Despite that U.K. Prime Minister Theresa May signed letters to formalise Brexit, the currency with the biggest volatility yesterday was the euro. Cable was stable overall while euro plunged on speculations that ECB will slow down its stimulus measures.
Sterling Stable Despite Official Brexit Start
The sterling ended Thursday higher against most of the G10 currencies while it remained virtually unchanged versus the commodity currencies, Aussie, Loonie, and kiwi. After the U.K. Prime Minister Theresa May signed the official latter to invoke Article 50 and exit the European Union, in the Asian session, the cable dropped more than 50pips in few minute, however, overall the market was stale and cable managed to end near its opening levels. In the next days, investors will follow the complex negotiations to learn the deals that will be reached between U.K. and European Committee that will affect the market. Later in the day, the Gfk consumer confidence for March is coming out.
GBP/USD – Technical Outlook
Sterling lost ground during the last trading sessions versus the U.S. dollar during the beginning of triggering Article 50. The GBP/USD pair fell more than 1% since Tuesday after the bounce off the 200-daily SMA near the fresh high at 1.2615 and met the 1.2380 support level which overlaps with the 200-SMA on the 4-hour chart. Our expectation is to consolidate within 1.2380 and 1.2470 as the price has been fairly directionless the last few hours with low volatility.
However, if the price slips beneath 1.2380, it will move towards the 1.2330 barrier. On the other hand, a run above the 1.2470 resistance obstacle, will expose the pair at 1.2530. The technical structure remains bearish to neutral, with the pair meeting some short-term selling interest. The RSI indicator is flattening in the negative territory whilst the MACD oscillator is holding below the zero and trigger lines.
GBP/JPY – Technical Outlook
The GBP/JPY pair plummeted down to a fresh three-month low at 137.50 and created two negative daily sessions. Sterling is completing the third negative month in a row and plunged more than 4% as well as it is developing within a descending move since December 2016. Since then, it started a downward run while the pair is trading between the 50 and 200 daily SMAs for the last month. The Bollinger Band is squeezing and is endorsing the scenario for an aggressive movement probably to the downside. We are waiting for a move to the south until the 136.50 support barrier and if there is a penetration of this level we will see an aggressive sell-off towards 132.30.
From the technical point of view, the technical indicators are holding in the bearish path with some weak momentum. The RSI indicator is moving slightly lower following the pullback on the 50 level. The MACD oscillator is in the process to create a negative crossover with the trigger line whilst it lies below the zero line since mid-February.
Euro Tumbled and Attracts the Attention
The single currency plunged on Wednesday after some days had been traded firmed, displacing sterling from its position as the worst performing currency of the week. The macro data released yesterday from Euro area, was the German import price index for February which rose more than expected. The sell-off can be attributed to comments coming from ECB policymakers, giving signs that central bank considers decreasing or exiting stimulus measures. ECB has now zero interest rates and -0.4% deposit rates and a massive bond-buying program of €60 billion. Later today, many sentiment indicators for Euro area, as a whole, will be released and thereafter, German CPI is coming out.
EUR/USD – Technical Outlook
The euro remained under pressure the last two days and early this morning against the U.S. dollar as it plunged more than 1% following the strong rebound on the descending trend line. The diagonal line is holding since May 2016 and the EUR/USD pair hit it several times. The firm dollar didn't prevent the euro from pushing the pair lower. Furthermore, the price is recording the first red week after four winning periods and is approaching the 1.0720 support barrier. A break below the latter level, it would open the way for the 50 and 100 SMAs at 1.0670 and 1.0630 respectively. The short-term rising line stands since January 2017 as a correction to the upside began. The latter line acts as a strong support level and we expect a bullish move after a successful attempt.
On the daily chart, the RSI indicator rebounded on the 70 level and now is sloping downwards approaching the 50 level and the negative path. The MACD oscillator after the sharp move to the upside, it created a bearish crossover with the trigger line and lies lower in the bullish area. Technical indicators are endorsing the downward scenario as both lost its upward momentum.
U.S. Dollar Firmed as Home Sales Reached 10-Month High
The buck had been overshadowed by Brexit on Thursday and traders abandoned it for a while, despite the upbeat data released. U.S. dollar was traded higher against the euro, swiss franc and Swedish krona. The U.S. pending home sales jumped to 10-month high in February, rising to 5.5% month-over-month in February versus a decline of 2.8% the month before. Today, U.S. GDP report will be in focus, as well as some speeches from FOMC members, expected by traders to gauge the number of rate hikes left for the year.
USD/JPY – Technical Outlook
The USD/JPY pair was virtually unchanged over yesterday’s session as it ended the day near its opening level and even though is headed at our recommended target at 111.60 resistance barrier that we mentioned on Wednesday (see technical analysis here: https://bit.ly/2oB5XnL) it didn't hit it yet. Currently, the price is trading higher, creating some distance between the four-month low at 110.10 that it plunged on Monday. The initial target is the aforementioned resistance level and a jump above it will open the door for the 112.90 – 113.50 area which overlaps with the 50-daily SMA.
On the short-term timeframe, the technical indicators hold neutral within the negative territory apart from stochastic oscillator which is moving higher approaching the overbought zone. The RSI indicator is flattening in the negative path as well as the MACD oscillator.
What to Watch Today
Today the economic agenda has a significant number of macroeconomic updates compared to the previous days. In the morning, a number of sentiment indicators from the Euro area will attract some attention. Economic sentiment indicator, business climate and industrial confidence are expected to rise slightly in March while services sentiment is predicted to remain unchanged. German preliminary CPI for March is coming out, and the market consensus is for the consumer prices to have risen by 2.0% from 2.2% before.
On the second half of the trading day, traders will keep a tab for the final U.S. GDP growth for the Q4. No forecast is available yet for the annualised GDP. The GDP price index is expected to remain at 2%. Personal consumption expenditures prices, on a quarterly basis, are predicted to rise to 2.1% from 1.9%. FOMC members Robert Kaplan and John Williams have scheduled speeches.
Later in the day, U.K. Gfk consumer confidence for March is coming out while the focus of the night will be the Japanese CPI and unemployment reports for February. The flash industrial production for February is also scheduled for release and will be closely eyed.