Midday Market Outlook 25 Jan

csfx-market-outlook

Chinese President Xi Jinping visited Iran on late Friday and set out a magnificent 25 year plan with the Iranian President Hassan Rouhani to promote the Iran-China bilateral relationship on Saturday. Also China and Iran were in an agreement to expand trade to $600 billion over the next 10 years.  Jinping is the first Chinese president to visit Iran in the last 14 years .He visited Iran a week after the removal of international sanctions against Iran. China is the biggest trade partner of Iran , purchasing  oil from Iran while U.S and European countries restricted trading with Iran, enforcing agreed sanctions.

Governor of Japan Haruhiko Kuroda suggested that China should manage its  currency exchange rates by employing capital controls rather than deploying reserves on a large scale. He made this proposal on the final day of the World Economic forum in Davos, Switzerland, on Saturday. He, along with other policy makers expressed his confidence that the Chinese economy would be able to avoid a hard landing. China is struggling to contain a devaluation of the Yuan, as the sluggishness in the economy is forcing them to ease monetary policy . China’s foreign exchange reserve shrank by $513billion to 3.3 trillion over the last year for the first time since 1992.

Oil futures slumped  more than 4% on Monday as Iraq revealed their oil output had reached to a record high level in December. According to the Iraq’s Oil ministry, its fields in the central and southern region produced 4.13 millions a day. This news faded out much of the last week’s gain.

Earlier, Oil futures climbed up 9% ended at 32.20 level on Friday , rebounding from 13 year lows. It is the highest daily gain since August 27, 2015. Oil futures are climbing despite a weekly increment of 4.0 million barrels in Oil stockpiles, against the forecast of 3.3 million barrels increment according to data release on Thursday from EIA, which means that the demand is also increasing with the increasing supply. The recent cold weather conditions in the U.S and Europe, can increase the demand of Oil and continued cold weather may increase the demand further. More than a foot of swirling snow covered parts of the US East Coast on Saturday in a major winter storm. Weather forecasters say that Washington DC and Baltimore should see up to 2 feet of snow in most places while for New York city and Long Island , 18 to 30 inches are likely.

Technicals

EURUSD

EURUSD started falling sharply on Thursday last week after Draghi’s dovish remarks during the ECB meeting, as he indicated that interest rate should be at current or lower levels for a prolonged period of time. EURUSD instantly dropped below 1.0800 level losing about 150 points in a knee-jerk reaction to Draghi’s speech.

1

On the H4 chart, EURUSD was rejected three times by a descending diagonal resistance line which indicates the weakening demand of EURUSD near 1.10 level currently. After making several abortive attempts to breach 1.10 levels, EURUSD gravitated towards 1.0800 support level and broke it strongly on Thursday , last week. After getting support at 1.0776 below the 1.0800 level, it made a strong pullback and tested the 1.0900 level but couldn’t breach it. On Friday, it fell again towards 1.0800 level and ended last week @1.0793 level. On the higher time frame charts, the trend is strongly bearish as price is below SMA200 on the weekly and daily chart. On the weekly chart, SMA50 is working as a immediate resistance. This week, a sustained move below 1.0800 support line would open up the way towards @1.0520. Conversely if it gets a toehold at the 1.0800 level and breaches the 1.1000 level the current bearish bias would be invalidated.

Trade Suggestion:

Sell below 1.0800 with a Stop Loss @1.09500 and Take Profit @1.0680.

GBPUSD

GBPUSD breached the 1.4100 level on Thursday, last week but climbed back strongly after creating a double bottom @1.4080 and ended Thursday @1.4218 forming a nice bullish pin bar on the daily chart. On Friday, it drove higher swiftly boosted by the previous day’s pin bar and tested the 1.4350 level but failed to breach. It ended week @1.4240 .

2

On the H4 chart, the price was rejected at the confluence of the resistance line, and the top of a descending channel @1.4350 on Friday after having a strong rally from 1.4080.GBPUSD still is in a bearish territory as price is inside a descending channel and well below of 50 day and 200 day moving averages. Again on the weekly chart a nice bullish pin bar was formed  last week, which may initiate a strong bullish reversal of the current vivid bearish trend in this week. A sustained move above 1.4350 may lead it towards the next resistance level @1.4480. Conversely if it breaks below 1.4240 it may set the stage for another selloff this week.

Trade Suggestion:

Buy above 1.4350 with a Stop Loss @1.4200 and Take Profit @1.4450.

USDJPY

USDJPY gained more than 200 pips over the last week. The Yen is weakening ahead of BOJ meeting on 29th January as there is a sentiment in the market that BOJ may cut rates in view of the inflation target. Plunging oil prices, and the strengthening of Yen may lead BOJ to ease monetary policy further as the current situation is hampering their 2 percent inflation target.

3

USDJPY has been rising, creating a series of higher highs and higher lows. It ended last week just below the 118.80 resistance level . Right now, the price is up above the 50SMA and has coincided with SMA200 on the H4 chart. A sustained move above 118.80 would open the way towards 120.64 – the next resistance level.

Trade Suggestion

Buy above 118.80 with a Stop loss at 117.90 and Take Profit @120.40.

Crude Oil

Crude Oil climbed back strongly from the 13 year lows touched on Thursday last week and also continued surging on Friday to close near the 32.20 level.  This week it failed to carry on with the recent rally as it has already dropped more than 4% to 30.80 levels .

4

On the H4 chart, Crude Oil started falling today from the 32.70 level, near the SMA200. This fall can be a strong correction of the two days rally in oil or a continuation of the previous strong sell off. Price is still above SMA50 and Stochastic is up on the H4 chart.  A sustained move over 34.30 would open up the way towards 38.00 level  .Conversely if it breaks below 30.20 it might initiate another strong sell off towards 25.00 level.

Trade Suggestion:

Buy above 34.30 with a Stop Loss @32.00 and Take Profit @36.20.Sell bellow 30.20 with Stop loss @32.30 and Take Profit @27.80.

XAUUSD

XAUUSD is going higher boosted by the speculation of stimulus from ECB and BOJ. It has gained 0.86% today so far.

5

XAUUSD has established a upward channel and is rising via a series of higher highs and higher lows .Price is above SMA50 and SMA200 and Stochastic is also turned up higher on the H4 chart. Bullish bias prevails as long as price is above 1100. A sustained move 1112.50 may initiate a very strong rally in XAUUSD against the recent major sell off.

Trade Suggestion

Buy above 1112.50 with a Stop Loss @1108 and Take Profit @1121.50

XAG/USD

XAGUSD has been in a sideways market for more than one month. It has gained about 0.88% so far today.

6

On the weekly chart, we can see that silver has got a toehold @13.74 after having a long-term selloff. Weekly chart indicates it is accumulating the strength to mount a move to the upside, to initiate a strong rally against the major bearish market. A sustained above 14.40 would accelerate the current bullish momentum and might lead it towards 15.50 level . Conversely if it breaks below 13.74 all the bullish attempts will be faded out.

Trade Suggestion

Buy above 14.40 with a Stop Loss @ 14.20 and Take Profit @14.60.

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