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Foreign Exchange Market Commentary

EUR/USD

The common currency got a temporal boost from a more hawkish-than-expected ECB’s Draghi, but the EUR/USD pair was unable to regain the 1.0600 level, with a spite up to 1.0614 being quickly reverted. The European Central Bank left its monetary policy unchanged, announcing no foreseeable change to the current easing path. However, policymakers reviewed their inflation and growth forecast, with modest upward revisions for this year and the next, but none for 2019. Overall, Draghi was more optimistic than usual about the economic outlook, but he avoided being too optimistic, or comment on the end of QE, succeeding in maintaining the EUR under control. The ECB does not need an expensive currency, now that the fragile recovery is trying to firm up.

All eyes are now on the US NFP report, and how it could affect Fed’s rate decision next week. During the past three weeks, US FOMC’s members have endeavored to anticipate a rate March hike working in advance to maintain volatility restrain, pretty much what Draghi did this Thursday with a mixed statement. Last Friday, Fed’s Yellen said that the move will depend on inflation and employment maintaining the current levels of progress, so the market is waiting for this report to confirm next week’s move. This particular time, wages will be as relevant as the headline reading, as if wages disappoint, uncertainty will likely push the greenback lower.

From a technical point of view, the EUR/USD pair continues lacking a clear directional strength and with the risk still lean towards the downside, as the pair is unable to advance beyond 1.0600. In the 4 hours chart, the price continued moving back and forth around a major Fibonacci support at 1.0565, while the 20 and 100 SMAs have turned horizontal a bunch of pips above the level. The Momentum indicator has recovered ground, now heading higher in neutral territory, but the RSI indicator has turned horizontal around 55, indicating the absence of upward strength. Upcoming moves will be determinate by the NFP outcome with 1.0520, and 1.0635 being the breakout levels to take care of, to see some follow-through.

Support levels: 1.0565 1.0520 1.0490

Resistance levels: 1.0600 1.0635 1.0660

USD/JPY

The USD/JPY pair advanced up to 114.96 before pulling back modestly, retaining a positive tone ahead of Friday’s US Payroll report. The Japanese yen weakened amid rising US yields and in spite of tepid US data, as weekly unemployment claims rose to a seasonally adjusted 243K in the week ending March 4th, against market’s expectations of 235K. As for US yields, the 10-year note benchmark ended at 2.58%, up from Wednesday’s 2.55%, while the 2-year note yield surged to 1.38%, its highest in over eight years. The Japanese macroeconomic calendar will remain pretty light during the upcoming Asian session, which means that the pair will likely hold between the 114.50/115.00 range, ahead of US news. The technical picture is moderately bullish as in the 4 hours chart, the price is well below its 100 and 200 SMAs that anyway remain horizontal and both together in the 113.30 region, while technical indicators have turned modestly lower within positive territory. The key is the Fibonacci support at 114.55, as a break below it will increase chances of a downward extension towards 114.15, while on the other hand, an advance beyond 115.00, on a strong US NFP report, will lead to an approach to the 116.00 region.

Support levels: 114.55 114.15 113.70

Resistance levels: 114.95 115.30 115.80

GBP/USD

The GBP/USD pair closed in the red for a fourth consecutive day, having extended its decline by a few pips to a fresh 7-week low of 1.2133. An early advance was contained by selling interest on an approach to the 1.2200 level, with the pair confined to Wednesday’s range, amid the absence of UK headlines. This Friday, however, the UK will release its January trade balance and industrial and manufacturing production figures, whilst the BOE will release its Consumer Inflation Expectations report, all set to determinate the health of the local economy. From a technical point of view, the risk remains towards the downside, with a bearish 20 SMA, currently at 1.2190, leading the way lower as approaches to the level have triggered downward moves ever since the month started. In the same chart, technical indicators have managed to bounce from near oversold levels, but remain well below their mid-lines, not enough to support additional gains. A recovery beyond 1.2220 could see the pair correcting higher, but selling interest is now aligned around 1.2260, the 61.8% retracement of the January rally.

Support levels: 1.2130 1.2085 1.2040

Resistance levels: 1.2190 1.2220 1.2260

GOLD

Gold prices remained under pressure, with spot trading as low as $1,201.40 a troy ounce and settling a few cents above the 1,204.00 threshold, its lowest settlement in over a month. Gold prices have fallen seven out of the last eight days, on speculation the US Federal Reserve will raise its benchmark rates as soon as next Wednesday. Adding to the bearish case of the bright metal, was low physical demand from Indian jewelers. The daily chart for the commodity shows that it extended its slide below the 38.2% retracement of the latest recovery at 1,209.75, the immediate resistance, whilst the price has moved further below the 20 and 200 DMAs. The 100 DMA offers an immediate support at 1,197.30, while technical indicators have partially lost their bearish strength near oversold readings, but are far from indicating downward exhaustion. In the shorter term, the 4 hours chart shows that technical indicators have turned flat within oversold territory, but also that the 20 SMA has accelerated its decline above the current level, and after extending below the 100 and 200 SMAs, supporting additional declines for this Friday.

Support levels: 1,197.30 1,188.20 1,180.50

Resistance levels: 1,209.60 1,214.20 1,221.70

WTI CRUDE

Crude oil prices plummeted for a second consecutive day, with West Texas Intermediate crude futures down to $48.66 a barrel, its lowest since late November. US light, sweet crude closed the day at $48.83 a barrel, undermined by the advance of US stockpiles to record highs, as reported by the EIA on Wednesday. Hopes that the OPEC output cut deal will help reducing the global glut were diluted by the continued increase in US production. The daily chart shows that the commodity is currently around its 200 DMA, after breaking below the 100 DMA on Wednesday, whilst the Momentum indicator maintains its bearish slope within negative territory, and the RSI indicator extended its decline down to 24, where it stands ahead of the Asian opening. In the 4 hours chart, technical indicators have lost their bearish strength but remain in extreme oversold levels, with the RSI currently at 18, whilst the price is far below its moving averages, still trying to catch up with the latest sharp slide.

Support levels: 48.60 48.00 47.30

Resistance levels: 49.50 50.10 50.80

DJIA

US indexes closed the day flat, with the Dow Jones Industrial Average up 3 points, to 20,858.74, the S&P ending the day at 2,364.87, 0.08% higher, and the Nasdaq Composite down 4 points, to 5,834.26. Investors remained side-lined ahead of the US employment report to be released this Friday, as upbeat figures can reinforce the possibility of a Fed rate hike next week. Within the Dow, industrial underperformed, with Caterpillar down 1.88% and General Electric by 0.47% being among the worst performers. Johnson & Johnson led advancers, adding 1.44%, followed by El du Pont that added 0.78%. The daily chart for the Dow shows that the index bounced from a daily low of 20,777, holding above the 20 DMA that anyway is losing upward strength. The Momentum indicator continued heading lower within positive territory, but the RSI indicator turned flat around 64, limiting the downward potential. In the 4 hours chart, the index is trapped between a bearish 20 SMA and a bullish 100 SMA, whilst technical indicators hover within bearish territory, with no clear directional strength.

Support levels: 20,833 20,777 20,738

Resistance levels: 20,899 20,950 21,017

FTSE 100

The FTSE 100 extended its decline, losing 0.27% or 19 points this Thursday, and closing at 7,314.96. Falling oil and commodities prices weighed on the index, although the worst performer was Morrison Supermarkets that lost 6.56% after the company expressed its concerns about how imported food prices, with the Pound weak, could affect its business. Lower commodity prices also affected the benchmark, with oil and mining-related equities closing in the red. Anglo American lost 4.61%, Glencore closed 3.66% lower, whilst BHP Billiton ended down 3.37%. Financials were among the best performers, with Aviva up 6.46% followed by Capita that added 4.67%. The technical picture is neutral as in the daily chart, the index settled around its 20 DMA, whilst technical indicators head modestly lower, but hold above their mid-lines, lacking enough strength to confirm a bearish breakout. In the 4 hours chart, the index recovered quickly after a brief slide below a bullish 100 SMA, but remains below a bearish 20 SMA, whilst indicators bounced within bearish territory, but remain below their mid-lines, indicating that the benchmark lacks upward strength and may fall further on a break below 7,262, the daily low.

Support levels: 7,306 7,262 7,238

Resistance levels: 7,345 7,397 7,420

DAX

European equities edged marginally higher, helped by an advance in banking equities, with the German DAX up 11 points or 0.09% to end at 11,978.39. Optimistic comments from ECB’s head, Mario Draghi, underpinned the sector, although gains were offset by falling oil prices that dragged energy shares lower. In Germany, Bayerische Motoren Werke led decliners, down 2.46%, while Merck followed, ending the day down 2.38%. Deutsche Bank was among the best performers, adding 2.08%, whilst Commerzbank gained 1.01%. From a technical point of view, the index has made little progress, as it held a few points above a still bullish 20 DMA, while the Momentum indicator remains flat around its 100 level and the RSI indicator turned modestly higher, but remains below its previous weekly highs. In the 4 hours chart, the index spiked briefly beyond a still bearish 20 SMA, but settled below it, whilst technical indicators continue hovering around their mid-lines, failing to provide directional clues.

Support levels: 11,920 11,877 11,832

Resistance levels: 12,010 12,053 12,100

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