NZD/USD hits a high of 0.6855 after having traded at a low of 0.6810 earlier
Optimism surrounding trade talks in Beijing was fading to start the day as US and China were reported to have structural issues that are difficult to work out and that tempered with the risk mood in Asian and early European trading. NZD/USD hit a low of 0.6810 before trading sluggishly around 0.6820-30 earlier on.
But as trade talks conclude and both parties are moving closer to a memorandum of understanding (with more talks planned for next week), risk is rebounding and that is helping to fuel gains in the kiwi and slight weakness in the dollar as well.
As a result, NZD/USD has climbed to a high of 0.6855 currently and is challenging yesterday's high as well as resistance from the 61.8 retracement level @ 0.6857. There's also daily resistance around 0.6850-70.
Despite hope for a breakthrough on a trade deal some time next month, I still believe that there is plenty of critical issues that are still tough for both parties to resolve and that will eventually temper with any optimism we're seeing so far over the past few hours.
For the time being, risk assets may still ride the euphoria and NZD/USD could potentially make a move towards 0.6900 should the 61.8 retracement level give way in trading later. But if we do get there, I'd be inclined to short the pair as I reckon the optimism here is a little ill-judged.
There's good reason to believe that US and China are heading towards something more productive in the coming months. However, it's still tough to believe that a sudden pact here will do much to change much of the issues and worries surrounding the global economy.
I may be wrong and China's economy could see a major rebound later in the year to drive global sentiment to be more upbeat, but for now I'm just not buying into that story until further economic data convinces me of otherwise.
GBP/USD hits a high of 1.2830 on the day
The pair is now running into some minor resistance from the 1.2830-32 swing region as buyers are continuing a small climb higher on the back of some dollar weakness (as a result of improved risk sentiment) and a slight boost from the upbeat UK retail sales report earlier.
Of note, the greenback has lost ground against the likes of the loonie, aussie and kiwi as trade talks are producing more positive signals for the time being. The bigger question will be how long can this euphoria last? I reckon it could see out the weekend at least but it's hard to say when it comes to these things. A couple of headlines could easily change the whole picture.
That said, cable still looks to be a more straightforward trade currently. Or at least the pound does. The retail sales earlier may offer something for bulls to chew on, but it's not something that changes the current pound outlook. It's still all about Brexit.
I'd still be more inclined to add to shorts around current levels but I would feel more comfortable if price moves closer towards the 100-hour MA (red line) @ 1.2858. That remains a key defining level in cable since two weeks ago.
With Brexit developments still offering more uncertainty than clarity, I still expect the pound to continue its slow and steady track lower. However, the caveat for cable will be the dollar side of the equation as more optimism from trade talks is likely to see the dollar offered as well. But pick your levels and as long as you define and limit your risk, it shouldn't be a bother.
Latest data released by Eurostat - 15 February 2019
Seasonally-adjusted exports decline by 0.1% on the month while imports held steady. I'd count that as a win for the region considering the poor exports demand seen in Germany over the past few months.
As for the region's trade to the US, 2018 saw a surplus €139.7 billion as opposed to the €119.6 billion surplus in 2017. Yup, Trump surely won't forget about that in the coming months as the US contemplates auto tariffs.
USD/CAD trades at the highs for the day near 1.3313
The greenback is pushing gains against the likes of the euro, swissie and loonie to start the morning and we're seeing USD/CAD stay underpinned above the 1.3300 handle with buyers searching for an extension to the upside move yesterday.
Despite a poor retail sales report from the US, USD/CAD actually climbed to a high of 1.3340 as Canadian manufacturing sales surprisingly declined for a third month running. That saw price broke near-term resistance levels that were highlighted yesterday here.
Buyers remain in near-term control now but are still unable to find a way past swing region resistance from around the mid-November highs at 1.3318-30. That continues to keep a lid on the upside move in the pair since trading last week.
For trading over the next few sessions, the pair will be very much dictated by the technical playbook in my view.
Buyers will have to secure a daily break above the 1.3318-30 swing region level to retest the 76.4 retracement level @ 1.3384. Meanwhile, sellers will firstly have to break below the key hourly moving averages seen @ 1.3268 and 1.3247 currently. But more importantly, they will have to find a way past the 100-day MA (red line) @ 1.3240.
Only a break below that will further justify a move to the downside, otherwise I'd argue that the upside momentum remains very much intact in the long-run.
As for fundamentals, it's all about US-China trade talks and risk optimism/pessimism right now so look towards that to drive sentiment in the pair and oil over the next few days. Much like other risk assets, positive headlines could help spur a knee-jerk jump in the loonie and oil but I would expect that to be faded thereafter.
EUR/USD is moving back towards the 1.1250 level
Price is tumbling back to the lows for the day at 1.1250 - light bids seen around the area - as the dollar continues to push forward on the day against the rest of the major bloc. The highs seen in EUR/USD was at 1.1295 earlier and failure to get back above 1.1300 continues to keep sellers in the driver's seat.
As we revisit the day's low, a fall back below the 1.1250 level as well as the broken downwards trendline will only help to reinvigorate further selling pressures in the pair. The key risk event in the day ahead will be US retail sales data but given the momentum seen in the dollar, pricing of optimism from positive developments in US-China trade talks is something hard to ignore.
Hence, even if retail sales data disappoints slightly, it could well be shrugged off thereafter.
Looking at the daily chart, price is already looking to break away from the late-November lows and there isn't much standing in the way of a move to test the 2018 low of 1.1216:
The Japanese yen joins the greenback at the back of the class
The kiwi and aussie are leading gains on the day buoyed by optimism surrounding trade talks, particularly after it is reported that Trump is considering to extend negotiations and the tariffs deadline by 60 days earlier. However, just be wary that there is also talk that such speculation is not accurate so that may temper gains in both currencies later in the session.
Meanwhile, the rest of the major bloc is recouping losses against the greenback since overnight trading. The dollar advanced yesterday on the back of a slightly better-than-expected CPI report but is seeing some mild pressure as we await European traders to join us.
Risk assets are also underpinned with US equity futures trading near session highs currently, up by around 0.3%. And that is helping to keep the yen on the back foot as markets are still viewing developments in Beijing in a more positive light.
In the coming minutes, we'll have German Q4 GDP data to kick start the morning before trade talks and the Brexit debate will start to dominate trading sentiment as we look to wrap up the week over the next two days.
The greenback is holding up decently on the session
Markets are mostly steady and the dollar is also mirroring that sentiment in the European morning as it continues to recover some ground following losses overnight. The greenback has notably recouped some of its earlier losses against the likes of the pound, kiwi and loonie.
As for EUR/USD, it's a bit of a nudge lower as the trading range remains narrow on the day so far but the pair is testing the lower extreme now as price looks to threaten a break of the 100-hour MA (red line). Fall below that level and the near-term bias then turns more bearish.
There's also some added support from the 23.6 retracement level @ 1.1318 at current levels so there's still reason for buyers to lean on this level ahead of US trading. The key risk event in the session ahead will be the release of the US CPI report so I would expect price action to at least hold above 1.1300 in anticipation of that before the next move comes along.
So far, there isn't much headlines to drive broader market sentiment but the release of the Eurozone December industrial production figures earlier isn't helping the single currency's cause to say the least.
Industrial activity as of December last year fell at its fastest pace since the global financial crisis:
Here's a snapshot of what the major currencies bloc performance against the dollar looks like now:
The jump higher meets a pause as buyers run into notable resistance levels
In the bigger picture, the mid-January highs around 0.6845-50 is currently helping to limit gains in the pair after the RBNZ gave the kiwi a shot in the arm as the central bank was less dovish than anticipated earlier today.
The kiwi bounced on short covering but notably the bounce comes as price failed to break below the 100-day MA (red line) @ 0.6728 and has even moved back above the 200-day MA (blue line) @ 0.6754. That puts buyers back in the driver's seat but the near-term chart indicates that the comfort zone should not be taken for granted.
The move higher in the kiwi saw it break back above both key hourly moving averages as well though the highs fall short of testing the 61.8 retracement level of the recent swing move lower @ 0.6857.
That said, buyers are in near-term control as well but the key in the sessions ahead will be to stay above the 200-hour MA (blue line), currently sitting @ 0.6812.
So, what's next for the kiwi?
Basically, the move earlier has much more to do with short covering than a major shift in kiwi sentiment. The RBNZ is still nowhere near being able to hike rates but their stance earlier just means they are not yet shifting towards being more neutral.
A rate cut isn't on the horizon just yet and markets are basically just revising their anticipation of that at the moment. Given that's the case, it's not going to spur continuous gains in the kiwi as what is taking place is just some repricing of market odds.
The key risk event in the near-term is still the US-China trade talks so expect kiwi (as well as risk assets) sentiment to focus much on that.
I anticipate the kiwi's gains earlier will be tempered with slightly so be wary of a potential move back to test the 200-hour MA. But later in the week or at the start of next week, trade developments are likely to dictate the next move and I still view it is more than likely to take a more positive turn.
But all else being equal, market participants will continue to grow more bearish about the RBNZ's rate hike odds down the road so expect that to cap any material kiwi gains in the bigger picture.
USD/CAD down 31 pips
On Friday, USD/CAD dropped after another strong Canadian jobs report but the pair rebounded yesterday as oil prices fell. Today, crude is higher by more than 1% and USD/CAD is on the defensive. There is also pressure on the pair with global stock markets climbing and some broad malaise in the US dollar in the past hour or so.
On the hourly chart the story is consolidation. The uptrend from 1.3070 was stopped cold by the jobs report and now the market is sorting out what to do next. It's safe to say that signals from US-China trade talks could be what drives the next leg but a hint will also come from a break in either direction.