According to statistics from the Bank of International settlements (BiS), the EUR/USD and the USD/JPY are by far the largest currency pairs in terms of daily turnover and volume. In fact, the daily flow of these two pairs dwarf the trade value of the other G-7 currency pairs combined by a magnitude of 1.75.
Interestingly, in what was a fairly busy trading week, the EUR/USD was confined to a 90 point range between 1.1280 and 1.1370. And despite closing higher for the third consecutive week, the USD/JPY never traded outside of a 60 point band between 110.35 and 110.95.
By comparison, the EUR/NZD traded in a 365 point range for the week and the EUR/AUD swung over 270 points from high to low just during Thursday alone.
Digging a little deeper, over the last three weeks, the EUR/USD and USD/JPY ranges have compressed to the point where the 3-month implied volatility for USD/JPY stands a 5-year low of 6.1% , and the same 3-month measure for the EUR/USD is trading just above a 7-year low of 6.2%.
The lack of range in these majors can be attributed to the ongoing trade negotiations between the US and China, a relatively “risk on” climate in global equity markets and even the steady flow of dovish comments from the ECB, the BoJ and the FED.
However, this week’s data schedule is full of first-tier economic data points which have the potential to widen the trading ranges across all the G-7 currency pairs.
The high frequency data in Europe has been sliding lower across the board since the new year. In particular, EU manufacturing PMIs have extended their downtrend from last July and are expected to print on Friday below the expansion/contraction line of 50.00 for the second month in a row.
The Eurozone (EZ) CPI is also scheduled for Friday and may have edged slightly higher to 1.6% as a result of stronger crude oil prices over the last six-weeks. Based on recent comments from ECB officials, unless these two data points print significantly higher, it’s likely the ECB will announce the re-introduction of TLTROs during their meeting next month.
On the other side of the pond, the US Q4 GDP numbers will be released on Thursday. The median forecast is estimating growth of 2.4%, which compared the EZ’s 1.6% would underscore the growth divergence theme that pressured the EUR/USD lower throughout much of 2018.
Our trade suggestion to sell the EUR/USD at 1.1385 was not filled, which leaves us short from 1.1475. We suggest medium-term traders can look to sell the pair at 1.1410, with an initial target of 1.1160 and a 1.1475 stop.
The key data points in Japan are Industrial Production and Retail Sales on Thursday, followed by the Consumer Confidence report on Friday during the Asian session. Growth in domestic consumption has been a key focus for the BoJ when making inflation forecasts and adjustments to monetary policy.
From a technical perspective, the USD/JPY has not traded outside of the 110.00 handle in over two weeks. And while the pair has made significant progress since the flash crash low of 105.00 on January 3rd, the upside momentum has been stalled in front of the 1113.35 to 111.60 resistance band. The daily parabolic switch point is now at 110.55.
Now that the US administration has extended the deadline for the next round of tariff increases and the SP 500 has hit 2800, we see scope for a period of “risk off” in global equities to point the pair lower. We suggest holding short from 110.40, or better, with an initial target of 108.40 and a 111.65 stop.
The only first-tier economic data in Australia this week will be the quarterly Capex report on Thursday, but it’s likely that the Aussie will also react to the Chinese PMI data scheduled later the same day. And while there’s scope for the AUD/USD to rally back to .7200 if the Capex data snaps its string of 3 consecutive contractions, the widening rate differential in favour of the USD in the short end of the Treasury curve suggests the .7050 level will break over the medium-term.
We are currently short from .7175. We suggest looking to sell the pair at .7235 with an initial target of .6970 and a .7295 stop.
The Sterling was the strongest G-7 currency last week and rose 1.35% versus the USD. It seems the primary driver in the GBP/USD is how long can the March 29th hard Brexit date be postponed. Along those lines, PM May’s delay of the next vote until March 12th should support more upside for the pair.
The internal momentum indicators are looking favourable as the RSI and slow Stochastics are both rising. The double-top formation at 1.3215 looks like a realistic target for sometime this week. We are currently flat the GBP/USD and suggest short-term traders can look to sell GBP/USD at 1.3195, with an initial target of 1.2870 and a 1.3260 stop.
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