London Forex Report: Shanghai Composite Enters Bear Market

London Forex Report: Shanghai Composite Enters Bear Market

London Forex Report: European Central Bank policy communications confirmed that monetary policy will remain accommodative for a longer period and to some, the policy bias remains tilted towards easing given dismal outlook on growth and inflation. BOE stood pat as expected but the central bank has turned more cautious, signaling a rate hike is not on the horizon in the near term. Markets sentiments got a reprieve from a rebound in oil prices, further lifted by Fed Bullard’s comment that low oil prices may delay the return of inflation to the targeted 2%. This suggested that the Fed’s path of normalization will be gradual to spur price growth which is bullish for the stocks markets. Overnight the Shanghai Composite has technically entered a bear market after registering 20% losses since last years highs. USD strengthened against 6 G10s after jumping in late US morning to overturn early losses. The Dollar Index surged just before US mid-day and eased thereafter, but nonetheless held on to a 0.15% gain at 99.08.

EURUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: EUR climbed to an intraday high of 1.0944 yesterday due to less dovish rhetoric from ECB members. However, EURUSD dipped back below 1.0900 afterwards and it is now hovering at above 1.0850s. Although ECB’s December minutes stated that further cuts in its deposit rate may be needed, many ECB policymakers are skeptical about the need for further action in the short term.

Technical: While offers at 1.0950 contain upside reactions expect rotation to retest bids at 1.08, a breach of 1.0950 opens a retest of 1.0990 trend resistance.

Interbank Flows: Bids 1.08 stops below. Offers 1.0950 Stops above.
Retail Sentiment: Bearish
Trading Take-away: Sidelines

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GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: The Bank of England’s nine rate-setters voted 8-1 to keep interest rates at a record-low 0.5 percent for the sixth month in a row at their meeting. The BoE policymakers expect the recent drop in oil prices will weigh  on British inflation in the coming months but said it remains unclear if the impact would be long-lasting. The BoE also said economic growth looks like it will be a bit slower than it earlier forecast.

Technical:  While 1.45 caps upside reactions expect a grind lower to retest yesterday’s lows en route to 1.43. Only over 1.46 eases immediate downside pressure.

Interbank Flows: Bids 1.4350 stops below. Offers 1.45 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines

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USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: USDJPY surged above 118.00 levels, pulling away from the four-month low of 116.70 on Monday. Risk sentiment has improved due to the stability in Yuan and the recovery in US stock markets Thursday. Markets await the US Advance Retail Sales and US Michigan Confidence due today.

Technical:  While 118.30 caps intraday upside attempts expect a grind lower en route to test 116.35 as the next downside objective. Only above 119.30 eases immediate downside pressure.

Interbank Flows: Bids 116.50 stops below. Offers 118.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines

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EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: BoJ Governor Kuroda said that Japan’s price trend is improving and will continue to watch developments in markets. He added that wage growth, business investment are important and critical to judge if virtuous cycle continues.

Technical:  While 129.10 caps intraday upside reactions, expect a grind lower to retest Thursdays lows at 126.70’s a failure here opens a test of bids at 126. Only over 130 eases immediate downside pressure.

Interbank Flows: Bids 126.50 stops below. Offers 128.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines

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AUDUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: AUD slid to multi-month lows as a malicious selloff in commodities and equities revived worries about global growth, but managed to rebound sharply in US session. Prices of iron ore, Australia’s top export earner, dropped eight percent so far this year. The AUDUSD fell to 0.6907, its weakest since last September while a break below 0.6892 will take it to lows not seen since early 2009.

Technical: While .7050 caps intraday upside expect a grind lower to test 2015 lows. Only a breach of .7150 eases immediate downside pressure.

Interbank Flows: Bids .69 stops below. Offers .7050 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines

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USDCAD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Fundamental:CAD hit a fresh 12-year low against USD amid speculations that the BoC will cut its key interest rate next week, while it trimmed some losses as crude oil prices ascended yesterday but have rolled over again overnight. The speculation of a rate cut next week increased after a speech last week by Bank of Canada Governor Stephen Poloz, the market has fully discounted a rate cut by April.

Technical: Bulls have the ball while 1.4385 supports, expect a grind higher to test stops above 1.4550. Only below 1.42 eases immediate bullish pressure

Interbank Flows: Bids 1.4350 stops below. Offers 1.4550 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines

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