12-Mar-2020

1) Dollar Pares Losses On Rally In US Treasury Yields
2) GBP/JPY: The Bear’s Domination Continues
3) GBP/USD Forecast: Now Seems Vulnerable To Test 1.2735 Support Area
4) EUR/USD Path Of Least Resistance Is Up On ECB Day – Confluence Detector

 

 

1) Dollar Pares Losses On Rally In US Treasury Yields

The greenback pared initial losses made in Asia and Europe and ended mixed on Wednesday due to the rally in U.S. Treasury yields in New York session. Cable pared its losses made after Bank of England’s surprised 50 basis points rate cut on UK government’s stimulus hopes.

Versus the Japanese yen, dollar remained on the back foot in Asia and dropped to +session lows at 104.11+ on selloff in U.S. Treasury yields before staging a strong rebound to 105.33 in European morning on short-covering. Despite weakening to 104.38 at New York open, the pair then recovered to 105.12 on rally in U.S. yields before retreating again to 104.24 in New York afternoon.

The single currency went through a volatile session. Although euro gained from 1.1278 in Australia to session highs at 1.1366 in European morning on usd’s weakness, price then retreated in tandem with cable to 1.1302 before rebounding to 1.1351 at New York open. However, the pair then tumbled to an intra-day low of 1.1258 on usd’s strength and then moved broadly sideways.

The British pound also went through a hectic session. Although cable extended its selloff on Tuesday and hit 1.2870 in Australia, price rebounded in tandem with euro to 1.2937 at European open before falling briefly but sharply to 1.2830 on Bank of England’s surprise 50 basis points interest rate cut. However, the pair then quickly erased its losses and rallied to an intra-day high at 1.2977 due partly to British government’s 30 billion pound economic stimulus plan but later tumbled to session lows at 1.2805 in New York afternoon on usd’s renewed strength.

Reuters reported Britain’s economy flat-lined in January, contradicting other signs of a rebound after Prime Minister Boris Johnson’s big election win, according to official data which has yet to reflect the impact of coronavirus.   Shortly after the Bank of England cut interest rates and announced other emergency stimulus measures to offset the economic hit from the virus, the Office for National Statistics said gross domestic product in January alone was flat.

Economists polled by Reuters had expected monthly growth of 0.2%.   In the three months to January, the economy also showed zero growth, weaker than the Reuters poll forecast for a 0.1% expansion.    It was the third month in a row that the three-month measure of GDP showed zero growth, the weakest such run since the middle of 2009 when Britain was reeling from the global financial crisis.    In annual terms, GDP in January was 0.6% higher than in the same month a year earlier, half the annual growth rate in December.

In other news, Reuters reported discussions are taking place over how the spread of coronavirus could impact the next round of trade negotiations between the European Union and Britain next week, senior British minister Michael Gove said on Wednesday. Asked by a committee of lawmakers whether negotiations could be impacted by the spread of coronavirus and whether face-to-face meetings would continue, Gove said: “It is a live question. We have had indications today from Belgium that there may be specific public health concerns.”

Gove also said that while Britain planned to produce a draft free trade agreement ahead of those talks, a decision had not yet made on whether this would be published.

On the data front, Reuters reported U.S. consumer prices unexpectedly rose in February but are likely to decline in the months ahead as the coronavirus outbreak depresses demand for some goods and services, outweighing price increases related to shortages caused by disruptions to the supply chain.

The report from the Labor Department on Wednesday, which also showed a steady rise in underlying inflation last month, is however, unlikely to change financial market expectations that the Federal Reserve will cut interest rates again at its policy meeting next week.    The Labor Department said its consumer price index increased 0.1% last month, matching January’s gain, as rising food and accommodation costs offset cheaper gasoline. In the 12 months through February, the CPI rose 2.3%. That followed a 2.5% jump in January, which was the biggest year-on-year gain since October 2018. Economists polled by Reuters had forecast the CPI would be unchanged in February and rise 2.2% year-on-year.

Excluding the volatile food and energy components, the CPI increased 0.2% in February, matching the gain in January. The so-called core CPI was up by an unrounded 0.2229% last month. Underlying inflation in February was boosted by rising prices for apparel, personal care, healthcare, used cars and trucks, and education. Airline fares and recreation prices fell.    In the 12 months through February, the core CPI increased 2.4%, after advancing by 2.3% for four consecutive months.

 

2) GBP/JPY: The Bear’s Domination Continues

GBP/JPY has been bearish for on the daily chart upon producing a triple top. The price consolidated, created a bearish reversal candle, and continued its bearish journey. Yesterday, the pair produced a bearish candle, which engulfed the day before yesterday’s corrective bullish candle. Thus, the pair may continue its bearish journey today as well.

The price had rejection three times at the level of 144.500. At the last rejection, it produced a bearish engulfing candle and made a neckline breakout at the level of 141.040. The price after making a good bearish move consolidated and had a bearish gap to produce another bearish candle. Yesterday’s candle came out after a short consolidation as well.  Thus, the sellers may go short on the pair below consolidation’s lowest low. The price may find its next support at the level of 130.380.

The price found its support at the level of 133.690. It made a bullish move, but upon finding resistance, it made a strong bearish move to make a breakout at the level of 133.690. As of writing, the pair is trading below the level. This fact may attract the H4 traders along with other minor charts’ traders to look for short opportunities. If the price continues its bearish move, it may find its next support at the level of 131.145. If the price goes back to the breakout level and produces a bearish engulfing candle closing today’s lowest low that may add more bearish momentum to drive the pair towards the next level of support.

One of the candles breached through the level of 133.690. The next candle closed below the breakout candle. The sellers are to wait for the price to consolidate and produce a bearish reversal candle to offer them short entry. The price may consolidate and find its resistance at the level of 133.305. If the level produces a bearish reversal candle, the sellers may go short below the level of 132.365. The price may find its next support at the level of 129.855.

 

3) GBP/USD Forecast: Now Seems Vulnerable To Test 1.2735 Support Area

The GBP/USD pair had some good two-way price swings on Wednesday and was influenced by a combination of diverging forces. The British pound initially weakened after the Bank of England announced a surprise interest rate cut of 50 bps to counter the economic shocks from the coronavirus outbreak. The UK central bank also launched a special funding facility worth £100 to small and medium-sized businesses to help cope with the outbreak’s fallout.

The announcement came just ahead of the expected government fiscal measures to support the UK economy and the coordinated effort boosted investors’ confidence, which provided a modest lift to the sterling. In fact, the UK’s new Chancellor of Exchequer Rishi Sunak delivered a massive £30 billion coronavirus relief package, including £5 billion emergency fund for the National Health Service.

This coupled with some renewed US dollar weakness, backed by a fresh leg down in the US Treasury bond yields, remained supportive of the pair’s intraday positive move to the 1.2975 region. The uptick, however, lacked any strong follow-through buying, rather started losing steam after the World Health Organization declared the novel coronavirus a global pandemic.

This was followed by the US President Donald Trump’s announcement to suspended all travel from Europe for 30 days in order to fight the coronavirus, which intensified the selloff in the equity markets and extended some support to the greenback’s relative safe-haven status against its British counterpart. The pair witnessed a dramatic intraday turnaround and tumbled to over one-week lows.

The pair remained on the defensive through the Asian session on Thursday, around the 1.2800 round figure mark, ahead of the UK PM Boris Johnson’s further announcements to tackle the coronavirus. Apart from this, the ECB-led volatility in the FX market and any fresh developments around the coronavirus saga might further contribute towards producing some meaningful trading opportunities amid absent relevant market-moving economic releases, either from the UK or the US.

Looking at the technical picture, the recent pullback from the 1.3200 round figure mark has been along a short-term descending trend-channel formation on hourly charts. The overnight rejection from the trend-channel resistance reinforced the bearish set-up and support prospects for a further near-term depreciating move. Hence, some follow-through weakness, towards testing the lower end of the trend-channel, around the 1.2735 region, now looks a distinct possibility. Some follow-through selling might be seen as a fresh trigger for bearish traders and set the stage for the resumption of the pair’s prior/well-established bearish trend.

On the flip side, the 1.2815-30 region now seems to have emerged as an immediate resistance. Any momentum beyond the mentioned barrier is likely to confront some fresh supply, rather remain capped near the trend-channel resistance, currently near the 1.2890-1.2900 region. That said, a convincing break through might negate the negative outlook and trigger some near-term short-covering move, which should assist the pair to make a fresh attempt towards reclaiming the key 1.30 psychological mark.

 

4) EUR/USD Path Of Least Resistance Is Up On ECB Day – Confluence Detector

EUR/USD has been unable to resume its gains as coronavirus grips markets and policymakers are scrambling to provide a response. The European Central Bank will announce its decision on Thursday. How is the currency pair positioned?

The Technical Confluences Indicator is showing that euro/dollar enjoys robust support at 1.1283, which is a dense cluster including the Fibonacci 161.8% one-month, the Fibonacci 23.6% one-day, the Pivot Point one-month Resistance 2, and more.

Looking up, the first noteworthy upside target is 1.1365, which is the convergence of the previous weekly high and the Bollinger Band 4h-Middle.

The upside target is 1.1436, which is the confluence of the PP one-week R1 and the Fibonacci 161.9% one-day.

Below 1.1283, the next support line is 1.1230, where the Fibonacci 38.2% one-week, the PP one-day S1, and the Bollinger Band 1h-Lower meet up.

The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.

This tool assigns a certain amount of “weight” to each indicator, and this “weight” can influence adjacent price levels. These weightings mean that one price level without any indicator or moving average but under the influence of two “strongly weighted” levels accumulate more resistance than their neighbors. In these cases, the tool signals resistance in apparently empty areas.