The financial markets were quite mixed and indecisive at a technical juncture. WTI dipped to as low as 30.56 after being rejected from 55 days EMA (now at 33.29) but recovered quickly back to above 32. DJIA was also rejected from 55 days EMA (now at 16585.40) and dipped to as low as 16165.86 but ended the day higher by 53.21 pts, or 0.32% at 16484.99. Similar picture was seen in S&P 500, which was rejected by 55 days EMA (now at 1944.04) and dipped to 1891.00 but closed up 8.53 pts or 0.44% at 1929.80. In Asian markets, Nikkei surged in initial trading and is trading and is trading up 120 pts for the moment. But Hong Kong HSI is dragged down by China SSE composite and both are trading down -0.9% for the moment.
In the currency markets, while yen is still firm against dollar and European majors, it’s reversing against commodity currencies. Kiwi and Canadian dollar are now the strongest major currencies this week. European majors remain the weakest ones. In particular, Sterling continues to feel the pressure from Brexit worries. Dollar is mixed for the moment. While dollar index edged higher to 97.91, it’s facing some pressure from 55 days EMA (now at 97.73) and retreats mildly. Elsewhere, 10 year yield TNX dropped to 1.649 before paring much loss to close t 1.742, just down -0.003. Gold attempted for a breakout but stayed below 1263.9 and is back at around 1235.0.
The major development is the lack of follow through selling in stocks and crude oil after rejection from 55 days EMA. And the late buyings in both were impressive and are raising the chance of near term reversal. Focus will remain on 16500/600 resistance zone in DJIA, where 55 day EMA also sits. Sustained break there will confirm reversal and would target 17977.84/18351.36 resistance zone. In the case, we would likely see more upside in commodity currencies, in particular against yen. But the recovery in European majors would likely be limited. And again, strong rejection from this 16500/600 level would bring deep decline through 15300/400 support zone to extend the medium term correction. So far, the markets haven’t decided which way to go yet.
Elsewhere, Richmond Fed Jeffery Lacker quoted a research by Swedish economist Knut Wicksell that benchmark federal-funds rate, adjusted for inflation” has been below the natural rate. And thus, Fed has been having trouble fighting deflation. And Lacker noted that “this perspective would bolster the case for raising the federal-funds rate target”, and “prospects for rate increases this year is the logical. On the other hand, Dallas Fed president Robert Kaplan said that he might downgrade his expected rate path at March FOMC meeting but he didn’t expect a recession in US.
On the data front, Australia private capital expenditure rose 0.8% in Q4. In European session, German Gfk consumer sentiment, Eurozone CPI final and M3 money supply will be released. UK will also release Q4 GDP revision and index of services. US will release jobless claims, durable goods orders and house price index.
GBP/USD Daily Outlook
Daily Pivots: (S1) 1.3859; (P) 1.3943; (R1) 1.4007; More…
Intraday bias in GBP/USD remains neutral for the moment. Current fall is expected to target 1.3503 key support level next. On the upside, above 1.4057 minor resistance will turn bias neutral and bring consolidations. But any recovery should be limited below 1.4667 resistance and bring another decline.
In the bigger picture, the fall from 1.7190 is viewed as resuming the long term down trend from 2.1161 (2007 high). Further decline should be seen back to 1.3503 (2008 low). We’d start to look for reversal signal below there. In any case, medium term outlook will remain bearish as long as 1.5929 resistance holds.
Economic Indicators Update
|0:30||AUD||Private Capital Expenditure Q4||0.80%||-3.00%||-9.20%||-8.40%|
|7:00||EUR||German GfK Consumer Sentiment Mar||9.2||9.4|
|9:00||EUR||Eurozone M3 Y/Y Jan||4.70%||4.70%|
|9:30||GBP||GDP Q/Q Q4 P||0.50%||0.50%|
|9:30||GBP||Index of Services 3M/3M Dec||0.70%||0.60%|
|10:00||EUR||Eurozone CPI M/M Jan||0.00%||0.00%|
|10:00||EUR||Eurozone CPI Y/Y Jan F||0.40%||0.40%|
|10:00||EUR||Eurozone CPI – Core Y/Y Jan F||1.00%||1.00%|
|13:30||USD||Initial Jobless Claims (FEB 20)||271K||262K|
|13:30||USD||Durable Goods Orders Jan P||3.00%||-5.00%|
|13:30||USD||Durables Ex Transportation Jan P||-0.30%||-1.00%|
|14:00||USD||House Price Index M/M Dec||0.50%||0.50%|
|15:30||USD||Natural Gas Storage||-158B|
This article originally appeared at Action Forex.