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Foreign Exchange Market Commentary

EUR/USD

The greenback started the day with a good footing, advancing against all of its majors rivals, but demand for the American currency lost pace early US session, with mixed results across the board. The EUR/USD plummeted to 1.0655, to settled around the 1.0700 level, still down for the day. The common currency was weighed by poor German Industrial Production that contracted by 3.0% during last December, resulting in a decline in the annual rate of growth to -0.7% from a previously revised 2.3% advance. Also, weighing on the EU was renewed political uncertainty in the region on news that Marine Le Pen is leading polls ahead of the Presidential election next April. Le Pen, has pledged to leave the EU and fight Islam if she becomes president.

In the US, the IBD/TIPP Economic Optimism Index for February improved to 56.4 vs. 55.6 in January, with the index now 6.4 points above its 12-month average of 50.0. The US trade deficit narrowed in December to $44.3b, the first improvement in three months, whilst November reading was revised to -45.7b from a previous estimate of -45.2b.

Technically, however, the risk remains towards the downside, given that late recovery stalled below the critical 1.0700/10 resistance area that contained declines for over a week. In the 4 hours chart, the 20 SMA has accelerated its decline well above the current level, while the Momentum indicator accelerated its decline below the 100 level, and the RSI hovers around 40, this last with a limited upward slope. A recovery above the mentioned resistance could see the pair returning to the 1.0760/1.0800 region, but as long as below it the risk is towards the downside, with scope to extend its decline down to 1.0590 on a break below the mentioned daily low.

Support levels: 1.0650 1.0620 1.0590

Resistance levels: 1.0710 1.0750 1.0800

USD/JPY

The USD/JPY pair managed to advance up to 112.57 early US session after falling down to 111.58 at the beginning of the day, but resumed its decline and challenges the 112.00 region ahead of the Asian opening, with the pair following the lead of US yields. The 10-year benchmark fell down to 2.371% this Tuesday, down from Monday’s 2.41% settlement, while US equities retreated after a strong start of the day, adding to Yen’s bullish case. The Bank of Japan will release its Summary of Opinions during the upcoming Asian session, which includes fresh inflation and growth forecast. Seems unlikely the Central Bank will be less optimistic about inflation, in spite of recent data, and therefore is also unlikely that the pair will react to the news. From a technical point of view, the ongoing bearish trend in the USD/JPY pair remains firm in place, given that the pair is setting lower lows and lower highs daily basis, whilst in the 4 hours chart, the pair continues developing well below a bearish 100 SMA, currently at 113.54, whilst the RSI indicator resumed its decline, now around 41. The 100 DMA stands around 111.55 for this Wednesday, and renewed selling interest that pushes the price below the level should lead to a test of the 109.90 level, the 50% retracement of the latest bullish run.

Support levels: 111.55 111.25 110.80

Resistance levels: 112.10 112.60 113.00

GBP/USD

The GBP/USD pair plummeted to 1.2346 early Europe, but jumped to a fresh weekly high of 1.2545 and settled around 1.2530, reversing course after BOE’s Kristin Forbes, said that “in my view, if the real economy remains solid and the pick-up in the nominal data continues, this could soon suggest an increase in the bank rate.” UK data released this Tuesday, may confirm her view of the growing risk of a major inflation overshoot, as it confirmed consumers are worried about higher prices. The BRC like-to-like sales fell 0.6% in the year to January, below previous month reading when it stood at 1.0%. House prices also contracted according to the Halifax survey, down by 0.9% during the same month, and rising by 2.4% in the three months to January, from a previous 6.5% advance. Still, market seems to have overreacted to the headlines, as the latest BOE’s minutes suggest a rake hike will remain out of the table at least for this year. From a technical point of view, the 4 hours chart shows that the pair recovered above its 20 SMA, whilst technical indicators have turned surged from oversold readings and are currently entering positive territory with sharp bullish slopes. The pair however, is unable to confirm a clear break of 1.2540 a Fibonacci resistance, with a clear break above it required to confirm further gains up to 1.2705, February monthly high.

Support levels: 1.2470 1.2425 1.2390

Resistance levels: 1.2540 1.2585 1.2630

GOLD

Gold consolidated its latest gains this Tuesday, setting a fresh high for this 2017 at $1,235.71 a troy ounce. Spot hold within a tight range, just above the 50% retracement of the November/December decline around 1,230.00. The metal was pretty much immune to intraday dollar´s strength, supporting some additional gains ahead. Backing gold’s gains was increasing political uncertainty in Europe, adding to that coming from the US. Daily basis, the RSI indicator has lost upward strength within overbought readings, whilst the Momentum indicator diverges lower, nearing its 100 level. The price, however, remains above its 20 and 100 SMAs, with the shortest crossing above the largest, something usually understood as a bullish signal. In the 4 hours chart, technical indicators are retreating modestly from overbought territory, but are far from signaling a bearish extension, whilst the price remains well above bullish moving averages, all of which supports the case for further gains.

Support levels: 1,230.00 1,221.65 1,215.00

Resistance levels: 1,237.30 1,245.20 1,255.05

WTI CRUDE

Crude oil prices fell for a second consecutive day, as speculators rushed to price in a large US stockpiles build, following a private survey and ahead of the release of official data. West Texas Intermediate US futures fell down to $51.81 a barrel and settled right above 52.00, also weighed by weak gasoline prices on decreasing consumption. WTI fell to the lower end of its latest range, and technical readings in the daily chart support additional declines as the price extended below a flat 20 DMA whilst technical indicators have turned bearish maintaining strong bearish slopes. In the shorter term, the 4 hours chart the 20 SMA turned south well above the current level, with the price also below the 100 and 200 SMAs, both still flat around 53.10, whilst technical indicators have lost their bearish strength, but remain near oversold readings and far from suggesting a bottom has been met. The commodity could extend its decline down to the critical 50.00 region on a break below the mentioned daily low.

Support levels: 51.80 51.10 50.40

Resistance levels: 52.40 53.00 53.65

DJIA

Wall Street opened the day with strong gains, resulting in the DJIA posting an all-time high of 20,157, but the negative momentum faded and indexes closed barely up around their daily openings. The Dow Jones Industrial Average closed at 20,089.88, up by 0.19%, while the Nasdaq Composite settled at 5,674.22, up 0.19% a record high. The S&P closed flat at 2,293.08 up by 0.02%. Within the Dow, Boeing was the best performer, up by 1.34%, but losers outnumbered gained, with Chevron topping loser’s list, down by 1.46%, followed by Merck & Co that lost 1.33%. In the daily chart, the DJIA maintains its positive tone, as it holds well above its 20 DMA, currently horizontal at 19,932, while technical indicators present tepid bullish slopes within positive territory. In the shorter term and according to the 4 hours chart, technical indicators have pulled back from overbought readings reached earlier in the day, but lost downward strength within positive territory, whilst the 20 SMA maintains a sharp bullish slope, currently around 20,033, indicating a limited downward potential, at least as long as buyers defend the 20,000 level.

Support levels: 20,066 20,010 19,932

Resistance levels: 20,104 20,160 20,200

FTSE 100

The FTSE 100 gained 14 points or 0.20% this Tuesday, closing the day at 7,186.22, undermined by the positive momentum of mining-related equities. Gains were offset by oil’s decline that resulted in BP leading losers’ list with a loss of 4.49%. The best performers were Randgold Resources, up 8.38% and Fresnillo that added 6.60%, as gold hold on to its recent gains. The late recovery in the Pound, will likely dent sentiment among stocks’ traders early Wednesday, particularly if the GBP/USD pair holds above the 1.2500 level. From a technical point of view, the daily chart for the Footsie shows that an intraday advance was rejected again by selling interest around the 20 DMA, whilst technical indicators have turned modestly lower around neutral territory, maintaining the risk towards the downside. In the 4 hours chart, the benchmark remains range bound between horizontal moving averages, whilst technical indicators have turned lower within positive territory, now approaching their mid-lines.

Support levels: 7,163 7,128 7,091

Resistance levels: 7,205 7,258 7,312

DAX

European equities closed with modest gains this Tuesday, as sentiment improved for a short time-spam, with the German DAX closing the day at 11,549.44, up by 39 points. Mining and pharmaceutical equities surged, but bank and energy-related ones fell, leading to the neutral close. Vonovia was the best performer in Germany, up 2.09%, while Commerzbank closed 1.21% and Deutsche shed 0.51%. The benchmark recovered from a daily low of 11,463, but the main support is 11,425, January 17th low. In the daily chart, the index remains below a horizontal 20 SMA, now at 11,637, whilst technical indicators present modest downward slopes within neutral territory, indicating a limited upward potential. In the 4 hours chart, the 20 and 100 SMAs converge at 11,623, whilst technical indicators have recovered from near oversold territory, but turned flat within negative territory, in line with the longer term perspective.

Support levels: 11,518 11,463 11,425

Resistance levels: 11,572 11,630 11,680

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