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by Darius Anucauskas

Strategic Report, 2019 Newsletter 47

Technical Analysis

 1. EUR/USD WEEKLY OUTLOOK

REVIEW

EUR/USD edged north on Thursday and Friday, after it hit support near the 1.0990 barrier, which is also the low of October 15th. That said, the rate remained below the 1.1075 barrier, which is the neckline of the “double top” formation completed on November 6th and thus, we would hold a cautiously-bearish stance for now.

OUTLOOK (SCENARIO A / B)

The rate could continue its recovery for a while more, perhaps until it tests the 1.1075 area as a resistance this time. From there, the bears may decide to take control again and push the rate down for another test near the 1.0990 hurdle. If they prove strong enough to overcome it, then we may see them aiming for the low of October 8th, at around 1.0940.

In order to abandon the bearish case and turn neutral, we would like to see the rebound extending above 1.1093. This move would discard the double top formation and may allow advances towards the 1.1175 zone, where the pattern’s tops were formed. To start considering a positive outlook, we prefer to wait for a move above that obstacle. Such a move would confirm a forthcoming higher high on the daily chart and may trigger extensions towards the 1.1228 resistance, marked by the high of August 13th.

EURUSD daily

 2. AUD/JPY WEEKLY OUTLOOK

REVIEW

AUD/JPY traded sharply lower on Thursday, but hit support near the crossroads of the 73.30 zone and the upside support line drawn from the low of August 25th, and on Friday, it rebounded. Overall, the price structure on the daily chart remains of higher highs and higher lows above that upside line and thus, we would consider the near-term outlook to be positive for now.

OUTLOOK (SCENARIO A / B)

If the bulls are strong enough to stay in the driver’s seat this week and manage to push above the 74.55 barrier, we could see them pushing toward the 75.70 zone, near the peak of November 7th. Another break, above 75.70, would confirm a forthcoming higher high and is possible to aim for the 76.30 zone, defined by the peak of June 30th.

On the downside, we would like to see a decisive break below 73.00 before we abandon the bullish case and start examining whether the bears have gained the upper hand. This would confirm a forthcoming lower low on the daily chart and also place the rate below the pre-mentioned upside line drawn from the low of August 25th. The bears may then decide to drive the battle towards the 71.82 zone, the break of which could extend the slide towards the 71.10 area, marked as a support by the lows of August 29th and September 3rd.

AUDJPY daily

 3. USD/CAD WEEKLY OUTLOOK

REVIEW

USD/CAD turned south on Thursday, after it hit resistance at 1.3270, and continued sliding on Friday. Despite the strong recovery from October 29th, the rate remained below the tentative downside resistance line drawn from the high of May 31st and thus, we would see decent chances for the latest retreat to continue for while more.

OUTLOOK (SCENARIO A / B)

A clear dip below 1.3207 could confirm the case and may set the stage for bearish extensions towards the 1.3130 territory, marked by the low of November 4th, and slightly above the low of the day after. If the sellers are not willing to stop there and break that zone, then we could see them driving the action all the way down to the 1.3050 area.

In order to start examining the bullish scenario, we would like to see a strong push above 1.3290. This would also bring the rate above the aforementioned downside line and could pave the way towards the 1.3345 area, which provided strong resistance between October 3rd and 10th. If the bulls are not willing to stop there, then a break higher may lead them to the high of September 3rd, at around 1.3383.

USDCAD daily

 4. GBP/NZD WEEKLY OUTLOOK

REVIEW

GBP/NZD has been trading in a sideways manner since October 18th, between the 2.0000 and 2.0320 barriers. However, the rate is still trading above the upside support line drawn from the low of July 30th, as well as above all three of our moving averages on the daily chart. Thus, we see more chances for the pair to exit the short-term range to the upside rather than to the downside.

OUTLOOK (SCENARIO A / B)

A move above the upper end of that range at 2.0320 could pave the way towards the high of October 16th, at 2.0563, where another break would confirm a higher high and aim for the 2.0735 hurdle, which is fractionally above the high of June 21st, 2016.

On the downside, we would like to see a dip below 1.9770 before we start examining a bearish trend reversal. This would bring the pair below the upside support line drawn from the low of July 30th and may pave the way towards the 1.9465 barrier, marked by the low of September 29th. If that level fails to halt the slide, we may then experience extensions towards the 1.9320 hurdle, defined by the lows of October 8th, 9th and 10th.

GBPNZD daily

 5.  XAU/USD WEEKLY OUTLOOK

REVIEW

Gold ended last week in positive territory, rebounding after hitting support at 1445. However, the precious metal continues to trade within the downside channel that’s been in place since late August and thus, we would consider the medium-term outlook to still be negative.

OUTLOOK (SCENARIO A / B)

Even if the latest rebound continues for a while more, the bears may recharge from near the 1480 zone, which provided strong support from October 11th until November 5th. If this is the case, we may see another decline towards the 1445 barrier, which if broken may allow the fall to continue towards the 1410 area.

In order to abandon the bearish view, we would like to see a strong break above 1515, a barrier which prevented the price from drifting further north between October 3rd and November 4th. This would not only signal the break above the upper end of the downside channel, but would also confirm a forthcoming higher high. The bulls could then get encouraged to push the battle towards the highs of September 24th and 25th, at around 1535, the break of which may allow extensions towards the peak of September 4th, at 1557.

XAUUSD daily

 6. WTI CRUDE OIL WEEKLY OUTLOOK

REVIEW

Since November 4th, WTI has been trading in an indecisive mode, between 55.85 and 57.95. On Friday, the bulls took control and managed to close the week fractionally above the 57.95 hurdle, but today they returned back below it. Overall, the price is trading above the upside support line drawn from the low of October 3rd and thus, we would consider the near-term outlook to be positive.

OUTLOOK (SCENARIO A / B)

If the bulls feel strong enough to push back above the 57.95 zone, then we may see them aiming for the 59.72 hurdle, which is marked by the high of September 19th. Another break, above 59.72, may carry larger bullish implications, perhaps paving the way towards the high of September 17th, at around 62.70.

On the downside, a break below 55.85 is the move that could wake up the bears in our view. Such a dip would also drive the price below the aforementioned upside line taken from the low of October 3rd, and may initially aim for the low of October 31st, at around 53.75. Another move, below 53.75, could extend the slide towards the low of October 21st, at around 52.88.

WTI daily

 7. S&P 500 WEEKLY OUTLOOK

REVIEW

The S&P 500 cash index edged north again on Friday, breaking above the 3100 mark, while this morning, it hit a new record high at 3119.80. The index has been in a rally mode since October 10th, above all three of our moving averages, and above the upside support line drawn from the low of August 6th. Thus, we would consider the outlook to be as positive as it can get.

OUTLOOK (SCENARIO A / B)

Given that the index is already into unchartered territory, we cannot identify possible resistance zones from prior highs or inside swing lows. Thus, we will aim for the fifties and hundreds. Namely, we will initially examine possible advances towards the 3150 zone, and if it gets broken, we will then look for the 3200 territory.

The move that would make us abandon the bullish case for a while and start examining a possible negative correction is a dip below 3065. Such a dip could signal that the bears have gained the upper hand, at least for a while, and may see scope for declines towards the 3022 territory, marked by the low of October 31st. Another break, below 3022, may extend the retreat towards the 2982 barrier, or the upside support line drawn from the low of August 6th.

S&P500 daily

 FX Weekly Market Preview 

WEEKLY OUTLOOK: NOV 18 – NOV 22: RBA, FOMC and ECB Meeting Minutes; Flash PMIs; German Final GDP

This week we will be getting the meeting minutes from the three major central banks: the RBA, the ECB and the Fed. In addition to that, some preliminary manufacturing and services figures are expected from Australia, Japan, the US, Germany, the UK and the eurozone as a whole. Also, Canada’s CPIs and Germany’s final GDP readings will be in the spotlight.

Monday will be a rather quiet day economic data wise, as we do not get any significant information from any country, which might have its strong impact on the market. There is only an ECBs financial stability review and the German Buba monthly report to watch out for. The ECB financial stability report tends to be published twice a year and shows the potential financial risks in the euro area. The German Buba (Bundesbank) report provides information on issues relating to financial and economic policies, including issues that surround the monetary policy.

On Tuesday, during the early hours of the Asian morning, New Zealand will deliver their PPI input and output numbers for Q3 on a QoQ basis. Input is believed to have increased from the previous +0.3% to +0.5%, whereas the output number is expected to have gone from +0.5% to +0.3%. RBNZ keeps an eye on those figures as well, in order to understand how producer’s and service provider’s costs have moved in the previous quarter, and how much could be passed on to the consumer in the end.

After the NZ data, the RBA will publish the meeting minutes of the previous monetary policy board meeting, which was delivered in the beginning of November. The members of the board continue express their concerns over the ongoing trade tension in the world among certain key players. The domestic economy is experiencing its ups and downs, with the manufacturing sector slowing down, but the service sector still showing resilience. The labour sector was also showing stability up until last week, when we saw unemployment rising by one tenth of a percent, going from 5.2% to 5.3% and the participation rate falling for the second month in a row. But the biggest disappointment in the Australia’s labour market was the sharp slide in the unemployment change figure, which fell below zero and is sat now at -19.0K. But despite that, overall, the Australian economy is showing stability with its growth rate at +0.5%, and the RBA expects it to pick a bit more going into 2020.

In terms of other Tuesday’s economic data, the US is set to release its building permits and housing starts figures for the month of October. The permits are believed to have declined slightly from 1.391M to 1.383M. On the other hand, the housing starts are forecasted to have increased a bit, going from 1.256M to 1.320M.

Wednesday will be a slightly more exciting day, as we will be getting a few important data sets. The day will kick off with the People’s Bank of China delivering its interest rate, or which is also known now as the Loan Prime Rate (LPR). Previously in October, the rate was set at +4.2%, but the forecast is aiming for +4.1%. The LPR was designed to replace the Bank’s benchmark lending rate, in order to help bring the borrowing costs lower, which may help businesses to battle the ongoing China-US trade tensions. 

Germany is set to deliver on its MoM and YoY PPI figures, which are believed to have fallen from the already-low last month’s numbers. The MoM figure is expected to come out at negative 0.1%, where the previous reading was at a positive 0.1% number. Last time, the YoY figure was already below zero, at -0.1%, but this time it expected to continue declining towards -0.4%. If the forecasts are true, this might affect the euro slightly in the negative way, possibly forcing it to decline a bit against some of its major counterparts.

During the European morning we will get UK’s labour productivity number for Q3, for which there is now forecast available, but the previous reading was at -0.5%. We know that labour is mainly driven by higher wages, which means that an increase in productivity results in workers being incentivised by their companies to produce more over the same amount of time. These incentives might be an increased cost for the company, which could be passed on to the end consumer. This could help inflation to rise slightly.

Speaking about inflation, Canada will hit the spotlight with its inflation numbers. Currently, the expectation is for YoY core and headline numbers to have remained unchanged, at +1.9%. If so, this is still within the Bank’s inflation-control target range, between 1 and 3 percent. But +1.9% is slightly on the lower side, of where the BoC would like inflation to be. The Bank expects a temporary dip in inflation in the beginning of 2020, but overall, the forecast is that it may continue balancing around +2.0%. 

A couple of hours before the US closing bell, the FOMC will release the minutes of their meeting held in the end of October. As we all know, the Fed cut its rates for the third time this year, placing them into the range between +1.50% and +1.75%. According to CME’s Fedwatch Tool, the probability of the Fed cutting again by the end of this year lies only at around 0.7%. That means that the FOMC could be done cutting rates for this year, unless there will be serious concerns surrounding economic growth. Investors will keep a close eye on the minutes, in order to seek for the Fed’s further guidance on its monetary policy. 

Thursday will be an eventful day as well. The ECB will publish its account of October’s policy meeting. During that meeting, which also was the last one for Mario Draghi as the head of the ECB, the Governing Council decided to keep interest rates at previous levels. The main refinancing rate was kept at 0% and the deposit rate was at -0.5%. The Bank stated that it will keep the rates at current or lower levels, unless inflation starts picking up and gets closer to its target of below, but close to 2%. The Governing Council repeated that they are restarting the net purchases under the Asset Purchase Programme (APP), which already started on November 1st. 

Before the US opening bell, we will get the Philadelphia Fed Manufacturing Index for November. The indicator measures the relative level of business conditions amongst manufacturers in the Federal reserve district. From July this year, the figure has been declining sharply, but the current expectation is for the number to beat the previous 5.6 reading and come out at around 7.0. If so, USD traders might take it in a positive way, as the data could give a slight boost for the greenback.

An hour and a half after the Philly Fed Manufacturing Index, US will deliver on its existing home sales figures for the month of October. The expectation here is for an improvement, going from 5.38M to 5.48M, with the MoM number forecasted to increase from -2.2% to +1.7%. 

On Friday, during the early hours of the Asian morning, Australia will provide us with its preliminary manufacturing and services PMI figures. Currently, there are no forecasts available, but lately, the numbers have been on a gradual decline.

Japan will release the same indicators as Australia will do, but there are no forecasts are available, as well. But the main focus will be on the Japanese inflation numbers, both core and headline on YoY basis. The first one is believed to have ticked up by a tenth of a percent, going from +0.3% to +0.4%, whereas there is no forecast for the headline one. All we know is that the previous reading was at +0.2%, which is quite far from the BoJ’s Price Stability Target of +2.0%. If the reading comes out better than the expected or the previous numbers, this could prove to be a positive for the Japanese yen.

The European morning will start off with Germany sharing its final GDP figures for Q3 on a QoQ and YoY basis. The QoQ figure is believed to come out at +0.1%.

Later on, we will have ECB’s new president Christine Lagarde delivering a speech and half an hour after that, the eurozone will produce its preliminary PMI numbers for the month of November. Manufacturing, composite and services readings are believed to have improved slightly, which may also support the euro. UK will also release its preliminary manufacturing and services PMIs, where the manufacturing number is believed to have gone down from 49.6 to 49, and the services figure is forecasted to have remained slightly above 50, at 50.2.

The US will also deliver their numbers on the same sets of data, as UK and the eurozone. The US preliminary manufacturing is expected to have increased slightly, going from 51.3 to 51.5. The composite number is also believed to have risen slightly, from 50.9 to 51.5. The services figure is expected to move up from the previous 50.6 to 51.1. 

But before the US comes out with its data, Canada will deliver on it retail sales number for the month of September. The core and the headline MoM readings are forecasted to have gone up from -0.2% to +0.3%, and from -0.1% to +0.2% respectively.

 

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