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A US-China Trade War Thaw Doesn’t Spark Risk Trends, EUR/USD Notches Large Wick

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Talking Points:

  • President Trump tweeted support for a Chinese mobile phone maker, but the market didn’t register it as ‘trade war averted’
  • There was little to offer a strong foothold for Dollar recovery, but EUR/USD Monday upper wick raises technical interest
  • Chinese and UK labor data is noteworthy, discrete event risk ahead; but the best tech pictures (NZD, CHF) don’t have cues

What do the DailyFX Analysts expect from the Dollar, Euro, Equities, Oil and more through the 2Q 2018? Download forecasts for these assets and more with technical and fundamental insight from the DailyFX Trading Guides page.

President Trump’s Tweet Does Not Restore Speculative Appetite Lost Through Trade Wars

Over the past two to three months, movement towards protectionism by some of the largest economies in the world had finally tipped the scales to outright trade war engagement. Fear that the US was withdrawing from the global economy and would incur retaliation from its major peers added to the scrutiny over a speculative run these past few years in particular that had grown increasingly dependent on the status quo. While we haven’t seen more recent events spur progress with critical breaks that usher in full, self-sustaining bear trends; there remains a bias on this front where bad news will further undermine market confidence while the alleviation of tension will not put the smashed tea cup of speculative appetite back together. Over the weekend, US President Donald Trump tweeted that he was working with Chinese President Xi Jinping to reverse a sanction on Chinese telecom ZTE imposed in 2017. While some see this as the administration walking back on its tough stance on trade through metals and intellectual property theft, it can also be read that there is easing on a stark and aggressive trade front. That said, the market’s didn’t respond with measurable enthusiasm. Neither the US benchmark indices (S&P 500, Dow), the Chinese markets (Shanghai Composite) or trade and risk sensitive assets (emerging markets) showed much relief – much less confidence.

A US-China Trade War Thaw Doesn't Spark Risk Trends, EUR/USD Notches Large Wick

Dollar Retreat Stalls with Competing Signs of Stall and Pause

The Dollar’s two-day retreat to end this past week didn’t pick back up immediately on the bearish charge to start things off Monday. While the Greenback did ease through the morning, momentum never showed up and the market made a quick turn to put the currency back on the bid. The result for the EUR/USD was the largest ‘upper wick’ since January 29. This has strong history for calling short-term turns, but it is by no means a sign of certainty that the benchmark pair is going to immediately return to its month-long – and still emergent – bullish reversal. For other Dollar-based pairs, we are still standing at key thresholds (USD resistance) such as GBP/USD, NZD/USD and USD/CHF. One of the complicating factors to the revival of trend is the lack of an explicit catalyst. The Dollar’s recovery is finding more motivation from a collective weakening of counterparts and rebalancing of extreme net short USD holdings than a clear cut driver like rising interest rate expectations or binary as a NFPs release. The ingredients are there, but the speculative reaction will unfold slowly until an accelerant is added.

A US-China Trade War Thaw Doesn't Spark Risk Trends, EUR/USD Notches Large Wick

China and UK Labor Data is Key Event Risk

There are a few notable economic releases on the docket for the upcoming session. For the US Dollar, we have: Fed speak to fine tune a locked in interest rate forecast; testimony by two Fed candidates (Clarida and Bowman) to fill two of the four empty FOMC Board seats and the March TIC flows which will tell us whether trade wars have incurred any measurable financial consequence for the US. The Euro meanwhile is scheduled for the Eurozone investor sentiment survey for ZEW where we can establish concerns over lingering issues for this economic giant. Neither currency is likely to elicit a strong reaction from the event risk. That said, the employment data from the UK and China have far greater capacity. The UK jobs figures has a history of sparking drama for the Pound when it sufficiently surprises. This has its greatest potential for putting pairs like GBP/USD and EUR/GBP on new trend through BoE timing through wage statistics, but that may be a reach. Watch for the volatility response. As for the Chinese data, we have the standard retail sales, industrial production and fixed assets figures. The real interest is in the new jobs series. This data has a poor track record of charging trend; but it is very important as an economic update nonetheless.

A US-China Trade War Thaw Doesn't Spark Risk Trends, EUR/USD Notches Large Wick

The Best Technicals Don’t Have Good Fundamental Triggers

While there is some moderate potential for fundamentally-triggered movement for the Dollar, Euro and Pound; the best looking broad-spectrum charts don’t have any high profile data or event on tap. I’m particularly intrigued by the conditions reflected in the Swiss franc and New Zealand Dollar. Both have shown exceptional technical patterns on a trade-weighted basis and particularly among their crosses. The franc has slid consistently over weeks to the pleasure of the SNB, but its recent congestion suggests pause that could boost the potential for reversal. A USD/CHF turn looks like it could be particularly dramatic, but it doesn’t align to the slow progress of the Dollar and my view on EUR/USD. If I were to take a perspective on the franc, it would be through EUR/CHF or CAD/CHF. In a similar fashion, the Kiwi has sunk aggressively of late, and is now pressuring a further break lower. Amongst the NZD crosses, there are a number of pairs that are at the technical cusp – NZD/USD, NZD/CAD, NZD/JPY – which I will monitor for technical course setting an a more reliable fundamental backdrop. We discuss all of this in today’s Trading Video.

A US-China Trade War Thaw Doesn't Spark Risk Trends, EUR/USD Notches Large Wick



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Forex

Slowing New Zealand GDP to Rattle Post-Fed NZD/USD Rally

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Trading the News: New Zealand Gross Domestic Product (GDP)

Updates to New Zealand’s Gross Domestic Product (GDP) report may rattle the NZD/USD rally following the Federal Reserve meeting as the growth rate is expected to narrow to 2.5% from 2.6% per annum in the third-quarter of 2018.

Image of DailyFX economic calendar

Another downtick in the GDP print may produce headwinds for the New Zealand dollar as it warns of a slowing economy, and a dismal development may push the Reserve Bank of New Zealand (RBNZ) to alter the forward-guidance as the central bank warns ‘trading-partner growth is expected to further moderate in 2019.’

Even though the official cash rate (OCR) sits at the record-low of 1.75%, the weakening outlook for economic activity may encourage the RBNZ to further insulate the economy as the central bank asserts that ‘the direction of our next OCR move could be up or down.’ In turn, a GDP print of 2.5% or lower may spark a bearish reaction in NZD/USD, but a positive development may fuel the advance following the Federal Reserve meeting as it curbs bets for an RBNZ rate-cut. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Impact that the New Zealand GDP report has had on NZD/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

3Q

2018

12/19/2018 21:45:00 GMT

2.8%

2.6%

-10

-15

3Q 2018New Zealand Gross Domestic Product (GDP)

NZD/USD 15-Minute Chart

Image of nzdusd 15-minute chart

New Zealand’s Gross Domestic Product (GDP) report showed the growth rate increasing 2.6% after expanding a revised 3.2% in the second-quarter of 2018. A deeper look at the report showed Mining as the biggest contributor to growth as the sector grew 12.4% in the third-quarter, with Wholesale Trade climbing 1.1.% during the same period, while Utilities suffered a 2.3% decline after rising 4.1% during the three-months through June.

The New Zealand dollar struggled to hold its ground following the below-forecast print, with NZD/USD pulling back from the 0.6800 handle to close the day at 0.6774. Learn more with the DailyFX Advanced Guide for Trading the News.

NZD/USD Daily Chart

Image of nzdusd daily chart

  • Broader outlook for NZD/USD remains fairly constructive as both price and the Relative Strength Index (RSI) continue to track the upward trends from earlier this year, but the exchange rate may face range-bound conditions over the near-term as it appears to be stuck in a long-term wedge/triangle formation.
  • With that said, the Fibonacci overlap around 0.6930 (23.6% expansion) to 0.6960 (38.2% retracement) sits on the radar as it lines up with the 2019-high (0.6942), with a break/close above the stated region raising the risk for a run at the December-high (0.6969).
  • Next region of interest comes in around 0.6990 (50% expansion) following by the 0.7040 (50% retracement) zone, but failure to hold above the 0.6820 (23.6% retracement) to 0.6870 (78.6% expansion) area may trigger a move back towards 0.6780 (100% expansion) to 0.6790 (50% expansion).

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



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Forex

Crude Rally Testing Critical Resistance Zone

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In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. Crude Oil prices have rallied nearly 10% from the yearly lows with the advance now testing a key technical resistance confluence around the 60-handle. These are the updated targets and invalidation levels that matter on the Crude Oil weekly price chart. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

New to Oil Trading? Get started with this Free How to Trade Crude Oil Beginners Guide

USD/CAD Weekly Price Chart

Oil Price Chart - Crude Weekly - WTI

Notes: In last month’s Crude Oil Weekly Technical Outlook we noted that price was approaching 2018 pitchfork resistance with, “A topside breach of this formation / the high-day close at 57.14 targets more a more significant resistance confluence at 59.61-60.06 where the 50% retracement of the October decline and the 2018 open converge on the 2015/ 2016 pitchfork resistance- look for a larger reaction there IF reached.” Oil prices are testing this critical resistance confluence today on the back of a weak inventories report that showed a drop of more than 9.59mln barrels last week.

The focus is on a reaction off this threshold with the yearly advance at risk near-term while below. A weekly close above would be needed to suggest that a more meaningful low was registered in December with such a scenario targeting the 52-week moving average at ~62.82 and the 61.8% retracement of the 2018 decline at 63.68. Key support and bullish invalidation now rests back at 55.21/53– weakness beyond this threshold would risk substantial losses for crude prices.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line: We’re looking for a reaction on this stretch into confluence resistance at 59.61 – 60.06. Watch the weekly close- below would highlight the threat for a near-term correction / exhaustion in price. From a trading standpoint, a good place to reduce long-exposure and raise protective stops. We’ll be looking for possible price exhaustion heading into next week IF crude prices respect this threshold into the close. I’ll publish an updated Crude Oil Technical Outlook once we get further clarity in near-term price action

Even the most seasoned traders need a reminder every now and then- Avoid these Mistakes in your trading

Crude Oil Trader Sentiment

Oil Trader Sentiment - Crude Positioning - WTI

  • A summary of IG Client Sentiment shows traders are net-short Crude Oil – the ratio stands at -1.04 (49.1% of traders are long) – neutral reading
  • Long positions are 4.2% lower than yesterday and 5.7% lower from last week
  • Short positions are 8.2% lower than yesterday and 1.5% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil – US Crude prices may continue to rise. Yet traders are less net-short than yesterday but more net-short from last week and the combination of current positioning and recent changes gives us a further mixed Oil – US Crude trading bias from a sentiment standpoint.

See how shifts in Crude retail positioning are impacting trend- Learn more about sentiment!

Previous Weekly Technical Charts

Learn how to Trade with Confidence in our Free Trading Guide

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

https://www.dailyfx.com/crude-oil/how-to-trade-crude-oil.html?ref-author=Boutros



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US Market Open: Top 3 Market Drivers

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Market Themes and Movers – Brexit, FOMC and US-China Trade.

GBP: Another day of confusion and conflicting Brexit deal/delay talks continue to leave Sterling rudderless. Despite the current impasse the British Pound remains bid, although it is becoming increasingly vulnerable to short, sharp moves as news flows continue. The latest round of media reports suggest that PM May is looking for a three-month Brexit delay from EU negotiators although putting a revised meaningful vote to Parliament cannot be ruled out. UK inflation data released this morning showed little change and was put aside as traders focus on Brexit updates.

USD: The latest FOMC monetary policy decisionswill be released later in the UK session with monetary settings expected to be left unchanged. Traders will look for clues from Fed Chair Jerome Powell on the future path of interest rates, via the dot plot, and his latest thoughts on balance sheet normalization.

Gold/Oil: Both gold and oil are struggling to make further headway with one eye on the FOMC meeting and the other on the latest US-China trade negotiations with US President Donald Trump tweeting yesterday that talks were going ‘very well’. As with Brexit, the situation remains fluid with news flows again the dominant driver for trade war risk sentiment. With global growth falling, any positive trade news should underpin oil at its present level and may well give it a further leg-up in the short- to medium-term.

Professional Crude Oil and Energy Trading Fundamentals – Brynne Kelly.

Chart of the Day – US Dollar Basket – Over to You Fed

US Market Open: Top 3 Market Drivers - Brexit, FOMC and Trade Risk

DailyFX Economic Calendar: For updated and timely economic releases.

How to use IG Client Sentiment to Improve Your Trading

Retail sentiment is an important tool for any trader to help gauge market sentiment and positioning. We provide updated daily and weekly positional changes on a wide range of currencies and asset classes to help decision making.

Market Movers with Updated News and Analysis:

  1. Sterling (GBP) Price Slips on Renewed Brexit Confusion, UK Inflation Stable.
  2. Preview for March FOMC Meeting and US Dollar Price Forecast.
  3. Trading Outlook for Gold Price, Crude Oil, Dow Jones and More.
  4. FTSE Technical Analysis – Support on Dip, New Levels of Resistance Targeted.

— Written by Nick Cawley, Market Analyst

To contact Nick, email him at Nicholas.Cawley@ig.com

Follow Nick on Twitter @nickcawley1



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