FX Commentary – Market Expectation Of BOE Rate Cut Reached 73%

Market Talk

  • The dollar began the week on a firm note on Monday as US economic data on Friday pointed to strength across the U.S. economy, reducing the likelihood of a Fed interest rate cut.
  • Strong US housing data offset weaker labour data, adding to growing expectations that the U.S. economy will continue to expand. US home building rose 16.9% to a seasonally adjusted annual rate of 1.61 million units in December, well above economists’ estimates for 1.38 million and the biggest gain in 13 years.
  • Sterling declined to below $1.30 as disappointing retail sales data raised expectations that the Bank of England will cut rates at its next meeting. Expectation of a BOE rate cut has jumped to 73%.
  • Euro dollar declined to $1.1100 as bearish sentiment on the single currency continued ahead of the European Central Bank meeting next week while the safe haven yen closed just below an eight-month peak at 110.19 yen per dollar.
  • China on Friday posted its slowest annual growth figure in almost 30 years, although December data showed revived business confidence and quickening factory output. The Yuan was stronger at 6.8570 per dollar in offshore trade.

Chart Focus EUR/USD
Key Points
1. Trading Sell on EUR/USD
2. Sell EUR/USD at 1.1115. Stop at 1.1140 and target at 1.1065.
3. Strong US economic data and weak Euro zone data are both weighing on the EUR dollar.
4. Price is in a downtrend and MACD is indicating this rally is likely to be a corrective rally

Fundamental Comments
1. Strong US economic data is supportive of the US dollar
2. Weak Euro zone data is weighing on the Euro dollar

Technical Comments
1. Price is in a downtrend and is capped by the 20EMA
2. MACD is showing price rally is a corrective rally

Key Levels

Support 1.10851.10651.1040
Resistance 1.11151.11451.1180

Technical Overview

USD/JPY – Price made a higher high on Friday but MACD did not make a higher high as compared to late Thursday. This bearish divergence is a warning that price could be near to a high. Stochastic is also starting to move lower but price is still above the 20EMA. Watch out for a bearish candlestick price pattern to get into a short position.

Support 110.05109.70109.40
Resistance 110.30110.65110.90

EUR/JPY – We had raised our stop higher on Friday to 122.40 and our position was stopped out as a result. Price came down as a result of EUR/USD decline. We think the decline can continue lower as Stochastic is still falling. MACD is still bullish but there was a bearish divergence warning as well. We see price moving lower to 121.35 in the next couple of days.

Support 122.10121.75121.35
Resistance 122.40122.75123.10

GBP/USD – Price moved to a high of 1.3117 on Friday but was unable to sustain above 1.3100. Price has now declined below 1.30 to a low of 1.2990 this morning. MACD remains bearish and is strong with both its lines below the zero line. We see price moving lower to test the base at 1.2960 again.

Support 1.29901.29601.2905
Resistance 1.30301.30701.3115

XAU/USD – Price has managed to stay above 1558 since late Friday. If price can stay above 1558, we think price is likely to test the Fibonacci 62% of the decline from 1612 to 1526, which comes in at 1582. However Stochastic is near to the overbought extreme and MACD is not strong although it is bullish at the moment.

Support 1558.001545.101535.50
Resistance 1569.701580.651593.95

USD/CHF – Price did not reach our buying level on Friday but instead rose higher to 0.9693. Stochastic has a bearish crossover in the overbought zone. This could be a sign that the rally could be near to an end. However, MACD is still rising and it may still be too early to get into a short position. Wait for better trading opportunity

Support 0.96650.96400.9610
Resistance 0.96950.97300.9760

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