Weekly Review & Lookahead on Major FX Pairs (18 – 24 Feb 2019)

Market Analysis /
18 Feb 2019
  • It was another humiliating defeat for Theresa May in Parliament last Thursday. Brexit headlines are poised to remain the major driver of its currency in the upcoming week.
  • US-China Trade negotiation to be continued in Washington this week after last week’s meeting in Beijing. US President Donald Trump hints he may extend the deadline on March 1 and keep tariffs on Chinese goods from rising temporarily.
  • Another shutdown of the US Government was averted on 15 Feb after President Trump agreed to sign the funding bill to keep the government open, thereby endorsing the compromise that Republicans and Democrats reached. However, the agreed budget still fell short of his target and in defiance, he declared a national emergency to fund the building of the remaining wall not covered by the agreed budget. This effectively placed him in a collision course with the courts and further aggravated the current political situation.
  • US Retail Sales declined at the fastest pace in 9 Years. Both US retail sales and PPI data were below expectation, dropping by -1.2% and -0.1% MoM respectively. These data showed that economic activity slowed significantly at the end of 2018. The US Dollar Index plunged nearly 30 points to below the 97.00 mark at 96.94 after the data was released and closed below the 97.00 level for the week.

EUR/USD Review

  • The Eurozone’s seasonally adjusted final gross domestic product (GDP) rose 0.2% on a quarterly basis in Q4 2018, in line with expectations and similar to the prior quarter.
  • In Germany, seasonally adjusted flash GDP remained flat in Q4 2018, disappointing preliminary estimates for a rise of 0.1%.
  • EUR/USD broke lower and hit a fresh new low of the year at 1.1233 on last Friday. It was down for 2 consecutive weeks in February.

Looking Ahead

The currency pair closed just an inch below 1.13. As mentioned in previous week, price could range between 1.12 – 1.13 due to various factors in Eurozone. On the other hand, softer-than-expected US data prevented the pair from collapsing further for the week. The 1.13 level will be a key resistance level to watch and the next key support level to watch will be around 1.121. To break the support level, a stronger momentum will be needed.

GBP/USD Review

  • The BOE held the benchmark rate at 0.75%.
  • The Consumer Price Index (CPI) slowed to a two-year low of 1.8% YoY vs forecasted 1.9%.
  • Retail Sales in the UK rose by 4.2% YoY, the most since December 2016, following an upward revision of a 3.1% growth in December and higher than market expectations of 3.4%.
  • The UK Manufacturing PMI fell to a three-month low of 52.8 in January 2019 from 54.2 in prior month and below market expectations of 53.5.

Looking Ahead

Brexit remains the dominating theme for UK assets, with uncertainty likely to continue. The currency pair closed above the support level of 1.28374 for the week. In the weekly timeframe perspective, price closed as a red pin bar with no uptick in volume indicated that while the selling was not extreme, buying force still remains weak.  Will it continue to range between 1.277 and 1.314 or is a breakthrough brewing in the background? Uncertainties surrounding the Brexit remains the biggest challenge for the UK economy.

AUD/USD Review

  • The Producer Price Index (PPI) advanced 0.1% YoY, undershooting market consensus for a rise of 0.3%.
  • The Consumer inflation expectations advanced to 3.7% in February vs 3.5% in the prior month.
  • Australia’s Westpac consumer confidence index advanced 4.3% MoM to a level of 103.8 in February.
  • AUD/USD rose slightly by +0.68% vs past week.

Looking Ahead

The currency pair managed to stage a modest recovery in the past week after it plunged in the prior week due to RBA’s unexpected dovish turn in its policy stance. As mentioned in last week’s article, trade tensions fueled the economic slowdown of China, which is Australia’s largest trading partner.  More than 30% of Australian exports goes to the world's second largest economy and therefore, the AUD is often viewed a proxy to Chinese growth. As long as the US-China trade war remains unresolved, the currency pair will continue to be vulnerable. The strong support region between 0.7-0.705 is still holding the price well and there are potential gains ahead if Australia’s wage growth and employment data release in the upcoming days do not disappoint.

NZD/USD Review

  • RBNZ left the Official Cash Rate unchanged at a record low of 1.75%.
  • NZD/USD pair surged more than 1.8% on last Wednesday amid an unexpected hawkish or less dovish stance after the policy decision was announced.

Looking Ahead

It was broadly expected that a neutral stance on cash rate would be announced last week. There are no key events this week. In the following week, we will have data releases on retail sales QoQ and ANZ Business Confidence. Price rebounded last Wednesday without any excessive volume, therefore price will most likely range between 0.67 and 0.70 until some breakthrough event occurs in the near term.

USD/CAD Review

  • WTI breaks up to reach a new 2019 high of $56.13 a barrel on last Friday close.
  • Industrial production in the US surprised on the downside at 3.8%, disappointing market forecast.
  • US Dollar Index plunged below 97.00 for the week.
  • Canada’s manufacturing shipments unexpectedly fell by 1.3% MoM in December.
  • The Housing price index remained unchanged MoM in December which was aligned with market forecast.

Looking Ahead

The currency pair USD/CAD struggled to build on its bullish momentum since last Wednesday and closed below the resistance level of 1.32683 for the week. From the daily timeframe perspective, the pair was ranging for the past 6 days. Volume for last week was slightly higher and will require more strength if it wants to break below the weekly support trendline. This is similar to the WTI trend which showed an uptick in momentum while moving up.

USD/CHF Review

  • Switzerland’s producer and import price index declined by -0.5% YoY in January, higher than market expectations of -0.2%.
  • The Consumer Price Inflation (CPI) slowed for the third consecutive month to 0.6% YoY in January and on par with market expectations.

Looking Ahead

The USD/CHF advances and hit a record high of 1.00989 for 2019 after last Nov high at 1.0128. Looking at the weekly chart, the 1.0100 to 1.0200 area may potentially act as a significant resistance region to absorb further buying. Therefore, a pullback to two favorable support levels 0.989 and 0.980 is possible before it can continue upwards.

USD/JPY Review

  • The final industrial production fell 1.9% YoY in December.
  • The preliminary annualized GDP rebounded 1.4% QoQ in Q4 of 2018, on par with market expectations.
  • The flash machine tool orders declined 18.8% YoY in January, following a fall of 18.3% in the prior month.

Looking Ahead

This week will be an eventful week for Japan as there are data releases almost every day. A gentle reminder that the Tokyo region has already released CPI figures for January at +0.4% YoY before seasonal adjustment, and up by 0.5% from the previous month on a seasonally adjusted basis. Hence, the impact of the CPI figures will likely be subdued. A significant deterioration in trade talks could boost demand for the safe-haven JPY, while preparations for a Trump-Xi Summit can weigh on the currency. Last week, the bull signal took effect and broke above 110 level and closed at 110.432. Last week’s doji candle suggested both buyers and sellers were uncertain. In addition, volume was higher than the rest of the week from the daily timeframe perspective. Will the 110 level hold to continue its pace upwards or will it slide down further to 106 level? The answer depends on various factors and let us see how the market unfolds.

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