The USD seemed to stabilize somewhat against a number of its counterparts yet seems set to end one of its best weeks. According to analysts, as signs of stress in the global financial market seem to be still elevated, the USD could strengthen even further. The onslaught caught a number of central banks by surprise which defend their corresponding currencies with talk about possible interventions being widespread in the market. It is characteristic that Norway’s Norgesbank threatened to intervene in order to support the Krona, which according to analysts is a step it has not taken in twenty years. Despite rumours for a possible coordinated central bank action at a G7 level appearing in analysis, we consider such a scenario as remote for the time being. An alternative route could be a possible action by the US alone, something that has not been done for the past 30 years. Despite the stabilization as risks remain elevated, prospects for the USD to strengthen are still in place unless the market says enough is enough. USD/JPY continued to rise yesterday and at some point, broke the 110.60 (R1) resistance line, yet during the Asian session corrected substantially lower. Our base scenario for the pair remains currently bullish as the pair still trades clearly above the upward trendline incepted since the 9th of the month. Should the bulls maintain control over the pair, we could see it breaking the 110.60 (R1) resistance line and aim for the 112.15 (R2) resistance level. Should the bears take over, we could see the pair breaking the 109.10 (S1) support line and aim for the 107.75 (S2) support level.
Pound stabilises at 35 year lows
The pound stabilized against the USD and the EUR yesterday after BoE proceeded with a surprise rate cut of 15 basis points. UK’s central bank also increased its bond buying program in an effort to guard the UK economy. Nevertheless, despite the efforts of the BoE, GBP remains at 35-year lows against the USD, dampening hopes for a quick ascent. Other analysts said the pound was also benefitting from improved risk sentiment across markets and that liquidity is better than in the past days. On the political front UK’s PM expressed optimism that the UK could ‘turn the tide’ of the virus outbreak within 12 weeks. The government seems to be abstaining currently of the idea of putting London under at least partial lockdown, yet such a scenario cannot be excluded. As for Brexit, in a strange twist, EU’s top Brexit negotiator Barnier was reported positive on the coronavirus, while at the same time UK’s top negotiator Frost is also in isolation with symptoms, practically putting the procedures on ice. Please note that we consider the pound to be still quite vulnerable and for the time being it could change its direction either way. Cable stabilized maintaining a sideways movement yesterday after bouncing on the 1.1450 (S2) support line and breaking the 1.1570 (S1) resistance line, now turned to support. As the pair clearly broke the steep downward movement incepted since the 18th of the month, we switch our bearish outlook for the pair in favor of a sideways movement initially, however the bulls may be tempted as the pair is allready at very low levels. Should the market decide to favor the pair’s long positions marking a bottoming out for cable, we could see it breaking the 1.1715 (R1) resistance line and aim for the 1.1880 (R2) resistance level. Should on the other hand, the pair come under the selling interest of the market once again, we could see it breaking the 1.1570 (S1) and aim if not break the 1.1450 (S2) support level in search of new lows.
Other economic highlights today and early tomorrow
Today during the European session, we get Germany’s PPI rates for February and Eurozone’s current account balance. In the American session, we get Canada’s retail sales growth rates for January and from the US the number of existing home sales in February and the Baker Hughes oil rig count.
USD/JPY 4 Hour Chart
Support: 109.10 (S1), 107.75 (S2), 106.65 (S3)
Resistance: 110.60 (R1), 112.15 (R2), 113.70 (R3)
GBP/USD 4 Hour Chart
Support: 1.1570 (S1), 1.1450 (S2), 1.1300 (S3)
Resistance: 1.1715 (R1), 1.1880 (R2), 1.2015 (R3)
