Fundamental Forecast for CNH: Neutral
- China’s Foreign Minister will attend the China-Japan Economic Dialogue in Tokyo, after it suspended for 8-years.
- China has been strengthening connections with other neighbouring countries since the end of March.
- China will release 2018’1Q Gross Domestic Product as well as March Fixed Assets Investments.
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The Chinese Yuan rose against the U.S. Dollar this week, easing last week’s losses: Chinese President Xi Jinping touched on a list of topics that the U.S. concerned the most at Boao Forum, from intellectual property rights to tariffs. Although not many brand-new measures were introduced, the move was considered to be a positive signal and welcomed by Trump and the market. In addition, PBOC’s newly-appointed Governor, Yi Gang, told that China will not devalue the Yuan to make up for losses caused by trade conflicts; the PBOC has guided the Yuan stronger over the past week.
However, trade disputes between the U.S. and China are far from over. The direct attacks may be on and off, but the two parties have already looked to expand allies to get more leverage. The development could continue to drive the Dollar/Yuan.
US: Trump announced a reconsideration of joining Trans-Pacific Partnership (TPP)on Thursday, a deal he called “rape of our country” and pulled out days after he took office. The pack’s members include Japan, Australia and New Zealand, who are US’s allies in the Asia-Pacific region; China is not a member of this pack.
Also, the U.S. may release details as early as next week about the list of $100 billion Chinese products, which would be imposed on 25% tariff, according to Wall Street Journal. If that happens, China is expected to take a responsive tariff move accordingly to make up for the losses. This could drag down both the Dollar and the Yuan.
China: the country’s Foreign Minister Wang Yi will visit Japan from April 15 to 17, for the fourth China-Japan Senior Economic Dialogue. This is the highest-level bilateral economic dialogue between the two countries. The last panel was held 8 years ago in 2010; the other two were in 2007 and 2009. In terms of trade, China has become Japan’s largest import partner in 2016 and the second largest export partner only after the U.S.; Japan was China’s second largest import partner and the third export partner.
Since the end of March, China has sent multiple delegates to other neighbouring countries as well: South Korea on March 29, Vietnam on March 30 and Russia twice, on March 27 and April 4. There were also visitors to China, including North Korea’s leader Kim Jong-un on March 28 and Singapore’s Prime Minister Lee Hsien Loong on April 10.
China also tries to strengthen connections with the EU. For instance, PBOC’s Governor announced a plan to launch the Shanghai-London Stock Connect this year, a link will allow Chinese residents buy UK’s stocks and vice versa. Yet, it seems that China is not spending efforts on all countries. Australia is an exception. Australian Prime Minister Turnbull admitted that “tensions” with China have increased in recent months.
In addition to the uncertainty surrounding trade, China will release the Gross Domestic Product (GDP) for the first quarter of 2018. It is widely expected to stay unchanged at 6.8% from the last quarter; any surprise would largely drive the market. Also, a leading indicator, Fixed Assets Investment will provide clues about the outlook of the economy: it picked up in February from an 18-year low level at the end of 2017; whether it is a recovery or a temporary retracement needs further evidence.
From a technical point of view, the USD/CNH is still in a congestion region. Further validation is needed. On the upper side, it failed to break above the bottom line of the triangle; on the lower side, it didn’t drop below 6.2425, a long-term resistance level.
DAX & CAC Technical Outlook – More Strength Ahead?
DAX/CAC Technical Highlights:
- DAX yet to show signs of reversing despite resistance
- Big-picture topping potential remains
- Strength has the CAC trading in ‘open space’
DAX yet to show signs of reversing despite resistance
The DAX rally off the lows found opposition last week after a slight breach above a swing-high in February and just below the 200-day MA, however; the reversal sparked only very minor selling. Yesterday’s turn back higher has the market geared up to take on the 200-day and better.
On a breakout above the 200, a thorough testing of the underside of the double-top from November-January should be in play. The zone extends from 12745 up to the mid-12800s and is likely to prove problematic. How problematic, we’ll need to wait and see.
Should we see a strong rejection, then we’ll perhaps flip the script to a short bias, but if it is anything like what we saw this past week, then we’ll need to respect the trend off the March low. There is still the possibility that we see a long-term top develop should we see a strong turn down in the weeks ahead.
We’ll delve more into the ‘head-and-shoulders’ top scenario at a later time should it become relevant. If this scenario is to come to fruition, it’s worth noting that the DAX shouldn’t climb too much higher from current levels.
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DAX Daily Chart
Strength has the CAC trading in ‘open space’
Of the two big Euro-zone indices, the CAC has been an absolute monster off the late-March low. Nothing has provided any real opposition, not the 200-day MA, not the late-Feb swing-high. Looking higher, there isn’t much preventing the index from trading higher towards the January high, 2007 trend-line.
This doesn’t mean the index will necessarily get there without set-backs, or at all, but as far as quality price levels to lean on, resistance is difficult to come by. As long as we don’t see a strong turnabout in momentum, the benefit of the doubt remains with the long-side. Support first clocks in at the Feb swing-high around 5363.
Heads up, the ECB meets on Thursday. For live coverage, you can join my colleague Nick Cawley at 11:30 GMT time.
CAC Daily Chart
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Key Reversal Targets 2017 Slope Support
The British Pound has fallen more than 3% off the yearly highs with the decline taking out the April opening range lows. While the broader outlook does remain constructive, near-term the risk for a pullback in price has us looking for a possible exhaustion lower down near structural support.
GBP/USD Daily Price Chart
Technical Outlook: In my last Weekly Technical Outlook we noted that Cable was approaching the 2018 highs at 1.4346 with a breach above this threshold needed to keep the broader long-bias in play. Price posted an outside-weekly reversal off this threshold before break below the objective April opening range lows yesterday. The decline also validates a break of the November slope line and leaves the risk lower while below the monthly open at 1.4024.
Note that yesterday’s close marked the fifth consecutive daily decline – three of the last five instances of such an occurrence saw a slight reprieve (a day or so) before registering a new low. That said, look for initial support along the lower parallel.
GBP/USD 240min Price Chart
Notes: A closer look at price action sees Cable trading within the confines of a near-term descending pitchfork formation extending off the March highs with this week’s decline slipping below the monthly range lows / 61.8% retracement at 1.3965. IF this break is legit, topside advances should be capped by the weekly highs / monthly open resistance at 1.4024/31. A break lower from here targets the lower parallel / 100-day moving average at 1.3854/67 with broader bullish invalidation for the multi-year uptrend at the March low-day close at 1.3775.
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Bottom line: The British pound has broken below the monthly opening range but looks like the decline may be losing some steam here near-term. From a trading standpoint, we’ll favor fading strength while below median-line of the descending pattern with the decline to ultimately offer more favorable long entries near long-term slope support.
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GBP/USD IG Client Positioning
- A summary of IG Client Sentimentshows traders are net-long GBPUSD- the ratio stands at +1.33 (57.0% of traders are long) – weak bearishreading
- Long positions are 15.2% higher than yesterday and 83.1% higher from last week
- Short positions are 0.5% lower than yesterday and 42.6% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger GBPUSD-bearish contrarian trading bias from a sentiment standpoint.
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Respect New Uptrend For Now
- The ASX 200 is climbing again
- Range trade has given way to a new upside channel
- That channel will take it up to 6000, however, and there bulls should probably worry
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The ASX 200 broke out of its ascending channel to the downside mid month, but price action since suggests that its subsequent consolidation may have been mere prelude to another upward foray.
The index has been admittedly rangebound since, trading between. April 16 and 17’s intraday low of 5831.1 and the intraday high of April 23 and 19 at 5904.9. At the time of writing (0100 GMT Tuesday) that range is history, if only just with the index a bare half dozen points above the top.
If it can close above there, then the 5934-5971 region last traded in mid-March could form the next target for the bulls. However above that the 6,000 level beckons and that barrier has proved too much for the index so often, both in the recent past and, indeed, for the past decade, that it’s probably wise to expect plenty of cashing out should it get there again.
Downside support may come in at the base of a new, nascent uptrend channel, which is at 5857.8 on Tuesday. Below that there is likely to be a cluster of near-term props forming in sum a band between April 10’s highs around 5848 and April 2’s closing low of 5686.
Still the uptrend should probably be respected for the moment, with the ASX currently in the middle of it. The Sydney stock benchmark’s simple moving averages fail to suggest anything obviously amiss, with the 20-50- and 100 day version in rank order and nicely spaced. The index’s Relative Strength Index is nudging higher, as you’d probably expect given the nice little run-up seen this month. However at a stolid 59 it doesn’t suggest any vicious overbuying.
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