Oil Rallied to a 6 Month High, US GDP and BOJ Interest Rate in Focus
Market Analysis - AxiTrader Team | 24 Apr 2019
- Crude oil prices jumped to a six-month high amid reports that the US will discontinue granting sanctions waivers to countries trading with Iran, a move that could roil energy markets and risks upsetting major importers such as China. This adds pressure on the US-China trade settlement.
- US existing home sales came in lower-than-expected, which might also be the case for new home sales data to be released later in the global day. Investors focus on GDP data that is set to be released on Friday for a clearer picture on the health of the world’s largest economy.
- Economic and political uncertainty from Sri Lanka bombings and heightened tensions between US and Iran due to the Iran sanctions added on to the risk aversion, benefitting the safe haven Currency.
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Fundamental Analysis: Political and economic uncertainty surrounding Brexit continues to weigh heavily on the Currency and the British pound plummeted against the greenback as the CPI and PPI economic data fell below expectations, further denting investors’ confidence in the economy. However, there’s a high chance most of the bearish sentiment has been priced in and we could be seeing limited downside moving forward. This week will also see the release of the Public Sector Net Borrowing data where there's a high possibility it could perform better than expected capping the downside of this Currency.
Fundamental Analysis: Data from Europe was disappointing with the French and German Flash Manufacturing PMI numbers falling below expectations. This week will see the release of IFO Business Climate data which will be a key factor in determining the sentiment for EUR moving forward. Given the recent disappointing data on the manufacturing sector, there's a high chance the IFO business climate numbers could follow suite and adding bearish pressure on EUR.
Fundamental Analysis: The greenback has found support in recent weeks on the back of a gradual rise in US 10- year treasury yields and signs of strength in the world’s top economy. Last night, sales of previously owned homes data fell by the most in more than 3 years in March, signaling the housing market is still trying to regain its footing after the prior year’s slowdown. New home sales are set to be released later today and results could be similar. While those may provide pointers to the state of the US economy, a clearer picture should emerge from the GDP report set for release on Friday.
Fundamental Analysis: Market risk appetite shrank due to the long Easter holidays and recent political uncertainty, benefiting the safe haven Currency. With the recent bombing in Sri Lanka and heightened tensions between Iran and US, following US’s decision to not renew waivers that allow other countries to buy Iran's oil without facing consequences, there's a high chance risk aversion would remain throughout the week. However, the upside in JPY might be limited given the upcoming BOJ’s monetary policy and interest rate decision where there's a strong possibility they would take a dovish stance and keep interest rates unchanged.
Key Technical Levels to Watch on USDJPY
USDJPY is close to 1st resistance level at 112.22. There are 4 elements here that contribute to this level, mainly the 61.8% Fibonacci extension, 78.6% Fibonacci retracement, it’s a nice horizontal resistance and there is clear bearish divergence versus Stochastic.
The key support we’re looking at is 110.89 which has 2 elements contributing to it, mainly the 50% Fibonacci retracement and also a horizontal support level.
It’s worth noting the Stochastic is reversing nicely from our 95% resistance level along with the bearish divergence it is displaying versus price.
Fundamental Analysis: The AUD strengthened slightly from its lowest level in more than a week as local traders return from Easter break and after iron ore prices climbed. Australia’s 10-year yield has also rebounded more than 20 basis points however a soft CPI reading this Wednesday -something like New Zealand’s last week- would quickly bring long-end buyers back. Any surprise miss to trimmed mean CPI estimate of 0.4% would easily send the AUD back down. The US’s move to stop nations from buying Iranian oil could hurt relations with China especially at a time as sensitive as this. This has added to potential bearish pressure on the AUD.
Key Technical Levels to Watch on AUDUSD
AUDUSD has broken a key support level at 0.7133 which is now a horizontal resistance-turned-support level. We can also see that it has broken through the Ichimoku cloud which could add to its bearish momentum. RSI has broken multiple ascending support lines too which speaks the same story of price breaking key support levels.
Our next support level is at 0.7088 which is a 61.8% Fibonacci retracement, 100% Fibonacci extension and a nice swing low support. After that, it would be 0.7043 which is a 78.6% Fibonacci retracement along with a swing low support.
Fundamental Analysis: The NZD seemed to have recovered some of its losses but the Easter holidays have restricted the momentum. The week started with the US eliminating Iran oil waivers which could upset major importers such as China. China stocks fell from a 13- month high, posting their worst session in nearly 4 weeks, as comments from top policymaking bodies raised investor fears that Beijing will slow the pace of policy easing after some signs of stabilization in the world’s second largest economy. Risk appetite remains low which has placed added negative pressure on the kiwi.
Key Technical Levels to Watch on NZDUSD
NZDUSD has broken a really strong support-turned-resistance level at 0.6709 which is currently a 23.6% Fibonacci retracement and horizontal resistance-turned-support. There’s strong bearish momentum contributed by the Ichimoku cloud which price is under.
The next key support level to watch out for is 0.6612 which is a big horizontal support level. If price breaks this level, the next major support is at 0.6554 which is a 100% Fibonacci extension and also a 76.4% Fibonacci retracement.
Fundamental Analysis: The CAD held firm after oil prices rallied to near six-month highs overnight on news that Washington plans to eliminate waivers next month for eight countries to buy Iranian oil without facing US sanctions. BoC will meet this week and is expected to keep interest rates unchanged at 1.75%. However, there could be a case for more dovish language when it publishes its Monetary Policy Report. Governor Stephen Poloz has previously reinforced that future rates are very data dependent and believe this would be reiterated in the upcoming meeting. CAD could be seeing weak bullish support solely based on the help of oil prices.
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