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FX – The week ahead, Monday 14 March

Macro observations

  • Bond markets pricing in 1 US Fed rate hike this year, either June or Dec following some decent macro data prints. However this isn’t massively evident in USD price action, probably because a) it’s only the one rate hike and b) the wider market still isn’t convinced.
  • Note continued divergence between Eurozone and US central banks (US standing pat, E/Zone easing), while EUR remains stronger than it was before the ECB announcement despite Draghi’s triple dose of stimulus surpassing expectations. #nopleasingsomepeople
  • Sterling recovering while still expected to weaken as we head towards Brexit referendum. Expect more fear-mongering from both sides!

Key data this week (Sign up here to get our daily live macro-calendar)

UK

  • Wed: Employment data
  • Thur: BoE rate announcement & asset purchase target

US

  • Tue: Retail Sales, PPI, Empire Manufacturing, NAHB Housing Market Index, Business Inventories
  • Wed: CPI, FOMC rate announcement
  • Thur: Jobless Claims
  • Fri: Uni. of Michigan Confidence

EU (data for Eurozone unless otherwise stated)

  • Mon: Industrial Production
  • Tue: Employment data
  • Wed: Construction Output
  • Thur: Trade Balance, CPI

GBP/USD (‘Cable’)

GBP/USD (daily)

GBPUSD daily (-)

 

GBP/USD (hourly)

GBPUSD hourly (-)

Technicals (based on daily price data unless otherwise stated)

  • Cable is trading near the ceiling of a Jan 2016 falling channel, which puts the shorter term March uptrend under pressure
  • Hourly MACD has rising support since late Feb while daily MACD is punching through its zero line
  • Momentum is going positive

Cable is selling off from the 1.44 level which coincides with the ceiling of the pair’s Jan 2016 falling channel. Bulls are unlikely to see a breakout above 1,4406, but if by some miracle that happens then 1.4575 / 1.46 present the next target. Above that we’ve got falling highs from Aug 2015 to look out for.

Far more likely, given current fundamentals (a UK economy in need of some triage / patching up and impending Brexit vote), is a pullback towards the 50-day MA 1.4274 with 1.4250 (the floor of the rising channel on the hourly chart) the next couple of support levels.

GBP/EUR

GBP/EUR (daily)   

GBPEUR daily (-)

GBP/EUR (hourly)

GBPEUR hourly (-) 

Technicals (based on daily price data unless otherwise stated)

  • Resistance at the 50-day MA 1.295
  • Another 2016 falling channel

GBP/EUR is keeping up the pressure on its 50-day MA as the EUR finally starts to weaken a bit, following its weird reaction to a triple whammy of ECB stimulus measures announced last Thursday. We’d expect the stimulus package to leave the EUR relatively weaker than Sterling over the shorter term, at least until Brexit fear really starts to take hold, but note the two are subject to considerable pressure from above. Don’t be surprised at seeing little significant action in the pair this week.

Bulls will look for a breakout above the 50-day MA 1.295 and channel ceiling 1.298 to put recent highs 1.307 and early Feb levels 1.326 within reach. Bears, meanwhile, will be encouraged by  the 5-month downtrend and attractive downside potential towards 1.275 and 1.261.

EUR/USD

EUR/USD (daily)

EURUSD daily (-)

 

EUR/USD (hourly)

EURUSD hourly (-)

 

Technicals (based on daily price data unless otherwise stated)

  • Converging trend lines still dictating the action
  • Stochasics peaked at overbought
  • Bounce off 1.11105

With 2016 rising support now re-gained on EUR weakness rather than USD strength, bulls are looking for Monday’s down move to indicate consolidation ahead of a breakout above  May 2014 falling resistance and subsequent recovery towards 1.15. Keep an eye on what the markets are pricing in as regards Fed rate hikes on this one. Note the pair has been sideways through 2015/YTD while bears will be licking their lips as both the RSI and Stochastics have turned down, pushing the pair  towards the lower part of the channel.

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