Weekly Review & Lookahead on Major FX Pairs (4th – 10th March 2019)

• US President, Donald Trump asked China on Friday to "immediately remove all tariffs" on American agricultural products in return for a delay of the March 1 deadline, which would have raised U.S. tariffs on Chinese imports dramatically.
• A second summit meeting between US President Trump and North Korea’s leader, Kim Jong-un, was held in Hanoi last week. It ended abruptly without any agreement on nuclear disarmament or further easing of tensions on the Korean Peninsula.
• US ISM Manufacturing PMI plummeted to 54.2 in February 55.5 expected (∆ -2.34%), the lowest since Dec 2016. Conversely, China Caixin Manufacturing PMI increased to 49.8 in February vs. 48.5 forecasted (∆ +2.67%).
• US preliminary annualized GDP climbed more than expected by gaining 2.6% every quarter in 2018Q4, compared to a rise of 3.4% in the prior quarter.
• Brexit uncertainty intensified after UK Prime Minister Theresa May delays key vote to take place on 12 March 2019, which is just 17days before the UK is scheduled to leave the EU.

U.S. Trade Representative, Robert Lighthizer, showed skepticism and highlighted that there are still some outstanding issues with the ongoing trade negotiations. Will China accept President Trump’s request to lift all tariffs against the U.S. agricultural products in return for a delay of additional U.S. tariffs on Chinese import?

The trade talks still have a long way to go before they can conclude and trade uncertainties between China and the U.S. will continue to weigh on market sentiments in the near future.

EUR/USD Review

• Germany’s preliminary Consumer Price Index (CPI) advanced 1.6% on an annual basis in February, higher than market consensus for a gain of 1.5%.
• Eurozone final consumer confidence index climbed for a second consecutive month to a level of -7.4 in February, in line with market expectations and confirmed preliminary readings. In the previous month, the index recorded a level of -7.90.
• Germany’s Gfk consumer confidence index remained steady at a level of 10.8 in March, on par with the market

Looking Ahead

The U.S. Federal Reserve Chairman, Jerome Powell reiterated that the Fed would remain “patient” on further interest rate hikes, citing various “crosscurrents and conflicting signals.” U.S. dollars initially dipped in early intra-day trading on last Tuesday but later rebounded to close higher for the day. The currency pair managed to hit a high of 1.14192 on Thursday though it was short-lived and closed lower after the U.S. Dollars recovered despite weak U.S. data. The pair eventually closed below 1.14 at 1.13624 for the week but still marked its second consecutive weekly gain (∆+0.28%). We expect bullish momentum to pick up, but it may need some catalyst to trigger a break above the 1.14 level. The ECB Press Conference and U.S. NFP data release will be key focuses for the week. In January, the ECB left its monetary policy unchanged and continued its pledge to keep rates low through the summer while leaving the door open for a rate hike in September. If the Bank changes this pledge, the euro may plunge. If the status quo is kept, EUR/USD may stay depressed and range around the 1.14xx levels. Hence, would positive US-China trade or Brexit outcome be the much-needed catalysts for the pair to enable a breakthrough?

GBP/USD Review

• K.’s Nationwide house price index unexpectedly retreated by 0.1% MoM in February, defying market expectations for a flat reading. The index had previously recorded a revised rise of 0.2% in the prior month.
• K.’s Gfk consumer confidence index unexpectedly climbed to a level of -13.0 in February, compared to a level of -14.0 in the prior month.
• UK’s BBA mortgage approvals unexpectedly rose to a level of 40.6K in January revised level of 39.4K in the prior month.

Looking Ahead

Price closed at 1.32046 (∆+1.16%) for the week. The pair marked its second consecutive weekly advance, gaining more than 1% from prior weeks. The increase in volume is much higher than the last week of December.  From the chart, the buying force was only modestly stronger than the selling force with pullbacks seen on last Thursday and Friday. Brexit and U.K. political developments continue to dent sentiments surrounding GBP/USD as investors await further news surrounding the U.K.'s impending departure from the European Union. Will the U.K. exit the European bloc at the end of March regardless of a deal or would they opt for an alternative, such as a "People's Vote" or further delay the departure date? These are big questions in every investor’s mind. We could see the price retest the support level between 1.3019 and 1.312 before it resumes its advance to the next key level of 1.35495.  

AUD/USD Review

• The CBA manufacturing PMI dropped to a level of 52.9 in February, compared to a reading of 53.1 in the prior month.
• The AiG performance of manufacturing index registered a rise to 54.0 in February (∆+2.86%).
• This week is a busy week to look forward to, with the RBA’s rate decision and Australian GDP data release.

Looking Ahead

The AUD/USD pair continues its bearish trend and extended its slide amid strong US data, mixed Chinese data, and ongoing trade talks. The Caixin Manufacturing PMI beat expectations and hit 49.9 points, which was better than the official government PMI.  This helped the AUD recover some grounds due to its close trading relationship with China. Price closed at 0.70786 (∆-0.69%), and the weekly candle indicated strong bearish momentum as it approached the support level of 0.70148. The price could break below if upcoming economic data and/or RBA’s rate decision does not favor buying of the AUD/USD.  In a shorter-term perspective, bears are still in favor.

NZD/USD Review

• The currency pair remained fragile as the U.S. Dollar gained against most currencies on the back of positive data and safe-haven appeal.
• Retail sales in New Zealand advanced strongly by 1.7% QoQ in the three months to December 2018, above market expectations for a 0.5% rise.
• ANZ Business Confidence declined from -24.1 to -30.9 MoM in January compared to the prior month, December 2018.
• NZD/USD declined by -0.46% last week.

Looking Ahead

The NZD/USD pair lacked any firm directional bias and seesawed between moderate gains and minor losses. Prices slid by -0.64% week over week and closed at 0.67956 for the week. Volume picked up slightly which suggested some overhead bearish pressure acting on price, so there may be room for more downside in the near term. Will the support level 0.66785 continue to hold and enable price to bounce from it? We believe the pair may continue to be vulnerable and possibly bound between 0.67 – 0.69 until a stronger or impulsive move occurs to break the said boundaries.

USD/CAD Review

• Crude oil trades higher, ahead of Baker Hughes weekly rig count data.
• Dismal Canadian GDP data weighed on the Loonie.
• Canada’s CFIB business barometer climbed to a level of 59.0 in February, following a level of 56.1 in the prior month.
• The nation’s current account deficit widened to CAD 15.48 billion in 4Q 2018, compared to a revised deficit of CAD10.11 billion in the previous quarter.
• The Energy Information Administration (EIA) report indicated that US crude oil stockpiles declined by 8.6 million barrels to 445.87 million in the week ended 22 February 2019.
• Canada’s seasonally adjusted consumer price inflation slowed to 1.4% YoY in January.

Looking Ahead

The CAD failed to build on its bullish momentum with the USD/CAD eventually closing higher than prior week at 1.33051. It closed with a firm bull candle at above 1.32683 resistance level. The bullish momentum is stronger than previous week decline and with higher volume too. It was mainly due to the disappointing Canadian GDP results coupled with the U.S. Dollars strengthening. As long as the weekly support trendline is not broken, the price may rise to the next resistance level around 1.34 – 1.355 zones.

USD/CHF Review

• Switzerland’s GDP advanced 1.4% YoY in 2018Q4, lower than market expectations for a rise of 1.7% and compared to an advance of 2.4% in the prior quarter.
• Risk-on mood weighs on CHF and remains supportive of the currency pair’s up-move.

Looking Ahead

It would be interesting to see if the bulls can maintain their current dominant position and break through the nearest 1.004 resistance zone. Price closed at 0.99893 with a Doji candle and higher volume. The rally is likely to get extended towards mid-1.0000s and could eventually conquer the key 1.0100 barrier. On the flip side, the 0.997 – 0.992 region now becomes an immediate support area to defend. If it is broken, the fall might accelerate towards the 0.990 horizontal level en-route the 0.989.

USD/JPY Review

• Japan’s unemployment rate unexpectedly advanced to 2.5% in January, defying market expectations for an unchanged reading.
• The nation’s Nikkei final manufacturing PMI contracted to a level of 48.9 in February, declining at its the fastest pace in 2.5 years amid a glut in factory productions and falling exports.
• Japan’s retail trade climbed 0.6% YoY in January, compared to a rise of 1.3% in the previous month and lower than the market forecast for a gain of 1.4%.
• Japan core CPI YoY in January declined by 0.4% lower than market expectations for a flat rate similar to the previous month.

Looking Ahead

The USD/JPY had a great run up last week and closed at 110.910 (∆+1.14%). Momentum is rising which is a sign of bullishness, and the ultimate goal is to break above 113.9 and to retest the next resistance at 117 level. However, it could take some time to accumulate strength to achieve the goal as volume remained flat. As we are aware, the market is unpredictable. Let ‘s see how it will unfold over time. 

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