The first week of 2019:

CAD rallied along with oil prices; Commodity prices had a pleasant first week of 2019; Flash crash shredded on AUDJPY, USDJPY, and AUDNZD; lower greenback against G10 currencies; equities reversed and strong US job numbers.

Overall, volatility across the asset classes rose the first week of 2019 sharply. The USD trading behavior over the past weeks suggests the dollar strength likely to come to an end. Besides Gold and Silver prices will rise further and EURUSD getting ready to shift the gear higher in the coming months.

Week ahead:

Event-wise, US-China trade talks (Jan 7-8 in Beijing) grab the traders’ attention. Besides FOMC and ECB minutes and Bank of Canada, Interest rate announcement and Monetary Policy Report will attract much interest. On top of these, Fed Powell’s appearance at the Economic Club Luncheon, in Washington DC will be focus firmly.

Economic data calendar:

  • Mon: ISM Non-manufacturing PMI (Dec)
  • Tue: Trade balance for Aussie, Germany IP (Nov), Canada Trade, US JOLTS job openings (Nov)
  • Wed: Aussie building approvals, German Trade, BOC interest rate decision and FOMC meeting minutes
  • Thu: China CPI and ECB minutes
  • Fri: Aussie retail sales, UK Nov GDP and Dec US CPI

The combination of ongoing trade conflicts, moderate global economic expansion and sharp correction on oil prices keeps the trader’s sidelines.

The trade war is hurting, in particular, China’s export/industrial cycle (see this piece by our China economist, Allan von Mehren). The spill-over from China and the trade war are weighing on the manufacturing cycle in the US, and Europe, Thomas Harr, Ph.D., Global Head of FI&C Research at Danske Bank said in a note to clients.

Turning to the latest round to US-China trade talks, we suggest a cautious approach on commodity currencies in the G10 block (AUD, CAD, NOK, and NZD) against the USD. At the same time, we also suggest USD is unlikely to benefit as much as seen in 2018 from the risk off conditions. Especially for CAD, oil price is the moving factor for now. In case of optimistic developments/sentiment rebounds over US-China trade talks we expect antipodeans (AUD & NZD) could rally further higher against JPY,CHF and USD.

Medium term: Considering moderate/slowdown global growth triggered by the US protactinium could translate into weakening USD in the coming months, especially low yielding currency like EUR. As we noted above EURUSD could start the next leg higher in the coming months of 2019.

Chart of the week: We expect the BOC will maintain its target for the overnight rate at one ¾ percent in the upcoming meeting. We focus on the Central Bank’s outlook for the local economy, inflation and language including a projection which will be published in the MPR. Mainly we focus on the Bank’s growth and inflation outlook.

Range: 1.3570-1.3225. 

Last week we spotted and tweeted the “triple top pattern ” formation on USDCAD and EURCAD, they retraced 30.0% and 40.0% fib reactions respectively from recent highs.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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