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Key Highlights

• The Euro started a downside correction after trading above 1.1500 against the US Dollar.
• There is a significant support formed near the 1.1420 level on the 4-hours chart of EUR/USD.
• The US Nonfarm Payrolls in Jan 2019 came in at 304K, much better than the 165K forecast.
• The US Factory Orders figure for Nov 2018 will be released today, which could increase 0.2% (MoM).

EURUSD Technical Analysis

The Euro recovered recently and traded above the 1.1420 and 1.1480 resistance levels against the US Dollar. The EUR/USD pair traded above the 1.1500 level before starting a downside correction.

Looking at the 4-hours chart, the pair traded as high as 1.1514 and later dipped below the 1.1500 and 1.1480 levels. The pair also declined below the 23.6% Fib retracement level of the last wave from the 1.1289 low to 1.1514 high.

On the downside, there is a strong support formed near 1.1420 and a connecting bullish trend line on the same chart. More importantly, the 100 (red) and 200 (green) simple moving average (4-hours) are placed near the 1.1420 level to act as a support.

Finally, the 50% Fib retracement level of the last wave from the 1.1289 low to 1.1514 high is near 1.1400 to provide support if the pair dips below 1.1420. Should there be a downside break below 1.1400, the pair could decline towards the 1.1350 level in the coming sessions.

On the upside, an initial resistance is at 1.1505, above which the pair will most likely trade above 1.1515 and 1.1525 in the near term.

Fundamentally, the US Nonfarm Payrolls figure for Jan 2019 was released this past Friday by the US Department of Labor. The market was looking for a sharp decline in the NFP from the last reading of 312K to 165K.

The actual result was much better than the forecast as the US NFP increased 304K in Jan 2019. However, the last reading was revised down from 312K to 222K.

The report stated:

Total nonfarm payroll employment increased by 304,000 in January, and the unemployment rate edged up to 4.0 percent. Job gains occurred in several industries, including leisure and hospitality, construction, health care, and transportation and warehousing.

Overall, the data was mixed, but mostly supported the US Dollar. EUR/USD and GBP/USD declined slightly, but they are still trading above important support levels.

Economic Releases to Watch Today

• Euro Zone PPI for Jan 2019 (YoY) – Forecast +3.3%, versus +4.0% previous.
• Euro Zone PPI for Jan 2019 (MoM) – Forecast -0.6%, versus -0.3% previous.
• US Factory Orders Nov 2018 (MoM) – Forecast +0.2%, versus -2.1% previous.

Payrolls well above expectations

The U.S. sprung a blockbuster Non-Farm Payrolls on the markets on Friday, payrolls rising 304,000 vs 165,000 expected.

If the lack of traffic around my neighbourhood in Singapore is anything to go by this weekend, Asia has well and truly settled into Lunar New Year holiday mode. Most of the region will be closed, at least for part of the week as the Chinese welcome the Year of the Pig. This likely means quiet Asian trading sessions.

The region’s highlights will likely come from Australia. Today the Royal Commission releases its findings on the banking sector and tomorrow we have the RBA rate decision. It will be watched closely given the ructions in the housing market.

FX

The U.S. Dollar had a positive Friday session buoyed by the payrolls data. It wasn’t a spectacular rally though, implying that a dovish Federal Reserve continues to be the main story in town.

The Australian Dollar (AUD) may struggle to continue its stronger gains due to tomorrow’s RBA decision and also retail sales. The street will be eagerly searching for any dovish change from the RBA on rates. A shift in stance could bring AUD’s recent rally to an abrupt end.

Regionally, Asia FX trading will be quiet due to holidays with the only highlight being a Philippines rate decision which we expect to be unchanged.

Gold

Gold gave up some of its gains on Friday in the face of a resurgent dollar. Asia will be quiet today with traders content to pick up gold on dips, only a break of 1,300 support would send alarm bells ringing.

Oil

Both Brent and WTI rallied some two dollars on Friday post the sparkling Non-Farm Payrolls. WTI looks the more bullish of the two as cold weather and Venezuela continue to potentially effect the supply situation.

The US dollar is lower across the board in Asia ahead of the Lunar New Year with only sterling and the Australian dollar falling against the greenback. After a dismal January, the US dollar got a boost from the unexpected big numbers posted in the U.S. non-farm payrolls (NFP) report published Friday. The gain of 304,000 jobs almost doubled expectations and sent the dollar higher after a dovish FOMC statement put downward pressure on the currency earlier in the week.

There is rising optimism on the trade talks between the US and China, although no details have been nailed down. The upside is limited as President Trump also mentioned that if the talks are not successful a new round of tariffs is imminent.

EUR – Mixed Data Keeps EUR Flat
GBP – Market Awaits BOE with Brexit on the Background
CAD – Oil and Monetary Policy Give Loonie Edge
STOCKS – Alphabet Hoping to Leave Tech Scandals as Disney Prepares Streaming Service
GOLD – Metal Higher as Dollar Softens
OIL – Venezuela Crisis Boosts Crude Prices

EUR – Mixed Data Keeps EUR Flat

Mixed data has put downward pressure on the euro. The single currency is losing momentum after a dovish ECB meeting in January. The softness of the dollar has kept the EUR/USD in a tight range, but economic indicators need to improve in the Eurozone for the currency to gain a major foothold against the greenback.

Italy failed to grow for two consecutive quarters and entered a technical recession. The government is betting that the controversial budget will boost growth, but time for its stimulus is needed. French and Spanish growth beat expectations offsetting the negative number out of Italy, but the German economy is showing signs of slowing down which could spark a new round of stimulus from the central bank rather than continuing on a path of rate normalization.

GBP – Market Awaits BOE with Brexit on the Background

Sterling is trading above the 1.30 against the USD, but as uncertainty about what kind of deal the UK will get after the divorce with the EU it is below the 0.90 price level against the EUR. Prime Minister May has to go back to Brussels and renegotiate a deal, she was told many times was not negotiable. May’s defeats at parliament mean that while on paper a no-deal exit is a long shot, the reality is that the EU can only give the UK time to realize the deal on the table is the final one.

The Bank of England (BoE) will host another Super Thursday. The central bank has been one of the strongest voices of reason during the Brexit negotiations, but it has been accused by some members of parliament of fear mongering. Governor Carney will have to manage expectations on his views on the damage a no-deal exit could mean for the UK while at the same time highlighting the effects of a global slowdown.

The central bank is not expected to make any changes to its monetary policy on Thursday, but it could lift its inflation expectations despite all the Brexit turbulence.

CAD – Oil and Monetary Policy Give Loonie Edge

The Canadian dollar is higher as a double boost from higher oil prices and a soft dollar due to a dovish FOMC statement. Canadian economic data has been mixed, but the Bank of Canada (BoC) is not expected to tweak monetary policy as significantly as the Fed, appreciating the loonie ahead of the week when Canadian employment data will be published on Friday.

Job creation has beaten expectations in the past two months but there are headwinds building up that could signal a slowdown on the employment front.

STOCKS – Alphabet Hoping to Leave Tech Scandals as Disney Prepares Streaming Service

The US dollar was stronger in 2018 and as trade concerns rose as tariffs against Chinese goods escalated it started to hit the bottom line of American companies. While there were good signs of the meeting between US and China last week, nothing concrete has been announced leaving the market vulnerable to anti-trade statements.

Alphabet will try to avoid the privacy related scandals to distract from its earnings that will be posted Monday after the market closes. The tech sector is reeling after reports of misuse of the Apple App Store by big names such as Google and Facebook. Facebook managed to turn the tide as it beat estimates, but it seems the only way to convince investors that the crisis is not a big deal is to deliver big results.

Disney is up on Tuesday with a lot of optimism riding on their streaming offering. The company has been buying big IP and after slowing down its blockbuster production it will focus more on smaller screens with Star Wars and Marvel series to be their strongest play against more tech savvy competitors Netflix and Amazon. The house the Mouse built is betting on proven franchises to steer consumers to its online offering with 2019 a big year for Disney.

GOLD – Metal Higher as Dollar Softens

Gold prices broke above $1,320 last week as the U.S. Federal Reserve was clear in saying its monetary policy will remain unchanged until more data proves the case for further tightening. This is a departure from last year’s statements and comments from Fed members were a gradual but steady rate hike path was believed to be the way.

A soft dollar as its losses the support of the Fed and safe haven demand as the US-China talks appear to be on the right track has boosted the yellow metal. Uncertainty as risk events are still on the radar (Brexit, Venezuela, US politics) are keeping gold bid as investors and central banks shift their exposures.

A solid NFP report on Friday meant gold backtracked against the dollar despite the Fed sapping any traction on Wednesday but employment has been a strong pillar, despite the lack of inflation.

OIL – Venezuela Crisis Boosts Crude Prices

Oil prices are higher on Monday as protests in Venezuela are on the rise as high-profile defections keep shifting the balance of power away from President Maduro. The US is backing the opposition leader and could send troops as pressure increases for Maduro to step down. Strong US economic indicators and lower oil supply after the US sanctioned Venezuelan exports were a positive for crude.

The OPEC cut agreement is also limiting supply offsetting the rise of US production but still vulnerable to lower global growth forecasts. The positive news out of Washington on US-China trade relations could send crude high, but only if there is a major breakthrough announced soon.

EURUSD pulls back ahead of key resistance at 1.1569 level with risk of more weakness. Support comes in at the 1.1400 where a violation will aim at the 1.1350 level. A break below here will target the 1.1300 level. Further down, support lies at the 1.1250. On the upside, resistance resides at 1.1500 level with a break through there opening the door for further upside towards the 1.1550 level. Further up, resistance comes in at the 1.1600 level where a violation will expose the 1.1650 level. All in all, EURUSD continues to threaten further upside pressure but with caution pf pullback.

USDCHF eyes further upside pressure despite price consolidation on Friday. Resistance comes in at the 1.0000 level. A break of here will clear the way for more gain towards the 1.0050 level. Above here, resistance lies at the 1.0100 level and then the 1.0150 level. Its daily RSI is bullish and pointing higher suggesting more strength. On the downside, support is seen at the 0.9900 level. A turn below there will set the stage for more decline towards the 0.9850 level. And then the 0.9800 level. All in all, USDCHF faces further upside pressure on price recovery.

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EUR/USD's rise from 1.1289 extended to as high as 1.1514 last week but formed a temporary top there and retreated. Initial bias is neutral this week first. Another rise is in favor as long as 1.1407 minor support holds. Rise from 1.1289 is seen as another rising leg in the correction pattern from 1.1215. Above 1.1514 will target 1.1569 resistance and above. On the downside, break of 1.1407 minor support will turn bias back to the downside for 1.1289 support instead.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

In the long term picture, the rejection from 38.2% retracement of 1.6039 to 1.0339 at 1.2516 argues that long term down trend from 1.6039 (2008 high) might not be over yet. EUR/USD is also held below decade long trend line resistance. Firm break of 61.8% retracement of 1.0339 to 1.2555 at 1.1186 should at least bring a retest on 1.0339 low. This will remain the favored case as long as 1.1814 resistance holds.

USD/JPY dropped to as low as 108.49 last week but recovered before closing. Initial bias is neutral this week first. On the upside, break of 110.00 will extend the rebound from 104.69. But we'd expect strong resistance from 61.8% retracement of 114.54 to 104.69 at 110.77 to limit upside. On the downside, break of 108.49 will target 107.77 support first. Break will confirm completion of the rebound and bring retest of 104.69 low.

In the bigger picture, while the rebound from 104.69 is strong, there is no change in the view that it's a corrective move. That is, fall from 114.54, as part of the decline from 118.65 (2016 high), is not completed yet. Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. Nevertheless, sustained trading above 55 day EMA (now at 110.55) will dampen this bearish view and turn focus back to 114.54 resistance instead.

In the long term picture, the rise from 75.56 (2011 low) long term bottom to 125.85 (2015 high) is viewed as an impulsive move, no change in this view. Price actions from 125.85 are seen as a corrective move which could still extend. In case of deeper fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77. Up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

GBP/USD lost momentum after hitting 1.3217 and turned into consolidation last week. Also, it couldn't sustain above 1.3174 key resistance so far. Initial bias remains neutral this week first. On the downside, break of 1.3012 minor support will suggest rejection by 1.3174 key resistance, and turn bias to the downside for 1.2814 support. On the upside, sustained break of 1.3174 key resistance will argue that whole decline from 1.4376 has completed at 1.2391. In such case, further rise should then be seen to 61.8% retracement of 1.4376 to 1.2391 at 1.3618.

In the bigger picture, rise from 1.1946 (2016 low) to 1.4376 (2018 high) is seen as a corrective move. Similarly, fall from 1.4376 to 1.2391 also displace a corrective structure. Current development suggests that rise from 1.2391 is the third leg of the corrective pattern from 1.1946 and could extend beyond 1.4376 high. Firm break of 61.8% retracement of 1.4376 to 1.2391 at 1.3618 will affirm this case. On the downside, break of 55 day EMA (now at 1.2865) will turn focus back to 1.2391 low instead.

In the longer term picture, current development argues that corrective pattern from 1.1946 (2016 low) is extending with another rise. But there is no change in the long term bearish outlook as long as 38.2% retracement of 2.1161 (2007 high) to 1.1946 at 1.5466 holds. An eventual downside breakout through 1.1946 is still in favor in the long term.

USD/CHF edged higher to 0.9994 last week but quickly turned into consolidation again. Initial bias stays neutral this week first. Downside of retreat should be contained by 38.2% retracement of 0.9716 to 0.9994 at 0.9888 to bring another rally. As noted before, the corrective decline from 1.0128 should have completed at 0.9716 already. On the upside, break of 0.9994 will extend the rise from 0.9716 to retest 1.0128 next. On the downside, though, firm break of 0.9888 will target 61.8% retracement at 0.9822 before completing the retreat.

In the bigger picture, USD/CHF drew strong support from medium term trend line and rebounded. That suggests rise from 0.9186 is still in progress. Further break of 1.0128 will confirm up trend resumption and target 1.0342 key resistance. Nevertheless, break of 0.9716 will dampen this bullish view and at least bring deeper fall to 0.9541 key support.

In the long term picture, price actions from 0.7065 (2011 low) are not clearly impulsive yet. Thus, we'll treat it as developing into a corrective pattern, at least, until a firm break of 1.0342 resistance.