28-Feb-2020

1) USD/CAD At 8-Month High; Looks Bullish Above Trendlines
2) EUR/USD Forecast: Three Reasons For The Rise
3) GBP/USD Forecast: Comeback On Coronavirus Fears?

1) USD/CAD At 8-Month High; Looks Bullish Above Trendlines

USDCAD refused to close below the 200-day simple moving average (SMA) and the supportive trendline last week, staging a remarkable rally instead that led the price above the long-term ascending trendline and to eight-month highs on Friday.

The price also pierced the 61.8% Fibonacci of the 1.3663-1.2950 downleg, increasing hopes that more gains could be achieved, with the rising RSI and Stochastics – which have yet to confirm overbought conditions – backing this view as well.

Slightly higher, the area around 1.3465 has been frequently tested in previous years and could attract attention in the short-term. Running above it, a more important resistance could appear around the 78.6% Fibonacci of 1.3511, a break of which would bring the 1.3535 barrier taken from the 2016-2017 highs under the spotlight ahead of the 1.3563 support-turned-resistance level.

In the negative scenario, a pullback below the descending trendline and the 61.8% Fibonacci of 1.3390 could last until the 1.3345-1.3300 restrictive area, which includes the 50% Fibonacci. Lower, the 20-day SMA and the ascending trendline could reject downside corrections once again. If not, the door would open for the 38.2% Fibonacci of 1.3223 and the 200-day SMA.

Looking at the medium-term picture, the outlook has switched from neutral to positive following the rally above the descending trendline and the 1.3381 peak. Yet, with the 50-day SMA holding below the 200-day SMA, the bullish outlook is still looking fragile.

2) EUR/USD Forecast: Three Reasons For The Rise

Coronavirus carnage – The massive stock sell-off has extended as the disease spreads over the world. The US has ramped up its tests, more companies and forecasters are expressing concerns, and additional countries have reported cases – including in Nigeria.

The spread to sub-Saharan Africa raises concerns about an acceleration in infections as these countries’ health systems are considered less effective. Overall, the relentless news flow is overwhelming the world.

Investors are moving away from stocks and into the safety of bonds. At the time of writing, US ten-year Treasuries are yielding 1.16%, a record low. The short end of the curve is implying an imminent rate cut in March – a dramatic change that is weighing heavily on the dollar. Bond markets previews priced reducing borrowing costs only in September.

The greenback has come under immense pressure across the board.

Christine Lagarde, President of the European Central Bank, seemed to rule out immediate monetary stimulus in a conversation with the Financial Times on Thursday. And while Vitas Vasiliauskas, a member of the ECB, said that the Governing Council could meet in an extraordinary matter, he admitted there is little room for action.

The ECB has a negative deposit rate of -0.50% while the Fed Funds Rate is at a range between 1.50% to 1.75%. The ECB has very little room to cut.

The old continent’s largest economy is taking baby steps toward unleashing its spending potential. Investors are paying money to lend funds to the German government. Olaf Scholz, the country’s finance minister, has suggested suspending the debt brake to allow regions to extend their spending and stimulate the economy. He ran into opposition within Chancellor Angela Merkel’s CDU, but Berlin’s baby steps are also supporting the euro.

If Germany spends – on battling coronavirus, infrastructure, or green projects – the ECB would be relieved of doing more.

The German economy has stagnated in the fourth quarter and the whole eurozone grew by only 0.1% or 0.4% annualized. For comparison,

US growth was confirmed at 2.1%. Other indicators are also pointing to a substantial economic advantage for the US. Once the dust settles, these gaps may come into play.

The Relative Strength Index on the four-hour chart is pointing to overbought conditions – implying a potential drop, at least in the short term. The RSI is well above 70.

Other indicators such as momentum and the Simple Moving Averages are pointing higher.

3) GBP/USD Forecast: Comeback On Coronavirus Fears?

Coronavirus may be a double-edged sword for GBP/USD bulls – while it rides higher on expectations for the Fed to cut rates, it has room to fall as the disease hits closer to home. And there’s always Brexit.

Fear in financial markets about respiratory disease is reaching elevated levels. US stocks are already 10% down from the highs and bond markets are pricing an imminent rate cut in the US in March – they pointed to September only one week ago. Investors are flocking to the safety of American debt markets. The growing odds that the Federal Reserve cuts rates are weighing heavily on the dollar.

Coronavirus related headlines are coming fast and thick. Nigeria reported the first case in sub-Saharan Africa, where health systems are less efficient than in other places. The US is ramping up its tests – and that may lead to additional confirmations. While China is trying to get back normal, the global spread is causing panic.

In the UK, authorities have confirmed a total of 19 people infected – including two potentially from London, according to the Daily Telegraph. The spread of the illness to one of the world’s financial capitals could wreak havoc. That is one of the reasons that coronavirus may eventually hit the pound.

And not only the Fed is set to cut interest rates. Mark Carney, the outgoing Governor of the Bank of England, has said that the institution will likely need o to downgrade its growth forecasts. His words may lay the ground for a rate cut in the UK – a decision left to Andrew Bailey, his successor. That curbs any sterling gains.

UK Prime Minister Boris Johnson and his government adopted a tough stance ahead of talks with the EU on post-Brexit arrangements, due on Monday. Britain may walk out of talks if not enough progress is made by June. Moreover, London braces for a return to World Trade Organization rules – unfavorable commerce conditions for businesses.

Chief EU NEgotiator Michel Barnier – who previously sought to soften his tone – has yet to respond. Both sides disagree on following EU rules once the transition period expires at year-end. The UK left the bloc in January but retains most rights and obligations during this implementation period.

Further headlines may impact the pound.

Overall, coronavirus developments are set to continue dominating trading with occasional other news.

Pound/dollar remains under pressure after breaking below uptrend support. Moreover, it is capped by the 50, 100, and 200 Simple Moving Averages on the four-hour chart, suffers from downside momentum – and is outside oversold conditions. The Relative Strength Index is above 30.