Weekly Review & Lookahead on Major FX Pairs (25 Feb – 3 Mar 2019)

Market Analysis /
25 Feb 2019
  • In the last FOMC meeting on 29-30 January, policy makers changed gears and shifted into a neutral stance, away from a policy tilted towards rate hikes.
  • Fed policymakers expect only one 25bp rate hike in the federal funds target range in September 2019
  • Amid optimism on both the US and China sides, President Trump met with China’s top negotiator, Liu He last Friday and extended trade negotiation by two days,
  • Another crucial vote on the Brexit deal is scheduled this week on 27 February.
  • Customs at China’s northern port of Dalian banned imports of Australian coal and will cap overall coal imports from all sources for 2019 at 12 million tonnes.

EUR/USD Review

  • Eurozone inflation rate dropped further from 1.5% to 1.4% YoY in January, driven by a fall in oil price
  • The annual CPI in the eurozone ticked down by 1% MoM to 1.4% in January
  • Eurozone’s flash manufacturing PMI fell to a level of 49.2 in February which is its lowest in a 68-month period vs forecasts for 50.3, while services PMI rose to a 3-month high of 52.3 in the same month.
  • The preliminary manufacturing PMI of Germany unexpectedly declined for the first time since 2013 to a level of 47.6 in February.

Looking Ahead

The currency pair closed at 1.13303 (∆+0.355%) for the week. In November, prices hit a low of 1.1215. Despite a number of bearish drivers pressuring the currency and the Eurozone economy, EUR/USD have continued to move in a range. How long will it continue to range? With the dovish Fed stance after recent FOMC meeting and the US-China trade talks likely to conclude without an extension beyond 1 Mar, will  the pair be able to stage a  breakout in coming weeks?

GBP/USD Review

  • UK’s retail sales climbed 4.2% YoY in January which was higher than anticipated.
  • UK’s consumer price inflation slowed to a two-year low of 1.8% YOY basis in January, below market forecast by 0.1%.
  • Retail price index rose 2.5% YoY in January, compared to a gain of 2.7% in the preceding month.
  • The house price index met market expectations and climbed by 2.5% YoY in January
  • The non-seasonally adjusted output producer price index (PPI) advanced 2.1% YoY in January, compared to a revised rise of 2.4% in the preceding month and lower than market expectations at 2.2%.
  • The ILO unemployment rate remained steady at a 44-year low rate of 4.0% in Q4 2018 and aligned to market’s expectation.
  • Signs of a potential crack in the UK political framework after MPs’ resignations from both the Labour and Tory parties.

Looking Ahead

Brexit and UK political developments continue to dent sentiments surrounding GBP/USD. Price closed at 1.30532(∆+1.29%) for the week. There was a slight increase in the buying force but still lacks of firm upward momentum. Price currently sits at the critical resistance zone 1.30 – 1.323. It is widely speculated that it is unlikely a meaningful vote on the Brexit deal on February 27 will happen. The pair appears to be headed for more volatility as Brexit continues to drag on the UK economy.

AUD/USD Review

  • CBA manufacturing PMI dropped to a level of 53.1 in February, following a reading of 53.9 in the prior month.
  • The services PMI dropped fell to 49.3 in February, compared to a reading of 51.0 in the preceding month.
  • The Westpac leading index slide modestly lower by 0.01% MoM in January. The index had recorded a revised fall of 0.26% in the previous month.
  • The Australian employment report showed that the country added 39.1K new jobs in January, largely surpassing expectations for an increase of 15.0K, while the unemployment rate remained steady at 5%.

Looking Ahead

The AUD/USD slumped to a one-week low,  partly triggered by reports that China’s Dalian port authorities banned Australian coal imports and weaker than expected PMIs by IHS Markit. Meanwhile, trade talks between the US-China in Washington made good progress and there are increasing hopes for an agreement in principle to be reached soon. The China-proxy Australian Dollar remained supportive during intraday trading on Friday and managed to retake the 0.7100 handle. It closed as a bearish doji candle for the week. The pair is still under bearish pressure at 0.705 support zone and will continue to be vulnerable as long as US-China trade war remains unresolved.

NZD/USD Review

  • RBNZ's Deputy Governor Geoff Bascand hintedat a possible interest rate cut.
  • NZD/USD declined by -0.35% vs past week.

Looking Ahead

The NZD/USD built on its intraday bounce and is currently sitting at the top end of its daily trading range. Price closed at 0.68391 with strong bullish candle albeit low volume. The latest optimistic outcome of US-China trade talks turned out to be one of the key drivers in extending support to perceived riskier currencies like the Kiwi (NZD/USD) and triggered some short-covering trade. Meanwhile, we will have data releases on retail sales QoQ and ANZ Business Confidence this week. Will the data prove to be strong enough to support a break above resistance level of 0.69 or will it be insufficient and cause the pair  to range for a period of time?

USD/CAD Review

  • The Energy Information Administration (EIA) report indicated that US crude oil stockpiles rose by 3.7 million barrels to 454.0 million in the week ended 15 February 2019. WTI Crude Oil closed at USD57.05 per barrel.
  • The FOMC Meeting Minutes confirmed the dovish shift by the Fed, emphasizing more on the balance sheet reduction program than on interest rates.
  • Retail sales in Canada fell 0.1% MoM in December 2018 which was lower than market expectation for a 0.3% decline.

Looking Ahead

The USD/CAD failed to build on its bullish momentum from prior week and continued to decline with price closed at 1.31359 for the week. From the daily chart, the bearish trend is establishing with volume increasing. However, the price is still above the weekly bull trendline despite price action showing bear candles in both the daily and weekly charts. The inflation and GDP data are key focus of this week. Both inflation and growth figures may have a lasting impact on the currency pair. In the meantime, WTI Crude Oil is on an upbeat momentum.

USD/CHF Review

  • Switzerland’s M3 money supply advanced 3.4% YoY in January, compared to a climb of 3.1% in the preceding month.
  • Switzerland’s trade surplus widened to CHF3.04 billion in January, compared to a revised surplus of CHF1.96 billion in the prior month. It is higher than market forecasts for a surplus of CHF2.24 billion.

Looking Ahead

The currency pair failed to surpass a weeklong descending resistance level and may favor a drop to the 0.9985 horizontal support on the daily chart. From our previous article, a pullback to the support levels at 0.989 and 0.980 is possible while volume picks up over the next few weeks.

USD/JPY Review

  • The final machine tool orders fell by 18.8% YoY in January, confirming the preliminary data and following a drop of 18.3% in the prior month.
  • Japan’s Nikkei manufacturing PMI declined to a level of 48.5 in February, contracting for the first time since August 2016.
  • The total trade deficit expanded to ¥1452.2 billion in January compared to market forecasted deficit of ¥1029.0 billion.

Looking Ahead

The USD/JPY traded ranged for a week which was dominated by US Dollar weakness and amid a sharp drop in 10-year US T-bond yield. Despite the decline in yields, the greenback continues to fluctuate in a tight daily range. It closed at 110.653 for the week. From the daily timeframe perspective, the currency pair rallied for the majority of this year and is currently testing resistance levels in the 110.293-111.449 range. Markets will be closely eyeing the release of December’s US retail sales MoM, in addition to the preliminary University of Michigan consumer sentiment for the month of February.

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