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Sterling Rises in Subdued Markets, Stocks to Extend Record Runs

Sterling rises together with commodity currencies today. Trading has been rather subdued with most markets closed. But activities should come back to life in US session. US futures point to sharply higher open with DOW likely to ride on the sentiment to extend recent record runs. Euro and Dollar are currently the weakest ones, followed by Yen and Swiss Franc.

Technically, current risk-on sentiments put some focuses back to Dollar against commodity currencies. In particular, break of 1.2519 minor support in USD/CAD will indicate completion of corrective rebound from 1.2363, and should bring retest of this low. Break of 0.7662 minor resistance in AUD/USD would suggest completion of correction from 0.8006 and bring stronger rebound to 0.7848 resistance.

GBP rises against EUR and CHF in quiet trading

Sterling surges broadly in quiet holiday trading today, in particular against other European majors. GBP/CHF resumes recent up trend by breaking through last week’s high of 1.3059. Rise from 1.1683 is seen as the third leg of the whole up trend from 1.1102. Next target is 1.3310 medium term resistance, and then 161.8% projection of 1.1102 to 1.2259 from 1.1683 at 1.3555. Break of 1.2998 minor support will bring some consolidations first. But outlook will stay bullish as long as 1.2769 support holds.

EUR/GBP also accelerates downward to as low as 0.8470 so far. Current fall from 0.9291 is seen as the third leg of the pattern from 0.9499. Deeper decline would be seen to 0.8276 support next. We’d look for bottoming signal as it approaches this support. However, firm break there will carry larger bearish implications, and could pave the way to 100% projection of 0.9499 to 0.8670 from 0.9291 at 0.7950 in the medium term. Above 0.8532 will bring some consolidations. But outlook will stay bearish as long as 0.8644 resistance holds.

CAD/JPY and EUR/CAD lost some momentum after last week’s moves

CAD/JPY lost momentum after after hitting 88.28 last week. But overall, outlook remains bullish as long as 86.05 support holds. Current up trend from 73.80 is likely reversing the down trend from 106.48. 91.62 long term resistance is the next upside target. Sustained break there will confirm long term bullishness.

EUR/CAD also lost downside momentum after hitting 1.4737 last week. But overall, outlook stays bearishness with 1.4972 resistance intact. Focus is now on 161.8% projection of 1.5978 to 1.5313 from 1.5783 at 1.4707. Sustained break there will pave the way towards 1.4263 key support level. However, as current decline from 1.5991 could be just a leg inside the long term sideway pattern from 1.6103. We’d look for more signs of bottoming as it approaches 1.4623.

RBA to meet, Fed and ECB to publish minutes

RBA is generally expected to stand pat on monetary policy on Tuesday. The central bank should maintain its pledge to keep policy loose. In particular, despite some market speculation on tapering, RBA should indicate it’s firm commitment on keeping 3-year yield at 0.1%. Also, it should reiterate that condition for a rate hike is not expected to be met until 2024. Overall, the announce would be a non-event.

On central bank activities, both Fed and ECB will release meeting minutes. Fed officials have sung a chorus on optimism over recovery, the transitory nature of the surge in inflation, and that rise in treasury yields reflect restoring confidence. We’re not expecting the minutes to deviate from these messages. On the other hand, ECB is clear that it’s closely monitoring the development in treasury yields. The minutes could review how nervous policy makers are regarding the topic.

Here are some highlights for the week:

  • Tuesday: Japan average cash earnings, household spending; China Caixin PMI services; RBA rate decision; Italy unemployment rate; Eurozone Sentix investor confidence, unemployment rate.
  • Wednesday: Australia AiG construction; Japan leading indicators; Eurozone PMI services final; UK PMI services final; Canada trade balance, Ivey PMI; US trade balance, FOMC minutes.
  • Thursday: Japan consumer confidence; Germany factory orders; France trade balance; Swiss foreign currency reserves; UK PMI construction; Eurozone PPI, ECB meeting accounts; US jobless claims.
  • Friday: Australia AiG services; China CPI, PPI; Swiss unemployment rate; Germany industrial production, trade balance; France industrial production; Italy retail sales; Canada employment; US PPI.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1746; (P) 1.1766; (R1) 1.1784; More….

Intraday bias in EUR/USD remains neutral for the momentum. Another fall could still be seen through 38.2% retracement of 1.0635 to 1.2348 at 1.1694, as correction from 1.2348 extends. But we’d expect strong support from 1.1602 to contain downside to bring rebound. On the upside, above 1.1804 minor resistance will turn bias back to the upside for 1.1988 resistance.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. However, sustained break of 1.1602 will argue that whole rise from 1.10635 has completed. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289.

Economic Indicators Update

GMTCcyEventsActualForecastPreviousRevised
01:00AUDTD Securities Inflation M/M Mar0.40%0.10%
13:45USDServices PMI Mar60
14:00USDISM Services PMI Mar58.555.3
14:00USDFactory Orders M/M Feb-0.50%2.60%
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