Rally in Asia Bodes Well for Europe

The 4 July holiday in the US fell on a Saturday this year, so it was a public holiday on Friday and the US market was closed.

Volatility was low in the first hours of the European trading session, and trading volumes were down sharply when compared with the rest of the week. Health woes chipped away at market sentiment on this side of the Atlantic. On Friday, it was revealed that US states such as Arizona and California saw a jump in the number of new cases. It is likely that traders in Europe took the view the health situation in the US would deteriorate as Americans enjoyed their long weekend.

According to the WHO, on 4 July over 212,000 new Covid-19 cases were registered – a daily record. The US, Brazil and India were the largest contributors to the tally. The US’s reading on Saturday was over 53,000, which was a retreat from Friday’s level of more than 57,000. Some hard hit US states such as Florida are experiencing a drop-off in the rate of new cases, which is probably down to a pausing of the reopening of its economy. As of yesterday, 34 states saw an increase in new cases on the week.

Stocks in mainland China and Hong Kong are showing impressive gains. There has been a jump in trading volumes in China, and European equity benchmarks are tipped to open higher as a result.

The latest services data from China and Europe point to a continuation in the rebound in activity. The Caixin survey of Chinese services for June was 58.4, its highest in ten years. Keep in mind the February reading was 26.5, so there has been a colossal turnaround. The services PMI reports for Spain, Italy, France, Germany and the UK were 50.2, 46.4, 50.7, 47.3, and 47.1 respectively.

The Spanish and French updates showed positive growth, and all the readings were major improvements on the May levels – which were in the high 20s or low 30s. It is clear that things are improving from an economic point of view, but the health situation could be a different story. There have been local lockdowns in Leicester, Melbourne, and in parts of Spain too. There are concerns that this sort of thing could become common.

Christine Lagarde, the European Central Bank president, warned that prices in the currency bloc might remain under pressure for the next two years, before seeing a turnaround. The central banker took part in a webinar on Saturday, and predicted that digitalisation will speed up, and that companies will cut their supply chains too.

It was reported the Bank of England chief, Andrew Bailey, wrote to UK banks and said that negative interest rates are an option the group is considering. Such a move would put pressure on lending margins, which are already squeezed. Interest rates are at historic lows, but consumers are actually paying down credit card debt, so would negative rates actually spark higher demand?

Over the weekend, pubs and restaurants in England were allowed to reopen. The event was referred to as ‘Super Saturday’ and it was a continuation of life returning to normal. The UK economy has come a long way in the past few months, and with more businesses reopening the economic rebound should continue, but there are concerns the infection rate could jump. Images of packed streets in places like London’s Soho will probably add weight to the argument that the capital could be in for a rise in Covid-19 cases.

German factory orders will be posted at 7am (UK time) and the May reading is expected to be 15%, and that would be massive rebound from the -25.8% registered in April.

The UK construction PMI report for June is expected to be 47, up from 28.9 in May. It will be announced at 9.30am (UK time).

At 10am (UK time), eurozone retail sales will be released and the consensus estimate is 15%. Keep in mind the May reading was -11.7%.

The final reading of US services PMI for June is expected to be 47, and that would be a slight improvement from the flash report’s 46.6. The report will be published at 2.45pm (UK time). Shortly afterwards, the ISM non-manufacturing report will be announced, and economists are predicting 50, which would be an improvement on the 45.4 registered in May.

EUR/USD

Since early May the EUR/USD has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1038, the 200 day moving average, to be targeted.

GBP/USD

For more than three weeks the GBP/USD has been in a downtrend and if the bearish move continues, it might hit 1.2163. A move higher from here might see it target 1.2683, the 200-day moving average.

EUR/GBP

Has been in an uptrend for over two months and if it holds above 0.9000, it might target 0.9239. A move lower might find support at 0.8924, the 50-day moving average.

USD/JPY

Has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.38, the 200-day moving average.

FTSE 100 is expected to open 73 points higher at 6,230

DAX 30 is expected to open 244 points higher at 12,772

CAC 40 is expected to open 90 points higher at 5,097

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Europe set for a positive start, as Q2 draws to a close   

The rebound that we’ve seen in Q2 is still quite remarkable when looked through the prism of where we were at the end of March, when all of the government lockdowns were only just beginning. The FTSE100 while also looking to finish higher for the third month in a row, has been the serial underperformer of the bunch, lagging well behind, when compared to the steep falls seen in Q1.

US markets have also seen a similarly remarkable rebound, particularly when you look at the economic landscape now, and where we were heading into the crisis, although the S&P500 hasn’t really moved much from where we finished at the end of May.

Last night’s rebound in US markets, came about despite a warning from the WHO that the epidemic was running out of control and a continued rise in infection rates across a number of US states. There was also some concerns about second waves in China and South Korea, however these infection spikes came from a fairly low base.

The recovery in sentiment was also helped by a 44.3% rise in pending home sales in May, however the wider story would appear to be that investors may be making the calculation that politicians won’t stop the ongoing moves to reopen economies around the world, despite rising infection rates, banking on perhaps, that it is the least worst option.

It is this calculation that appears to be driving risk appetite, along with the fact that while the infection rate is rising the fatality rate is not, and it is that, more than anything, is probably the most important statistic. The reality is that Covid-19 is here for the foreseeable future and while an increase in infections is not particularly desirable, as long as it doesn’t translate into a higher fatality rate then the worst that can happen is likely to be localised lockdowns.

This appears to be playing out here in the UK with the city of Leicester set to be excluded from the grand re-opening on the 4th July, with non-essential shops to close from today, over concerns about a big rise in infection rates there. Chancellor Rishi Sunak will then follow that up with a budget statement next week.

Prime Minister Boris Johnson will also be making a speech later today,

Where he will outline a £5bn accelerated infrastructure spending plan, with a more detailed “new deal” plan to be published in the autumn.

As we look towards today’s European open, we look set to take our cues from last night’s positive US finish, even if the sentiment took a brief knock after the US Commerce Secretary Wilbur Ross announced that Hong Kong’s special trading status was set to be revoked, thus putting the territory on the same setting as China, in terms of being subject to all of the same tariffs and trade restrictions. This action was a pre-emptive response to this morning’s passing of the new China security law, which the US says poses risks to US sensitive technology.

This appears to have been widely expected with Asia markets finishing the month higher on the back of this morning’s latest China manufacturing and non-manufacturing PMI’s for June which showed another fairly decent month of economic activity, following on from decent readings in May.

The manufacturing number came in at 50.9, while non-manufacturing showed an expansion of 54.4, both above the readings from May.

We’ll also be getting the final Q1 GDP numbers for the UK economy, which aren’t expected to change much from the previous readings, and could even be adjusted slightly lower.

These numbers are unlikely to tell us anything new about the UK economy’s performance at the beginning of the year. The economy was slowing even before the March lockdown, largely due to widespread flooding in February, which not only hit consumer spending, but also the wider economy in general.

On a quarterly basis, the economy is expected to contract by -2%, and on an annual basis by -1.6%. The lockdowns that started across Europe in March are expected to result in big declines in both imports and exports, which are expected to see even bigger falls than the previous readings, with falls of -12.2% and -9.4% respectively.

Concerns about deflation in the euro area are likely to take centre stage later this morning with the latest flash estimate of CPI for June. This is expected to come in at 0.2%, with core prices set to slow further to 0.8%, down from 0.9% in May.

EURUSD

Found support at the 1.1160/70 area last week, before rebounding back towards the 1.1350 area. Rebound continue to look shallow with a break below 1.1160 potentially opening up a return to the 1.1020 area and the 50, and 200-day MA’s.  Above the 1.1350 area retargets the highs from June at 1.1425.

GBPUSD

Continues to drift lower with the next support at 1.2215, with a break below here targeting a move back to the May lows at 1.2075.  We need to see recovery back above the 1.2450 level to stabilise and open up the 1.2540 level and last week’s high.

EURGBP

While above the 0.9000 area the bias remains for a move back to the 0.9240 area, if we hold above 0.9020. Trend line support from the lows this year comes in at the 0.8950 area.

USDJPY

Currently below the 108.00 area, however a break higher has the potential to see a move towards the 108.70 area. While below 108.00 the risk is for a move back towards the 107.20 area.

FTSE100

Is expected to open 20 points higher at 6,245

DAX

Is expected to open 68 points higher at 12,300

CAC40

Is expected to open 25 points higher at 4,970

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

Virus Resurgence Concerns, Set to Keep Markets on the Defensive

Rising infection rates in the US, which saw some US states either postpone their reopening’s or close back down again, saw equity markets slide lower on the week on Friday, over concerns that any economic recovery may well take longer to take hold. In spite of these concerns the losses that we saw turned out to be fairly modest when compared to previous sessions, as well as previous weeks.

There is no question that some investors are calling into question the pace of any recovery in economic output, with gold prices hitting their highest levels since October 2012, however the reality remains that while there is concern about the economic impact of a second lockdown, the bar to another countrywide one being implemented remains very high indeed.

The damage already done in other parts of the health care sector has likely put paid to that idea, which means investors, like everyone else will have to get used to the fact that Covid-19 is here to stay, and we will all have to learn to live with it, along with the related impact on our day to day lives.

As we start a new week, as well as coming to the end of the month and Q2, these concerns about a much more prolonged recovery, as infection rates continue to rise in a number of US states, are likely to be more of a drag on US stocks in the short term, though they are also set to act as a drag elsewhere as well.

These concerns look likely to overshadow some of the more positive sentiment elsewhere, as economic data continues to show further signs of improving in places like Asia and Europe, where second wave concerns aren’t anywhere near as immediate for now, though new localised outbreaks in China and South Korea over the weekend, continue to act as reminders that the virus remains far from defeated.

Crude oil prices also slipped back a touch last week, and have continued to weaken after hitting their highest levels since 6th March last week, retracing 50% of the decline from this year’s peaks to the April lows in the process. A large part of the reason for the pause has been concern about the rise in cases in the US, as well lower demand as US driving season gets under way in earnest.

Last week the IMF became the latest global organisation to downgrade its forecasts for the global economy, joining the likes of the OECD and World Bank in painting a pessimistic outlook for any recovery this year. It was notable that the fund was more optimistic than the likes of the OECD and Word Bank on a global basis with a -4.9% prediction, while its regional outlook was also more varied.

For example, the IMF predicted an -8% contraction in the US, a much more pessimistic assessment than the OECD’s -7.3% contraction estimate, with the IMF much more optimistic about China, than the OECD. The fact is a lot of these assessments are guesswork, reliant on a whole host of unknowns including the prospect of a second wave in the autumn, as the weather gets colder and populations are forced back indoors.

Markets in Asia have taken their cues from Fridays sharp fall in the US, the continued rise in infection rates over the weekend, and the rise in global deaths to over 500k by trading lower, and this weakness is set to manifest itself into a similarly weaker open here in Europe this morning.

This week we’ll get another insight into how well the restarting of economic activity is going across Asia, Europe and the US, with the latest insight into economic activity in June, as lockdown measures continue to get eased, and governments try to restore a semblance of normality to everyday life.

Tomorrow the UK government is set to layout its own plans for an investment bonanza with extra money for infrastructure, schools and hospitals, against a backdrop of the worst economic outlook since the second world war.  The details are expected to be laid out by PM Johnson in an announcement sometime tomorrow.

The further easing of flight and travel restrictions and quarantine measures across Europe in the coming days, could well help give another lift to the travel sector, while reports from TUI and Hays Travel over the weekend of a surge in bookings, is encouraging that something could be salvaged from what’s left of the remaining 2020 summer holiday season, not only here in the UK, but also in Europe as well.

EURUSD – found support at the 1.1160/70 area last week, before rebounding back towards the 1.1350 area. Currently appears to be struggling to maintain the momentum from the lows in May, with a break below 1.1160 potentially opening up a return to the 1.1020 area and the 50, and 200-day MA’s.  Above the 1.1350 area retargets the highs from June at 1.1425.

GBPUSD – last week’s rebound to the 1.2540 area quickly ran out of steam keeping the prospect of a move towards the May lows at 1.2075 a realistic possibility. A move below the1.2300 level could well be the beginning of such a scenario with 1.2240 the next key support.

EURGBP – while above the 0.9000 area the bias remains for a move back to the 0.9240 area, if we Trend line support from the lows this year comes in at the 0.8950 area.

USDJPY – last week’s low at 106.00 has seen the US dollar rebound towards the 107.50 area. We need to see a move back through here and the 50-day MA to argue for a move towards the 108.00 initially and then potentially the 108.70 area.

FTSE100 is expected to open 37 points lower at 6,122

DAX is expected to open 89 points lower at 12,000

CAC40 is expected to open 34 points lower at 4,875

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

Dollar Sulks Ahead of FOMC Meeting

The mighty Dollar is weakening against every single G10 currency ahead of the Federal Reserve’s monetary policy announcement.

Dollar Index (DXY), which tracks the value of the greenback against major has tumbled to levels not seen three months below 96.30. With prices trading below the 20 Simple Moving Average and the Moving Average Convergence Divergence crossing to the downside, the DXY remains in a downtrend on the daily charts. The technicals are bearish and a solid daily close below 96.25 may inspire a decline towards 95.00. Should 96.25 prove to be reliable support, prices may rebound back towards 97.15 and 97.80.

Euro takes advantage as Dollar softens

Earlier in the week, we discussed the possibility of Euro bulls running on empty and running on fumes.

Economic data from Europe, especially Germany continues to paint a gloomy picture while questions linger over the effectiveness of monetary and fiscal tools against the coronavirus menace. Over the past few days, a vulnerable Dollar has offered the Euro support, but for how long?

Focusing on the technical picture, the EURUSD remains bullish on the daily charts thanks to Dollar weakness. The currency pair is trading above the 20 Simple Moving Average while the MACD trades to the upside. A solid breakout above 1.1360 may open a clean path towards 1.1450. Should 1.1280 prove to be unreliable support, the EURUSD may sink back towards 1.1200 and 1.1150 respectively.

USDJPY greedily eyes 107.00

The bearish setup we discussed on the USDJPY yesterday materialized with prices trading towards the 107.00 level.

It is becoming clear that the Japanese Yen remains in bid despite the “risk-on” sentiment with global growth fears and trade tensions stimulating appetite for safe-haven assets. A weakening Dollar is also playing a role in the USDJPY’s descent. The downside is building momentum with a breakdown below 107.00 opening a path towards 105.90.

USDCAD sinks deeper into the abyss

This currency pair is under intense pressure on the daily charts. There have been consistently lower lows and lower highs while the MACD trades to the downside. Sustained weakness below 1.3500 may encourage a decline towards 1.3300.

EURGBP breakout in play

A picture is worth a thousand words.

The EURGBP is slowly approaching the 0.8850 support level. A breakdown below this point may invite a decline towards 0.8700 which is 150 pips away. If 0.8850 proves to be reliable support, prices may rebound back towards 0.9000.

Commodity spotlight – Gold

Where Gold concludes this week will be heavily influenced by the Federal Reserve meeting and Dollar’s valuation.

Intraday bulls may have a chance to push the metal higher if an hourly close above $1720 is achieved today. A breakout above this point could inspire a move towards $1747.

If $1720 proves too much for buyers to handle, prices retrace back to $1670.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Euro Tests Crucial Resistances. EUR/USD, EUR/GBP and DAX Analysis

After Monday’s all mighty upswing, Tuesday brought us a bearish correction. So far, the size of this correction is very small and it seems that buyers are still in control of the situation. Today, we don’t have any major events in the macro calendar, so we expect that optimism will not go away and global indices will remain bullish.

We can see two inverse head and shoulders pattern on the DAX. The first one gave us the buy signal on Monday and the second one is being created as we speak. The bottom of the head is on the 23,6% Fibonacci level and the neckline is on the 11100 level. A breakout of the neckline will significantly increase the chances for another bullish wave.

Next, we have two setups with the EUR. Yesterday, the price of the EURUSD bounced from the upper line of the triangle but that wasn’t the only attempt to break this resistance. Buyers are trying again today but so far; the result is pretty much the same. Technically, the price is creating a head and shoulders pattern. Currently right shoulder is being created but the results should be out soon. A breakout of the red neckline will give us a signal to sell and a breakout of the upper blue line will deny the H&S pattern and bring us a mid-term buy signal.

The second setup is the EURGBP, which has recently been moving with grace, respecting the most popular price action principles. After a triangle and a pennant, we currently have a rectangle, which is a trend continuation pattern. Most recently, the price bounced from the lower line of the rectangle and the mid-term up trendline. A further breakout to the upside looks imminent.

Sellers Got Caught in a Trap. S&P 500, DAX and EUR/GBP Analysis.

It looks like the bulls did this again. Last week, the bears managed to create good-looking sell signals on major indices. After a few attempts and a lot of fearmongering, they finally did this. Unfortunately for them, it looks like the outcome will be the same as with the previous negative setups: denial and a bullish counter attack.

We will start with the SP500, where it looks like instead of the head and shoulders pattern, we will get an inverted version of it accompanied by the bullish flag. The price already broke the neckline of this formation and is currently aiming to the upper line of the flag. Odds for the price getting there are quite high.

The DAX, looks even better! Here, we also have an inverse head and shoulders formation but in addition the price returned to above the neckline of the bigger H&S pattern, that’s what gave us last week’s false sell signal. Furthermore, the price broke the mid-term down trendline, connecting lower highs since last Monday. With all that, this week’s sentiment looks optimistic.

We will finish with the EURGBP, which brought us the end of a mid-term sideways trend and the birth of a new uptrend last week. Optimism here is coming from the fact that the price broke the upper line of range trading and used it as a support. Furthermore, after the breakout, the price created a small pennant, which also resulted with a movement to the upside. In my opinion, the movement towards the 0.9 level is extremely probable. Most probably before the price hits that resistance, some kind of a bearish correction will happen due to the fact that the price seems a little bit overbought. Nevertheless, the main sentiment here is positive.

Euro Struggles Against the British Pound Near 1-Month Lows

In an interview with Spanish newspaper La Vanguardia, European Central Bank (ECB) Vice President Luis de Guindos said that the European economy will suffer a more severe recession than the global economy. He added that it’s possible to see some signs of growth starting in the third quarter of 2020 but a genuine recovery in economic activity is not possible before 2021.

The ECB announced a massive economic stimulus plan to support the economy amid the COVID-19 pandemic. Guindos also said that the additional government spending to counter the economic impact of the virus could be as high as 1.5 trillion Euro. European Finance Ministers have also agreed on a joint package of 540 billion Euro.

Eurozone has been hit hard by the pandemic. Nationwide lockdowns across major economies like Germany, Spain, France, and Italy have tremendously increased the risk of recession and high unemployment. According to the International Monetary Fund, Spain’s unemployment rate could reach 20.8% this year.

In the UK, Government announced to extend its overdraft facility at the Bank of England to support struggling businesses and furloughed workers. The facility was last used during the 2008 financial crisis. Euro investors are keeping a close eye on the economic impacts in the Eurozone area as well as the UK. EURGBP struggled near the 0.87000 level after a failed recovery attempt above 0.87500. The currency pair is currently trading near its one-month low.

EURGBP

On the technical side, EURGBP on the 4-Hour timeframe has been following a downtrend since April 7. The pair registered the lowest level of the period under study at 0.86810 on April 14. As of writing, the EURGBP is hovering around 0.87150 with negative Moving Average Convergence Divergence and Momentum below the 100 level.

The pair is currently trading below the 50-period simple moving average with Relative Strength Index below 50 which supports the recent bearish price move. Resistance level lies at 0.88643 while the support level lies at 0.86810. Bears are trying to drag the price below the 0.86000 level, but a push above 0.88000 could strengthen the argument for a bullish move.

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Written on 16/04/2020 by Bilal Jafar, FX Trainer at FXTM

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.


 

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Last Few Great Setups Before Easter!

With so many events ahead, today should be an interesting day. The OPEC meeting leads the day, in addition to Job data from the US and Canada and the upcoming Easter weekend which means many markets will be closing on Friday and Monday. Mid-term traders will likely keep their positions opened throughout the long weekend, which increases their risk in an already risky industry. Sit tight and get ready for today’s analysis.

Let’s start with the commodity which is most at risk of being affected from the OPEC meeting; oil. The price is fairly stable and the recent upswing created the right shoulder of the inverse head and shoulders pattern. This can be a good move for buyers. How can the OPEC meeting affect oil prices? If we hear promising news then the price of oil will have better chances of breaking the 28 USD/oz resistance level which would indicate a buy signal.

Moving on to the DAX, where the relief rally has continued. In yesterday’s session the index averted a head and shoulders pattern, but in today’s the price bounced from Tuesday’s highs. The current formation could be one of two; an ascending triangle promoting the breakout to the upside or a double top formation promoting a reversal. What’s next? A breakout of the horizontal resistance would give us a buy signal while a breakout of the dynamic support would give a sell signal.

Now let’s get back to the EURGBP which we recently mentioned. The last time we spoke about the pair it was going through four trend continuation patterns in a row. The last one, which was a wedge, was eventually prolonged and ended in a pennant – which is a sell signal. After the pennant, we now have another flag, which also promotes a breakout to the downside. This chart is a perfect example of how effective the trend continuation pattern can be.

In today’s session, we’re discussing a fourth instrument and that’s because there’s a small but important update on gold. In yesterday’s analysis we mentioned that gold was on a combination of crucial horizontal and dynamic support levels. In most cases when those two meet we see a bounce. This was no exception, the price of gold used those two supports and is now moving upwards.

Three Great Trading Opportunities: DJIA, Gold And EUR/GBP For The Beginning Of The Week

This week has begun with plenty of optimism across the markets. The coronavirus curve is starting to flat out across Europe with many countries which were hit the hardest reporting lower cases and deaths over the past few days. This has driven many markets to surge, shedding some light at the end of the tunnel.

Let’s start with the Dow Jones which opened this week with a bullish gap, followed by an upswing which left the gap opened. From a technical point of view the DJA created an inverse head and shoulders pattern on the 23,6% Fibonacci retracement level. During the first few hours of trading on Sunday, the price managed to break the neckline and that’s a buy signal. The next target for this movement is for the price to hit the 38,2% Fibonacci level, in my opinion, as long as the price remains below that crucial resistance level, the mid to long-term sentiment remains negative despite this short-term surge.

Gold also started the week with a quick rise, this move is mostly attributed to a weaker USD. The crucial development for Gold is still last week’s comeback to above 1600 USD/oz, which killed the mood for a bearish correction. As long as the price remains above 1600 USD/oz, sentiment for the precious metal will remain positive.

The last instrument on today’s agenda is the EURGBP. Here we saw a very interesting technical situation which emerged after the price broke the psychological support level at 0.9. During its steady downtrend the price created four beautiful trend continuation patters; two flags and two wedges. The last wedge ended right on the long-term downtrend line. The price has already broken the lower neckline of the pattern and that’s a very good sell signal.

Concerned That Asia Could Blow A Hole In Future Economic Recovery

Thinking somewhat far off into the future, our researchers believe China/Asia could become the next Black Hole in the global economy.  China recently released its March PMI number which came in at 52.0 – showing moderate expansion in Chinese manufacturing.  The February Chinese PMI level was 35.7.  We strongly believe China wants to show some strength in their perceived economic recovery and that these PMI numbers are somewhat “manufactured for effect”.

We believe the real economic toll taking place in China/Asia will continue to unfold over the next 3 to 6+ months as the historic expansion of wealth and the exported foreign investment from Wealthy Chinese continues to contract over this time.  In a very similar manner to what happened in the US when the Japanese economy contracted in the 1990s – as wealth creation processes collapse, these foreign investors suddenly start to liquidate assets trying to protect their “home-country assets”.

(Suggested Reading: https://www.barrons.com/articles/china-pmi-data-coronavirus-51585666441)

We’ve recently posted an article suggesting the US Real Estate market could suddenly find itself in a real measurable collapse and we believe the foreign investors, speculators and speculative renters (Air BnB and others) will suddenly find themselves in a very difficult situation.  You can find our Real Estate article here.

As the COVID-19 virus event continues to unfold, the data from global nations will quickly identify any outlier factors and data points related to China/Asia and how they are reporting their data.  Chinese economic data has raised suspicions for quite some time with global analysts.  It seems highly unlikely that the Chinese economy rebounded from an almost complete shutdown in February and most of March to a moderate manufacturing growth level at the end of March 2020.  Meanwhile, throughout the rest of the globe, economies, and manufacturing levels are contracting as the COVID-19 shutdown continues.

We believe the disparity between the global markets and the numbers China continues to proffer will quickly result in a complete lack of confidence in future data related to any Chinese economic activity or future expectations. We also believe the global capital markets will make an immediate shift away from risks associated with any falsified data originating from China by mitigating forward risks in investments and currency market exposure over the next 3 to 5+ years – possibly longer.

What happens when global events like the COVID-19 virus event takes place is that capital immediately attempts to identify extreme risks and attempt to move to safer environments.  Currencies are no different.  Global markets, investment, and manufacturing are increasingly exposed to risks related to the shifting markets and any false or otherwise “outlier” data being reported right now.  The bigger players can’t afford to take risks and will take active measures to protect their futures and investments.

(Suggested Reading: https://www.cnbc.com/2020/03/31/asia-markets-china-official-pmi-coronavirus-global-economy-in-focus.html)

Our opinion is that the Chinese PMI level of 52 for March 2020 is an outlier data point.  This virus event started in early January in China and almost all of February and March were when the globe suddenly became aware of the risks and infection spread.  Even though China may have attempted to ramp up manufacturing over the past 2+ weeks to appear to be “back to normal” – it makes no sense to us that manufacturing in China actually “expanded”, based on historical levels, that quickly.

Watch how quickly global economies and currencies work to mitigate the risks related to perceived “outlier data”.  We believe most of Asia will continue into an economic contraction over the next 3+ months and we believe the FOREX market will relate the immediate risk concerns related to Asia/China/global market expectations.  In other words, watch the currencies to see how global investors perceive risks associated with true economic activity.

The World Bank many not have a deep enough piggy bank to back the extended risks of an Asian Economic contraction lasting 6+ months.

(Suggested Reading: https://www.marketwatch.com/story/world-bank-says-coronavirus-outbreak-may-take-heavy-toll-on-asias-economy-2020-03-30)

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for short-term swing traders.

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts visit my Active ETF Trading Newsletter. If you are a long-term investor looking for signals when to own equities, bonds, or cash, be sure to look into my Long-Term Investing Signals.

Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

EUR/GBP Bullish Continuation Targeting 0.9370 and Beyond

Dear Traders,

The EUR/GBP is bullish. We can see two distinct POC zones, but the chance is that the price will bounce from the first POC zone.

The POC zone 0.9280-90 could make the price bounce towards higher levels. In case of a deeper retracement fresh buyers also wait within 0.9070-0.9100. But, if the price makes a rejection from the first POC zone then its important that the price stays above 0.9260. A bounce above 0.9290 should directly try to push above 0.9300. Above 0.9300 watch for 0.9354 and 0.9370. The final target is 0.9496.

The Analysis has been done with the CAMMACD.Core and Sit Systems

 

Oil Confirmed Crucial Support. S&P500 Still Trying To Find One

The weekend was a mood killer for risk on camp on Monday we saw a global sell off of risky assets and another escape towards cash – reducing liquidity – and safe haven assets. On Tuesday and Wednesday things have been calmer, we will try to look for more technical setups which are more based on dots and less on panic and fear.

Oil was the star of Monday’s trading; prices collapsed after Saudi Arabia cut prices and announced an increase in production. Oil price plummeted to early 2016 lows at around 28 USD/bbl. At this point the price reversed creating a long tail on the weekly candle. We are using a hammer candle and on a support like this, it can be considered a strong buy signal.

Combined with price action, we can assume that 28 USD/bbl is an absolute low for the price of oil and the chances of it dropping further are very low. However, the short-term chart and the wedge show us that some kind of small drop is still around the corner.

Let’s look at SP500, also in the short-term, what we have here are two flags, one already resulted with the breakout to the downside, the second is just being formed as we speak. If history likes to repeat itself, the second flag, should also result with the breakout to the downside. This view is obviously supported by the negative mood around the world.

Last but not least is the EURGBP. The Bank of England cut rates, which caused a short-term depreciation of the GBP. Short-term only, as now, the GBP is back on track, shrugging off the cut. It does not change our long-term view on the EURGBP, where we continue to be bullish. On the weekly chart, you can see a beautiful double bottom formation bouncing from the 0.833 support level. The next few days could bring us a bearish correction here but in the long-term, the sentiment remains positive.

EUR/GBP Bullish Bounce Might Target 0.8410

Dear Traders,

Despite the downtrend, the EUR/GBP bulls are slowly taking control. H4 time frame is in retracement and that accounts for lower timeframes bullish trend.

0.8360-70 is the zone where we might expect the pair to bounce. We can see the bullish momentum and the first target is 0.8385. If the level is broken we should see an upmove continuation towards 0.8410 zone. This scenario is valid as long as the price is kept above 0.8340 zone. Buying the dips is a valid option now.

The Analysis has been done with the CAMMACD.Core and Sit Systems

 

The UK After Brexit

It was a long way since June 2016 when the Brexit referendum took place. Many things have changed: the UK survived internal and external uncertainties, the economy suffered, the British pound depreciated, and Theresa May lost her position of the Prime Minister. Boris Johnson managed to take the country out of the EU. Nevertheless, it’s not the end yet.

The transition period will last until December 31, 2020. And it will raise many crucial questions such as sovereign risk, corporate earnings, market valuations and more. Britain will need to find its identity within global markets that may be not easy as it was a part of the European Economic Community since 1973. The European officials claim the transition period may go beyond December 31. What will the UK look like after Brexit? Let’s find out.

Will the UK get investments back?

Recently Mr. Johnson declared: “If we can get this right, I believe that with every month that goes by, we will grow in confidence not just at home but abroad… I know that we can turn this opportunity into a stunning success.”

Despite inspiring comments by Boris Johnson, analysts predict a continuation of the negative effect of the Brexit on both the economy and the domestic currency.

It is not a surprise, Britain suffered significant investment outflows during the Brexit period. According to data, in ten quarters before March 2017, the foreign direct investment inflows in the UK economy was 300 billion pounds. In ten quarters after March 2019, the country suffered 40 billion pound outflows.

British equities are one of the examples. Since June 2016, FTSE 100 was much weaker than the S&P 500, Eurostoxx and Nikkei.

Screen Shot 2020-02-02 at 1.58.05 PM.png

Even if the country manages to negotiate on the Free Trade Agreement during the transaction period, the changes in the trade and economic environment within the country will not support investment inflows.

Research and Development Corporation forecasts the fall of the economic growth by 0.17 percent this year. The percentage may hit 0.39 percent by 2025 if the negotiations are extended. Sounds not that bad until will count it in real money. The country will lose 1.6 billion-pound this year. By 2025, this amount may rise to 3.75 billion.

The country lost its investment attractiveness during the Brexit era. According to Deutsche Bank AG, the UK will suffer more investment outflows. Moreover, they claim the British pound is still too expensive. Thus, a larger budget deficit and looser monetary policy will affect the British pound.

GBP is still under pressure

The British pound has been suffering since the Brexit referendum. Although the downtrend of the GBP/USD started a long time before, Brexit worsened the situation.

GBPUSDMonthly1.png

Chief currency strategist at Societe Generale SA Kit Juckes argues the GBP will unlikely meet highs seen before the referendum. Currently, the British pound is 11% below its 25-year average level and 25% below the highs of the times when the British economy was growing fast.

Rabobank claims the political environment will keep weighing on the British currency due to the risks of the hard transition period. Boris Johnson has promised to come to the agreement with the EU until December 31, 2020, without any delays. That means good and bad news will keep determining the direction of the GBP during the year.

The opportunity for the strong GBP against the USD may arise in the second half of the year when the USD may depreciate due to the Presidential elections and the GBP will be mostly boosted by the FTA. In case of the positive news on the agreement. The GBP will become stronger.

Societe Generale SA sees GBP/USD at the range of 1.40-1.60.

GBPUSDMonthly.png

As for the EUR/GBP, the pair is supposed to be traded in a 0.75-0.85 range.

EURGBPMonthly.png

To conclude, we can say that despite the UK left the EU, the British economy and the domestic currency are under risk. If the transition period is smooth, the negative effect will not be that harmful. In the case of the transition deadlocks, the UK will suffer a lot.


Note for investors

All the information above is signaling the change in the way we determine the strength of the domestic currency. If before the rate cut signaled the weakness of the currency, it’s more likely that in 2020, investors will look at other easing measures. In this case, the economic calendar is not the major way to predict the currency moves. Check the news with FBS to get the recent updates on the monetary policy.  

Europe Bids Adieu to UK. With Sour Face

At the stroke of midnight on Friday, the United Kingdom will leave the European Union. The British parliament approved the Brexit Withdrawal Bill last week and the European Parliament will vote on the agreement later on Thursday.  The UK departs the EU after 47 years and is the first member to leave the bloc.

There have been plenty of twists, turns and turmoil since the U.K. voted to leave in a stunning referendum in June 2016. Not surprisingly, the moods over Brexit are polar opposites in London and in Brussels. Boris Johnson called the signing of the Withdrawal Agreement “a fantastic moment, which delivers the result of the 2016 referendum and brings to an end far too many years of argument and division”. Johnson offered an olive branch to the EU, saying he looked forward to a “strong new relationship with the EU as friends and sovereign equals.”

The mood across the Channel, however, is one of regret, dismay and even defiance. European Union members were shocked by the referendum result and have been reluctant to make the departure smooth and pleasant for the U.K., lest other members think of also leaving the bloc. Germany’s foreign minister, Heiko Mass, said that the UK could not expect full access to the single market unless it compromised on issues such as consumer rights and environment protection. Michel Barnier, the chief negotiator for the EU, was very blunt in his criticism of the British departure. Barnier warned that “leaving the single market, leaving the customs union will have consequences. And what I saw … in the last year, is that many of these consequences have been underestimated in the UK.”

The bad blood between the UK and the EU over Brexit is expected to continue during the 11-month transition period. Prime Minister Johnson has said the sides will reach a trade deal in that time frame, but EU leaders have argued that this period is much to short to reach a comprehensive agreement, which will need to cover the entire trade relationship between the EU and the UK.

The Brexit negotiations between the EU and the UK were acrimonious, and given the charged rhetoric coming from the Europeans, the upcoming trade talks between the sides could be just as difficult.

ECB Minutes in Focus as Investors Lookout for Clues on Inflation Target

ECB’s new leadership is facing a tough year in 2020, with a new president, a new chief economist and the latest addition of two new executive board members makes the bank’s action difficult to predict. Investors are eagerly waiting for signs on ECB’s strategy review as ECB president Christine Lagarde is due to speak on Thursday, a few hours after the release of ECB minutes. Christine Lagarde also refrained ECB’s policymakers from discussing the strategy review publicly as she is planning to formally announce it on January 23.

The ECB re-launched its Quantitative Easing program under Mario Draghi back in September 2019 to aid the ailing Eurozone economy but a few policymakers opposed the decision. The biggest challenge for Christine Lagarde in her strategy review will be the inflation target for the Eurozone area as ECB has consistently failed to meet the inflation target of close to 2%. Since nothing much happened in the December meeting, investors will be scrutinizing details regarding amendment of the Inflation target.

The Euro remained under pressure against the US Dollar since December 31 but the bulls managed to keep the price above the key psychological level of 1.11000. As of writing, the price is hovering around 1.11500. Price action in the EURGBP has been interesting, after falling to the lowest level in three years against the Pound in December. Euro saw a recovery in January as price jumped above 0.85000. EURGBP is currently hovering around 0.85590.

On the technical side, EURGBP on the 4-Hour timeframe has been following an uptrend since January 8. The price jumped above the key level of 0.85000 and registered the highest level of period under study at 0.85953 on January 14. Bulls managed to keep the price above 0.85000 but failed to close above 0.86000. As of writing, the EURGBP is hovering around 0.85590 with positive Moving Average Convergence Divergence but momentum slightly below the 100 level. The pair is currently trading above the 50 period simple moving average with Relative Strength Index above 50 which supports the recent bullish price move. Resistance level lies at 0.855953 while the support level lies at 0.84546. Bulls are eyeing a push above 0.86000, but a close below 0.85000 could strengthen the argument for further bearish movements.

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USD/CAD – Canadian Dollar Calm Ahead of Fed Decision

The Canadian dollar is trading sideways in Tuesday trade. Currently, USD/CAD is trading at 1.3232, down 0.04% on the day. On the fundamentals front, there are no major events, so I expect a quiet North American session for the pair. On Wednesday, the U.S. releases consumer inflation data and the Federal Reserve will set the benchmark rate.

OPEC Agrees to Cut Production

Canada is a major oil producer, so the Canadian dollar is sensitive to movement in oil prices. Crude prices jumped close to 7 percent last week, as investors reacted positively to an announcement by OPEC that members had reached an agreement to lower production, starting in January.  The reduction in output is aimed at curbing the worldwide glut of crude and stabilizing oil prices. At the same time, some OPEC members are notorious for failing to adhere to their production quotas, and if the new agreement is not honored, oil prices could head lower.

Next – Federal Reserve Rate Decision

The Federal Reserve will be in focus on Wednesday, when the central bank sets the benchmark rate for the next month. The Fed is almost certain to maintain current rate levels. Fed policymakers have signaled a pause in rate cuts, after trimming rates on three occasions this year. This means that the upcoming rate statement could be a market-mover; a hawkish message from the Fed could boost investor risk appetite and push the Canadian currency higher.

Technical Analysis

I continue to monitor the 200-EMA and 50-EMA lines, as a crossover appears imminent. The 50-EMA is situated at 1.3234 and the 200-EMA is at 1.3239. If the 50-EMA crosses above the 200-EMA, it would be a bullish sign for USD/CAD (“golden cross”). There is support just below, at 1.3230. Close by is a support level at the round number of 1.3200. On the upside, we find resistance at the 1.33 level.

USD/CAD 1-Day Chart

 

EUR/GBP

EUR/GBP is steady in the Tuesday session. Currently, the pair is trading at 0.8413, down 0.04% on the day.  EUR/GBP remains at lows not seen since May 2017, as a stronger British pound is putting pressure on the pair.

Technical Analysis

EUR/GBP continues to put pressure on support at 0.8400. This major level has held since May 2017, so a breakout below this line would be a major development. Below, there is support at 0.8350. On the upside, there is resistance at the round number of 0.8500.

EUR/GBP 1-Day Chart

USD/CAD – Canadian Dollar Steady After Mixed Construction Data

The Canadian dollar is trading sideways in Monday trade. Currently, USD/CAD is trading at 1.3240, down 0.09% on the day. On the fundamental front, Canadian Housing Starts were almost unchanged at 201 thousand, edging above the forecast of 200 thousand. Building permits declined by 1.5%, well off the estimate of +3.5 percent.

Canadian Dollar Dips on Soft Job Numbers

Last week was busy for the Canadian dollar. The currency dropped below 1.32 and touched a 1-month high on Thursday, but reversed directions on Friday and lost ground. USD/CAD took advantage as Canadian employment numbers sagged, while U.S. nonfarm payrolls were much stronger than expected.

In Canada, November employment numbers were dismal. Employment fell by a remarkable 71.2 thousand, its worst decline since January 2018. Analysts had expected a gain of 10.0 thousand. The unemployment rate jumped to 5.5%, up sharply from 5.5% a month earlier.

In the U.S., the week ended with an excellent nonfarm payrolls report. The U.S. economy added an impressive 266 thousand jobs in November, crushing the estimate of 181 thousand. As well, the 3-month average payroll number increased from 189K to 205K. Recent nonfarm payrolls releases have been soft, due to the recent strike at General Motors. The November figure was much higher, as the striking workers went back to work in October and were accounted for in the November report. Wage growth remained steady at 2.0%, but fell shy of the forecast of 0.3%. There was more positive news on the consumer front, as UoM Consumer Sentiment surged to 99.2 in December, up from 95.7 in November.

OPEC Agrees to Lower Production

Last week’s OPEC meeting ended with an announcement that an agreement had been reached to lower production, effective January 1. A reduction in output is aimed at curbing the worldwide glut of crude and stabilizing oil prices. At the same time, some OPEC members are notorious for failing to adhere to their production quotas, and if the new agreement is not honored, oil prices could head lower. Canada is a major oil producer, so the Canadian dollar is sensitive to movement in oil prices.

Technical Analysis

USD/CAD posted considerable gains on Friday, as the pair broke through resistance at 1.3200 and 1.3230. Note that the EMA lines immediately follow, with the 50-EMA at 1.3234 and the 200-EMA at 1.3239. Is a crossover imminent? If the 50-EMA crosses above the 200-EMA, it would be a bullish sign for USD/CAD (“golden cross”). Back in mid-October, the 50-EMA broke below the 200-EMA, and the pair responded with a downturn.

USD/CAD 1-Day Chart

 

EUR/GBP

EUR/GBP is trading sideways in the Monday session. Currently, the pair is trading at 0.8419, up 0.05% on the day.  EUR/GBP is coming off a rough week, losing 1.1 percent. The pair has dropped to its lowest level since May 2017, as investors continue to favor the British pound ahead of the U.K. election.

Technical Analysis

EUR/GBP is putting pressure on support at 0.8400. This major level has held since May 2017, so a breakout below this line would be a major development. Below, there is support at 0.8350. On the upside, 0.8500 has some breathing room as EUR/GBP continues to head lower.

USD/CAD – Canadian Dollar in Holding Pattern Ahead of Job Numbers

The Canadian dollar is unchanged in Friday trade. Currently, USD/CAD is trading at 1.3176, down 0.01% on the day.

Ahead – Canadian, US Employment Reports

Traders should be prepared for some volatility from the Canadian dollar in the North American session, as Canada and the U.S. both release key job numbers. After a rare decline in employment change, the economy is expected to show a gain of 10.0 thousand jobs in November. The unemployment rate is expected to remain pegged at 5.5 percent. Over in the U.S., investors are expecting strong numbers.  Nonfarm payrolls are projected to increase sharply to 181 thousand in November, compared to 128 thousand in the previous release. As well, wage growth is expected to rise from 0.2% to 0.3%.

Higher Oil Prices Boost Canadian Dollar

Higher oil prices have boosted the Canadian dollar this week. Crude jumped 3.6% on Wednesday, after an unexpectedly strong drawdown in crude inventories. As well, OPEC members have gathered for a crucial meeting, and there is speculation that the cartel may cut production in order to reduce a glut of oil on world markets. West Texas Intermediate has climbed 7.1% since November 1, and a reduction in output by OPEC would likely push WTI above $60 a barrel.

Technical Analysis

USD/CAD has broken below support at the 1.3200 line. Below, we find support at 1.3125, which last saw action in the first week of November. On the upside, 1.3200 has switched to resistance and is a weak line. The 50-EMA and 200-EMA follow, with the 50-EMA at 1.3236 and the 200-EMA is at 1.3239. If the 50-EMA crosses above the 200-EMA, it would be a bullish sign for the pair (“golden cross”).

USD/CAD 1-Day Chart

 

EUR/GBP

EUR/GBP is trading sideways in the Friday session. Currently, the pair is trading at 0.8445, up 0.08% on the day. The pair shrugged off a weak German manufacturing report. German Industrial Production declined by 1.7% in September, marking a second straight decline. Analysts had expected a small gain of 0.1%.

Technical Analysis

EUR/GBP is within striking distance of support at 0.8400. This major level has held since May 2017, so a breakout below this line would be a major development. On the upside, there is resistance at 0.8500.

USD/CAD – Canadian Dollar Hits 1-Mth High

The Canadian dollar is steady on Thursday, after posting sharp gains on Wednesday. Currently, USD/CAD is trading at 1.3182, down 0.08% on the day.  On the fundamental front, Canada’s trade deficit was up slightly, from C$1.0 billion to C$1.1 billion. This beat the forecast of C$1.4 billion. There was better news from Ivey PMI, which jumped to 60.0, crushing the estimate of 49.3 pts.

Higher Oil Prices Boost Canadian Dollar

Higher oil prices on Wednesday helped boost the Canadian dollar, which posted its highest one-day gains since early September. Crude jumped 3.6%, after a crude inventory report showed a decline of 4.9 billion barrels, compared to the estimate of 1.6 million. Crude prices were also supported ahead of a key OPEC meeting, where Saudi Arabia is expected to push hard for another reduction in oil production, in order to prevent oil prices from falling sharply. With a large glut of oil on global markets, oil prices could fall as low as $40 a barrel if production is not reduced.

On Wednesday, the Bank of Canada maintained the benchmark rate at 1.75% at its monthly policy meeting. The rate statement was positive, which helped boost the Canadian dollar. The bank said that there was “nascent evidence that the global economy is stabilizing” and that recession concerns had eased.

Technical Analysis

USD/CAD has broken below support at the 1.3230 line and is putting strong pressure on the 1.3200 line. On the upside, the 50-EMA and 200-EMA are both touching the candlesticks. The 50-EMA is at 1.3236 and the 200-EMA is at 1.3239. If the 50-EMA crosses over the 200-EMA, this would be a bullish sign for the pair (“golden cross”). Above, the resistance line of 1.3300 has some breathing room after losses by USD/CAD.

USD/CAD 1-Day Chart

EUR/GBP

EUR/GBP has posted slight losses on Thursday. Currently, the pair is trading at 0.8442, down 0.14% on the day.

Technical Analysis

The downward trend continues for EUR/GBP. The pair has broken below major support at 0.8500 and has room to drop all the way to 0.8400, which is the next support level. On the upside, the line of 0.8560 has strengthened in resistance, following sharp losses by EUR/GBP on Wednesday.

EUR/GBP 1-Day Chart