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Weekly Preview: UK’s next Prime Minister will be announced this week; ECB’s interest rates decision in focus

Market Analysis /
22 Jul 2019
  • USD: Robust domestic data not enough to stop the Fed from cutting rate
  • GBP: Election results to determine the next Prime Minister will be released on Tuesday
  • EUR: ECB interest rates decision and PMI data in focus
  • AUD: AUD & NZD remain vulnerable to trade news
  • CAD: Loonie was lifted as oil prices rebounded, however remain vulnerable to trade tensions as well


CURRENCY: USD

FUNDAMENTAL ANALYSIS ON USD

USD ended last week with firm data prints, but this seems not enough to stop the Fed from cutting at least 25 bps. During last week, the U.S. Consumer Price Index for June came in stronger than market expectations. The headline printed at 0.1% m/m and 1.6% y/y, and core came in at 0.3% m/m and 2.1% y/y. Gains were broad-based across the components. Then, the US June PPI was firmer than expected (+0.3%m/m and +2.3%y/y ex-food and energy, est. +0.2%m/m, +2.1%y/y) - another sign that the U.S. is not at risk of a deflationary slide. The data are hot on the heels of Fed Chair Powell’s testimony to Congress in the week where he expressed concerns that weak inflation will be even more persistent and be a drag on inflation expectations.

Last Friday, Chicago Fed President  Evans (usually dovish, voter this year) was arguing that the weak macro picture in the global economy warranted a rate cut.  Richmond Fed president Barkin (non-voter, recently a touch hawkish) also cautioned around the downside risks to the U.S. economy - Markets continued to price 30bp of easing at the July meeting. Later this week comes retail sales data in the U.S. and a slew of speeches by policymakers, including Federal Reserve Chairman Jerome Powell. Retails sales data is likely to show robust growth and can support USD well. USD is likely to be traded sideways this week as investors reflect on robust domestic data and dovish Fed. 

 

CURRENCY: GBP

FUNDAMENTAL ANALYSIS ON GBP

Last week, Pound rose against the greenback as dollar dives on rising expectations for a Fed rate cut. Meanwhile, Sterling sustain its rally as risks of no-deal Brexit recedes with the UK house lords backing a move designed to prevent the next Prime Minister from closing down the Parliament to deliver a no-deal Brexit against their wishes. Johnson had previously considered sending lawmakers home for up to 2 weeks in October to prevent them from a blocking a no-deal Brexit and in response to that, at least 30 Conservative MPs voted against it, sending a clear message that it would be hard for him to carry out his threat. Meanwhile, European's Chief negotiator, Michel Barnier said that he was open to an alternative plan for the Irish backstop border, fueling the currency's rally as hopes rekindled that this major obstacle in breaking the Brexit deadlock can come to a compromise.

On the data front, Pound shrugged off the disappointing PPI data and rallied on the strong retail sales data which showed a 3.8% growth, exceeding 2.6% growth estimates. This week, investors will be keeping a close watch for the general election results on Tuesday which will determine the next Prime Minister. If Boris Johnson succeeds May, it could increase the risks of Brexit uncertainty as the government and Parliament struggle to sort out their differences, putting the currency under renewed pressure.

KEY TECHNICAL LEVELS ON GBPUSD

(Charts by TradingView)

GBPUSD is approaching strong resistance at 1.2577 area  which coincides with a 61.8% Fibonacci extension, swing high resistance and 23.6% Fibonacci retracement. Support is down at 1.2385 which is a swing low support.

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CURRENCY: EUR

FUNDAMENTAL ANALYSIS ON EUR

Last week, EUR advanced against the greenback as the trade balance data came in ahead of estimates while optimism on Sterling helped to prop the currency higher. This week, on the data front, investors will be keeping a close watch on the ECB interest rates decision and PMI data which could put the currency under renewed pressure if ECB adopts a dovish stance and signals readiness to lower interest rates or implement additional stimulus to boost the economy.

KEY TECHNICAL LEVELS ON EURUSD (H4)

(Charts by TradingView)

EURUSD is approaching our strong support area at 1.1180 which is a horizontal swing low support, 100% fibonacci extension, 76.4% Fibonacci retracement. Our resistance level is at 1.1284 which is a horizontal swing high resistance, 38.2% Fibonacci retracement and 100% Fibonacci extension.

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CURRENCY: JPY

FUNDAMENTAL ANALYSIS ON JPY

Last week, the Japanese currency moved sideways amid the mixed risk appetite. This week, the currency could benefit from the risk off market sentiment with major upcoming events such as the general election results to determine the next UK Prime Minister which will be released on Tuesday where prolonged Brexit uncertainty could resurface. Meanwhile, ECB will also be announcing their interest rates decision this week where most investors are expecting them to take a dovish stance and signal readiness for a rate cut to sustain growth, following the Fed's comments earlier this month.

Elsewhere, Oil prices rally as tensions between UK and Iran rose after Iran seized a British oil tanker in the Strait of Hormuz on Friday while the UK government threatened Iran with ‘serious consequences’ and demanded immediate release of the seized tanker. The risk off market sentiment could channel the flow of funds away from risky assets into safe haven currencies, benefiting the yen. Japanese Prime Minister Shinzo Abe's ruling coalition is also set to retain its upper house majority in Sunday's election, a media projection showed, and the victory will keep him on track to become the longest serving Prime Minister.

KEY TECHNICAL LEVELS ON USDJPY (H4)

(Charts by TradingView)

USDJPY is trading between our first support level at 107.27 which is a horizontal swing low support and 78.6% Fibonacci retracement and our first resistance level at 109.00 which is a horizontal overlap resistance and 38.2% Fibonacci retracement. 

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CURRENCY: AUD

FUNDAMENTAL ANALYSIS ON AUD

Like other major currency pairs, the Aussie also had to bear the burden of the USD strength on Friday as investors rolled back expectations of a 50 bps Fed rate cut. Uncertainty surrounding the US-China trade deal and lack of positive data/events at home also added weakness into the pair off-late. Though, the latest news from Chinese media signals that the dragon nation is ready to purchase more of the US agriculture products, which becomes a positive step towards the much-awaited trade deal. On the negative side, political tension surrounding Iran has increased after the gulf nation seized two of the UK oil tankers, releasing one afterward. While trade positive news favors the quote’s recovery, overall USD strength and political pessimism continue to undermine the market sentiment. For the week ahead, we look at Australia’s manufacturing and service PMI for more cues on the economy’s health. Also, RBA Gov Lowe is due to speak on Thursday that could offer rate cut indications.

KEY TECHNICAL LEVELS ON AUDUSD

(Charts by TradingView)

AUDUSD is reversing nicely from our key resistance at 0.7061 area. This is a level where we can see a 61.8% Fibonacci retracement, 61.8% extension and an overlap resistance line up. Our 1st support is down at 0.7000 which is also a horizontal swing low support, 61.8% Fibonacci extension and 50% Fibonacci retracement. It’s worth noting that Stochastic is also correspondingly approaching resistance at 98%.

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CURRENCY: NZD

FUNDAMENTAL ANALYSIS ON NZD

The kiwi pair pared gains on Friday after the Fed officials’ effort to tame market expectations of a 50 bps rate cut got good response ahead of the July meeting by the FOMC. Adding to the pair’s pullback was the uncertainty surrounding the US-China trade deal. Despite announcing a trade truce, the world’s two largest economies are still far from any deal and the Antipodeans remain compressed on it. Further, there were no major data/events up during the weekend, which in turn forces the traders to follow the recent trend. However, few position headlines have started flowing from the trade front wherein China is preparing to purchase more of the US agricultural products, as per Chinese media. Looking forward, given the absence of catalysts, the pair traders might keep a tab on the news headlines for fresh impulse.

KEY TECHNICAL LEVELS ON NZDUSD

(Charts by TradingView)

NZDUSD is seeing major resistance at 0.6780 area which is a 61.8% Fibonacci retracement, and a horizontal swing high resistance level. We can correspondingly see Stochastic is also at 95% resistance and seeing a bearish divergence.

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CURRENCY: CAD

FUNDAMENTAL ANALYSIS ON CAD

The CAD dropped Friday after monthly Retail Sales lagged behind the consensus. However, geopolitical factors supported oil, a key export item for Canada, off-late and triggered the quote’s pullback towards multi-month low. Not only the US but the UK is also now at loggerheads with Iran after the Middle East nation seized British oil tanker in the Strait of Hormuz. Additionally, news reports from China signal the dragon nation’s readiness to import more of the US agricultural products, which in turn offers a boost to the US-China trade deal prospects. Traders may now await fresh clues from Canadian Wholesales Sales for May while keeping an eye over political news/headlines. The Wholesale Sales growth is likely to come in softer at 0.2% from 1.7% earlier.

KEY TECHNICAL LEVELS ON USDCAD

(Charts by TradingView)

USDCAD is seeing major support at 1.2974 which is a 78.6% Fibonacci retracement, 100% Fibonacci extension. We can correspondingly see Stochastic is bouncing nicely from our 3.27% support level.

Trade USDCAD now.

 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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