Risk sentiment has improved to some degree with markets moving higher yesterday and overnight. However the gains have been less than has been seen since last Friday, with buyers becoming cautious ahead of the weekend as uncertainty builds. The US-China trade talks have been short on details as the next round of negotiations approaches. Brexit is coming back into focus again as the Confederation of British Industry has released its report saying that a no deal Brexit could shrink UK GDP by up to 8%. The parliamentary vote on the Brexit deal may give a clearer indication of the political landscape and bring the situation to a head. Fed Chair Powell said, at an event yesterday, that the Feds balance sheet would be “significantly smaller” in future prompting a dip lower in risk sentiment in US assets.

In the UK today, the morning data releases consist of GDP which is expected to remain at 0.1%, Manufacturing Production which is expected to grow to 0.4% from -0.9% previously, Construction Output which is expected to increase to 0.2% from -0.2% and Industrial Production which is expected to rise to 0.3% from -0.6%. In the afternoon, US CPI data is expected to drop to -0.1% from 0.0% and Core CPI is expected to stay at 0.2%.


The GBPUSD pair has moved higher after last week’s flash crash to retest resistance around 1.2810. Price has moved down to build support around the moving averages at 1.2700 and is now operating in this trading range. The creation of higher lows into the resistance area suggests that price may attempt to break out higher if the UK data releases later this morning support such a move. The move above the trend line has been vigorously bought and price action is hugging resistance in its consolidation phase. Any potential break higher might target 1.2850 initially followed by possible tests towards 1.2900 and 1.2925, with 1.3000 beyond.

The moving averages are being used to support price but the data releases in the UK this morning may also provide a catalyst for a move lower with a loss of the 200 period moving average at 1.2704/1.2700 pushing price down to test former resistance around 1.2661. Below this level, 1.2600 may come into play, followed by the trend line support at 1.2557 and horizontal support at 1.2550. The December low around 1.2477 may provide support if the 1.2500 level is taken out of the equation. If price breaks down further, the low from last week at 1.2427 may offer support ahed of 1.2400.


The USDCAD pair has also found support around 1.3180 after a dramatic selloff over the past two weeks. Price is currently trading around 1.3200 and testing its 100 DMA at 1.3225. The trend higher was broken last Friday and price is now back trading around levels not seen since September. Continued selling may result in a push down to the 200 DMA at 1.3109 followed by the 1.3064 level. A loss of this area might shift focus to 1.3000 and lower levels as buyers start to take an interest in the Autumn lows below 1.2961. These lows form an area of support from 1.2880 to 1.2780.

Resistance may start to take shape around 1.3300/1.3320, with the latter level having already been used as Tuesday’s high. The 50 DMA is also strengthening this area and providing a area for traders to work with. A break higher may come from attempts to re-establish the uptrend and target the 1.3400 level followed by 1.3444. Above this level the trend line may come back into play around 1.3500 and create a move up to 1.3566 as potential resistance, formerly support. This would leave the high ahead of 1.3674 as resistance.


Phillip Konchar



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