Daily Commentary | 16/05/2019
EUR strengthens on hopes of the US delaying tariffs
The EUR reversed previous losses of the day against the USD yesterday, after reports stated that the US President may delay tariffs on European cars. The Trump administration seems to be considering a delay of the tariffs on European and Japanese cars by six months according to media. A formal announcement is yet to be released and is expected by Saturday according to media. The decision may be a result of the deepening US-Sino trade war and should that be so, further escalation maybe in the cards. We see the case for a weight to have been lifted from the EUR, however soft financial data, a slow recovery and the US-Sino trade war continue to threaten the common currency. We expect the EUR to be data driven at the time, yet at the same time we could see it strengthening somewhat as the tariff issue seems to be removed. EUR/USD maintained a wide sideways movement yesterday, testing yet remaining between the 1.1220 (R1) resistance line and the 1.1175 (S1) support line. We could see the pair maintain a sideways movement today, however the pair may prove to be sensitive to today’s financial releases. Should the pair’s long positions be favoured by the market, we could see it breaking the 1.1220 (R1) resistance line, opening the way for the 1.1260 (R2) resistance level. On the other hand should the pair come under the selling interest of the market, we could see it breaking the 1.1175 (S1) support line.
GBP weakens on Brexit impasse
The pound weakened against the USD yesterday, hitting a three month low as concerns about Brexit grow. The negotiations between the Government and the Labour party seem to be in a deadlock with no light at the end of the tunnel. Theresa May could be facing a leadership challenge soon enough according to media and hopes of getting her Brexit deal through are diminishing. It should be noted that recent polls are showing the Tory party landing very low results some even placing it as 4th in power, while Nigel Farage’s party (Hard Brexiteers) seems to be ranking first. We expect the pound to remain under pressure as long as the Brexit outlook is clouded. Cable dropped yesterday, breaking the 1.2875 (R1) support line, now turned to resistance. We maintain a bearish outlook for the pair and for us to switch it in favor of a sideways motion, we would require the pair’s price action to break the downward trendline incepted since Monday. Please be advised that the RSI indicator in the 4 hour chart is below the reading of 30, implying a rather overcrowded short position. Should the bears maintain control over the pair’s direction, we could see it breaking the 1.2775 (S1) support line, while if the bulls take over, we could see the pair breaking the 1.2875 (R1) resistance line and aim for the 1.2960 (R2) resistance level.
Other economic highlights, today and early tomorrow
During today’s European session, we get from the Eurozone the Trade balance for March. In the American session we get from the US the number of housing starts for April and the Philly Fed business index for May while form Canada we get the manufacturing sales growth rate for April and BoC’s stability report. During tomorrow’s Asian session, we get New Zealand’s NZ Mfg PMI for April and the PPI rate for Q1. As for speakers please note that ECB’s Praet, De Guidos and Coeure, BoC governor Poloz and Minneapolis Fed president Kashkari are speaking today.
• Support: 1.1175 (S1), 1.1125 (S2), 1.1075 (S3)
•Resistance: 1.1220 (R1), 1.1260 (R2), 1.1300 (R3)
• Support: 1.2775 (S1), 1.2665 (S2), 1.2560 (S3)
•Resistance: 1.2875 (R1), 1.2960 (R2), 1.3070 (R3)