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FX Analysis – Technical Outlook (2015-11-16)

by James Chen

Key economic data releases this week:

Monday (16th November):

  • NZD – New Zealand Retail Sales
  • NZD – New Zealand Core Retail Sales
  • JPY – Japan Preliminary GDP
  • EUR – ECB President Mario Draghi Speech
  • CAD – Canada Manufacturing Sales

Tuesday (17th November):

  • AUD – RBA Monetary Policy Meeting Minutes
  • NZD – New Zealand Inflation Expectations
  • GBP – UK Inflation Report Hearings
  • GBP – UK Consumer Price Index
  • GBP – UK Producer Price Index
  • EUR – German ZEW Economic Sentiment
  • GBP – USD – US Consumer Price Index
  • USD – US Core Consumer Price Index

Wednesday (18th November):

  • USD – US Building Permits
  • USD – US Housing Starts
  • CAD – US Crude Oil Inventories
  • USD – FOMC Meeting Minutes

Thursday (19th November):

  • JPY – BOJ Monetary Policy Statement
  • JPY – BOJ Press Conference
  • GBP – UK Retail Sales
  • USD – US Unemployment Claims
  • USD – Philly Fed Manufacturing Index

Friday (20th November):

  • EUR – ECB President Mario Draghi Speech
  • CAD – Canada Consumer Price Index
  • CAD – Canada Core Consumer Price Index
  • CAD – Canada Retail Sales
  • CAD – Canada Core Retail Sales

Technical developments:

  • EUR/USD remains pressured to the downside despite having retested the key 1.0800 resistance level to the upside. Technical bias: Bearish.
  • GBP/USD rebounded this past week but maintains a moderately bearish outlook towards 1.5000 and below in the run-up to December and the Fed rate decision. Technical bias: Moderately bearish.
  • USD/JPY may have exhausted its recent sharp bullish move and could see a continued pullback towards the major 122.00 support/resistance level on equity market volatility. Technical bias: Neutral to bearish.
  • USD/CAD could be eyeing its multi-year highs above 1.3400 once again as the US dollar continues to be supported and crude oil continues to be pressured. Technical bias: Bullish.

EUR/USD

james-chen-EURUSD-2015-11-13

EUR/USD spent most of this past week trading in a relatively tight range just under the 1.0800 level after the previous week saw a sharp plunge below 1.0800. Late on Thursday, however, the currency pair rose slightly above this resistance level, even after European Central Bank (ECB) President Mario Draghi earlier delivered some dovish remarks indicating the ECB’s willingness to extend its stimulus measures in the form of further quantitative easing. Despite this retest of 1.0800, the longer-term outlook continues to be strongly bearish, especially in light of the divergence in monetary policy between the dovish-leaning ECB and the hawkish-leaning Fed. For the past month since mid-October, EUR/USD has been entrenched in a steeply declining trend, and this should continue if the currency pair manages to sustain trading below the key 1.0800 level. In the run-up to December’s Fed meeting, further Fed-driven dollar-support and the likelihood of more stimulus measures from the ECB could place EUR/USD on a track towards 1.0500 support, near March’s long-term lows. Any further downside momentum below 1.0500 could move the currency pair towards its long-term target at parity (1.0000).

GBP/USD

james-chen-GBPUSD-2015-11-13

GBP/USD managed to stage a sharp rebound this past week after having plunged sharply during the previous week. Despite this rebound, the currency pair continues to carry a moderately bearish bias due to the fact that the US Federal Reserve is perceived by the markets as significantly more hawkish than the Bank of England (BOE), even though both are expected to begin their respective monetary tightening cycles sometime before the end of next year. Of course, the Fed is now widely anticipated to begin instituting its rate hike cycle in December, while the BOE is not expected to do so until well into 2016. Having risen this past week back above the 1.5200 handle from the previous week’s low just above 1.5000, GBP/USD could soon begin to revert back to the downside if the US dollar continues to be supported by a hawkish Fed. In this event, the next major downside target continues to be at this 1.5000 level, followed by the 1.4800 support objective.

USD/JPY

james-chen-USDJPY-2015-11-13

USD/JPY pulled back modestly this past week after the previous week saw a sharp surge of dollar strength that was further extended by a much stronger than expected US non-farm payrolls employment report. This week’s USD/JPY pullback also coincided with a pullback in the equity markets. While the outlook for the US dollar continues to be generally bullish, at least until the mid-December Fed meeting when the markets will finally know if there will be a rate hike this year, the directional fate of USD/JPY is also partly dependent on the performance of the global stock markets. Having reached a high of 123.60 this past week, USD/JPY could well have exhausted its sharp bullish move for the time being. With the return of stock market volatility, USD/JPY could be poised for a retreat back down to key 122.00 support. Any breakdown below 122.00 could see a further drop towards the 120.00 psychological level. In the event of a resumption of USD/JPY strength after this past week’s pullback, major resistance to the upside resides around the 125.00 level.

USD/CAD

james-chen-USDCAD-2015-11-13

This past week saw USD/CAD trade in a relatively tight trading range after having risen from key 1.2800 support for the past month. This rise has been partly supported by a strong US dollar that has ridden a wave of renewed speculation over a Fed rate hike in December. It has also been supported by persistently weak crude oil prices that have weighed heavily on the energy-correlated Canadian dollar. With this combination of low oil prices and a Fed-supported US dollar, USD/CAD could soon be poised to make a run at September’s 11-year high of 1.3456. Any further push above that high could then target the 1.3600 resistance level, which would confirm a continuation of the longstanding bullish trend.

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