Loading...
by Charalambos Pissouros

Strategic Report, 2019 Newsletter 49

Technical Analysis

 1. EUR/USD WEEKLY OUTLOOK

REVIEW

Last week, after finding support slightly below its key support zone, at 1.0989, EUR/USD rebounded and moved back up, which led to a weekly close in the mixed territory. But overall, we can see that the pair is still below its short-term tentative upside support line drawn from the low of October 1st and also below its short-term tentative downside resistance line taken from the high of November 4th. For now, we will stay cautiously bearish, as long as the rate continues to below those lines.

OUTLOOK (SCENARIO A / B)

Looking at our daily chart, in order to get comfortable with lower areas, a another drop below the 1.0989 hurdle, or the 1.1981 obstacle, marked by the lows of November 14th and November 29th respectively, could invite more bears into the field. We could then aim for the 1.0941 zone, which if gets broken may lead the rate to the 1.0904 level, marked by the lows of September 27th and October 2nd. 

On the other hand, if the rate rises above all of the previously-mentioned line and climbs above the 1.1052 barrier, marked by the inside swing lows of November 20th and 21st, this may attract more buying-interest, potentially helping the pair to move a bit higher. This is when we will target the high of November 21st, at 1.1097, a break of which could set the stage for a further acceleration north, where the next area of resistance might be seen at 1.1128, marked by the inside swing low of November 1st.  

EURUSD daily

 2. USD/CAD WEEKLY OUTLOOK

REVIEW

USD/CAD ended last week slightly in the red, but still above its short-term upside support line taken from the low of October 29th. At the same time the rate continues to balance inside a falling channel pattern from around November 20th. Because of this, we will take a neutral stand for now and wait for a clear break through one of our key levels, before getting comfortable with a further move in either direction.

OUTLOOK (SCENARIO A / B)

In order to examine the upside, we will wait for a break of the upper side of the aforementioned falling channel and a push above the 1.3327 barrier, marked by the highest point of November. This way the pair could then travel to the 1.3345 obstacle, or even to the 1.3382 zone, marked by the high of September 3rd. The rate might get a hold-up around there, or even correct back down a bit. But if it stays above the previously-discussed upside support line, then the bulls may lift USD/CAD to the 1.3382 hurdle, a break of which may clear the way to the 1.3432 level, marked by the high of June 18th.

Alternatively, if the previously-mentioned upside line breaks and the pair falls below the 1.3235 area, which is marked by an inside swing high of November 18th, this could lead USD/CAD to the 1.3190 obstacle, a break of which could set the stage for a further move south, potentially targeting the 1.3160 level, marked by the high of November 4th and the low of November 7th.

USDCAD daily

 3. GBP/NZD WEEKLY OUTLOOK

REVIEW

From around mid-October, GBP/NZD continues to move sideways inside a range between the 2.0000 and 2.0330 levels. Up until this morning, the rate was still balancing above its medium-term upside support line drawn from the low July 30th, but it got broken during the early hours of the Asian morning on Monday. But for now, we will remain neutral and wait for the pair to exit the pattern through one of its sides, before we examine a further short-term directional move. 

OUTLOOK (SCENARIO A / B)

If the aforementioned upside line breaks and the pair slide below the lower bound of the range, at 2.0000, this could temporarily spook the bulls from the field and GBP/NZD may drop to the 1.9900 zone, or even the 1.9775 area, marked by the inside swing high of October 1st. There could be a possibility to see a small rebound, but if the pair struggles to get back above the psychological 2.0000 barrier, we may get another round of selling, which could bring the rate below the 1.9775 hurdle and test the 1.9620 level. That level marks the inside swing high of October 7th.

On the other hand, if GBP/NZD decides to move back above the aforementioned upside line and breaks through the upper bound of the previously-discussed range, at 2.0330, we will then aim for the 2.0557 obstacle, which is the highest point of October. The rate might stall there for a bit, but if the buying continues, a break of that resistance might clear the way to the 2.0723 level, marked by the high of June 21st.

GBPNZD daily

 4. AUD/JPY WEEKLY OUTLOOK

REVIEW

AUD/JPY ended last week slightly in the positive territory and still above its medium-term upside support line taken from the low of August 25th. But, as we can see, the pair continues to struggle to break above its key resistance barrier, at 74.31, marked near the highs of November 18th and 27th. Our oscillators on the daily chart are also sending us mixed messages in regards to the possible near-term direction of AUD/JPY, hence why we will wait for a break through one of our key areas first, before examining a further short-term directional move.

OUTLOOK (SCENARIO A / B)

If the pair continues to respect the aforementioned upside, rebounds from it and pushes above the previously-discussed 74.31 barrier, this could attract more buyers into the game and AUD/JPY might drift to the 74.95 hurdle. That hurdle is marked by the highs of November 10th and 12th, which may stall the rate for a bit, or even send it back down for a small correction. If AUD/JPY remains above the aforementioned upside line, we may see another round of buying, possibly bringing the pair to the 74.95 zone again, a break of which could send it to the 75.67 area. That area marks the highest point of November.

On the downside, in order to consider lower levels, a break of that upside line and a rate-drop below 73.71 hurdle, which is the low of November 26th, would be needed. This way we will target the 73.35 obstacle, a break of which could set the stage for a potential drop to 73.00 mark, which is near the low October 14th and may initially stall the rate from moving further down. A small retracement back up could test the 73.35 obstacle from underneath, but if AUD/JPY fail to climb above it, the bears might take advantage of the higher rate and push it down again. If the 73.00 area is not able to provide decent support this time, a break may send the pair to the 72.54 level, marked by an inside swing high of October 8th.

AUDJPY daily

 5.  XAU/USD WEEKLY OUTLOOK

REVIEW

Last week, it seemed that gold might end the week in the red, due to the fact that the equity market was on the rise. But on Friday, when the stock market was shaken by slight negativity, the precious metal took a huge liking from investors and it managed to push strongly to the upside. This moved helped gold to close in the week in the positive zone. That said, overall, the commodity is still trading below its short-term tentative downside resistance line. Although there could be chance to see a bit of a move higher this week, as long as gold remains below that downside line, the move higher could be taken as a temporary correction before another leg of selling. This is why we will stay cautiously-bearish, at least in the near term.

OUTLOOK (SCENARIO A / B)

As mentioned above, a push higher could bring the price closer to the aforementioned downside line, which if remains intact, could help the bears to jump in again and drive the commodity back down. We will then keep a close eye on the support area between the 1446 and 1450 levels, marked by the lows of November 12th and 26th. If this time that area fails to withstand the bearish pressure, a break of it would confirm a forthcoming lower low and the commodity may drift a bit lower, potentially testing the 1430 level, marked near the high of July 24th and near the low of August 2nd.

On the other hand, if the aforementioned downside line breaks and the price pushes above the 1494 barrier, marked by the high of November 6th, this could attract more buyers into the game and gold could travel even further north. We will then examine a possible test of the 1518 hurdle, a break of which could open the door for a move to the 1536 mark, which is the high of September 24th.

Gold daily

 6. WTI CRUDE OIL WEEKLY OUTLOOK

REVIEW

The oil market took a strong hit on Friday, forcing WTI oil to lose around 3 dollars from the price of one barrel. This move led to a break of the lower side of the short-term rising channel pattern, where the commodity was trading in since around the beginning of October. The price managed to close the week below that formation, which means that the downside pressure has increased and we may see a few more moves lower this week. For now, will stay bearish and target some lower levels.

OUTLOOK (SCENARIO A / B)

If the selling continues and WTI oil falls below the 54.88 hurdle, which is the low of November 20th, this may open the door to even lower areas. We will then examine a possible slide to the 5.76 obstacle, which if fails to withstand the sellers, could allow the price to continue drifting south, where the next support zone could be around the 52.50 level, marked by the low of October 15th.

Alternatively, the commodity climbs back above the 57.25 area, which is the inside swing low of November 25th, this could spook the sellers from the arena in favour of the buyers. WTI oil could then travel to the high of last week, at 58.71, a break of which may send the price to the 59.73 level, marked by the high of September 24th, or to the upper side of the previously-discussed rising channel.

WTI daily

 7. DJIA WEEKLY OUTLOOK

REVIEW

Last week, the Dow Jones Industrial Average cash index managed to reach a new all-time high, hitting the area near the 28192 level. After that, the price moved lower, but it still managed to stay in the positive territory for the week. In addition to that, it also managed to stay above its short-term tentative upside support line taken from the low of October 3rd. But, given that the DJIA is at its highest levels ever and that our oscillators started pointing slightly to the downside, we will take a neutral stand for now and wait for a break through one of our key barriers, before examining a further short-term directional move. 

OUTLOOK (SCENARIO A / B)

If the price rebounds from the aforementioned upside line, this could lead DJIA to the high of last week, at 28192. A break of that territory would confirm a forthcoming higher high and the index would enter the uncharted territory. One of the resistance areas we may consider could be near a 28350 mark, which is around the 61.8% of the Fibonacci expansion, measured from the low of November 21st, then the peak of November 27th and then roughly from the area near the previously-discussed upside line. The 100% of the Fibonacci expansion sits around 28560 level.

Alternatively, if the price breaks below the aforementioned upside line and slides below the 27925 hurdle, which is the low of November 24th, this could attract more sellers into the game and the index may end up drifting lower. This is when we will consider a possible test of the 27672 obstacle, a break of which may set the stage for a move to the 27400 level, marked by the low of November 6th.

DJIA daily

 FX Weekly Market Preview 

Weekly Outlook: Dec 02 – Dec 06: RBA and BoC Rate Decisions, NFPs and OPEC Meeting

This week, we have two central banks deciding on monetary policy: the RBA and the BoC. Both of them are expected to stand pat and thus, market attention is likely to fall on the accompanying statements for signals with regards to their future course of action. On Thursday, OPEC and major non-OPEC oil producers gather to decide on oil output, while on Friday, we get employment data from both the US and Canada.

Monday is a relatively light day, with the only releases worth mentioning being the final Markit manufacturing PMIs from the Eurozone, the UK, and the US, as well as the ISM manufacturing index, all for November. As it is always the case, the final Markit prints are expected to confirm their preliminary estimates, while the ISM index is forecast to have risen, but to have remained within the contractionary territory. Specifically, it is expected to have increased to 49.2 from 48.3.

On Tuesday, during the Asian morning, we have an RBA monetary policy meeting. At its previous gathering, the Bank decided to stand pat as was widely anticipated, and reiterated that they will continue to monitor developments, including in the labour market, and that they are prepared to ease monetary policy further if needed. However, officials added a part saying that the easing in monetary policy since June is supporting employment and income growth, as well as a return of inflation to the medium-term target range. In our view, this was a signal that they are done cutting rates for now, unless something unexpected happens.

 

Since then, data showed that the unemployment rate for October ticked up to 5.3% from 5.2%, while the net change in employment revealed that the economy lost 19.0k jobs. What’s more, the minutes of that meeting painted a more dovish picture than the statement did, revealing that the Board agreed that “a case could be made” to ease monetary policy at this gathering. This kept traders unconvinced that the Bank will remain side-lined for long, and this is evident by the ASX 30-day interbank cash rate futures implied yield curve, according to which another quarter-point cut is almost fully priced in for April next year. So, having all this in mind, we will scan this meeting’s statement to see whether policymakers still hold the view that the current policy is appropriate, or whether they are now more willing to act in the months to come.

Later in the day, we get Switzerland’s CPIs and the UK construction PMI for November. Switzerland’s yoy CPI rate is expected to have increased, but to have remained within negative territory. Specifically, it is expected to have risen to -0.1% yoy from -0.3%. The UK construction PMI is forecast to have also risen somewhat, to 44.5 from 44.2.

On Wednesday, the central bank torch will be passed to the BoC. When they last met, Canadian policymakers decided to keep their overnight rate at +1.75%, but the statement accompanying the decision had a more dovish flavor than previously, suggesting that officials have started flirting with the idea of easing. Indeed, at the conference following the decision, BoC Governor Poloz said that they considered whether the downside risks were significant enough for an insurance cut, but they decided that they were not worth the risks. He added that the situation will require monitoring. However, a couple of weeks ago, the Governor said that monetary conditions are “about right”, prompting investors to push back their bets with regards to a rate cut by the BoC. According to Canada’s OIS (Overnight Index Swaps), there is only around 5% chance for a cut at this gathering. That said, the percentage for January is notably higher, at around 30%. Thus, investors will look for hints as to whether other policymakers share Poloz’s view, or whether they still have the idea of easing on the back of their heads.

 

As for Wednesday’s data, during the Asian morning, Australia’s GDP for Q3 is coming out, as well as China’s Caixin services PMI for November. The qoq rate of the Australian GDP is anticipated to have held steady at +0.5%, something that would push the yoy rate up to +1.7% from 1.4%, while China’s Caixin index is expected to have gone up to 52.7 from 51.1.

We get more PMIs from the Eurozone, the UK and the US. Specifically, we get the final Markit services and composite PMIs for November, which as it is usually the case, they are forecast to confirm their initial estimates. From the US, we also get the ISM non-manufacturing index, which is anticipated to have slid to 54.5 from 54.7. The ADP employment report for the month is due to be released as well, with the forecast suggesting that the private sector has gained 140k jobs, slightly more than October’s 125k.

On Thursday, OPEC and major non-OPEC members, known as the OPEC+ group, gather to decide on oil output. The meeting will last until Friday. The group has been in agreement to reduce supply by 1.2mn barrels per day until March, and thus, investors will be on the lookout for any changes to the accord. In recent months, Saudi Arabia has not only stuck with its share of cuts, but was also producing less, to compensate for other members that have repeatedly exceeded their respective production caps. According to market chatter, instead of pushing for deeper cuts in order to balance the market, the Kingdom is likely to increase pressure to non-compliant members to come in line with their share of reductions. Russia is also unwilling to support further output cuts, but it would support extending the existing accord. Thus, it would be interesting to see whether an extension will be decided at this gathering or whether members will prefer to wait until next year, meet before March to evaluate the market outlook and decide then. Media reports suggest that an extension is more likely to be decided now and the most likely length is until June. Thus, anything beyond June is likely to come as a pleasant surprise for oil traders, while anything less (i.e. postponing the decision) may be a disappointment.

As for Thursday’s economic indicators, Australia’s retail sales are expected to have accelerated somewhat in October, to +0.3% mom from +0.2%, while the same indicator from the Eurozone is anticipated to show that sales rose +0.1% mom, the same pace as in September. Eurozone’s final GDP for Q3 is anticipated to confirm that the Euro area economy grew +0.2% qoq, as it did in Q2.

Later in the day, the US and Canadian trade data for October are coming out. The US deficit is expected to have narrowed somewhat, to USD 49.00bn from USD 52.50bn, while the Canadian deficit is forecast to have widened to CAD 1.34bn from CAD 0.98bn.

Finally, on Friday, we have the US employment report for November. Nonfarm payrolls are expected to have increased 180k, more than October’s 128k. The unemployment rate is forecast to have remained unchanged at 3.6%, while average hourly earnings are anticipated to have accelerated somewhat, to +0.3% mom from +0.2%. Barring any revisions to the prior monthly prints, this would keep the yoy rate unchanged at +3.0%.

 

At the latest FOMC meeting, the Committee decided to cut interest rates by 25bps as was widely anticipated, but signalled that it is planning to stay side-lined, unless things fall out of orbit. However, market participants remained unconvinced that policymakers are done cutting rates, and according to the Fed fund futures, they see another 25bps decrease in September next year. A good employment report is unlikely to vanish expectations with regards to more cuts by the Fed, but it could encourage participants to push the aforementioned timing back.

We get employment data from Canada as well. The unemployment rate is forecast to have remained unchanged at 5.5%, while the employment change is forecast to show that the economy gained 10.0k jobs after losing 1.8k in October. This would be a somewhat neutral report and we doubt that it could affect much expectations around the BoC’s future course of action. After all, such bets will be well adjusted on Wednesday after the BoC decision.

 

Disclaimer:

The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. The Group of Companies of JFD, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD prohibits the duplication or publication without explicit approval.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading CFDs with the Company. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read the full Risk Disclosure.

Copyright 2019 JFD Group Ltd.

WEEKLY FINANCIAL NEWSLETTER
RIGHT INTO YOUR MAILBOX!
SUBSCRIBE TO JFD'S STRATEGIC REPORT