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FX Analysis – Technical Outlook (2016-01-18)

by James Chen

Key economic data releases this week:

Tuesday (19th January):

  • NZD – NZIER Business Confidence
  • CNY – China GDP
  • CNY – China Industrial Production
  • GBP – UK CPI
  • EUR – German ZEW Economic Sentiment

Wednesday (20th January):

  • NZD – GDT Price Index
  • NZD – New Zealand CPI
  • GBP – UK Average Earnings Index, Claimant Count Change, and Unemployment Rate
  • CAD – Canada Manufacturing Sales and Wholesale Sales
  • USD – US Building Permits and Housing Starts
  • USD – US CPI and Core CPI
  • CAD – Bank of Canada Overnight Rate, Rate Statement, and Monetary Policy Report
  • CAD – US Crude Oil Inventories
  • CAD – Bank of Canada Press Conference

Thursday (21st January):

  • EUR – ECB Minimum Bid Rate
  • EUR – ECB Press Conference
  • USD – Philly Fed Manufacturing Index
  • USD – Unemployment Claims

Friday (22nd January):

  • EUR – French Flash Manufacturing PMI and Flash Services PMI
  • EUR – German Flash Manufacturing PMI and Flash Services PMI
  • GBP – UK Retail Sales
  • CAD – Canada CPI and Core CPI
  • CAD – Canada Retail Sales and Core Retail Sales

Technical developments:

  • USD/JPY remains pressured by plunging global stock markets and could be poised for further losses in the event of continued equity market volatility. Technical bias: Neutral to Moderately Bearish.
  • GBP/USD has continued to fall sharply due in part to a dovish Bank of England, and is potentially targeting new multi-year lows. Technical bias: Bearish.
  • AUD/USD has hit a new long-term low on persistent turmoil in China’s financial markets, and has confirmed a continuation of its longstanding bearish trend: Moderately Bearish.
  • USD/CAD has continued to rise sharply on plunging crude oil prices, and could be poised for further gains as oil prices remain depressed due to incessant oversupply. Technical bias: Bullish.

USD/JPY

james-chen-USDJPY-2016-01-18

USD/JPY spent much of last week rising moderately as global equity markets regained some measure of stability following a highly volatile beginning of the new year. This changed dramatically on Friday, as falling stock markets around the world were pressured further by plunging crude oil prices. This resulted in a flight to the safe haven Japanese yen, which rose considerably against most other currencies. This yen surge could readily be seen on the USD/JPY chart. For much of the week, the currency pair had been rising in a rebound from its lows, and had climbed slightly above the key 118.00 level by late Thursday. Friday, however, saw a steep plunge below 118.00 to drop below the most recent low of 116.68 that was hit in the beginning of the week. With stock market volatility not likely to be over yet, further losses could well be in store for USD/JPY. With sustained trading below the noted 118.00 resistance level, the next major downside targets are at the key 116.00 and then 114.00 support levels.

GBP/USD

james-chen-GBPUSD-2016-01-18

GBP/USD remained sharply bearish last week, continuing the steep plunge that has been in place for a month, since mid-December. This month’s plunge has represented an acceleration of the bearish trend that has been in place for the past half year. The Bank of England’s rather dovish monetary policy summary on Thursday cast further doubts on the potential for a UK rate hike this year, thereby placing additional pressure on GBP/USD. Friday saw the currency pair hit a new 5½-year low just above 1.4300. With continued weakness under the key 1.4500 resistance level, the next major downside targets are at the 1.4250 support area and then the 1.4000 psychological support level.

AUD/USD

james-chen-AUDUSD-2016-01-18

AUD/USD spent most of last week in a tight consolidation below key resistance around the 0.7000 psychological level and just above its September multi-year low. This changed on Friday as the commodity currency plummeted to a new 6+ year low below 0.6900 on renewed volatility in China. This latest sharp drop confirms a continuation of both the short-term downtrend that has been in place since the very beginning of the new year as well as the long-term downtrend that has been in place for the past several years. Continued volatility in China’s financial markets and economic growth prospects should likely continue to place pressure on the China-linked Australian dollar. With sustained trading below the noted 0.7000 level, the next major downside targets are at the key 0.6800 and 0.6500 support levels.

USD/CAD

james-chen-USDCAD-2016-01-18

USD/CAD has continued its relentless rise as the US dollar has remained supported and the energy-correlated Canadian dollar has been continuously hit by plunging crude oil prices. This has resulted in a sharp rise for the currency pair that has consistently reached and exceeded progressively higher target levels. Most recently, since the beginning of the year, USD/CAD has surged unyieldingly to breakout above the major 1.4000 and 1.4200 resistance levels. With little respite in sight for oversupplied crude oil, it is difficult to foresee any true recovery in oil prices for the medium-term, beyond just limited oversold bounces and short-seller profit-taking. Therefore, the outlook for the Canadian dollar remains rather bleak, and the USD/CAD currency pair should likely continue to trade within its longstanding bullish trend. With sustained trading above 1.4200, the next major upside targets are at the 1.4600 and then 1.4900 resistance levels.

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