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by Charalambos Pissouros

Strategic Report, 2020 Newsletter 3

Technical Analysis

 1. EUR/USD WEEKLY OUTLOOK

REVIEW

Overall, EUR/USD continues to trade above its medium-term tentative upside support line drawn from the low of October 1st. But the pair ended last week in the red, despite a recovery seen on Friday. Although we could see the pair sliding lower again, as long as the rate stays above that upside line, we will remain somewhat positive, at least for a while more.

OUTLOOK (SCENARIO A / B)

A move below the 1.1085 hurdle, which is the low of last week, could help the bears to test the aforementioned upside line, which if provides some decent support could attract the bulls back into the field. This may help the rate to rise, possibly aiming for the 1.1134 obstacle again, which if broken could set the stage for a move to the 1.1168 level, marked near the highs of January 5th and 8th.

On the other hand, if the above-mentioned upside line breaks and the rate falls below the 1.1066 hurdle, which is the low of December 20th, this could attract more sellers and the pair might drift further south. We will then examine a possible test of the 1.1040 obstacle, which if broken may lead EUR/USD to the 1.1002 level, marked by the lowest point of December, or to the 1.0980 zone, which is the lowest point of November.

EUR/USD daily chart technical analysis

 2. AUD/JPY WEEKLY OUTLOOK

REVIEW

Last week, after a brief drop below its medium-term upside support line taken from the low of October 10th, AUD/JPY pushed back up and closed the week above it. Now it seems that the pair may end up climbing further up as the RSI is pointing higher, but the MACD is not showing much confidence over the upside scenario. This is why we will stay somewhat bullish, at least for now.

OUTLOOK (SCENARIO A / B)

A good push above the 75.79 barrier could attract more buying interest and allow the pair to rise to the 76.05 hurdle, or to the 76.32 mark, which is the current high of this year. The rate might stall around there, or even correct back down a bit. But if AUD/JPY remains above the aforementioned upside line, we will remain somewhat positive. Another push higher could bring the pair back to the 76.32 hurdle, a break of which may set the stage for a move to the 76.54 level, marked by the highest point of December.

Alternatively, if the bears take control and force the previously mentioned upside line to break, this could make the bulls worry, especially if the rate falls below the 74.95 zone, which is the low of January 9th. This may clear the path to the 74.27 hurdle, which if fails to provide support, could allow the rate to slide to the 73.75 level, marked by the current lowest point of January.

AUD/JPY daily chart technical analysis

 3. GBP/CHF WEEKLY OUTLOOK

REVIEW

From around the end of December, GBP/CHF is seen trading sideways, roughly between the 1.2668 and 1.2842 levels. This comes after the pair sold off heavily in mid-December. At the same time, we can see that the rate is struggling to move below the 200-day EMA, which still might give a bit of hope for the bulls. That said, we will remain neutral and wait for GBP/CHF to break through one of the sides of the range, before examining a further directional move.

OUTLOOK (SCENARIO A / B)

A drop below the 1.2668 hurdle and the 200-day EMA might open the door to some lower levels, as this would confirm a forthcoming lower low and more sellers could start joining in. This may lead the pair to the 1.2615 obstacle, a break of which may set the stage for a test of the 1.2464 area, which is the low of October 14th. The rate might stall around there or correct back up slightly. But if GBP/CHF stays below the 20-day EMA we may see another around of selling, which could bring the pair back to the 1.2464 obstacle, a break of which might clear the path to the 1.2400 level. That level is marked near the high of October 3rd.

On the other hand, if the upper bound of the aforementioned range, at 1.2842, gets broken, this could help the buyers to push the pair further north. We will then aim for the psychological 1.3000 barrier, but if it fails to withstand the bull pressure, its break may send GBP/CHF to the 1.3080 level, marked by the low of December 13th.

GBP/CHF daily chart technical analysis

 4. USD/SEK WEEKLY OUTLOOK

REVIEW

USD/SEK managed to break and close above its medium-term tentative downside resistance line taken from the high of October 9th. We can see that the pair made an attempt to move above the 200-day EMA, but failed to close above it. Although our oscillators also support the idea of a possible move higher, at least in the near term, we will wait for a clear move above the 200-day EMA and one of our barriers, before we get comfortable with further upside.

OUTLOOK (SCENARIO A / B)

A push above that 200-day EMA and a break above the high of last week, at 9.5215, would confirm a forthcoming higher high, which may help more buyers to join in. We will then aim for the 9.5880 zone, which is the highest point of December. The rate could stall around there for a bit, or even correct back down. That said, if USD/SEK stays above the aforementioned 200-day EMA, this could allow the buyers to take advantage of the lower rate and jump in again. The pair might travel back to the 9.5880 obstacle, a break of which may open the door for a move to the 9.6537 level, marked by the high of November 25th.

On the downside, for us to consider lower areas again, a drop back below the 9.4500 hurdle would be needed. The rate would drop below the 21-day EMA, which may increase the pairs chances of moving more to the south. This is when the bulls could start abandoning the field and moving towards the 9.3877 area, or even the 9.3495 hurdle, which is marked by the low of January 3rd. If the selling doesn’t stop there, a further slide may lead to a test of the 9.2943 level, marked by the lowest point of December.

USD/SEK daily chart technical analysis

 5.  XAU/USD WEEKLY OUTLOOK

REVIEW

At one point last week, it looked like gold may continue drifting north, as the bulls managed to break above the high of the previous week, which was at around 1553. The precious metal was also able to push above the psychological 1600 mark but failed to close the week above it. There is a possibility to see another slide, but this move lower could be considered as a temporary deeper correction, given that gold is still above its short-term tentative upside support line drawn from the low of November 26th.

OUTLOOK (SCENARIO A / B)

A drop below the low of last week, at 1540, might invite a few more sellers and send the price further down. This is when we will consider a possible test of the 1518 zone, which if broken might open the door for a move to the psychological 1500 hurdle, or the 1497 level, marked by the low of December 26th.

For us to consider the upside again, ideally, we would like to see a push above the high of last week, at around 1612. A break of that barrier would confirm a forthcoming higher high and more buyers might be jumping into the action. Gold could rise to the 1626 obstacle, which if fails to withstand the bull pressure could break and allow the commodity to make its way to the next possible resistance barrier, at 1652, marked by the low of January 28th, 2013.

Gold XAU/USD daily chart technical analysis

 6. WTI CRUDE OIL WEEKLY OUTLOOK

REVIEW

Although WTI oil had a major dive last week, still it remained above its medium-term upside support line drawn from the low of October 3rd. The commodity may drift a bit more to the downside, but if that upside line holds again, the buyers could re-enter the arena and lift the price back up, hence why we will take a cautiously bullish approach for now.

OUTLOOK (SCENARIO A / B)

A move a bit lower, below the low of last week, at 58.68, could send the price to the aforementioned upside line, which if holds could allow the bulls to take the steering wheel again and lead oil back to the upside. The black liquid might then move back above the 58.68 hurdle and test the 60.10 barrier, marked near the lows of December 20th and 23rd. Slightly above it lies another potential resistance area, at 60.65, which is near the lows of December 31st and January 2nd.

If, for some reason, the previously discussed upside line breaks and the price slides below the 57.76 support zone, marked by the low of December 6th, this could scare any remaining buyers from the arena and allow more sellers to join in. We will then target the 56.84 obstacle, a break of which may lead WTI oil to the 55.06 level, marked by the low of November 29th

WTI crude oil daily chart technical analysis

 7. DJIA WEEKLY OUTLOOK

REVIEW

Last week was a very volatile one for the US indices including the Dow Jones Industrial Average, which sold off in the first half of the week, but managed to recover all of its losses made and also hit a new all-time high, near the 29056 level. But on Friday, the index showed some signs of weakness, which may lead to a small correction lower. However, as long as the price remains above a medium-term upside support line drawn from the low of October 3rd, we will stay positive, at least in the near term.

OUTLOOK (SCENARIO A / B)

If the index continues with Friday’s direction and moves lower a bit more, it may end up testing the aforementioned upside line, which if remains intact, could act as a good area for the bulls to step in again. We may then once again target the 28777 hurdle, marked by the high of January 7th and the low of January 9th. If that zone fails to withstand the bull pressure, its break might open the door to the 29056 barrier, or to a new all-time high.

Alternatively, a break of the above-discussed upside line and a price-drop below the 28122 area, which is the low of last week, could attract even more sellers and open the door to some lower levels. The first to consider might be near the 27714 obstacle, a break of which could set the stage for a move to the 27398 and the 27319 levels, marked by the lows of December 4th and 3rd respectively.  

Dow Jones Industrial Average daily chart technical analysis

 FX Weekly Market Preview 

Weekly Outlook: Jan 13 – Jan 17: US and China to Sign “Phase One” Deal, UK GDP and US CPIs

This week, attention is likely to turn back to the US-China sequel, with the “Phase One” deal expected to be signed on Wednesday. Given that most of this may have already been priced in, we believe that focus may fall on possible clues over how the two nations plan to move forward. We also get several UK data, including the monthly GDP for November, were soft numbers could reinforce BoE Governor Carney’s remarks that a cut could be delivered if weakness in the economy persists. The US and Swedish inflation numbers, as well as China’s GDP for Q4 are also on this week’s agenda.

On Monday, focus will fall on several UK data. We get the 3-month rolling monthly GDP for November, which is expected to have contracted 0.1% after stagnating previously. Preliminary data on business investment for Q4 are expected to show a 0.5% slide after stagnating in Q3. Industrial and manufacturing production are both expected to have slid 0.1% mom and 0.3% mom in November, after rising 0.1% and 0.2% respectively. This would drive both the yoy rates further into the negative territory. Specifically, they are expected to have slid to -1.4% and -1.7%, from -1.3% and -1.2%. The nation’s trade balance for November is also due to be released, with the trade deficit expected to have narrowed somewhat. Overall, these releases are expected to come on the soft side. Last week, BoE Governor Mark Carney hinted that a rate cut could be delivered if weakness in the economy persists, and thus, a disappointment in the aforementioned data could enhance the case.

UK monthly GDP 3m/3m

On Tuesday, during the Asian morning, we get China’s trade balance for December, but no forecast is currently available.

Later in the day, focus may turn to the US CPIs for December. The headline rate is forecast to have increased to +2.3% yoy from +2.1%, while the core rate is anticipated to have remained unchanged at +2.3% yoy.

US CPIs inflation

At its last meeting for 2019, the FOMC decided to keep interest rates unchanged, reiterating that “the current stance of monetary policy is appropriate to support sustained expansion of economic activity.” With regards to the “dot plot”, it pointed to no action in 2020, one hike in 2021 and another one in 2022. At the press conference, Chair Powell said that “In order to move rates up, I would want to see inflation that’s persistent and that’s significant”.

Fed funds futures market vs FOMC interest rates expectations

Overall, market participants remained unconvinced that officials are done cutting rates, and following Friday’s weaker-than-expected jobs data, they are still fully pricing in another cut to be delivered in November. In our view, accelerating inflation is unlikely to vanish cut expectations, let alone spark hike bets. It could just prompt investors to push the cut timing back, perhaps into next year.

On Wednesday, the spotlight is likely to turn back to the US-China trade saga, with top officials from the two nations expected to sign a “Phase one” trade deal. This could keep the broader market sentiment somewhat supported, but judging by how the market reacted on recent headlines surrounding the event, we believe that most of this is already priced in. Therefore, if indeed the first part of the deal is signed, we believe that focus may fall on any signals with regards to how the world’s two largest economies will move forward. US President Trump has recently said that he will travel to Beijing for talks over the second phase of the deal, and anything suggesting that this may be the case could work in favor of risk assets. However, we remain reluctant to call for a long-lasting recovery, as the road towards a final accord may not be “paved with rose petals”.

Now, the big disappointment on Wednesday would be not signing the interim deal, something that is not a totally unlikely scenario in our view. In the past, we saw things falling apart in the last minute. Remember that back in May, it was reported that the two sides were very close to reaching common ground, but the expected deal was scrapped after China deleted from the draft some of its commitments.

As for Wednesday’s indicators, during the European trading, we get Sweden’s CPIs for December. Both the CPI and CPIF rates are expected to have remained unchanged at +1.7% yoy and +1.8% yoy respectively, but as usually, we prefer to pay more attention to the core CPIF rate, which excludes energy. In November, that rate ticked up to +1.8% yoy from +1.7%.

Sweden CPIs inflation

At its December gathering, the Riksbank hiked rates to 0%, noting that since the prior meeting, developments have been broadly in line with its expectations, and that the rate is expected to remain untouched in the coming years. However, they added that if the economic outlook and inflation prospects were to change, monetary policy may need to be adjusted. If indeed inflation rates stay unchanged as expected, this would confirm officials’ view that rates are likely to stay stable for the foreseeable future.

From Germany, we get the annual GDP for 2019, which is expected to have slowed to 0.60% from 1.60% in 2018, while from the Eurozone as a whole, we have the industrial production for November, which is forecast to have rebounded 0.4% mom from -0.5%, driving the yoy rate up to -1.1% from -2.2%. The bloc’s trade balance is also coming out, with the surplus expected to have declined to EUR 17.0bn from 28.0bn.

The UK CPIs for December are also coming out, with both the headline and core rates expected to have remained unchanged at +1.5% yoy and +1.7% yoy respectively, below the BoE’s target of 2%. Combined with soft data on Monday, inflation below the BoE’s objective may prompt policymakers to bring their hands closer to the cut button.

On Thursday, the ECB releases the minutes from its latest policy meeting. Given that there was no major shift in policy, neither in language, at that meeting, we don’t expect the minutes to result in any fireworks. However, it would be interesting to see whether other members share Lagarde’s view that there are signs of stabilizing in growth slowdown.

As for Thursday’s data, Germany’s final CPI for December is coming out and as it is usually the case, it is expected to confirm its preliminary estimate. Later in the day, we get the US retail sales for the month. Headline sales are expected to have accelerated somewhat, to +0.3% mom from +0.2%, while the core rate is forecast to have risen to +0.5% mom from +0.1% in November.

Finally, on Friday, during the Asian morning, we have China’s GDP for Q4, as well as fixed asset investment, industrial production and retail sales, all for December. The yoy GDP rate is expected to have remained unchanged at 6.0%, while fixed asset investment is forecast to have grown 5.2% yoy, the same pace as in November. Both industrial production and retail sales are expected to have slowed to +5.9% yoy and +7.8% yoy, from 6.2% and 8.0% respectively.

During the European day, we get retail sales for December from the UK as well. The mom rate is expected to have rebounded 0.6% after sliding by the same percentage in November. This would drive the yoy rate up to +2.7% from +1.0%. The case for a higher yoy rate is also supported by the BRC retail sales monitor for the month, the yoy rate of which surged to +1.7% from -4.9%.

From the Eurozone, we get the current account for November, where no forecast is available, and the final CPIs for December, which are expected to match their initial estimates.

In the US, building permits are expected to have slid somewhat in December, while housing starts for the same month are anticipated to have increased somewhat. Industrial and manufacturing production rates are expected to have declined to -0.1% mom and -0.2% mom respectively, after both growing 1.1%. The JOLTs job openings for November are seen slightly lower than October, while the preliminary UoM consumer sentiment index for January is forecast to have held steady at 99.3.

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.

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