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USDJPY Fundamentals (based on dailyfx article)
Fundamental Forecast for Japanese Yen: Neutral
The Japanese Yen traded lower versus the US Dollar for the third week in four and left the USDJPY exchange rate near the key ¥120 level. Why might the week ahead finally bring a major breakout?
Traders have shown little interest in pushing the Yen beyond its narrow three-month trading range, but any significant surprises in upcoming US Personal Income/Spending and Nonfarm Payrolls labor data could change outlook for the otherwise-rangebound USD/JPY exchange rate. A fairly consistent rally from January lows near ¥116 suggests that the next major USDJPY move will be to the topside. Relatively low trader volumes in recent weeks nonetheless limits our enthusiasm for fresh USDJPY-long positions, however. We would ideally see a major shift in market conditions and trader attitudes to justify calling for a sustained break higher.
The key question remains unchanged: when will the US Federal Reserve begin raising interest rates? Yield-seeking investors have typically sold the Japanese Yen against higher-yielding currencies through normal rate environments. And indeed, the fact that the US Fed appears to be the only major central bank to act in 2015 has helped push the US Dollar to 8-year peaks versus the JPY.
Expectations can only take the Greenback so far, and eventually investors will need to see action. Consistent improvements in US Nonfarm Payrolls figures suggest the coming week’s result will further build the case for Fed rate hikes. Yet fundamental risks seem weighed to the downside as few predict that hiring matched the impressive pace seen through January’s report.
Technical forecasts paint a similarly mixed picture for the Dollar/Yen exchange rate, and indecision helps explain why recent CFTC Commitment of Traders data shows speculative JPY-short positions (USDJPY-longs) have fallen to their lowest since November, 2012.
It’s certainly possible that strong US economic data could force a larger break higher in the USDJPY. As far as probabilities go, however, we put relatively low odds on a sustained US Dollar move higher in the week ahead.
GBPUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for British Pound: Neutral
The Bank of England’s (BoE) March 5 interest rate decision may have a limited impact on GBP/USD as the central bank is widely anticipated to retain its current policy, but the fundamental developments coming out of the U.K. may continue to boost the appeal of the sterling should the data prints highlight an improved outlook for growth and inflation.
Following the BoE testimony, it seems as though the Monetary Policy Committee (MPC) will continue to move towards a rate hike especially as Governor Mark Carney only sees a ‘temporary’ decline in U.K. inflation and retains the hawkish forward-guidance for monetary policy. With that said, a further pickup in U.K. Mortgage Approvals along with a faster expansion in the Purchasing Manager Indices (PMI) may boost interest rate expectations as a growing number of central bank officials show a greater willingness to normalize monetary policy over the near to medium-term.
At the same time, the U.S. Non-Farm Payrolls (NFP) report will also largely be in focus as it remains a race between the Fed and the BoE as to who will be the first to normalize monetary policy. Indeed, another 240K expansion in U.S. employment may further the argument for a mid-2015 rate hike, but Chair Janet Yellen and Co. may ultimately share a similar fate to their U.K. counterpart especially as Average Hourly Earnings are expected to narrow to an annualized 2.1% in February. As a result, the disinflationary environment may push the Fed to further delay its normalization cycle, while a pickup in U.K. economic activity may underpin a larger rebound in the British Pound as the central bank continues to prepare households and businesses for higher borrowing-costs.
Nevertheless, the lack of momentum to push and close above the former support zones around 1.5510-55 may produce range-bound prices in GBP/USD ahead of the key event risks, but the pair may make a more meaningful effort to retrace the decline from the previous year should the fundamental developments sway the interest rate outlook for the U.S. and U.K. As we open up the March trade, the opening monthly range may dictate the short-term outlook for the pound-dollar as the Fed is scheduled to deliver its next interest rate decision on March 18.
AUDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Australian Dollar: Neutral
The Australian Dollar spent a fourth week in consolidation having started the month with a drop to the lowest level in nearly six years against its US counterpart. That move was triggered by a surprise interest rate cut from the Reserve Bank of Australia, and prices have since stalled as investors weigh the possibility of further easing. The deadlock is likely to be broken in the week ahead as policymakers gather for another policy meeting.
A survey of 29 economists polled by Bloomberg is narrowly leaning toward stimulus expansion, with 18 of those queried calling for the benchmark lending rate to be lowered by 25 basis points to 2 percent. Traders are bit more dubious: priced-in expectations reflected in OIS rates reflect a 56 percent probability of a reduction. This means that regardless of which direction the RBA opts to take, nearly half of investors will find themselves wrong and scrambling to readjust portfolios accordingly. Needless to say, this is likely to make for a volatile response no matter what outcome ultimately hits the wires.
Whatever the initial reaction however, follow-through will be far from certain as high-profile event risk emerges on the external front and threatens to pull the Aussie into its orbit. February’s US Employment report stands out as particularly critical as investors continue to speculate about the timing of the first post-QE interest rate hike from the Federal Reserve. Expectations call for a slight slowdown in job creation, with payrolls posting a 235,000 increase compared with 257,000 added in the prior month.
US news-flow has tended to underperform relative to forecasts in recent months, hinting economists continue to overestimate the vigor of the world’s largest economy and opening the door for a disappointing jobs figure. Such a result may pour cold water on bets calling for the onset of FOMC policy normalization by mid-year. That is likely to weigh on the US Dollar, offering a lift to the Australian unit that either cuts short weakness or amplifies strength seen aGOLD Fundamentals (based on dailyfx article)
Fundamental Forecast for Gold: Neutral
Gold prices snapped a four week losing streak with the precious metal rallying 1.27% to trade at $1216 ahead of the New York close on Friday. The fresh batch of central bank rhetoric from the Humphrey-Hawkins testimony suggests that the Fed remains cautiously on course to normalize monetary policy, but the fundamental developments due out in the days ahead may heavily influence interest rate expectations as the central bank struggles to achieve its 2% target for price growth.
Beyond the slew of central bank rate decisions kicking off the March trade (RBA, ECB, BoE & BoC), the U.S. Non-Farm Payrolls report may have the biggest implications for gold on the back of the USD strength story. Despite the stronger-than-expected 4Q GDP print, the disinflationary environment may put increased emphasis on the wage growth figures due out on Friday, and signs of subdued household earnings may undermine the bullish sentiment surrounding the dollar especially as market participants anticipate Average Hourly Earnings to narrow to an annualized 2.1% in February. We’ll look for possible softness in the greenback to further support the recent gold rally with prices closing out the week just below key resistance.
Last week we highlighted key technical support at $1196/98, a level defined by “the confluence of the 61.8% retracement of the November advance & the 1.618% extension of the decline off the January high and is backed closely by a basic trendline support off the November low. We’ll reserve this region as our near-term bullish invalidation level and although the broader bias remains weighted to the down-side, near-term this structure may offer stronger support. Interim resistance (near-term bearish invalidation) stands at $1218/24… Bottom line: looking for a low early next week with a general topside bias in play near-term while above $1196/98.” - Indeed the market fell to a fresh low on Monday before rebounding to test the $1218/24 resistance range. Our outlook remains unchanged heading into March with the 1196-1224 range in focus to start the week. A topside breach keeps the long-bias in play targeting resistance objectives at 1234 & 1248/50 with a break sub 1195 (close basis) risking substantial declines into subsequent support targets at $1171 & $1155.
DAX forecast for the week of March 2, 2015, Technical Analysis
The DAX as you can see broke higher during the course of the week, closing at the very top of the range for that candle. With that being the case, looks like the market should continue to go higher, but at this point time we feel that the market is a little overbought. We would like to see some type of pullback in order to start going long again, and feel a little bit apprehensive of going long at this point, as pullbacks should offer value in one of the most trusted markets.
NASDAQ forecast for the week of March 2, 2015, Technical Analysis
The NASDAQ as you can see broke out to the upside during the week, but turned back around to form a little bit of a shooting star. We are just below the 5000 handle, and that of course can be a psychological barrier. If we break down below the bottom of the shooting star, we could see quite a bit of support below. The 4800 level was previously resistive, so it should now be supportive. If we find supportive candles below, we would be willing to buy this market as it should build up enough momentum to break out above that area.
Gold forecast for the week of March 2, 2015, Technical Analysis
Gold markets initially fell during the course of the week, but bounced as the $1200 level below offered enough support. With that being the case, the market looks as if there is plenty of support in that area, based upon the horizontal support, as well as the uptrend line. The hammer of course looks very positive, so we can break above the top of the hammer we are buyers but recognize that the $1240 level above probably causes a bit of a headache for the buyers. After that though, we feel that the market ultimately goes to the $1500 level after that.
USD/JPY forecast for the week of March 2, 2015, Technical Analysis
The USD/JPY pair initially fell during the course of the week, but slammed into the 120 level to find resistance. With that, we believe the pullbacks continue to offer value as the market should go higher due to the long-term uptrend. With that being the case, we are bullish and have no interest whatsoever in selling this market. We believe that the 115 level is massively supportive, and essentially the “floor” in this marketplace. We do believe ultimately that the uptrend continues going forward, heading to the 125 handle.
USD/CAD forecast for the week of March 2, 2015, Technical Analysis
The USD/CAD pair went back and forth during the course of the week, forming a fairly neutral candle. Because of this, we feel that this market should continue to go back and forth in this general vicinity but we were also looking at this chart in thinking that perhaps we could break down and head to the 1.20 and a. If we do, we would love to buy a supportive candle at that area as it is essentially the “floor” in this market. If we break above the 1.27 level, we would be buyers there as well. We don’t really have any interest in selling.
NZD/USD forecast for the week of March 2, 2015, Technical Analysis
The New Zealand dollar initially fell against the US dollar during the week, but as you can see found enough support below the 0.75 level to bounce and form a nice-looking hammer. However, if you can imagine this market going above the top of the hammer, it’s difficult to start buying this market at that point anyway. There is a massive amount of resistance all the way to the 0.80 level. With that, we have no interest in buying this market but would sell on a break down below the bottom of the hammer for the week.