The ECB's chief economist Peter Praet recently crossed the wires saying that the ECB could adopt rate guidance if the economy were to slow sharply.
Key quotes (via Reuters)
- What counts for us is medium-term and we see positive and negative factors there.
- A rebound is likely, but it is too early to say by how much.
- Biggest problem by far is political uncertainties persisting for so long, related to protectionism, Brexit.
- Question is how financial sector would react; there's risk banks could act even more pro-cyclically than usual.
- TLTROs have been a very useful tool to deal with impairments in transmission of monetary policy, are part of toolbox.
- We do need to monitor the transmission of monetary policy through banking system carefully.
- If euro area economy were to slow more sharply, we could adapt guidance on rates, complemented by other measures.
- Further asset purchases may not be needed at all to ensure that financing conditions are appropriate.
- It may make sense for ECB to review overall mon pol framework in future, now may not be right time.
EUR/USD daily chart
- EUR/GBP is trading in a sideways trend below the 200-day simple moving averages (SMAs).
- This Monday, on US President’s Day, the financial markets might offer limited moves.
EUR/GBP 4-hour chart
- EUR/GBP is trading between the 50 and 100 SMAs on the 4-hour chart suggesting a sideways market in the medium-term.
EUR/GBP 30-minute chart
- EUR/GBP is trading below the main SMAs suggesting bearish momentum in the short-term.
- EUR/GBP is rejecting 0.8760 resistance. On the way down next supports are seen near 0.8740 and 0.8720 figure.
- Resistance is seen at 0.8760 and 0.8785 level.
Additional key levels
Today Last Price: 0.8755
Today Daily change: -9 pips
Today Daily change %: -0.10%
Today Daily Open: 0.8764
Daily SMA20: 0.8753
Daily SMA50: 0.8885
Daily SMA100: 0.8857
Daily SMA200: 0.8865
Previous Daily High: 0.8834
Previous Daily Low: 0.8751
Previous Weekly High: 0.8842
Previous Weekly Low: 0.8743
Previous Monthly High: 0.9119
Previous Monthly Low: 0.8617
Daily Fibonacci 38.2%: 0.8783
Daily Fibonacci 61.8%: 0.8802
Daily Pivot Point S1: 0.8733
Daily Pivot Point S2: 0.8701
Daily Pivot Point S3: 0.865
Daily Pivot Point R1: 0.8815
Daily Pivot Point R2: 0.8865
Daily Pivot Point R3: 0.8897
- Trade optimism helps antipodeans stay strong.
- US Dollar Index drops to 96.70 area.
The NZD/USD pair gained traction in the early trading hours of the Asian session and reached its highest level in 12 days at 0.6893 but struggled to preserve its bullish momentum. With markets quieting down in the last couple of hours amid the thin trading volume, the pair has gone into a consolidation phase and was last seen trading at 0.6872, adding 0.1% on the day.
Over the weekend, U.S. President Trump, via Twitter, said that big progress was being made on many different fronts in China trade talks ahead of this week's round of negotiations in Washington and helped trade-sensitive currencies such as the AUD and NZD start the week on a positive note. Additionally, New Zealand PM Jacinda Arden told reporters that the relationship with New Zealand and China were 'robust and mature', to provide an additional boost to the kiwi.
On the other hand, the greenback struggled to recover the losses that it suffered in the second half of the previous week and supported the pair's rally. However, with the trading volume thinning out in the second half of the day due to the President's Day holiday in the U.S., the US Dollar Index steadied near the 96.70 level and didn't allow the pair to continue to push higher.
On Tuesday, the RBA will publish the minutes of its last meeting and the AUD/USD pair's reaction to the publication could be the next catalyst for the pair.
Key technical levels
Today Last Price: 0.6872
Today Daily change %: 0.10%
Today Daily Open: 0.6865
Daily SMA20: 0.6815
Daily SMA50: 0.6789
Daily SMA100: 0.6732
Daily SMA200: 0.6753
Previous Daily High: 0.6875
Previous Daily Low: 0.6809
Previous Weekly High: 0.6875
Previous Weekly Low: 0.6719
Previous Monthly High: 0.694
Previous Monthly Low: 0.6516
Daily Fibonacci 38.2%: 0.685
Daily Fibonacci 61.8%: 0.6834
Daily Pivot Point S1: 0.6824
Daily Pivot Point S2: 0.6784
Daily Pivot Point S3: 0.6758
Daily Pivot Point R1: 0.689
Daily Pivot Point R2: 0.6916
Daily Pivot Point R3: 0.6956
- The demand for the buck remains subdued today.
- US-China trade hopes keep weighing on USD.
- US markets are closed due to the President’s Day holiday.
The greenback, in terms of the US Dollar Index (DXY), remains on the defensive and so far unable to pick up any serious pace around the 96.70 region.
US Dollar Index weak on risk-on mood
The index remains depressed and under pressure, prolonging the correction lower from Friday’s fresh yearly peaks in the vicinity of 97.40, always against the backdrop of thin trade conditions due to the holiday in the US markets.
In fact, the greenback is down for yet another session today and flirting with the 10-day SMA in the 96.70 region. The downside pressure in the buck has been intensifying as of late in light of the recent progress at the US-China trade talks, which are set to resume later this week in Washington.
In the US calendar, the next significant event will be the publication of the FOMC minutes on Wednesday, seconded by the key Philly Fed index on Thursday, all along a slew of Fed speakers.
What to look for around USD
Market participants have considered as positive the recent developments from the US-China negotiations in Beijing ahead of this week’s further talks in Washington. In the meantime, investors will remain vigilant on upcoming results on US calendar and the release of the FOMC minutes. Despite market participants are holding on to the idea of a potential slowdown in the US economy in the next months, the deterioration in overseas fundamentals in combination with ‘softer’ stance in G10 central banks keeps occasional dips in the buck somewhat shallow. This view is reinforced by rising scepticism over a potential halt in the Fed’s tightening cycle this year.
US Dollar Index relevant levels
At the moment, the pair is losing 0.22% at 96.71 and a break below 96.65 (low Feb.18) would open the door to 96.42 (55-day SMA) and finally 96.31 (21-day SMA). On the other hand, the next hurdle emerges at 97.37 (2019 high Feb.15) followed by 97.71 (2018 high Dec.14) and then 97.87 (monthly high Jun.20 2017).
USD/CAD daily chart
- On the daily time-frame, USD/CAD is trading between the 50 and the 100-day simple moving averages (SMAs) suggesting a sideways market.
- This Monday, US President’s Day, might offer limited moves in the financial markets.
USD/CAD 4-hour chart
- USD/CAD is trading between the 100 and 200 SMAs suggesting bearish momentum in the medium-term.
USD/CAD 30-minute chart
- USD/CAD is trading below its main SMAs suggesting a bear market in the short-term.
- Bears will likely try to reach 1.3200 figure to the downside.
- Resistance is seen at 1.3240 and 1.3270 level.
Additional key levels
Today Last Price: 1.3235
Today Daily change: -12 pips
Today Daily change %: -0.09%
Today Daily Open: 1.3247
Daily SMA20: 1.3241
Daily SMA50: 1.3363
Daily SMA100: 1.3245
Daily SMA200: 1.3148
Previous Daily High: 1.3314
Previous Daily Low: 1.3245
Previous Weekly High: 1.3341
Previous Weekly Low: 1.3196
Previous Monthly High: 1.3664
Previous Monthly Low: 1.3118
Daily Fibonacci 38.2%: 1.3272
Daily Fibonacci 61.8%: 1.3288
Daily Pivot Point S1: 1.3223
Daily Pivot Point S2: 1.32
Daily Pivot Point S3: 1.3154
Daily Pivot Point R1: 1.3292
Daily Pivot Point R2: 1.3338
Daily Pivot Point R3: 1.3362
Irish foreign minister Simon Coveney was out on the wires recently, reiterating that the EU is unwilling to reopen the Brexit withdrawal agreement.
Key quotes (via Reuters)
- No-deal Brexit would be “crazy” outcome of three years of Brexit negotiations.
- UK parliament’s asks must be reasonable.
- EU cannot remove backstop insurance and replace it with ‘wishful thinking’.
- Time-limit to backstop would kick issue down in time, cannot be accepted.
- Ireland spending hundreds of millions of euros preparing for no-deal Brexit.
- Declaration on future ties is the area for manoeuvre on backstop assurances.
- ‘We want to find ways’ to help pm may ratify Brexit deal in parliament.
- US Dollar Index continues to push lower below 97.
- European equity indexes stay quiet on Monday.
- President's Day holiday in the United States.
The USD/JPY pair is trading in a narrow band on Monday as markets are struggling to identify the next catalyst. As of writing, the pair was up 0.1% on the day at 110.58.
The US Dollar Index, which closed the previous week on a negative note on dovish Fed expectations, extended its drop on Monday and was last down 0.23% on a daily basis at 96.70. Last Friday, Atlanta Fed President Bostic said that the Fed was in no rush to arrive at neutral rates and San Francisco Fed President Daly told The Wall Street Journal that there was a good chance that the Fed could refrain from hiking rates in 2019.
In the remainder of the session, the pair is likely to continue to move sideways as the President's Day holiday in the U.S. is expected to weigh on the trading volume.
Later in the week, the FOMC's meeting minutes, which is scheduled to be released on Wednesday, will be watched closely by the participants. On the other hand, trade balance data from Japan will be looked upon for fresh impetus on Tuesday.
Key technical levels
The pair could encounter the first technical resistance at 111 (psychological level/Feb. 13 high) ahead of 111.30 (100-DMA) and 111.55 (200-DMA). On the downside, supports are located at 110/109.90 (psychological level/20-DMA), 109.50 (50-DMA) and 108.80 (Jan. 30 high).
- The offered bias in the greenback leads the recovery in spot.
- US-China trade talks due to resume later in the week.
- Risk-on sentiment continues to prevail in the global markets.
EUR/USD keeps the positive performance well and sound at the beginning of the week and is now navigating the upper end of the range in the 1.1330/35 band, or new session highs.
EUR/USD looks to trade, ECB
Optimism on an eventual deal in the US-China trade negotiations remains on the rise and keeps the sentiment in the risk-associated universe well propped up for the time being.
Further support for the riskier assets comeS from the markets’ view than some G10 central banks could postpone any intentions of start some sort of tightening in the next months, all against the backdrop of a generalized perception of a global slowdown.
Data wise in Euroland, the ZEW survey is coming up tomorrow, advanced February PMIs on Thursday as well as the publication of ECB minutes. Across the pond, the FOMC minutes are expected on Wednesday.
What to look for around EUR
US-China trade talks will be in centre stage this week and are expected to sustain the improved mood in the riskier assets, as markets are looking at the possibility that both parties could clinch a deal sooner than later. On another direction, EUR should closely follow comments from ECB members regarding the ongoing slowdown in the euro bloc and potential guidance from the ECB in the next months, at a time when speculations that the central bank could refrain from acting on rates this year remain on the rise.
EUR/USD levels to watch
At the moment, the pair is gaining 0.29% at 1.1323 facing the next hurdle at 1.1333 (high Feb.18) seconded by 1.1356 (23.6% Fibo of the September-November drop) and then 1.1403 (100-day SMA). On the other hand, a break below 1.1248 (2019 low Feb.14) would target 1.1215 (2018 low Nov.12) en route to 1.1118 (monthly low Jun.20 2017).
Krishen Rangasamy, analyst at National Bank Financial, suggests that in the US, the price of imports has failed to take off despite Trump’s tariffs resulting partly in the inflation remaining well under wraps.
“The import price index actually fell for a third consecutive month in January according to latest data from the BLS. So much so that, on a year-on-year basis, the import price of non-petroleum goods is now in negative territory for the first time in years. So, why are import prices falling again?”
“The U.S. dollar’s surge in 2018 has clearly helped cap the price of imported goods. As today’s Hot Charts show, the declining price of imports from China coincides with the yuan’s depreciation against the USD.”
“The lack of inflation pressures, both domestic and imported, and a flat yield curve arguably restrain the ability of the Federal Reserve to tighten U.S. monetary policy much further.”
• On Friday, the pair convincingly broke through a confluence hurdle comprising of the top end of a 2-1/2 week old descending trend-channel and 50-period SMA on the 4-hourly chart.
• The fact that intraday dip back closer to the mentioned resistance break-points was quickly bought into reinforces the constructive set-up and support prospects for further near-term gains.
• Moreover, given that technical indicators on the daily chart have just started gaining positive traction and hold in the bullish territory on hourly charts add credence to the bullish outlook.
• Hence, the pair remains poised to extend the momentum towards reclaiming the key 1.30 psychological mark, albeit weakness below session lows would invalidate the expected move.
GBP/USD 4-hourly chart
Levels to Watch
Today Last Price: 1.2917
Today Daily change %: 0.19%
Today Daily Open: 1.2892
Daily SMA20: 1.2992
Daily SMA50: 1.2824
Daily SMA100: 1.2878
Daily SMA200: 1.3007
Previous Daily High: 1.2898
Previous Daily Low: 1.2785
Previous Weekly High: 1.2959
Previous Weekly Low: 1.2773
Previous Monthly High: 1.3214
Previous Monthly Low: 1.2438
Daily Fibonacci 38.2%: 1.2855
Daily Fibonacci 61.8%: 1.2828
Daily Pivot Point S1: 1.2818
Daily Pivot Point S2: 1.2745
Daily Pivot Point S3: 1.2705
Daily Pivot Point R1: 1.2932
Daily Pivot Point R2: 1.2972
Daily Pivot Point R3: 1.3045
EUR/USD daily chart
- EUR/USD is trading in a bear trend below the 200-day simple moving average (SMA).
- Monday’s US Presidential Day might offer limited moves in the financial markets.
EUR/USD 4-hour chart
- EUR/USD is trading below its 100 and 200 SMAs suggesting bearish momentum in the medium-term.
EUR/USD 30-minute chart
- EUR/USD is trading above the main SMAs suggesting bullish momentum in the short-term.
- Bulls need to break above 1.1330 to travel towards 1.1350 key resistance. A break above it would open the doors to 1.1400 the figure.
- To the downside, support is seen at 1.1290 and 1.1230 level.
Additional key levels
Today Last Price: 1.1324
Today Daily change: 26 pips
Today Daily change %: 0.23%
Today Daily Open: 1.1298
Daily SMA20: 1.1371
Daily SMA50: 1.1393
Daily SMA100: 1.1405
Daily SMA200: 1.1529
Previous Daily High: 1.1312
Previous Daily Low: 1.1234
Previous Weekly High: 1.1344
Previous Weekly Low: 1.1234
Previous Monthly High: 1.1586
Previous Monthly Low: 1.1289
Daily Fibonacci 38.2%: 1.1282
Daily Fibonacci 61.8%: 1.1264
Daily Pivot Point S1: 1.1251
Daily Pivot Point S2: 1.1204
Daily Pivot Point S3: 1.1174
Daily Pivot Point R1: 1.1329
Daily Pivot Point R2: 1.1359
Daily Pivot Point R3: 1.1406
Jane Foley, senior FX strategist at Rabobank, suggests that as the EUR is faced with its own share of domestic economic and political risk, they continue to see scope for EUR/USD to dip back to the 1.12 area on a 3 month view.
“Since the start of this year, economists’ hopes for a rebound in German growth have been gradually eroded. In the second half of 2018, Germany hardly grew at all.”
“It is widely feared that the report has the potential to open to door for more tariffs on European auto imports to which Germany would be particularly sensitive. Germany’s car lobby has pushed back as has Chancellor Merkel. The markets took the news to mean that there was an increased chance of the ECB resorting to extra liquidity to support economic activity levels in the coming year or so. While the EUR has clawed back some ground vs. the USD this morning after having dipped towards the EUR/USD1.1234 area at the end of last week, we continue to view the single currency as vulnerable.”
“It is not just changing markets views with respect to ECB policy which could serve to undermine the EUR in the weeks ahead. Spanish politics is again in a state of upheaval. It seems likely that after the next general election a more hard line approach towards Catalan Separatists will be taken, this suggests risk of a rise in tensions.”
“Independently, a replacement will have to be found for ECB President Draghi this year. Faced with this level of uncertainty we see scope for EUR/USD to dip towards 1.12 on a 3 month view.”
- WTI rises above $56 on Monday.
- US Dollar Index stays in the negative territory.
- Trading action is likely to stay subdued in the second half of the day.
The USD/CAD pair came under moderate selling pressure in the early Asian session and broke below the 1.3250 mark. However, with investors staying on the sidelines in the absence of significant macroeconomic data releases on Monday, the pair started to move sideways and is now having a tough time moving out of its tight trading channel. At the moment, the pair is down 0.04% on the day at 1.3235.
Hopes of the U.S. and China moving closer to a trade agreement after this week's talks in Washington continue to support crude oil prices. The barrel of West Texas Intermediate on Monday rose above the $56 mark to reach its highest level since late November at $56.25 and allowed the commodity-related loonie to stay strong against its rivals.
On the other hand, since failing to close the week above the 97 mark, the US Dollar Index extended its technical slide today and was last seen losing 0.2% on the day at 96.73, keeping the pair in the negative territory.
Noth the U.S. and Canadian markets will be closed on Monday and the trading action is likely to remain subdued in the NA session.
Technical levels to consider
1.3200/1.3195 (psychological level/Feb. 13 low) aligns as the first support for the pair ahead of 1.3120 (Jan. 30 low) and 1.3070 (Feb. 1 low). On the upside, resistances could be seen at 1.3250 (daily high), 1.3325 (50-DMA) and 1.3375 (Jan. 24 high).
• The pair extended last week’s rejection slide from the 1.0100 handle and dropped to fresh one-week lows in the last hour amid a follow-through USD retracement.
• Meanwhile, the attempted intraday bounce failed to sustain above 200-hour SMA and the subsequent slide clearly points to increasing selling pressure at higher levels.
• Technical indicators on hourly charts have been gaining negative momentum and suggest a further decline to over one-month-old ascending trend-channel support.
• However, oscillators on the daily chart have managed to maintain their bullish bias and support prospects for some dip buying interest near the mentioned support.
• Hence, it would be prudent to wait for a convincing break below the channel support before confirming that the pair might have already topped out in the near-term.
USD/CHF 1-hourly chart
Technical levels to watch
Today Last Price: 1.003
Today Daily change %: -0.19%
Today Daily Open: 1.0049
Daily SMA20: 0.9991
Daily SMA50: 0.9927
Daily SMA100: 0.9949
Daily SMA200: 0.9909
Previous Daily High: 1.009
Previous Daily Low: 1.0039
Previous Weekly High: 1.01
Previous Weekly Low: 0.9988
Previous Monthly High: 0.9996
Previous Monthly Low: 0.9716
Daily Fibonacci 38.2%: 1.0059
Daily Fibonacci 61.8%: 1.0071
Daily Pivot Point S1: 1.0029
Daily Pivot Point S2: 1.0009
Daily Pivot Point S3: 0.9979
Daily Pivot Point R1: 1.008
Daily Pivot Point R2: 1.011
Daily Pivot Point R3: 1.013
- Prices of WTI exceed the $56.00 mark and clinch YTD peaks.
- WTI advances for the second session in a row.
- Oil rig count rose by 3 during last week to 857 active oil rigs.
Prices of the barrel of the American reference for the sweet light crude oil are hovering the $56.00 mark today, a tad lower than earlier 2019 tops near $56.30.
WTI up on USD-selling, trade hopes
The rally in crude oil remains well and sound on Monday, moving further north of the $56.00 mark per barrel, or fresh yearly highs.
In fact, prices of the WTI are extending the upside momentum since monthly lows in the vicinity of the $51.00 mark seen on February 11, always on the back of rising expectations of a positive outcome from the US-China trade talks, which are expected to resume this week in Washington.
Furthermore, the ongoing turmoil around Venezuelan output (or rather absence of it) plus comments from Saudi officials stressing the country could curb its output further is also sustaining the up move in prices.
Additional news around crude oil noted the OPEC cut its forecasts for the demand of its crude oil following prospects of slowing economy, while the EIA now sees US oil production ticking higher to 13.2 mbpd in 2020 (from 12.9 mbpd in the previous report).
What to look for around WTI
Hopes of a US-China trade deal have lent extra oxygen to crude oil prices in past sessions and this should remain a key driver in the very near term ahead of this week’s negotiations. On the broader picture, the ongoing OPEC+ agreement to curb oil production, US sanctions against Venezuelan and Iranian oil exports and the so-called ‘Saudi Put’ should keep a firm floor under crude prices.
WTI significant levels
At the moment the barrel of WTI is up 0.70% at $56.13 facing the next hurdle at $56.24 (2019 high Feb.18) ahead of $57.05 (100-day SMA) and then $58.00 (high Nov.16 2018). On the downside, a breakdown of $53.82 (10-day SMA) would aim for $51.15 (low Feb.11) and finally $51.11 (55-day SMA).
• The precious metal built on last week's goodish bounce from the $1300 neighbourhood and a subsequent breakthrough near two-week-old strong hurdle.
• The positive momentum extended for the third straight session on Monday and lifted the commodity to retest multi-month tops, around the $1326 region.
Gold 4-hourly chart
• Given that the commodity remains well above its important intraday moving averages – 50, 100 & 200-hour SMA, support prospects for further intraday gains.
• However, technical indicators on hourly charts have moved on the verge of pointing to slightly overbought conditions and thus, warrant some caution.
• The set-up points to some near-term consolidation before further gains towards 61.8% Fibo. expansion level of $1280-$1326 up-move and subsequent retracement.
Technical levels to watch
Today Last Price: 1325.5
Today Daily change %: 0.33%
Today Daily Open: 1321.1
Daily SMA20: 1305.66
Daily SMA50: 1285.19
Daily SMA100: 1254.6
Daily SMA200: 1232.57
Previous Daily High: 1322.55
Previous Daily Low: 1305.9
Previous Weekly High: 1322.55
Previous Weekly Low: 1303.15
Previous Monthly High: 1326.25
Previous Monthly Low: 1275.9
Daily Fibonacci 38.2%: 1316.19
Daily Fibonacci 61.8%: 1312.26
Daily Pivot Point S1: 1310.48
Daily Pivot Point S2: 1299.87
Daily Pivot Point S3: 1293.83
Daily Pivot Point R1: 1327.13
Daily Pivot Point R2: 1333.17
Daily Pivot Point R3: 1343.78
According to Richard Franulovich, head of FX strategy at Westpac, the USD is finding fresh gears despite Fed patience and flexibility, but the evolving market narrative is likely to prove more challenging in coming weeks though with headwinds including a potential US-China trade-war truce and a 20 March FOMC where the dots are likely to undergo meaningful downward revision.
“To be clear, any US-China agreement is unlikely to be a comprehensive one, though it should be enough to de-escalate tensions and placate markets.”
“Chair Powell is likely to continue to stress Fed patience at their next meeting in March and the dots are likely to shift materially lower. The Fed certainly has the luxury to wait; inflation is docile (6m ann core CPE 1.5%) and the supply side of the labour market is improving sharply (prime aged labour participation has jumped +0.8ppts in the last 4mths to a decade high 82.6%).”
“The Fed’s abrupt shift on balance sheet normalisation adds another layer of caution for the USD. Altogether the USD seems vulnerable near term, regardless of its better price action lately.”
“2019H2 looks more fertile for USD upside. A USD pullback in the first half is likely limited to 94-95 an ideal location for fresh longs targeting 100.”
- The Aussie moves higher on USD-selling, near 0.7170.
- US-China trade talks fuelling the sentiment in the high-betas.
- Australian job figures next on tap on Thursday.
The persistent selling mood keeps hurting the greenback and is now pushing AUD/USD to fresh tops near 0.7160.
AUD/USD in new 2-week highs
Spot is up for the third session in a row at the beginning of the week, tracking the better tone in the risk-associated universe in response to the rising hopes on a US-China trade talks.
In the meantime, the pair appears to have met solid contention in so far monthly lows in the mid-0.7000s, while the current upper end of the range is expected to meet a tough resistance, as in this area converge the 21-, 5- and 100-day SMA.
Moving forward, the Aussie Dollar will be in centre stage later in the week in light of the publication of the RBA minutes (Tuesday), quarterly figures for Wage Price Index (Wednesday) and the always-relevant labour market figures for the month of January (Thursday).
What to look for around AUD
The Aussie Dollar is taking advantage from the constructive bias in the riskier assets and the commodity-bloc, as market participants keep their hopes high on a potential US-China trade agreement sooner rather than later. However, a more serious rally in AUD appears unsustainable for the time being following the renewed neutral stance from the RBA and prospects of a slower pace in the economic growth. It is worth recalling that the central bank cut its growth projections on the potential slowdown in China, the correction in the domestic house sector and potential trade jitters.
AUD/USD levels to watch
At the moment the pair is up 0.19% at 0.7153 and a breakout of 0.7162 (100-day SMA) would aim for 0.7235 (high Jan.11) and then 0.7273 (200-day SMA). On the downside, the next support lines up at 0.7116 (10-day SMA) seconded by 0.7075 (low Jan.25) and finally 0.7054 (low Feb.12).
Daniel Sinigaglia, Latam economist at Standard Chartered, suggests that in Brazil, the draft social security reform bill will be made public this week after an intense speculation and contradictory news flow.
“Assuming that the new draft bill is similar to the version leaked to local media, the proposal is very ambitious in terms of its scope and fiscal impact. Public statements by cabinet members in the new administration point to BRL 1tn in savings over 10 years, significantly higher than former President Termer’s initial proposal of BRL 723bn over the same timeframe.”
“The complexity of social security reform, and the political hurdles it faces, should not be underestimated.”
“With expectations currently high, there is scope for disappointment. In light of what Congress has already decided on Temer’s initial reform proposals, BRL 1tn of savings sounds unrealistic to us. Such a sum would require radical changes to the rules of the current system, some of which have already been rejected by Congress.”
“On the other hand, there is plenty of upside in the new proposals, particularly in terms of long-term fiscal benefits. If the transition from the current pay-as-you-go system to a fully funded regime is approved, this could significantly reduce long-term fiscal risks and mitigate some of the key distortions in Brazil’s economy.”
• The USD retreats further from YTD tops and helped regain positive traction.
• Brexit delay hopes further underpinning the GBP and remained supportive.
The GBP/USD pair finally broke out of its Asian/early European session consolidation phase and spiked to fresh multi-day tops, around the 1.2935-40 region in the last hour.
Having posted a session low level of 1.2892, the pair regained positive traction for the second straight session and built on Friday's goodish up-move from one-month lows amid the ongoing US Dollar corrective slide.
In fact, the greenback retreated further from Friday's fresh 2019 tops in wake of growing optimism over a possible resolution of US-China trade disputes and turned out to be one of the key factors driving the pair higher on Monday.
The British Pound was further supported by the UK Cabinet Office Minister David Lidington's comments, saying that the UK government might be able to re-negotiate the deal or delay the Brexit term scheduled for March 29.
Meanwhile, the up-move seemed unaffected by the latest UK political development, wherein 7 Labour Party MPs confirmed their resignations and called themselves the Independent Group during a press conference in London.
The trading action, however, is likely to remain subdued and the pair might struggle to gain any follow-through traction in absence of any major market moving economic data in wake of the President's day holiday in the US.
Moving ahead, market participants will keep a close eye on the UK Brexit Minister Steve Barclay's meeting with the European Union chief Brexit negotiator Michel Barnier in a last minute attempt to re-negotiate the Brexit deal.
Investors will also await the outcome of a meeting between the UK Prime Minister Theresa May and the European Commission President Juncker, which should provide some fresh directional impetus to the major.
Mario Blascak, FXStreet's own European Chief Analyst writes: “While 1.2877 representing a 100-day moving average (DMA) should as a support line in the near-term, the GBP/USD is likely to target 1.2970-1.3000. On the downside, the 100-DMA at 1.2877 is short-term support with the break below likely to see 1.2830 level tested that represents a 50-DMA.”
According to Karen Jones, analyst at Commerzbank, USD/BRL’s outlook is bearish following its rejection last week from the 55 day ma and the 5 month downtrend 0- these are located at 3.7875/3.8180.
“Attention reverts to its 3.6373 January low, this guards the October low at 3.5859 and the November 2016 high at 3.5789. While capped by the 200 day moving average at 3.8299 we maintain a bearish outlook.”
“Resistance above the 200 day moving average comes in at the 3.8313/74 mid- to late December lows and key resistance at the 3.9436/54 November and December highs. Between these two areas lies minor resistance at the January high at 3.8973.”
According to the latest headlines floating on the wires, the European Union reiterated that Brexit withdrawal agreement is not open to re-negotiations and they can't provide legally binding changes to the backstop.
• Happy to try and clarify the situation on Brexit deal.
• Risk of a no-deal Brexit is increasing.
• Cites intensifying contingency work for the no-deal scenario.
• Recovers further from Friday’s 3-month lows and remained sell bid for the second straight day.
• The USD held on the defensive amid growing US-China trade optimism and remained supportive.
The EUR/USD pair quickly reversed an early European session dip to sub-1.1300 level and spiked to fresh multi-day tops, around the 1.1330 region in the last hour.
The pair caught some aggressive bids at the start of a new trading week and built on Friday's goodish bounce from three-month lows amid the prevalent selling bias surrounding the US Dollar.
Growing optimism over further progress in the US-China trade talks kept the USD bulls on the defensive and was seen as one of the key factors driving the pair higher through the mid-European session on Monday.
Meanwhile, market participants now seemed to have fully digested Friday's downbeat comments by ECB board member Benoit Coeure, saying that the region's slowdown had been deeper and broader than anticipated.
Coeure's comments further dampened hopes for a first ECB interest rate hike this year but failed to hinder the ongoing momentum, albeit it remains to be seen if the pair is able to sustain the strength or quickly run out of steam at higher levels.
In absence of any major market moving economic releases on the back of the President’s Day holiday in the US, the USD price dynamics might continue to act as an exclusive driver of the pair's momentum on Monday.
Yohay Elam, FXStreet's own Analyst writes: “Above 1.1325, resistance awaits at last week's high of 1.1345. It is followed closely by 1.1355 which was a swing high beforehand, and the next line to watch is only 1.1390 recorded in January. “
“Support below 1.1290 awaits at 1.1270 which was a temporary low on the way down. The same applies to 1.1250 and the most significant level to watch is 1.1235 which is the fresh 2019 trough,” he added further.
In view of analysts at Nordea Markets, all eyes will be on the Fed this week, when the meeting minutes of the big U-turn FOMC meeting are out on Wednesday.
“Given the huge rally that Powell’s back-tracking has resulted in, we see risks tilted to the hawkish side ahead of those meeting minutes in general.”
“We look for clues on whether the Fed will be more concrete on a potential timing for the end of QT. For technical reasons, we know that quantitative tightening cannot run forever. The system probably needs at least USD 1,000bn in excess reserves, which could already be reached before the end of 2019 on our projections.”
“Consensus has moved towards an October stop to QT (Fed’s Brainard said that she favoured a late 2019 QT-end on Thursday), so the Fed will have to hint at an earlier stop than that to really surprise dovishly now. We don’t put a large probability on that. The earlier a QT stop, the worse a scenario for the USD, the better a scenario for risky assets. We wouldn’t bet on dovish surprises though.”
“On Thursday, we will get new clues whether the recession fears could be fuelled further in the Euro area. And while we now see a little light at the end of the tunnel 4-5 months out, our models suggest another drop in the Composite PMI figure for the Euro area next week. Our monthly model suggests a drop in the range of 0.5-0.7 index points. Not really a figure that will keep the recession wolf from the door, at least not in the eyes of markets.”
- The cross gathers further traction beyond the 125.00 handle.
- Risk-on sentiment continues to support the up move.
- US-China trade negotiations to resume later in the week.
The now better tone in the European currency is helping EUR/JPY to advance further and print fresh daily highs near 125.20.
EUR/JPY now targets 126.00 and beyond
After three consecutive daily pullbacks, the cross has now managed to pick up pace and advance to new 2-day highs beyond 125.00 the figure, always sustained by the improved mood in the risk-associated universe.
Recent progress in the US-China trade talks has been collaborating with the upbeat sentiment in the global riskier assets, while the continuation of the negotiation is expected later this week in Washington.
Nothing relevant in the docket today, while the ZEW survey will be published on Tuesday and advanced February PMIs in Euroland expected on Thursday along with ECB minutes.
In japan, key inflation figures (Friday) will be the sole release in an otherwise empty calendar.
EUR/JPY relevant levels
At the moment the cross is gaining 0.40% at 125.21 and a surpass of 125.54 (high Feb.13) would expose 125.78 (55-day SMA) and finally 125.94 (high Feb.4). On the other hand, the next support lines up at 124.22 (low Feb.15) seconded by 124.17 (low Feb.8) and then 123.39 (low Jan.15).
Analysts at Rabobank point out that Spain’s PM Pedro Sanchez announced that early elections will be held on 28 April last week and the Spanish parliament will be dissolved on 5 March, implying the legislative process will be dead for the largest part of 2019H1.
“The turn of events will have a limited impact on the economy this year, but a negative impact on government finances.”
“The longer-term economic and fiscal impact are difficult to assess based on current polls. But the outlook is likely to be better than it was under the current government.”
According to analysts at BNP Paribas, China’s economic growth is slowing due to both structural and cyclical reasons as the export outlook is significantly darkened by US tariff hikes.
“Private domestic demand should be affected by the knock-on effect of the worsening performance of the export manufacturing sector, the slowdown of retail sales and the continued moderation in the property market.”
“In order to contain the slowdown, the central bank is easing liquidity and credit conditions. At the same time, the reduction in financial instability risks via regulatory tightening should remain a top policy priority. Fiscal policy is also turning expansionary (tax cuts, increased infrastructure spending).”
ITV News is out with the latest update on the UK politics, citing that the UK lawmaker Luciana Berger confirmed the resignation alongside six other Labour Party MPs.
She said: “we will now sit in parliament as an ‘independent group of MPs’”
Labour MPs hold London press conference amid rumours of a split.
7 Labour lawmakers attend news conference confirm they have resigned.
Labour MPs will call themselves the Independent Group.