obstacle, slightly lower sits the 0.6189 level, marked by the low of October 1st.

NZD/CHF daily chart technical analysis

 4. GBP/CAD WEEKLY OUTLOOK

REVIEW

Throughout most of last week, GBP/CAD was moving higher, but on Friday it failed to break above the highest point of October, at 1.7093. The pair corrected back down on Friday, but remained above its newly-formed short-term tentative upside support line drawn from the low of October 9th. As long as that line stays intact, we will stay somewhat positive, but in order to get comfortable with higher areas, we will wait for a clear break above the October high, at 1.7093.

OUTLOOK (SCENARIO A / B)

If GBP/CAD makes a move above the 1.7093 barrier, this could increase the pair’s chances of drifting further north, as more buyers could see this as a good opportunity to step in and take control, at least for a while. The rate might then move to the 1.7180 obstacle, a break of which may lead GBP/CAD to the 1.7314 level, marked by the lows of April 17th, 22nd and 23rd.

On the downside, if the pair falls below the 1.6933 hurdle, which is the high of October 24th and breaks the aforementioned upside line, this might attract more sellers and the rate could slide further. This is when we will aim for the 1.6812 zone, which if broken could send GBP/CAD to the 1.6725 area, marked near the lows of October 24th, 24th and 29th. The pair might stall around there, as it may also test the 200-day EMA, which could provide additional support.

GBP/CAD daily chart technical analysis

 5.  XAU/USD WEEKLY OUTLOOK

REVIEW

For about a month now, gold has not been able to get out of its little range, roughly between the 1781 and 1518 levels. But given that we saw the bulls taking control of the commodity in the second half of last week, there might be a chance for it to travel higher, at least in the short run. Also, our oscillators are showing that the speed of the price started picking up, which could support the idea of a further move higher. That said, still, in order to get comfortable with the upside, a daily close above the upper bound of the range is required. 

OUTLOOK (SCENARIO A / B)

A push above the 1518 barrier could invite more buyers into the game and the price could drift to the 1536 hurdle for a quick test. That hurdle marks the high of September 24th, which may provide additional resistance for a bit. But if the buying is still strong, a break of that hurdle could lead gold to the 1557 level, marked by the high of September 4th.

Alternatively, a drop below the lower side of the previously-mentioned range, at 1481, could invite more sellers into the game and gold might travel to the 1459 area, which is the lowest point of October. But if that area is not capable of halting the fall, its break may lead to a test of the 1437 level. That level marks the low of August 5th.

XAU/USD Gold daily chart technical analysis

 6. WTI CRUDE OIL WEEKLY OUTLOOK

REVIEW

After closing in the red almost every day last week, on Friday, WTI oil managed to explode to the upside. But still that wasn’t enough for the commodity to close the week in the positive zone. That said, for now, the black liquid is moving nicely within a short-term rising channel formation and seems that there might be a chance for this pattern to continue. As long as the price continues to respect the boundaries of that channel, we will stay positive, at least over the short-term outlook.

OUTLOOK (SCENARIO A / B)

A further push north could send the commodity to test the 56.95 hurdle, which marks the high of October, or to the upper bound of the aforementioned channel. WTI oil might also test the 57.76 area, which if provides decent resistance, could allow the sellers to step in for a bit and drive the price back down. That said, if the “black gold” remains above its 200-day EMA, the buyers could see it as a good opportunity to step in again and drive WTI oil to the 57.76 zone, a break of which could set the stage for a move to the 58.71 level, marked by the high of September 24th.

In order to start examining lower areas, at least in the near term, a break of the lower bound of the channel is needed. In addition to that, a break of the 53.76 hurdle, which is the low of last week, could attract more sellers into the game and WTI oil could move further south. This is when we will aim for the 52.50 zone, a break of which may set the stage for a test of the 51.55 level, marked by the low of October 9th.

WTI crude oil daily chart technical analysis

 7. NASDAQ 100 WEEKLY OUTLOOK

REVIEW

On Friday, Nasdaq 100 made a new all-time high, hitting the area around the 8160 barrier, while the cash index reached 8188 this morning. For now, it seems that all looks quite positive for the US equities and there is a good chance the move higher may continue. That said, given that the index looks slightly overbought on the shorter timeframe, there is a possibility to see a bit of correction to the downside. But as long as the price stays above the short-term tentative upside support line drawn from the low of October 10th, we will stay bullish, at least for now. 

OUTLOOK (SCENARIO A / B)

A small move lower could test the aforementioned upside line, which may provide additional support. If so, the price may rebound back up and travel towards the high of last week, at around 8160. If the buying doesn’t stop there, Nasdaq 100 could once again test the level that was tested this morning by the cash index, at 8188, a break of which would confirm a new higher high and place the price in the uncharted territory.

Alternatively, if the price breaks the aforementioned upside support line, slides below the 8036 area and also below the psychological 8000 hurdle, this could spook the buyers from the field and allow the sellers to take control for a while. The price could then drift to the 7910 obstacle, a break of which could clear the path to the 7800 level, marked by the low of October 23rd.

Nasdaq 100 cash index daily chart technical analysis

 FX Weekly Market Preview 

Weekly Outlook: Nov 04 – Nov 08: RBA and BoE Decisions, NZ and Canada Job Reports

Following the FOMC, BoC and BoJ policy gatherings, last week, now the central bank torch is passed to the RBA and the BoE. Both Banks are expected to stand pat, so all the attention is likely to fall on hints and signals with regards to their future course of action. We also get employment data from New Zealand and Canada.

Monday appears to be a relatively light day with the only indicators worth mentioning being Eurozone’s final manufacturing PMI for October, which is expected to confirm its preliminary estimate of 45.7, and the UK construction PMI for the same month, which is forecast to have risen to 44.0 from 43.3. The case for a slight improvement in this index is supported by the manufacturing PMI, released on Friday, which rose to 49.6 from 48.3.

On Tuesday, during the Asian morning, the RBA will decide on monetary policy. At its October gathering, the Bank decided to cut interest rates by 25bps, to a new record low of +0.75%, and reiterated that they will continue to monitor developments, including in the labor market, and ease policy further if needed.

RBA interest rates

Since then, the employment report for September showed that the unemployment rate ticked down to +5.2% from +5.3%, which is certainly a move in the desired direction, but still distant from the 4.5% mark which the RBA believes it may start generating inflationary pressures. The CPIs for Q3 showed that the headline rate ticked up to +1.7% yoy from +1.6%, while the trimmed mean rate held steady at +1.6% yoy. With both rates below the lower end of the Bank’s inflation target range of 2-3%, and the unemployment rate still well above 4.5%, investors kept some bets with regards to further easing on the table. However, according to the ASX 30-day interbank cash rate futures implied yield curve, they don’t fully price in another 25bps reduction for this year and the next. That said, there is a 90% chance for a quarter-point cut in June. Thus, although no action is expected at this gathering, we will dig into the statement for clues as to whether the Bank remains willing to act again if needed, and if so, whether its signals would suggest that this could come earlier (or later) than most investors are currently expecting.

As for Tuesday’s data, during the European day, the UK services PMI is expected to have increased somewhat, to 49.8 from 49.5, while later in the day, the US ISM non-manufacturing index is forecast to have risen to 53.2 from 52.6.From the US, we also get the final services and composite PMIs for October, but as it is always the case, they are expected to confirm their preliminary estimates.

Fed funds futures market vs FOMC interest rate expectations

Last week, the FOMC decided to cut rates by another 25bps, but signaled that it is planning to stay sidelined for now, unless things fall out of orbit. That said, investors remained largely unconvinced that the Fed has stopped cutting rates. Even after Friday’s better than expected employment report, they are still pricing in another cut to be delivered in June next year. Perhaps this was due to the ISM manufacturing PMI rising less than expected and staying in contractionary territory. In our view, a small rise in the non-manufacturing print is unlikely to vanish cut expectations, but it could allow market participants to push that timing back.

On Wednesday, early Asian trading, New Zealand’s employment report for Q3 is due to be released. The unemployment rate is expected to have edged up to 4.1% from 3.9%, while the employment change is anticipated to have slowed to +0.3% qoq from +0.8%. The Labor Costs index is also expected to have slowed, to +0.6% qoq form +0.8%.

New Zealand unemployment rate

The RBNZ’s latest meeting was held on the September 25th. Back then, officials decided to keep interest rates unchanged at +1.00%, maintained their easing bias, but did not provide hints that a November cut is a done deal, despite elevated expectations by the market. The Committee agreed that new information since August did not warrant a significant change in the policy outlook and added that there is still scope for more fiscal and monetary stimulus “if necessary”. The latest CPI data showed that the yoy rate slowed to +1.5% yoy from +1.7%, but still above the RBNZ’s latest projection for the quarter, which is at +1.3%. Yet, market participants remained more convinced than not that the Bank will cut rates at its upcoming meeting, assigning a 52% chance for such an action. Thus, a weak employment report is likely to drive that percentage higher.

Later in the day, we get Eurozone’s final services and composite PMIs for October, as well as the bloc’s retail sales for September. As usual, the PMIs are forecast to confirm their preliminary numbers, while retail sales are expected to have slowed to +0.1% mom from +0.3%.

On Thursday, another central bank takes its turn in deciding on monetary policy and this is the BoE. The latest meeting passed largely unnoticed, with the Bank keeping its policy unchanged as was widely anticipated, and maintaining the forward guidance 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.

UK CPIs inflation

Since then, the manufacturing PMIs showed that the economy stayed in contraction territory in both September and October, while both the headline and core CPI rates stood at +1.7% yoy, which is below the Bank’s objective of 2%. What’s more, the employment report for the three months to August showed that the unemployment rate ticked up to 3.9%, with the economy losing 56k jobs. With the Brexit riddle still unresolved, and the uncertainty postponed for perhaps another three months, it would be interesting to see whether the Bank will maintain its hiking bias or choose a more dovish path, even amid higher expectations that the new UK elections could eventually result in a break of the Brexit impasse.

On Friday, Canada’s employment report for October is due to be released. The unemployment rate is forecast to have remained unchanged at 5.5%, while the net change in employment is anticipated to show that jobs growth slowed to 20k from 53.7k in September. At its latest meeting, the BoC kept interest rates unchanged at +1.75%, but the statement accompanying the decision had a more dovish flavor than previously, with BoC Governor Poloz saying that they discussed whether the downside risks were significant enough for an insurance cut, but the decided that they were not. Thus, a disappointing employment report is likely to increase speculation with regards to an easing action by this Bank soon.

Canada unemployment rate

Canada’s housing starts for October and building permits for September are also coming out, while from the US, we get the preliminary UoM consumer sentiment index for November, which is expected to have increased to 96.0 from 95.5.

Finally, on Saturday, early Asian time, we have China’s CPI and PPI for October. The CPI rate is expected to have risen to +3.2% yoy from +3.0%, but the PPI one is forecast to have declined to -1.5% yoy from -1.2%.

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