David Morrison  |  21/01/2019 07:35
Euro’s Fate is in ECB’s Hands
 
This week started with some key economic data from China. Fourth quarter GDP fell to 6.4% which is the slowest expansion since the nadir of the financial crisis in 2009. Tuesday sees the release of UK employment data, the German ZEW economic sentiment survey and CPI from New Zealand. The Bank of Japan and European Central Bank hold monetary policy meetings on Wednesday and Thursday respectively. No change is expected from either, but Mario Draghi’s subsequent press conference will be monitored closely. It’s possible that Mr Draghi will be asked why the ECB’s balance sheet is growing despite the Asset Purchase Programme finishing last month.
 
Last week saw a continuation of the big risk-on move since the end of last year. Global equity markets got a boost following reports (which were subsequently denied) that the US was prepared help trade talks along by removing some of the tariffs it imposed on China. The fourth quarter earnings season started last week with most of the big banks and Netflix posting some disappointing numbers, but these were generally shrugged off. This week brings results from the likes of IBM, Halliburton, Johnson & Johnson, Ford and Starbucks.

Last week the euro-USD broke below 1.1400 as investors expressed concerns over the downturn in the euro zone’s economic outlook with talk of Germany entering a technical recession. The dollar was also back in demand despite the sudden dovish pivot by the US Federal Reserve at the beginning of the year. Traders sold euros and bought back dollars in a move which reversed much of the euro’s gains following its unexpected plunge at the beginning of the year.
Looking at the chart there’s support at 1.1340 followed by 1.1300. A break below that range opens the door for a possible test of the November low just above 1.1200 or maybe even the 1.1160 support as seen in the weekly chart. There’s some resistance around 1.1400-1.1420 while any hawkishness from Mario Draghi this week could catch traders offside and lead to a retest this year’s high of 1.1570.
 
Gold fell sharply at the end of last week and the selling resumed on Monday morning. Traders rushed to book profits as risk sentiment turned positive with a sharp bounce-back in equity markets and a pick-up in US treasury yields. Gold broke below support around $1,280 on Monday morning and a move below $1,276 raises the possibility of a more significant decline towards support around $1,260. On the upside there’s a strong band of resistance around $1,289-1292. Looking at the bigger picture, the outlook for gold remains positive if $1,276 holds on a daily closing basis and this could prove to be a buying opportunity for bullish investors.
 
Hope you have a profitable trading week!
 

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