FXP_2020
Fxprimus Representative
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The upcoming week has been highly anticipated due to the number of central bank meetings taking place. We have the Fed, Bank of England and Bank of Japan giving their projections, monetary policy statement and announcing new benchmark interest rate. Out of the three, the Fed Chair Powell’s comments carry undoubtedly the most weight.
The question high on everyone’s agenda is on inflation expectations and commitment to Average Inflation Targetingnow that Q2 annualized inflation expectation is 2.9% and 2.5% for the remainder of the year, according to NYT. Powell has previously commented that a short-lived spike in inflation can be expected due to base effects, fiscal and monetary stimulus. However, according to Powell the Fed does not see a sustained effect on inflation just yet. Inflation expectations have transmitted to credit markets with U.S. Treasury 10-year yield flirting with 1.6% levels, and the 2-year and the 10-year yield spread highest since 2015 at 1.43%. Whilst these yield levels are not high in historical context, a plethora of risk assets, such as U.S. technology stocks and emerging market currencies, have been under pressure once 10-year UST pierced 1.5%. Another inflation measure, the 10-year Treasury breakeven rate, touched 7-year high of 2.27%.
So, the Fed is tackling with a problem of overheating economy and heightened inflation expectations, while the labor market is still damaged. Around 6.2%, or 9.5 million Americans are still unemployed or underemployed, while labor force participation is weak at 61.4%. Definitely not the right time to cool the economy by rising interest rates. At the same time the market is pricing in increased inflation through credit markets which in turn affect other asset classes – undoubtedly a conundrum. The Fed might use another tool in its toolbox to contain the yield curve. Operation Twist, as it is called, involves the Fed buying U.S. government debt with different maturities, targeting to shape the yield curve. 10-year yield could potentially be forced lower by purchasing 10-year Treasury notes and selling those of shorter maturity to dampen the steepening pressure. What’s certain is that the Fed wants the markets to remain in order and is unlikely to cause a stir, unless the situation gets critical.
At the back of the inflationary pressures causing U.S. dollar lower and relatively higher interest rates bolstering the greenback, the dollar is consolidating. USD, measured by DXY, is consolidating near 91.8, after piercing 91.0 resistance level on the daily chart. Support level has formed near 91.6, while resistance can be found 91.8. Momentum indicators signal bullishness, although there is little conviction in the trend. 200-day moving average is well above the price, near 92.8. Among other majors, JPYUSD has pierced 200-day moving average resistance a month ago (and 200-period moving average on weekly chart) and now trading near 109.13, looking very bullish. USDCHF also just broke 200-day moving average resistance earlier in March, trading currently near 0.9275 and is seemingly marching higher.
S&P 500 and Russell 2000 closed at their highest last week, rising respectively 2.6% and 7.3%. Nasdaq 100 was under pressure but ended up closing 2.1% up. Oil gave up some of the gains, closing the week 1.0% lower while gold rose 1.4%. U.S. dollar, measured by DXY, shed 0.32%.
In The Spotlight
• New Zealand Gross Domestic Product growth
GDP data shows the monetary value of all the goods and services produced in the respective country. A negative number indicates a contraction of economic activity while a positive number shows an expansion. A better than expected GDP growth is generally positive for currency, whilst a print below expectations tends to be negative.
• U.S. Retail Sales
US economy, being very consumer driven, is heavily impacted by retail sales and consumer sentiment. Up to 70% of the GDP is related to consumer spending, meaning all data points related to retail are heavily scrutinized, and have the potential to move markets. Increased retail sales are considered bullish for USD, whereas lower or below expectations read is generally considered
Market Sentiment
EURUSD
EURUSD pair attempted to climb higher during last week but has been forced back to 1.19000 levels. The price has found resistance at 8-day exponential moving average (EMA), while the remaining momentum indicators signal bearish short-term trend. 200-day simple moving average is currently below the price at 1.18340, indicating that long-term bullish momentum is intact. Resistance levels are near 8-day EMA near 1.19460 and 38% Fibonacci retracement level near 1.19670, while support is near 24% Fibonacci retracement level 1.19000 and near 1.18990 levels. RSI and Stochastic are both neutral and respectively near 40.1 and 27.2. ADX does not give a quality signal, while DMI- of 26.8 dominates DMI+ of 15.9 signaling bearish momentum.
Resistance: 1.19460
Support: 1.19200
GBPUSD
GBPUSD pair has consolidated near 1.39000 levels with short-term momentum indicators roped and not giving much guidance on the trend. Medium- and long-term trend is bullish with 50-day, 100-day and 200-day SMA currently below the price. Resistance levels are near 50% Fibonacci retracement level which overlaps currently with 8-day and 21-day EMA near 1.38935, and near 1.39130. Support levels are near 1.38130 and 1.37950. The latter is also 50-day SMA level. RSI and Stochastic are both neutral near 46.2 and 29.9 respectively. ADX and DMI-s do not give a quality signal.
NZDUSD
NZDUSD has recovered some of the losses and currently trading near 0.7180 level. The price is consolidating with 8-day EMA offering resistance, while 21-day, 34-day EMA and 50-day SMA are roped and also acting as a resistance level near 0.72125. Therefore, short-term trend is ambiguous, while medium- and long-term momentum is still bullish as 100-day SMA and 200-day SMA are below the price. Another resistance level has formed near 38% Fibonacci retracement level near 0.72390. Support levels are near 0.71725 and 0.71590. RSI and Stochastic are both neutral near 46.7 and 26.0. ADX and DMI-s do not give a quality signal.
XAUUSD
XAUUSD has recovered from 9-month lows and is currently above 8-day EMA that is acting as a support level since mid last week. The remaining momentum indicators signal bearish trend medium- and long-term. Resistance levels are near 39% Fibonacci retracement level of 1,731.61, and near 1,738.53. Support level is near 8-day EMA 1,725.69 and also 1,721.76. RSI And Stochastic are both neutral near 41.4 and 36.7. ADX of 41.1 indicates there is energy in the trend. DMI- of 27.6 signals that bearish momentum prevails.
The question high on everyone’s agenda is on inflation expectations and commitment to Average Inflation Targetingnow that Q2 annualized inflation expectation is 2.9% and 2.5% for the remainder of the year, according to NYT. Powell has previously commented that a short-lived spike in inflation can be expected due to base effects, fiscal and monetary stimulus. However, according to Powell the Fed does not see a sustained effect on inflation just yet. Inflation expectations have transmitted to credit markets with U.S. Treasury 10-year yield flirting with 1.6% levels, and the 2-year and the 10-year yield spread highest since 2015 at 1.43%. Whilst these yield levels are not high in historical context, a plethora of risk assets, such as U.S. technology stocks and emerging market currencies, have been under pressure once 10-year UST pierced 1.5%. Another inflation measure, the 10-year Treasury breakeven rate, touched 7-year high of 2.27%.
So, the Fed is tackling with a problem of overheating economy and heightened inflation expectations, while the labor market is still damaged. Around 6.2%, or 9.5 million Americans are still unemployed or underemployed, while labor force participation is weak at 61.4%. Definitely not the right time to cool the economy by rising interest rates. At the same time the market is pricing in increased inflation through credit markets which in turn affect other asset classes – undoubtedly a conundrum. The Fed might use another tool in its toolbox to contain the yield curve. Operation Twist, as it is called, involves the Fed buying U.S. government debt with different maturities, targeting to shape the yield curve. 10-year yield could potentially be forced lower by purchasing 10-year Treasury notes and selling those of shorter maturity to dampen the steepening pressure. What’s certain is that the Fed wants the markets to remain in order and is unlikely to cause a stir, unless the situation gets critical.
At the back of the inflationary pressures causing U.S. dollar lower and relatively higher interest rates bolstering the greenback, the dollar is consolidating. USD, measured by DXY, is consolidating near 91.8, after piercing 91.0 resistance level on the daily chart. Support level has formed near 91.6, while resistance can be found 91.8. Momentum indicators signal bullishness, although there is little conviction in the trend. 200-day moving average is well above the price, near 92.8. Among other majors, JPYUSD has pierced 200-day moving average resistance a month ago (and 200-period moving average on weekly chart) and now trading near 109.13, looking very bullish. USDCHF also just broke 200-day moving average resistance earlier in March, trading currently near 0.9275 and is seemingly marching higher.
S&P 500 and Russell 2000 closed at their highest last week, rising respectively 2.6% and 7.3%. Nasdaq 100 was under pressure but ended up closing 2.1% up. Oil gave up some of the gains, closing the week 1.0% lower while gold rose 1.4%. U.S. dollar, measured by DXY, shed 0.32%.
In The Spotlight
• New Zealand Gross Domestic Product growth
GDP data shows the monetary value of all the goods and services produced in the respective country. A negative number indicates a contraction of economic activity while a positive number shows an expansion. A better than expected GDP growth is generally positive for currency, whilst a print below expectations tends to be negative.
• U.S. Retail Sales
US economy, being very consumer driven, is heavily impacted by retail sales and consumer sentiment. Up to 70% of the GDP is related to consumer spending, meaning all data points related to retail are heavily scrutinized, and have the potential to move markets. Increased retail sales are considered bullish for USD, whereas lower or below expectations read is generally considered
Market Sentiment
EURUSD
EURUSD pair attempted to climb higher during last week but has been forced back to 1.19000 levels. The price has found resistance at 8-day exponential moving average (EMA), while the remaining momentum indicators signal bearish short-term trend. 200-day simple moving average is currently below the price at 1.18340, indicating that long-term bullish momentum is intact. Resistance levels are near 8-day EMA near 1.19460 and 38% Fibonacci retracement level near 1.19670, while support is near 24% Fibonacci retracement level 1.19000 and near 1.18990 levels. RSI and Stochastic are both neutral and respectively near 40.1 and 27.2. ADX does not give a quality signal, while DMI- of 26.8 dominates DMI+ of 15.9 signaling bearish momentum.
Resistance: 1.19460
Support: 1.19200
GBPUSD
GBPUSD pair has consolidated near 1.39000 levels with short-term momentum indicators roped and not giving much guidance on the trend. Medium- and long-term trend is bullish with 50-day, 100-day and 200-day SMA currently below the price. Resistance levels are near 50% Fibonacci retracement level which overlaps currently with 8-day and 21-day EMA near 1.38935, and near 1.39130. Support levels are near 1.38130 and 1.37950. The latter is also 50-day SMA level. RSI and Stochastic are both neutral near 46.2 and 29.9 respectively. ADX and DMI-s do not give a quality signal.
NZDUSD
NZDUSD has recovered some of the losses and currently trading near 0.7180 level. The price is consolidating with 8-day EMA offering resistance, while 21-day, 34-day EMA and 50-day SMA are roped and also acting as a resistance level near 0.72125. Therefore, short-term trend is ambiguous, while medium- and long-term momentum is still bullish as 100-day SMA and 200-day SMA are below the price. Another resistance level has formed near 38% Fibonacci retracement level near 0.72390. Support levels are near 0.71725 and 0.71590. RSI and Stochastic are both neutral near 46.7 and 26.0. ADX and DMI-s do not give a quality signal.
XAUUSD
XAUUSD has recovered from 9-month lows and is currently above 8-day EMA that is acting as a support level since mid last week. The remaining momentum indicators signal bearish trend medium- and long-term. Resistance levels are near 39% Fibonacci retracement level of 1,731.61, and near 1,738.53. Support level is near 8-day EMA 1,725.69 and also 1,721.76. RSI And Stochastic are both neutral near 41.4 and 36.7. ADX of 41.1 indicates there is energy in the trend. DMI- of 27.6 signals that bearish momentum prevails.
