Daily Commentary | 07/01/2019
USD weakens on Powell’s comments
Despite the USD getting some support at the release of a strong NFP figure on Friday. It later was weakened by a series of dovish comments made by Fed Chairman Powell. Fed’s Chairman, stated that the bank will be patient as to watch and see how the US economy will evolve. Powell also mentioned that the Fed is not on a pre-set path of rate hikes and implied that it could pause its policy tightening. We see the case for the bank to be more data driven in the foreseeable future and financial releases driven volatility could rise for USD pairs. Analysts point out that the comments could weigh on the USD, as the tone was cautious and could contribute to USD softness. Cable rose on Powell’s comment on Friday, reflecting a weakness of the USD and Broke the 1.2700 (S1) resistance line, now turned to support. We see the case for the pair to continue to trade with bullish tendencies, as the financial releases today could be against the USD. Please be advised that should there be negative headlines about Brexit, the pair may reverse its upward movement. Should the pair rise further, we could see it breaking the 1.2795 (R1) resistance line and aim for the 1.2880 (R2) resistance barrier. Should on the other hand the pair come under the selling interest of the market, we could see it breaking the 1.2700 (S1) support line and aim for the 1.2630 (S2) support barrier.
Chinese authorities cut bank reserve requirements
Chinese authorities cut reserve requirements for all banks by 100 basis points according to media. The move was made after a number of weaker than expected manufacturing data, could free about 116 B USD for new lending and is expected to partially counter the possible slowdown of economic growth. We see the case, for the reserve cut to boost the liquidity of the Chinese financial market, which in turn could provide more investing opportunities. On other news, the US-Sino negotiations are to be held this week, which if they bear fruit, could provide also some boost to the Chinese economy. Analysts point out that both news could provide some support for the AUD. AUD/USD continued its rise since Thursday’s mini crash and broke the 0.7065 (S1) resistance line, now turned to support. We maintain a bullish outlook for the pair as the upward trendline seems to remain intact for the present. On the other hand, please note that the RSI indicator in the 4 hour chart, has reached the reading of 70, implying a rather overcrowded long position. Should the bulls continue to dictate the pair’s direction we could see it breaking the 0.7150 (R1) resistance line and aim for the 0.7235 (R2) resistance hurdle. Should on the other hand the bears take over, we could see the pair, breaking the 0.7065 (S1) support line and aim for the 0.6930 (S2) support barrier.
In today’s other economic highlights:
In today’s European session, we get Germany’s factory orders and retail sales growth rates for November as well as Eurozone’s retail sales growth rates for November. In the American session, we get from the US, the factory orders growth rate for November and the ISM Non-Manufacturing PMI for December. From Canada, we get the Ivey PMI for December. As for speakers please note that Atlanta Fed President Raphael Bostic speaks.
As for the week ahead:
On Tuesday, we get Australia’s trade balance figure, Germany’s industrial output and the US trade balance figure, all for November. On Wednesday, we get Germany’s trade balance figure and Eurozone’s unemployment rate, both for November and from the Americas, BOC’s interest rate decision will be announced along with the release of the Fed’s last meeting minutes. On Thursday, we get from China the CPI and PPI rates for December while the ECB releases its account of monetary policy. On Friday, from Australia we get the Retail Sales growth rate for November and from the UK the GDP and manufacturing output growth rates for November. From the US we get the CPI rates for December.
• Support: 0.7065 (S1), 0.6930 (S2), 0.6820 (S3)
•Resistance: 0.7150 (R1), 0.7235 (R2), 0.7330 (R3)
• Support: 1.2700 (S1), 1.2630 (S2), 1.2555 (S3)
•Resistance: 1.2795 (R1), 1.2880 (R2), 1.2960 (R3)