London Forex Report: Continuous rally in oil prices continued to buoy market sentiments, especially amid lack of major market-moving economic releases. Brent price extended its leg up, climbing another 5.5% to $40.8/ barrel. Commodity currencies surged, following the continuing rally of iron ore and oil prices. The prices of iron ore rose nearly 19 percent yesterday, which was mainly driven by positive sentiment surrounding China’s economic growth target. Oil prices rallied in recent weeks amid increasing hope that OPEC producers would discuss a production freeze. This morning, Kuwait is the latest member to add support to a production freeze deal. The ECB is widely expected to embark on more stimulus to support economic recovery at its policy meeting on Thursday.
EUR/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR dropped to 1.0938 against USD in the early European session, while it then rebounded to 1.1020 levels to start its Tuesday session. The Eurozone investor confidence was 5.5, worse than the forecasts of 8.3. Markets widely expect ECB will ease more in March, and there is a lot of uncertainty about how far the ECB would go. As the picture is not clear, EUR/USD is expected to be traded sideways before the ECB meeting.
Technical: Only a close over 1.1080/1.11 eases immediate downside pressure. Intraday support is sited at 1.0980/60 while this survives expect a further grind higher to test pivotal resistance at 1.11. Failure at 1.09 opens retest of bids towards 1,08
Interbank Flows: Bids 1.0950 stops below. Offers 1.11 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
GBP/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP retreated from 1.4250 levels against USD in the European session. It then recovered losses and surged above 1.4260 levels. Traders are still cognizant that a Brexit could drag down growth and push back UK rate hike expectations. Today’s speech by BOE Governor Carney will be closely eyed.
Technical: While 1.4130 acts as intraday support, expect a continued grind higher with the next corrective objective at 1.4424. A failure at 1.41 opens base support test at 1.4030
Interbank Flows: Bids 1.41 stops below. Offers 1.43 stops above.
Retail Sentiment: Neutral
Trading Take-away: Neutral
USD/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: JPY extended its gains on upbeat revised GDP Q4 figures this morning while USD/JPY dipped down and tested bids sub113 handle. The Japanese economy contracted 0.3% in Q4 2015 as compared to the preliminary of -0.4%, driven by business spending, exports and government consumption.
Technical: Bulls will be looking for 112.50/113 to continue to support. Expect a further leg of corrective gains to retest the broken neckline support at 115/116. Failure at 112.50 opens 11 again.
Interbank Flows: Bids 113 offers below. Offers 114.50/70 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
EUR/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: Final print of 4Q GDP confirmed the Japanese economy is in recession, although the reading showed a smaller contraction of 1.1% QoQ than initially estimated. This, coupled with weaknesses in recent data prints, suggest challenging times ahead for the BOJ to introduce more stimulus measures.
Technical: While 123.80 offers intraday support expect a continued grind higher to test pivotal 127. A failure at 123 refocuses bearish sights on the psychological 120 en route to a weekly downside objective at 118/117, only a close over 125.10 eases bearish bias.
Interbank Flows: Bids 123.50 stops below. Offers 125 stops above
Retail Sentiment: Neutral
Trading Take-away: Neutral
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: AUD stood at multi-month highs in the wake of a rally in commodity prices, contrasting with a subdued performance in the USD. Traders warmed to the commodity currencies after Brent crude jumped more than 5 percent to above $40 a barrel for the first time this year on growing hopes of a production halt in an over supplied market.
Technical: While .7330 supports intraday expect further upside pressure targeting .7530 next. Only a failure at.7150 pivotal support threatens bullish bias.
Interbank Flows: Bids .7350 stops below. Offers .7500 stops above.
Retail Sentiment: Bearish
Trading Take-away: Long
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: CAD strengthened to a three and a half month high against the USD as crude oil prices rallied, but traders cautioned that the currency’s sharp rally may influence the Bank of Canada’s monetary policy decision. Markets expect the Bank of Canada to be dovish in response, while the unwinding of bearish bets by speculators added to support for the currency
Technical: While USD/CAD trades sub 1.3360, downside pressure remains the driver, with bears focusing on a AB=CD ultimate downside objective at 1.2966. The next interim support level to watch is is 1.3176
Interbank Flows: Bids 1.3200 stops below. Offers 1.3460 stops above
Retail Sentiment: Bullish
Trading Take-away: Short
