- US equity indices turned pause into decline Tuesday, but this didn’t seem a wide risk move on events like North Korea fears
- Dollar posted a strong rally alongside the charge in 10-year Treasury yields to 7-year highs but key levels are still ahead
- Pound and Euro face Brexit and Italian dissent, but it is the Kiwi and Swiss franc that still present the appealing setups
Risk Trends Sour but it is US Equities Leading the Way
Speculative sentiment started off the week on shakey ground, but it started to genuinely slip through Tuesday’s session. Taking their position as symbolic leader of risk trends seriously once again, the US equity indices were opened this past session with sizable gaps down on the the open. The selling pressure gained a little more traction through the active trading hours without tipping into a full-tilt bear trend. The S&P 500 curbed its bullish breakout bid, the Nasdaq 100 is starting to form a right shoulder through a head-and-shoulders pattern, and the Dow broke its longest streak of daily gains (8) in 12 months. The damage done in altitude loss may be modest, but the impact on already flimsy conviction can prove more crippling than many appreciate. Looking further afield on the risk spectrum, there isn’t evidence of a full buy-in. Europen equities were steady, Yen crosses didn’t commit but emerging markets certainly felt the pain. Currencies like the Brazilian real, Turkish lira and Indian rupee suffered mightily to the US dollar.
Dollar: Not Ready to Capitulate Just Yet
The fundamental drive behind the Greenback may be an uneven mix of half stabile drivers, but it is nevertheless keeping the currency buoyant. Facing a recent slip, the DXY Index staged an impressive rebound Tuesday to plug the hole it had sprung following a month-long recovery effort. The currency’s rally earned a noteable break for USD/JPY above 110 with a long-term trend break for the battered NZD/USD, but the progress was far less ‘critical’ elsewhere. For EUR/USD, a return to the 2018 low was as good as it would get. The jump for GBP/USD, USD/CHF and AUD/USD would simply build a little favorable pressure in recently established ranges. If you were looking for the signal for Dollar bidding in the docket or headlines, you wouldn’t find much. Aside from housing data that offers little regular market moving, the Fed speak on tap struke familiar chords. The testimony of two Fed candidates – Clarida and Bowman – raises the potential of a heavier hawkish skew in the Board, but that hardly seems a relaible ladder rung. A moderate risk appetite, monetary policy advantage, speculative bid and counterpart pain can combine to gains moving forward; but it is not an easy mix to keep.
Key Fundamentals without Key Move: Pound, Euro and Yuan
We have registered some remarkable fundamental developments for key currencies this past session that resulted in very unimpressive market moves. A run of Chinese data offering a miss on Chinese retail sales and industrial production along with the new offer of the country’s jobless rate resulted in little tangible USD/CNH response as we would expect from a managed exchange rate. A little more surprising was the limited response from the Sterling to the UK data. The jobless claims change jumped more than three times the forecast with an uptick in the claimant count rate. Add to that the Scottish Parliament offering more trouble for Britains withdrawal proposal and news that a Brexit white paper will come out next month, and it is impressive that GBP/USD would take out its range low with the Dollar’s performance. From the Euro, a concerning headline of demands from Italy’s Five Star and League didn’t gain much rotation amid updates like North Korea’s threat to cancel the summit with President Trump. Demands that 250 billion euros in ECB purchased Italian debt be forgiven, reform of European treaties and making easier to exit the EU are troubling. Yet, the Euro didn’t seem too troubled looking around at the broad performance beyond EUR/USD.
Impressive Moves with Less Fundamental Source
In contrast to the heavy-news-light-action mix above; the Kiwi dollar, Swiss franc and gold were doing much more with less. The docket was essentially open for the New Zealand currency, and yet the pain continued with a critical extension on NZD/USD. This is not a free to roam bear run however as GBP/NZD, EUR/NZD and NZD/JPY are near the boarders of critical technical levels. If the pain continues, these are pairs that should be watched closely – but even if it makes a bid for recovery, these are still strong opportunities. From the Swiss franc, we don’t expect a traditional fundamental response; but it is clear that EUR/CHF exerts particular influence. The pair made a more threatening correction this past session and pairs like CAD/CHF pose impressive opportunity. Even gold put in for an impressive day. Certainly the strength for the Dollar and 10-year Treasury yield contributed to the metal’s problems, but the break from a month’s-long range was still a surprise. Looking to retail speculative interest, traders are confident range conditions will kick back in with extreme net long interest on virtually no short exposure. Beware extreme conviction as it can prove to be delusion. We discuss all of this and more in today’s Trading Video.
Slowing New Zealand GDP to Rattle Post-Fed NZD/USD Rally
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.
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
(1 Hour post event )
(End of Day post event)
12/19/2018 21:45:00 GMT
3Q 2018New Zealand Gross Domestic Product (GDP)
NZD/USD 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
- 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.
Crude Rally Testing Critical Resistance Zone
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
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
- 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
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex
US Market Open: Top 3 Market Drivers
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.
Chart of the Day – US Dollar Basket – Over to You Fed
DailyFX Economic Calendar: For updated and timely economic releases.
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:
- Sterling (GBP) Price Slips on Renewed Brexit Confusion, UK Inflation Stable.
- Preview for March FOMC Meeting and US Dollar Price Forecast.
- Trading Outlook for Gold Price, Crude Oil, Dow Jones and More.
- 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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