The Weekly Wrap – The EUR and Yen Come Out on Top as the Equity Markets Hit Corrective Territory

The Stats

It was a relatively busy week on the economic calendar, in the week ending 28th February.

A total of 56 stats were monitored, following the 72 stats in the week prior.

Of the 56 stats,  26 came in ahead forecasts, with 21 economic indicators coming up short of forecast. 9 stats were in line with forecasts in the week.

Looking at the numbers, 25 of the stats reflected an upward trend from previous figures. Of the remaining 31, 25 stats reflected a deterioration from previous.

For the Greenback, it was a particularly bearish week, as the markets reversed bets that the U.S economy would be unscathed from the spread of the coronavirus.

Not only did economic data continue to disappoint, but the markets also raised the probability of multiple rate cuts by the FED.

When gold takes a tumble as investors look for liquidity to meet margin calls, it’s never a good thing…

The Dollar Spot Index fell by 1.21% to end the week at 98.132.

Out of the U.S

It was a quiet first half of the week, with economic data limited to February consumer confidence figures.

A slight uptick in consumer confidence had a muted impact on the dollar on Tuesday.

Market risk aversion and updates from the U.S on the coronavirus pinned the Dollar back early in the week.

In the 2nd half of the week, durable goods orders on Thursday also failed to impress ahead of a busy Friday.

While core durable goods orders rose by 0.90% in January, durable goods orders fell by 0.2%, sending mixed signals to the market.

At the end of the week, the annual rate of inflation continued to fall short of the FED’s 2% objective.

Personal spending rose by just 0.2% in January, which was softer than a 0.4% rise in December.

Chicago PMI numbers were somewhat better than anticipated, however, with the PMI rising from 42.9 to 49.0.

The February numbers suggested that next week’s ISM numbers may not be as dire as the Markit PMI numbers.

It wasn’t enough to support the U.S equity markets or the Dollar, however.

Housing sector numbers and 2nd estimate GDP numbers for the 4th quarter had a muted impact in the week.

In the equity markets, the Dow slumped by 12.36%, with the S&P500 and NASDAQ tumbling by 11.49% and by 10.54% respectively.

Out of the UK

It was a particularly quiet week on the economic calendar.

There were no material stats to provide the Pound with direction.

The lack of stats left the Pound in the hands of Brexit chatter as the EU and Britain prepare to return to the negotiating table.

A visit to $1.30 levels early in the week was brief, with the British Prime Minister spooking the markets once more.

Johnson spoke on Thursday, stating that Britain would walk away from negotiations should there be a lack of progress by the end of June.

With so much to iron out and the 2-sides worlds apart, hopes of having a framework in place by June are slim…

In the week, the Pound fell by 1.09% to $1.2823, with the FTSE100 ending the week down by 11.12%.

Out of the Eurozone

It was a relatively quiet start to the week economic data front.

Germany was in focus, with February IFO Business Climate Index figures and 2nd estimate GDP numbers in focus.

On the positive side for the EUR was a slight pickup in the Business Climate Index. This came off the back of a rise in optimism, as the current assessment index eased back.

Ultimately, however, March numbers will give a better indication of whether the coronavirus has affected business sentiment.

With GDP numbers in line with 1st estimates, the focus then shifted to a busy Friday.

Key stats included French consumer spending and German unemployment numbers.

While Germany’s unemployment rate held steady, French consumer spending took a hit in January. The slide came ahead of the coronavirus news, which suggests that a further pullback in spending could be on the cards.

The stats failed to influence, however, as the markets punished the Dollar through much of the week.

Prelim inflation figures out of Spain and France, French GDP numbers and finalized consumer confidence figures out of the Eurozone also failed to move the dial…

On the monetary policy front, ECB President Lagarde spoke late in the week. She was of the view that the virus had yet to impact inflation to the point where the ECB needs to step in…

That is in stark contrast to the outlook towards FED monetary policy…

For the week, the EUR rose by 1.65% to $1.1026.

For the European major indexes, it was a particularly bearish week. The DAX30 tumbled by 12.44%, with the CAC40 and the EuroStoxx600 ending the week down by 11.94% and 12.25% respectively.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 28th February, the Aussie Dollar slid by 1.69% to $0.6515, with the Kiwi Dollar down by 1.62% to $0.6246.

For the Aussie Dollar

It was a relatively quiet week for the Aussie Dollar on the economic data front.

Key stats included 4th quarter construction work done and private new CAPEX figures on Wednesday and Thursday.

Both sets of figures disappointed, though a 2.8% slide in new CAPEX in the 4th quarter was more alarming.

RBA monetary policy has not only been in favor of consumer spending but also business investment. The slide suggests a lack of confidence and raised the prospects of a near-term rate cut.

On Friday, the private sector credit figure also failed to impress, with total credit rising by just 0.3% month-on-month.

With the numbers skewed to the negative, risk aversion added to the downside in the week.

Negative sentiment towards the economic outlook led to a slide in commodities and commodity currencies.

For the markets, uncertainly over when the spread of the coronavirus will abate also influenced.

For the Kiwi Dollar

It was a relatively quiet start to the week on the economic colander.

4th quarter retail sales figures failed to impress at the start of the week, with sales rising by 0.7%. In the 3rd quarter, retail sales had risen by 1.7%.

Later in the week, trade data and business confidence figures delivered mixed results that added pressure on the Kiwi.

While trade exports to China rose further, January’s trade was not impacted by China’s shut down.

Business confidence figures, however, suggested some doom and gloom ahead.

With exports to China accounting for 27% of total New Zealand exports in January, it could be quite dire reading next month…

For the Loonie

It was a busy week on the economic calendar. Key stats included wholesale sales figures on Monday and RMPI and GDP numbers on Friday.

A rise in wholesale sales in December failed to provide support at the start of the week, as crude oil prices got hammered.

Market fears of a marked slowdown in the global economy, stemming from the spread of the coronavirus, weighed.

At the end of the week, with the Loonie already under the cosh, GDP numbers also failed to support.

While the economy fared better in December, there was a marked slowdown in the 4th quarter. When considering the economic disruption anticipated in the 1st quarter and beyond, it doesn’t look good.

RMPI numbers also failed to impress, with the RMPI falling by 2.2% in January, reversing most of a 2.7% rise in December.

With the BoC in action next week, the chances of a rate cut certainly jumped in the week…

The Loonie slid by 1.38% to end the week at C$1.3407 against the Greenback.

For the Japanese Yen

It was a relatively quiet week on the data front.

The markets had to wait until Friday for key stats that had little to no influence on the Japanese Yen.

For the Government, the impact of the coronavirus on consumer spending is a blow following last year’s sales tax hike. That suggests that government support is likely to come.

In the meantime, however, retail sales fell by 0.4% in January, following a 2.6% slide in December.

The annual rate of core inflation also eased, with the Ku-area seeing core inflation easing from 0.7% to 0.5% in February.

With the jobs/applications ratio falling from 1.57 to 1.49, the only bright data set was industrial production.

A 0.8% rise in production in January was of little consolation, however, when considering the anticipated drop in demand.

Risk aversion ultimately drove demand for the Yen in the week, with concerns over the U.S economy restoring the Yen’s position as the “go-to” currency.

The Japanese Yen surged by 3.33% to end the week at ¥107.89 against the U.S Dollar. Risk aversion in the week weighed heavily on the Nikkei, which slumped by 9.59%, leaving the index down by 8.89% for February.

Out of China

There were no material stats to provide direction ahead of private sector PMIs on the weekend.

A lack of stats left updates on the coronavirus to provide direction that was ultimately positive for the Yuan.

In contrast, the sell-off across the global stock markets weighed on the CSI300 and Hang Seng, though they did fare better than the pack.

The CSI300 fell by 5.05%, with the Hang Seng falling by 4.32% in the week.

In the week ending 28th February, the Yuan rose by 0.50% to CNY6.9920 against the Greenback.

GBP/USD Weekly Price Forecast – British Pound Roles Over For The Week

The British pound initially tried to rally during the week, reaching towards the 200 week EMA before rolling over. That shows signs of weakness, and perhaps more than likely going to show that the British pound is clearly susceptible to the global “risk off” situation that we find ourselves in. That being the case, it’s likely that we will continue to see a lot of back and forth and although the British pound is going to suffer at the hands of risk appetite falling, the reality is that there is significant support just below so if you are looking to buy the US dollar, although the trade may work in this pair, you may find better momentum in some of the other pairs, specifically the Euro.

GBP/USD Video 02.03.20

At this point, I believe that short-term traders will continue to try to fade rallies, but if we were to break down below the red 50 week EMA on the chart, that probably sends this market much lower, perhaps even as low as the 1.25 handle. At this point in time though it’s obvious that the markets are very jittery and it’s going to take very little to knock them over. As far as rallies are concerned, I would not believe them in this pair until we break above the 200 week EMA which is painted in black on the chart. At that point, we could go as high as the 1.35 handle over the longer term. Expect a lot of volatility but in the end, I believe that the US dollar will strengthen against most currencies.

GBP/USD Price Forecast – British Pound Struggles to Hang On to Gains Against Greenback

The British pound initially tried to rally during the trading session on Friday, just as it did on Thursday. However, just as we had seen on Thursday, the sellers overwhelmed the pair, and the British pound cannot hang on to gains. It looks at this point that the market is going fully into a “risk off” type of situation. I believe also that the British pound is suffering not only due to the fact that the global markets are complete mess, but the fact that the never-ending source of tension between the UK and the EU continues. Ultimately, I do think that the greenback is a bit oversold against most currencies, but the British pound will probably continue to be a little bit more insulated.

GBP/USD Video 02.03.20

If we break down below the 1.28 handle, it very well could open up the door to at least the 200 day EMA. At this point, it’s likely that the market would have a serious fight on his hand to determine the direction of the trend overall pair the market turning around and recapturing the 1.30 level though would be rather bullish and showed just how strong the British pound is in general. At that point, I would anticipate that the basing pattern would be somewhat completed, and we should go looking towards 1.35 handle. However, as things are starting to develop on the coronavirus front and the massive amount of money going into the US bond markets, that’s looking less likely by the day.

GBP/USD Daily Forecast – Exchange Rate Little Changed in Week of Volatile Trading

GBP/USD saw some downside pressure around the middle of the week but momentum in the decline has slowed as buyers have held the pair above important support.

The bigger development for the UK this week has been in the equity markets rather than the exchange rate. The UK FTSE declined to fresh lows now seen since the summer of 2016 earlier today and is down more than 11% this week. The equity index is weighed by a global shift to risk aversion after it became apparent earlier in the week that the Coronavirus has started to spread at a more rapid pace outside of China.

In the currency markets, more meaningful moves are seen in commodity currencies and safe-haven currencies. The former tend to sell-off when investors turn risk-averse while the latter typically gain.

The dollar has been under pressure which seems to have limited the decline GBP/USD this week. Investors have become increasingly certain that the Federal Reserve will deliver a rate cut to combat the negative impacts the Coronavirus will have on the US economy. The CME FedWatch Tool, which tracks pricing in the Fed Fund Futures markets to determine market probabilities of interest rate changes, shows a rate cut is fully priced in for next month’s Fed meeting. The data further shows a one in five chance of the Fed delivering a 50 basis point cut rather than the typical 25 basis points.

The UK will start official trade negotiations with the EU next week which could lead to an increase in volatility in the exchange rate. The pound to dollar currency pair trades at an important technical inflection point and the direction from here will likely be driven by developments in trade negotiations.

Technical Analysis

Support at 1.2859 has held the exchange rate higher on two attempts now since yesterday. Beyond the level, there is further support near 1.2820 which stems from the lower bound of a declining trend channel.

GBPUSD 4-Hour Chart

GBP/USD appears to be on the verge of a breakdown as it continues to hold below a major horizontal level at 1.2961. Further, the pair has also been holding below its 200-week moving average since dropping below it in the early month. The technical outlook suggests the pair is reversing trend from the bullish run that began in September.

Over the near-term, resistance is seen at 1.2924 followed by 1.2961.

A weaker dollar is helping to keep Sterling supported. In this context, any communication from the Fed regarding a potential upcoming rate cut will be important in addition to developments in EU trade negotiations.

Bottom Line

  • GBP/USD bulls are holding the pair above technical support at 1.2859 which continues to be a hurdle for bears over the near-term.
  • Volatility is likely to increase next week once trade negotiations with the EU commence.

The Dollar Takes a Hit as Economic Data Continues to Play 2nd Fiddle to the Coronavirus

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Japanese Yen and Aussie Dollar were in action.

For the Japanese Yen

Economic data included, February inflation figures and January’s job to applications ratio, industrial production, and retail sales figures.

According to consumer price figures released by the Ministry of Internal Affairs and Communication. The Ku-area of Tokyo saw the annual core rate of inflation ease from 0.7% to 0.5%, falling beyond a forecasted 0.6%.

  • Prices for Education slid by 6%, with prices for fuel, light and water charges falling by 2.8%.
  • There were solid increases in prices for clothes & footwear (+2.4%) and furniture and household utensils (+2.0%), however.
  • Prices for medical care (+1.3%), transportation and communication (+1.0%), culture and recreation (+0.9%) also provided support.
  • Prices for housing rose by just 0.5%, however.

With inflationary pressures easing in February, jobs available also eased, as the jobs/applications ratio fell from 1.57 to 1.49. The ratio last stood at sub-1.50 levels back in May 2017, when the ratio had also stood at 1.49.

The Japanese Yen moved from ¥109.638 to ¥109.616 upon release of the figures that preceded the industrial production and retail sales figures.

Retail Sales and Industrial Production

According to the Ministry of Economy, Trade, and Industry, retail sales fell by 0.4% in January, year-on-year, following a 2.6% slide in December. Economists had forecasted a 1.1% decline.

Industrial production increased by 0.8% in January, according to prelim figures, following a 1.2% rise in December. Economists had forecast a 0.2% rise.

According to the Ministry of Economy, Trade, and Industry,

Industries that mainly contributed to the increase were:

  • Motor vehicles, transport equipment (excl. motor vehicles), and other manufacturing.

Industries that mainly contributed to a decrease were

  • Production machinery, general-purpose and business orientated machinery, and electrical machinery, and information, and communication electronics equipment.

The Japanese Yen moved from ¥109.652 to ¥109.571 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.06% to ¥109.52 against the U.S Dollar.

For the Aussie Dollar

According to figures released by RBA, total credit increased by 0.3%, month-on-month, in January. In December, credit had risen by 0.2%.

  • Business credit jumped by 0.5%, following a 0.2% rise in December, supporting the marginal uptick.
  • Personal credit fell at a sharper pace, however. Following a 0.4% decline in December, personal credit fell by 0.6% in January.
  • Housing credit rose by 0.3%, following a 0.3% increase in December.

The Aussie Dollar moved from $0.65811 to $0.65832 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.20% to $0.6582.

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.03% to $0.6309.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include German unemployment and French consumer spending figures.

Barring material deviation from 1st estimate numbers, 2nd estimate GDP figures out of France will likely have a muted impact on the EUR.

Later in the European session, prelim Italian and German inflation figures for February will also likely have a muted impact on the EUR.

Outside of the numbers expect news updates on the coronavirus to also provide direction. We’ve seen the Dollar take a hit as the coronavirus spreads across the U.S, leaving the U.S economy at risk of a slowdown.

At the time of writing, the EUR was down by 0.03% at $1.0998.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

We can expect the Pound to be under pressure as the markets shift attention to negotiations that commence next week.

At the time of writing, the Pound was up by 0.04% to $1.2892.

Across the Pond

It’s a busy day ahead on the U.S economic calendar.

Key stats include Chicago PMI, personal spending, inflation and trade data. With the markets now beginning to expect monetary policy easing, today’s stats will have a material influence.

We expect finalized consumer sentiment figures for February to have a muted impact on the day.

Outside of the numbers, news updates on the coronavirus will also influence.

The Dollar Spot Index slid by 0.49% to 98.508 on Thursday.

For the Loonie

It’s a busy day ahead on the economic calendar, with key stats including GDP and RMPI numbers.

With the Bank of Canada in action next week, any soft numbers and expect the markets to price in a rate cut.

The BoC had previously talked of a willingness to make a move should economic indicators support a cut. With the coronavirus spreading globally and weighing on global trade and consumption, expect the numbers to do the talking.

The Loonie was down by 0.02% at C$1.3393 against the U.S Dollar, at the time of writing.

GBP/USD Price Forecast – British Pound Acting Confused

The British pound has been all over the place during the trading session on Thursday, as we continue to see a lot of push and pull when it comes to not only the British pound, but currencies in general. The markets look as if they are going to continue to pay attention to the coronavirus issues, and what that means for the various economies in the world. That being said though, Boris Johnson stated during the trading session that unless the United Kingdom get some type of Canada style free-trade agreement with the European Union and unless it’s obvious by June, he’s walking away from negotiations. That may have weighed upon the British pound a bit, but at this point there is a lot of support just below.

GBP/USD Video 28.02.20

To the upside, the 1.30 level above is looking very likely to be a resistive barrier, with the 50 day EMA hanging around there and certainly will continue to affect the market as well. That being said, the market is likely to see a lot of volatility, but I do think we are getting close to a point where we should see some type of support come in and try to lift this market. From experience I would say that it looks like the market is trying to form some type of basing pattern, which is always a very noisy and difficult thing to trade through. However, if you are a longer-term inclined you may be able to buy this market and simply hang on through all of the choppiness. However, for the shorter-term trader it’s probably more of a range bound market with a slightly upward tilt over the longer term that you should be looking at.

Here We Go Again – The Pound Is Set for another Rollercoaster of a Summer!

We saw the Pound briefly visit $1.30 levels on Tuesday. The upside came off the back of a combination of events.

Firstly, prevalent Dollar weakness stemming from a shift in monetary policy divergence in favor of the Pound supported the upside in Cable. Secondly, however, was the EU’s terms of negotiation that EU member states finalized on 25th. It wasn’t the terms but the desire to form an ambitious agreement that impressed the markets.

The EU and the UK are scheduled to begin hammering out a trade agreement next week. While the Pound found early support, there is a large degree of apprehension.

Britain’s transition period ends on 31st December at which point Britain goes it alone, with or without the EU as a trading partner.

The Issues

Unsurprisingly, there are a number of key issues that remain. These issues continue to exist in spite of Britain and the EU meeting at the table for more than 3-years.

It ultimately took Johnson and a return of a Tory Party majority to force through the Withdrawal Bill and formalize Britain’s divorce with the EU.

So, with Britain and the EU left with 10-months to thrash out a trade agreement, what are the key issues?

The British government is looking for the following:

  • Abandon commitments made back in October in the EU-UK political declaration that accompanied the Withdrawal Bill.
  • Ultimately, the British government is looking to deliver Brexit in its true form, with Britain free from EU rules and regulations. The last thing that the British government will accept is any strings attached that leaves Britain under any EU laws.
  • A comprehensive trade agreement in the same form as the Canada agreement supplemented by fishery law enforcement.
  • Predetermined judicial cooperation in criminal matters and also transport, and energy.
  • Fishery issues have already hit the headlines before talks even began. For those who voted to leave the EU, it may be somewhat alarming to hear that the EU wants continued access to British waters. An EU concession here is for annual negotiations in order to agree on continued access for EU vessels.

Other key points to negotiate include, but are not limited to:

  • State aid/subsidies
  • Workers’ rights
  • Tariff Free Access to the EU Market
  • Minimal customs barriers.
  • Financial Services

The Timeline

As things stand, Britain and the EU have until June to agree on an outline to a trade agreement.

This would then need to be finalized by September, which gives both sides just 7-months.

When you consider the chatter from Macron and senior French government officials, their preference would be to prevent progress. The alternative would be to tie Britain into EU laws, which is clearly a no-no for Britain.

With Angela Merkel on the way out, Macron has been vying to become the voice of Europe.

Bringing down the British government and leaving Britain to grapple with WTO trade terms would be quite a coup.

So, if the EU and Britain fail to make solid progress in the coming 4-months, the writing may be on the wall for Britain and the Pound.

British Prime Minister Johnson has managed to block the chance of any extension to the transition period.

When considering the issues at hand, even the more optimistic may consider the path ahead as a difficult on.

For that very reason, the Pound’s rollercoaster ride is likely to resume. At least through to the end of the 3rd quarter.

As far as the British Government is concerned, if there is a lack of progress by June then the government will walk away. That means a no-deal hard Brexit that the markets feared since the EU referendum outcome.

What’s next?

Britain and the EU meet next week to get things going and there’s likely to be plenty of chatter.

The EU must appear to be in a position of strength, able to protect the rights of its remaining member states.

Failure to achieve this would raise the chances of further departures from the EU. It’s hardly a surprise that Macron has taken such a position on Brexit.

It’s also going to be of little surprise that he will maintain his position until the bitter end.

After all, there’s little point in being the voice of a Europe that is broken and more interested in protectionism.

For the Pound

We can expect the rollercoaster ride of the last few years to resume.

The good news, for now, is that economic indicators have shown an improvement in economic conditions.

All of this has been in line with the BoE’s post-Brexit outlook, however, which suggests a slowdown to come.

Throw in the likely effect of the coronavirus on the global economy and the doom and gloom may well build.

Could Macron call for the tunnel to be blocked in the event of a no-deal end to the transition period?

Johnson may insist on it should the spread of the coronavirus continue through to June…

At the time of writing, the Pound was down by 0.08% to $1.28859, with the return to sub-$1.29 levels leaving the Pound down by 0.60% for the current week and by 2.42% for the current month…

Expect $1.25 levels to be on the cards should it become painfully clear that talks are going to go nowhere…

GBP/USD 27/02/20 Daily Chart

GBP/USD Daily Forecast – Sterling Struggles to Gain Despite US Rate Cut Expectations Weighing on the Dollar

The Federal Reserve is expected to respond to the escalation in Coronavirus fears this week with a rate cut, possibly as soon as April.

The CME FedWatch Tool, which tracks Fed Fund Futures prices to calculate market odds of policy adjustments, shows a striking increase in expectations for a rate cut. At the start of the week, the data showed probabilities leaning towards a rate cut in June, the latest figures show an 80% chance of policy easing in April, up from a probability of 30% last week.

In a correlated manner, the trade-weighted US dollar index (DXY) has eased lower after posting a nearly three-year high last week. The index was last seen down a third of a percent for the day and trading nearly 1% lower for the week thus far.

Fed member Kashkari will be speaking later today and may shed some light on how the Fed views the Coronavirus outbreak and if it plans to implement monetary easing to support the economy from negative impacts.

In addition to Kashkari’s speech, several US data releases stand to bring volatility to the FX Markets during the North American session including US GDP, durable goods orders, and home sales.

Technical Analysis

Shortly after the European open, the British pound is seen as the only major currency unable to gain against the dollar. The price action emphasizes Sterling’s weakness and a bearish bias remains intact for the currency pair.

GBPUSD 4-Hour Chart

GBP/USD has mostly been contained within a range in February and is quickly approaching range support. A downside break is likely to accompany increased bearish momentum. On the other hand, if bulls step in, the pair could continue trading within the broader range.

For the session ahead, near-term resistance is seen close to 1.2900 while support is seen at 1.2850 which is a level that held the exchange rate higher last week.

Bottom Line

  • GBP/USD is under pressure despite a notable decline in the dollar in the early day.
  • Major range support is found nearby, the reaction from it will tend to set the near-term tone for the pair.

The Mid-Week Wrap – Asian Markets and Stocks

The last week of the month usually is pretty quiet. Is it also the case this week?

For the U.S Dollar

It was a quiet start to the week on the economic data front. The markets needed until Tuesday for consumer confidence figures that failed to impress.

We saw the Dollar under pressure at the start of the week, with last week’s PMI numbers raising the chances of a FED rate hike in the 1st half of the year.

The shift in sentiment saw demand for the Dollar ease early in the week. Following FED Chair Powell’s testimony, the markets had anticipated a resilient U.S economy. Recent economic indicators suggested otherwise, with the U.S private sector contracting in February.

Throw in the rising number of cases of the coronavirus and the CDC’s outlook and the U.S economy also faces headwinds.

Through the remainder of the week, inflation and personal spending figures on Friday will garner plenty of attention. Personal spending figures will be of particular interest as it will indicate any consumer concerns over the virus.

Ahead of the numbers, 2nd estimate GDP numbers for the 4th quarter are due out along with durable goods orders on Thursday.

Expect the durable goods orders to have a greater impact, as the markets look for coronavirus impact on demand.

For the EUR

It was also a relatively quiet start to the week. Germany’s business confidence 2nd estimate GDP numbers were in focus.

While 2nd estimate GDP figures were in line with 1st estimate, there was an improvement in business sentiment.

February’s IFO survey came ahead of the spread of the coronavirus through Europe, however, limiting any upside for the EUR.

Over the remainder of the week, the focus will shift to consumer spending and 4th quarter GDP numbers out of France. There are also unemployment numbers out of Germany to also consider.

For now, we’ve seen the EUR find support as the sentiment shifts towards the U.S economy. Ultimately, however, the Eurozone economy remains more at risk to a marked slowdown that that of the U.S, which suggests the upside to be limited.

A more material spread of the virus across the U.S, however, would alter that outlook.

For the Pound

It’s a particularly quiet week on the economic data front and there have been no material stats to provide support.

We saw the Pound bounce back to $1.30 levels on Tuesday following the EU member states desire to form an ambitious trade agreement with Britain.

That comes with strings attached, however, which Britain is unwilling to agree to.

On Thursday, the British government is due to announce its starting terms, which will give an idea of just how far apart the 2-sides are.

Expect reaction to influence the Pound over the remainder of the week.

Stocks go down due to the virus in an environment of no macroeconomic data releases. In the meantime, how have the commodity currencies reacted to the recent developments in the markets?

We saw the commodity currencies fair better in the early part of the week, in spite of the risk aversion.

This was largely due to the shift in sentiment towards the U.S economy and monetary policy

That being said, it’s still been a bearish week for the commodity currencies.

For the Aussie Dollar, new CAPEX figures for the 4th quarter failed to impress this morning.

With business investment on the slide, any slide in consumer spending would add further pressure on the RBA to make a move.

In the last meeting, the RBA had raised some concerns over the likely impact of the coronavirus on the global economy. Since then, we can expect that concern to have spiked as the virus reaches new countries.

It certainly looks set for a particularly dovish RBA next week, which should limit any upside for the Aussie Dollar.

Things are not much better for the Kiwi Dollar.

Retail sales rose by just 0.7% in the 4th quarter, following a 1.7% rise in the 3rd, with the numbers coming ahead of key stats on Thursday.

While January trade data delivered support, with exports to China on the rise once more in January, it was business confidence that weighed.

The trade figures failed to capture the effects of the extended Chinese New Year and quarantines across the country. February’s figures are expected to be quite dire, however, if business confidence numbers are anything to go by.

That leaves the Kiwi under immense pressure, with economic disruption expected to continue beyond the 1st quarter.

A slight decline in all of the commodity currency charts. Meanwhile, how have the major Asian countries fared during this period? I assume they have been hit the most by the coronavirus.

For the Japanese Yen

We saw the Japanese Yen find renewed interest this week, at the expense of the Greenback. With risk aversion continuing to plague the markets, the rise in the number of cases in the U.S and weak data provided the upside.

The markets had previously moved away from the Yen over concerns that the region would be harder hit by the virus.

This is likely to be the case, however, which should limit any return to ¥107 – 108 levels against the Greenback.

On the economic data front, retail sales and industrial production figures due out on Friday will unlikely reflect the effects of the virus.

Dire numbers, however, would suggest that the BoJ will need to make a move of some sort…

For the rest of the Asian Majors

Unsurprisingly, the rest of the Asian majors have struggled in the week.

We’ve seen the Taiwanese Dollar, Singapore Dollar, Korean Won, and Chinese Yuan struggle as disruption to trade is expected to hurt the respective economies.

Monetary and fiscal policy support has been delivered by a number of central banks in the region.

Uncertainty over the time frame involved, however, and how bad it could get continues to pressure the majors. This will likely continue near-term or at least until the pace of the global spread abates.

Will U.S Durable Goods Orders Give the Markets More Angst as the Number of U.S Cases Rise?

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Kiwi Dollar and Aussie Dollar were in action.

For the Kiwi Dollar

New Zealand’s trade deficit narrowed from NZ$4,460m to NZ$3,870 year-on-year in January. Month-on-month, the trade balance fell from an NZ$384m surplus to an NZ$340m deficit.

According to NZ Stats,

  • Total exports rose by NZ$382m (8.8%) from January 2019 to hit NZ$4.7bn.
    • Exports to China jumped by NZ$302m (31%) to NZ$1.3bn in January, compared with January 2019.
    • A jump in dairy, meat, and log exports led the way.
    • The rise in exports to China meant that China accounted for 27% of total exports, all of which came before the extended CNY holidays and quarantines across the country.
  • Total imports fell by NZ$212m (4.0%) to NZ$5.1bn in January 2020.
    • A slide in the import of vehicles, parts, and accessories (NZ$116m) weighed on imports. Motor car imports were the main driver.
    • Imports from China stood at NZ$1.1bn in January 2020, which accounted for 22% of total monthly imports. On an annual basis, 20% of total imports were from China.

The New Zealand Dollar moved from $0.62898 to $0.62900 upon release of the figures that preceded January business confidence figures.

In January, the ANZ Business Confidence Index fell from -13.2 to -19.4. Economists had forecast a rise to -7.9.

According to the latest ANZ Report,

  • A net 12% of firms expect stronger activity ahead for their own business, falling by 5.
  • Agriculture sector own activity tumbled from +16 to -30, with manufacturing own activity down from +24 to +4.
  • Expected profitability, investment and employment intentions were all in decline.
  • The downward trend was attributed to the spread of the coronavirus. ANZ noted that survey responses received after the COVID-19 outbreak hit the headlines were more negative. These accounted for one-third of the total respondents.
  • On the bright side, the construction sector saw a rosier outlook, with retail sector pricing intentions jumping to the highest level since 2008.

The Kiwi Dollar moved from $0.62866 to $0.62900 upon release of the numbers. At the time of writing, the Kiwi Dollar down by 0.05% to $0.6290.

For the Aussie Dollar

Private new capital expenditure slid by 2.8% in the 4th quarter, following on from a revised 0.4% decline in the 3rd quarter. Economists had forecast a 0.4% rise.

According to the ABS,

  • Building and structures saw a 5.9% slide, while new CAPEX expenditure on equipment, plant, and machinery rose by 0.8%.
  • In the 3rd quarter, investments in building and structures had risen by 2.5%, while expenditure on equipment, plant, and machinery had fallen by 3.6%.

The Aussie Dollar moved from $0.65511 to $0.65535 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.18% to $0.6556.

While the Aussie Dollar was up in the early hours, the slump in new CAPEX expenditure gives the RBA further reason to cut rates. The low-interest-rate environment was not only meant to support consumers but also fuel business spending.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.16% to ¥110.25 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include prelim February inflation figures out of Spain and finalized Eurozone consumer confidence figures.

Barring a material pullback in inflation, however, we would expect the numbers to have a muted impact on the EUR.

Expect any revision to Eurozone consumer confidence figures to influence, however, as the markets search for sentiment towards the spread of the coronavirus.

Outside of the numbers, expect market risk sentiment to continue to provide direction. For the EUR, early support kicked in as the markets reacted to news of a rise in new coronavirus cases in the U.S. The upward swing has come as the markets reverse bets on the U.S economy being unscathed from the spread of the virus.

At the time of writing, the EUR was up by 0.26% at $1.0909.

For the Pound

It’s also a quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

While there are no stats to consider, the British Government is due to release its terms for trade negotiations with the EU.

It will all come down to how far apart the 2-sides are from the get-go and how the EU responds and Boris Johnson and David Foster react in return.

Expectations are for a difficult road ahead, which should peg the Pound back at $1.29 levels and bring $1.28 levels back into play.

On the monetary policy front, BoE MPC member Cunliffe is scheduled to speak in the early afternoon. Following Cunliffe’s concerns over the negative effects of prolonged monetary policy easing, expect any dovish chatter to weigh on the Pound.

We’ve yet to hear of central banks wanting to step in as the coronavirus continues to spread. This may well change in the coming weeks…

At the time of writing, the Pound was up by 0.12% to $1.2921.

Across the Pond

It’s a relatively busy day ahead on the U.S economic calendar. January durable goods orders and 2nd estimate GDP numbers for the 4th quarter are due out.

Barring deviation from 1st estimate numbers, expect the core durable goods and durable goods orders to have the greatest impact.

Following last week’s particularly disappointing PMI numbers, any slide in orders will pressure the Greenback further.

Initial weekly jobless claims and pending home sales figures for January are also due out. We will also expect the numbers to have a muted impact on the Dollar, however.

Outside of the numbers, market risk sentiment will continue to influence.

At the time of writing, the Dollar Spot Index was down by 0.06% to 98.939.

For the Loonie

It’s a quiet day ahead on the economic calendar, with key stats limited to 4th quarter current account figures out of Canada.

We can expect the numbers to have a muted impact on the Loonie, however.

Focus through the day will be on the economic outlook and demand for crude oil, which remains Loonie negative.

The Loonie was down by 0.06% at C$1.3341 against the U.S Dollar, at the time of writing.

GBP/USD Price Forecast – British Pound Pulls Back Toward Support Again

The British pound continues to grind back and forth, but it does seem to be in an area where we might see a bit of support in the short term, and it’s possible that we simply grind away as it looks like the market is at least from a technical analysis standpoint trying to build a bit of a base. That being said, the fundamentals in Great Britain are better than anticipated, but not necessarily strong. A range bound system in this general vicinity may be worth taking, noticing that the 1.30 level above offers significant selling pressure.

GBP/USD Video 27.02.20

The 200 day EMA is down at the 1.27 handle, an area that a lot of traders will pay attention to. Ultimately, this is a marketplace that tends to favor the British pound longer-term, and we are at historically cheap levels. That being said though, we are obviously in very unconventional times. With that being the case, it’s very likely that we are looking at a scenario that will continue to be very choppy and difficult to trade to say the least. I do like the idea of buying above the 1.30 level though, because that could kick off more of a “obvious basing pattern” that other traders may try to jump on. Expect a lot of noise, but you should also expect that the resiliency can be used in your favor if you are patient enough and of course pay attention to position size.

GBP/USD Daily Forecast – Failed Rally Above 1.3000 Triggers Downside Pressure

GBP/USD rallied yesterday to nearly break to a fresh one-week high before sellers stepped in to drive the pair lower. The currency pair trades relatively flat on the week thus far and has been mostly confined to a range in February.

Rate cut expectations in the US have triggered a pullback in the trade-weighted dollar index (DXY). The futures markets are showing a roughly 80% probability of a cut in June, up from 50% just a week ago.

Fed member Kaplan offered a different view yesterday and said it was too soon to determine if the recent escalation in Coronvirus outbreaks warrants a policy adjustment.

DXY rallied to highs not seen since May 2017 last week and turned lower after falling slightly short of testing the 100.00 level. The index is down about one percent from recent highs.

Brexit developments are likely to lead to elevated volatility for the pound to dollar exchange rate. The UK will begin formal negotiations with the EU on Monday which will pave the way for trade terms between the two economies. UK PM Johnson has taken a hard stance on negotiations by stating that he will not permit any extensions beyond the year-end deadline.

Technical Analysis

The drop in GBP/USD in early day trading today has momentum behind it although it might be too soon to confirm that the pair has turned lower in the downtrend that has dominated since shortly after the UK election.

GBP/USD 4-Hour Chart
GBP/USD 4-Hour Chart

The currency pair shows some support at 1.2924 and is currently testing its 20 moving average on a 4-hour chart. A failure to hold above this area builds towards a bearish case.

On the other hand, the pair has been trading in an uptrend on the shorter time frames. GBP/USD found a bottom on Thursday and has been attempting to recover since. While above support, the pair continues to show potential for another push higher.

The daily close will be important considering the pair closed above its 100-day moving average yesterday. The indicator currently falls at 1.2962 and failure to rally above it by the end of the day would be seen as a bearish development.

Bottom Line

  • GBP/USD has come under pressure in the early day although it might be too soon to call a reversal.
  • A daily close below the 100-day moving average at 1.2962 may draw sellers.

Risk Aversion Likely to Linger, with Economic Data on the Lighter Side Today

Earlier in the Day:

It was another quiet day on the Asian economic calendar this morning. The Aussie Dollar was in action, with housing sector data in focus.

For the Aussie Dollar

Construction work done slid by 3% in the 4th quarter, following a 0.4% fall in the 3rd quarter. Economists had forecast a decline of 1%.

According to the ABS,

  • Total building work done fell by 4.1%, while total engineering work down fell by 1.5%

The Aussie Dollar moved from $0.65979 to $0.65989 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.17% to $0.6593.

Elsewhere

At the time of writing, the Japanese Yen was down by 0.01% to ¥110.21 against the U.S Dollar, with the Kiwi Dollar down by 0.14% to $0.6312.

Outside of the numbers, the markets reacted to the overnight slide in the U.S majors and news updates on the spread of the coronavirus.

The risk aversion weighed on the Aussie Dollar and Kiwi Dollar and the Asian equity markets, with the Nikkei down by 1.96% at the time of writing. The ASX200 led the way down, however, tumbling by 2.12%.

The Day Ahead:

For the EUR

It’s another quiet day ahead on the economic calendar. Key stats include French jobseeker figures. Barring a marked increase, the numbers are unlikely to have a material impact on the EUR, however.

Outside of the numbers, risk sentiment will continue to pressure the EUR. Economic disruption stemming from the spread of the coronavirus is expected to materially affect the Eurozone economy.

ECB President Lagarde, due to speak later today, could raise the prospects of further support. She may, however, also call on member states to deliver fiscal policy support. Such calls from the ECB have fallen on deaf ears until now.

At the time of writing, the EUR was down by 0.09% at $1.0872.

For the Pound

It’s also a quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

We saw the Pound find strong support on Tuesday as EU ministers talked of a substantial, ambitious and wide-ranging partnership with the UK.

With talks scheduled to commence next week, the British government is due to release its terms of negotiations tomorrow. The markets will get an idea of just how far apart the two sides are…

At the time of writing, the Pound was down by 0.02% to $1.3003.

Across the Pond

It’s a relatively quiet day ahead on the U.S economic calendar. January’s new home sales figures are due out later today.

With a lack of stats for the markets to consider, expect some Dollar sensitivity to today’s numbers. Mortgage rates and labor market conditions are all supportive of the housing sector. Any weakness in sales may test risk sentiment.

Ultimately, however, the Dollar will be wedged between sentiment towards monetary policy and safe-haven demand.

Last week’s private sector PMIs and the continued spread of the coronavirus has raised the probability of the FED cutting rates.

At the time of writing, the Dollar Spot Index was up by 0.07% to 99.035.

For the Loonie

It’s a quiet day ahead on the economic calendar, with no material stats due out of Canada to provide direction.

The lack of stats will continue to leave the Loonie in the hands of market risk appetite and crude oil prices.

A steadying of crude oil prices early in the day eased pressure on the Loonie.

The Loonie was down by 0.02% at C$1.3281 against the U.S Dollar, at the time of writing.

GBP/USD Price Forecast – The British Pound Continues To Show Resiliency

The British pound has rallied a bit during the trading session on Tuesday, reaching towards the 1.30 level early during the day. However, that is an area that is rather strong for its importance and psychological impact, so it’s interesting to see that the market has rolled over a bit from here. If the market can break above the 1.30 level, then it’s very likely to go looking towards 1.32 level above which is even more resistive. A break above that level then allows the market looking forward towards the 1.35 handle above.

GBP/USD Video 26.02.20

Looking at this chart, the 1.2850 level seems to be rather supportive, and if we were to turn around a break down below there then the market goes looking towards the 200 day EMA which is a bit closer to the 1.27 handle currently. All things being equal, I do believe that this market will eventually try to form some type of base and go higher, but I need to see a daily close above the 1.30 level to be comfortable buying. Even then, this pair has a huge sensitivity to noise out there, so don’t be surprised at all of this market continues to cause a lot of headaches. That being said, the British pound is historically cheap so it would follow that eventually it should rally significantly. All things being equal though, expect a lot of choppy behavior over the next several weeks, if not longer.

U.S. Dollar Index (DX) Futures Technical Analysis – Trader Reaction to 99.200 Pivot Sets the Tone

The U.S. Dollar is edging lower against a basket of major currencies on Tuesday while trading inside yesterday’s range. The price action suggests investor indecision and impending volatility.

Based on the price action since Friday, investors are trying to decide whether the dollar is strong because of its safe-haven status or overpriced due to signs of a weakening U.S. economy.

On Friday, the dollar index sold off sharply after the release of disappointing U.S. manufacturing and services reports. Yesterday it closed higher, but showed little signs of safe-haven status as U.S. equity markets plunged.

Today’s price action is likely to be influenced heavily by the Conference Board’s Consumer Confidence report, due to be released at 15:00 GMT. It is expected to come in at 132.6, up slightly from the previously reported 131.6. This report is important because the consumer has been the main driver of the economy.

Some traders may discount the results because conditions have changed drastically since the survey was taken. It’s highly likely that the CB survey was taken when all investors had to worry about was China’s containment of the coronavirus. This report may not reflect the fact that the virus has now spread beyond China’s borders and has become a major threat to the global economy.

At 11:39 GMT, March U.S. Dollar Index futures are trading 99.235, down 0.049 or -0.05%.

Daily March U.S. Dollar Index

Daily Technical Analysis

The main trend is up according to the daily swing chart. A trade through 99.815 will signal a resumption of the uptrend. The main trend will change to down on a trade through 97.165. This is highly unlikely, but there is room for a normal 50% to 61.8% correction of its last rally.

The minor trend is also up. A trade through 98.580 will change the minor trend to down and shift momentum to the downside.

The minor range is 98.580 to 99.815. The market is currently straddling its 50% level or pivot at 99.200.

The short-term range is 97.165 to 99.815. Its retracement zone at 98.490 to 98.180 is the primary downside target.

Daily Technical Forecast

Based on the early price action and the current price at 99.235, the direction of the March U.S. Dollar Index the rest of the session on Tuesday is likely to be determined by trader reaction to the pivot at 99.200.

Bullish Scenario

A sustained move over 99.200 will indicate the presence of buyers. However, given the series of Gann angles on the upside, any rally is likely to be a labored event.

The index will strengthen on the bullish side of the uptrending Gann angle at 99.290, but then buyers face potential resistance at downtrending Gann angles coming in at 99.440, 99.630 and 99.720. The latter is the last potential resistance angle before the 99.815 main top.

Bearish Scenario

A sustained move under 99.200 will signal the presence of sellers. Taking out yesterday’s low at 99.030 will indicate the selling is getting a little stronger.

The daily chart indicates there is plenty of room to the downside with targets coming in at 98.490, 98.395, 98.230 and 98.180. However, we don’t know at this time if the index will spike into these targets or plunge.

GBP/USD Daily Forecast – Sterling Regains Upward Momentum, Crosses Major Resistance

GBP/USD eased lower on Monday, hinting of a bearish continuation, but has seen fresh bids in early trading on Tuesday. The pair has crossed above a notable technical area and is trading near the psychological 1.3000 level.

British parliament returned from recess and the focus for GBP/USD traders will soon shift to Brexit once again. Parliament is expected to start formal negotiation talks with the EU on Monday which can trigger a rise in volatility for the Sterling pairs.

New fears arising from China’s inability to contain the Coronavirus shook investors on Monday. The S&P 500 posted the largest single-day decline in two years. The UK FTSE erased gains for the year and last traded at levels not seen since early October.

Expectations for a rate cut have risen on the back of the Coronavirus escalation. The CME FedWatch tool shows a two in three chance of a cut in June versus the roughly 50% chance priced in last week. The shift in expectations can trigger some further downside in the dollar which had otherwise risen steadily for most of February.

The economic calendar is relatively light, the Conference Board is expected to release consumer confidence figures later in the North American Session.

Technical Analysis

The British pound is leading the majors in early trading today and the upward move in GBP/USD is significant. The pair has crossed over a major technical level at 1.2961 which has acted as both resistance and support since the fourth quarter.

GBPUSD 4-Hour Chart

Further, the pair is currently trading above its 100-day moving average, which falls near the horizontal level. Although how the pair closes in relation to it at the end of the day will be important.

On a 4-hour chart, GBP/USD has posted a sequence of higher highs and higher lows, building towards the case for further near-term strength.

Channel resistance for the pair comes into play around 1.3030 with further resistance from a horizontal level at 1.3050.

To the downside, the reaction around 1.2961 will be important for short-term price swings. A break below yesterday’s low near 1.2900 will invalidate the near-term bullish view.

Bottom Line

  • GBP/USD is seeing renewed upside momentum although a daily close above the 100 DMA will be important for bulls.
  • Sterling volatility is expected to rise as formal negotiations with the EU begin on Monday.

GBP/USD Bullish Impulse Challenges 1.30 Resistance Zone

Dear traders, the GBP/USD made a lower high after showing bullish momentum. Can the Cable make one more rally within the range?

4 hour chart

GBP/USD 4 hour chart

The GBP/USD price action remains choppy. The trend lines indicate the lack of a trend. But the bullish impulse could be labelled as a wave 1 (green) after price action completed a potential bearish wave C (orange). This is invalidated (red x) if price is able to break below the 100% Fib level. A break above the resistance levels (red) could indicate a move up to 1.31 or 1.3150 and the next resistance zone (red).

1 hour chart

GBP/USD 1 hour chart

The GBP/USD is showing a potential bullish impulse as a wave 1 (green). But the wave pattern can also be a wave A for a larger ABC pattern. The key levels remains the bottom at 1.2850 for a bearish breakout and 1.30 resistance for a bullish breakout.

Good trading,

Chris Svorcik

The analysis has been done with the help of SWAT method (simple wave analysis and trading)

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GDP Numbers and U.S Consumer Confidence Put the EUR and USD in Focus

Earlier in the Day:

It was a quiet day on the Asian economic calendar this morning, with no material stats to provide direction on the day.

The lack of stats left the markets to lick its wounds following Monday’s risk aversion.

For the Majors

At the time of writing, the Japanese Yen was down by 0.07% to ¥110.8 against the U.S Dollar. The Aussie Dollar was up by 0.18% to $0.6617, with the Kiwi Dollar was up by 0.13% to $0.6348.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. Key stats include Germany’s 2nd estimate GDP numbers for the 4th quarter.

Barring deviation from 1st estimates, however, the numbers are unlikely to have too much of an impact on the EUR.

Following Monday’s sell-off, support through the early part of the day will likely continue through to the U.S session.

Any slide in U.S consumer confidence and risk aversion could return later in the day, however, which would be EUR negative.

At the time of writing, the EUR was up by 0.11% at $1.0866.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

Risk sentiment will be the key driver on the day, with Brexit chatter also in focus. EU member states are due to deliver the finalized terms for trade negotiations.

Unrealistic demands would be Pound negative.

At the time of writing, the Pound was up by 0.11% to $1.2938.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. December house price and February consumer confidence figures are due out later today.

Expect consumer confidence figures to be the key driver. Following some disappointing private sector PMI numbers last week, weak consumer confidence figures would be another red flag.

Fears of a U.S recession had disappeared at the turn of the year. That could change should we see consumer confidence slump.

At the time of writing, the Dollar Spot Index was down by 0.15% to 99.214.

For the Loonie

It’s a quiet day ahead on the economic calendar, with no material stats due out of Canada to provide direction.

The lack of stats will leave the Loonie in the hands of market risk appetite and crude oil prices.

A steadying of crude oil prices early in the day eased pressure on the Loonie this morning.

The Loonie was up by 0.07% at C$1.3284 against the U.S Dollar, at the time of writing.

GBP/USD Price Forecast – British Pound Trying To Recover

The British pound initially broke down a bit during the trading session on Monday, but it seems as if the 1.29 level is trying to offer a bit of support, so therefore it’s likely that the market will try to go and look for a bit of strength. At this point, I believe that the British pound continues to be thrown around due to the Brexit negotiations and of course the fact that it is being traded against the US dollar. The candlestick is starting to form a little bit of a hammer like shape, and that could be a good sign to go higher. Overall, the 1.30 level will attract a certain amount of attention, so be aware that the sellers could come in at that point. However, if the market was to break above the 50 day EMA, it’s likely that it will go looking towards 1.32 level after that.

GBP/USD Video 25.02.20

To the downside, if the market breaks down below the 1.2850 level, that could send this market down towards the 200 day EMA but it is going to take some time to get there. The US dollar of course is relatively strong, as there are a lot of fear around the world. Ultimately, the market is likely to find a lot of noise in general, but longer-term I do believe that the British pound will try to go looking towards 1.35 handle. However, there is a lot of work to do to change attitudes and therefore I wouldn’t hold my breath for that move to happen in the short term. It does look like we are trying to find a bit of a base year, and that is almost always a longer-term process.

GBP/USD Daily Forecast – Sterling Reverses Lower From Major Resistance

Volatility was heightened in the global markets at the European open as investors fled from risky assets in favor of safe-haven assets like gold and bonds. The currency markets appear to be little impacted by the shift to risk aversion as the major currencies trade within typical price ranges.

The S&P 500 is down about two and a half percent shortly after the European open while the UK FTSE has shed about three percent. Most media outlets are attributing the decline in equity markets today to an escalation in fears over the Coronavirus.

The week ahead is a quiet one in terms of economic data pertaining to GBP/USD. The highlight will be US consumer confidence figures on Tuesday and then US GDP and durable goods orders on Thursday. Several members of the Bank of England are scheduled to speak throughout the week.

There were three major economic releases from the UK last week and all came in ahead of analyst expectations. Nevertheless, Sterling posted a weekly loss against the dollar. The lack of buying last week could be signaling more losses to come for the British pound.

Technical Analysis

GBP/USD has been trading around a major level at 1.2961. This level served as a notable barrier in the fourth quarter and then acted as support earlier this year. The pair reversed lower after briefly scaling above it on Friday and the momentum is once again to the downside.

GBPUSD Daily Chart

The exchange rate is on pace to post a bearish engulfing candle on a daily chart which also builds towards a bearish case over the near-term. On a monthly chart, the pair is also set to print a reversal candle.

For the session ahead, resistance is seen at 1.2924. Bulls will want to see a rally above it to lift the near-term bearish tone. On the downside, 1.2880 has held the pair higher twice in February on a daily close basis. Beyond that, further support is found at 1.2859.

Bottom Line

  • GBP/USD is seeing renewed bearish pressure in the early week. If the pair closes near current levels, or lower, it could be signaling a bearish continuation.
  • The global equity markets are seeing an abrupt shift to risk aversion as investors become increasingly concerned about the Coronavirus.