Currency Highlights | February 2019
19.02.2019
The Brexit uncertainty remains the biggest challenge for UK politics and the biggest drag on Sterling heading into 2019.

 

CURRENCY HIGHLIGHTS – February 2018

 

EUR/USD

EURUSD Bounces at Long-Term Support as USD Softens at Highs. The pair hovers around the 1.1300 level, short-term bearish according to readings in the 4 hours chart, as the pair is barely holding above its 20 SMA, while the 100 and 200 SMA gain downward traction some 100 pips above the current level. The Momentum indicator turned south around its mid-line, while the RSI lacks directional strength at around 48, maintaining the bearish case firmly in place. Below 1.1250, the pair will likely extend its decline toward 1.1215 (2018 yearly low), while below this last, the most likely scenario is that the downward momentum will persist during the rest of the month.

The greenback strengthened temporarily in this scenario against all but safe-haven rivals, later giving up as Wall Street's recovered. European data was mixed yet overall discouraging, confirming the economic slowdown in the Union as Germany GDP stood pat in Q4, according to preliminary estimates. For the whole EU, growth reached 0.3% in the three months to December, better than the 0.2% expected. US figures were quite disappointing, the reason why the greenback was unable to extend its rally to fresh highs. Retail Sales were down by 1.2% in December, missing the market's expectation of 0.2%, while the core reading declined 1.7% vs. a 0.4% advance expected. Weekly unemployment claims were sharply up last week, reaching 239K. The dollar fell with the news, recovering later on headlines indicating that there hasn't been progress in US-China trade talks.

The dollar remains intrinsically bullish ahead of the last trading day of the week, which will bring some minor releases from the EU, being the most relevant December Trade Balance, while the US will release among other less relevant reports, January Industrial Production and the preliminary Michigan Consumer Sentiment Index for February, foreseen at 93.0 vs. 91.2 in January.

 

USD/JPY

2018 saw contradicting forces eventually balancing each other and returning Dollar/Yen close to its starting line for the year. The robust US economy, Fed hawkishness, the detente around North Korea and rising bond yields supported the pair. Fears about international trade, a global downturn, Brexit, and hiccups in stock markets kept the pair depressed.i

2019 will likely see a resynchronization of the US with the rest of the world. USD/JPY will probably encapsulate the prospects for the whole world, with all the other central factors such as the Fed policy, stocks, and bonds all aligned. All in all, this currency pair is set to serve as a global barometer.

 

GBP/USD

Imprisoned by Brexit darkness Sterling is set to chart a check mark. The Brexit uncertainty remains the biggest challenge for UK politics and the biggest drag on Sterling heading into 2019. Sterling is expected to weaken at the beginning of 2019 and rebound sharply after the Brexit uncertainty fades away. 

With the UK government still working its way to the UK parliament with the Brexit agreement approval, the Brexit uncertainty is set to prevail the end of 2018 and the beginning of 2019. The 2019 GBP/USD Forecast is highly dependent on the result of the Brexit deal going forward and with no fundamental bias, all options are still on the table leaving different GBP/USD scenarios all applicable.

Sterling could fall past 1.2000 level that historically frames the bottom and serves as a territory of rebound for GBP/USD in case of hard Brexit. The rational solution for all involved parties in the UK parliament, the UK government and in the EU should be to avoid the scenario of no-deal Brexit that would throw the UK economy and Sterling into disarray with the Bank od England saying the bottom for Sterling would be some 25% lower from here, indicating sub parity levels for GBP/USD. Also, no transition Brexit would represent an adverse scenario for Sterling with falling to the lowest level since 1985 of 1.0700. Such scenarios are still considered unlikely. Should such scenarios materialize, it is almost a sure-shot for traders to experience the deal of the lifetime while buying GBP/USD at historical or/and cyclical lows. 

The likelihood of the UK finally making some kind of Brexit deal with the European Union, however low it is now, is still the mainstream scenario for the UK and for GBP/USD. 

With Brexit uncertainty weighing, the GBP/USD is expected to test the cyclical low of 1.2200 or even 1.2000 level at the beginning of 2019 before rebounding lower. In fact, this is an opposite scenario of 2018 when GBP/USD appreciated to 1.4377 at the beginning of 2018 just to fall to 1.2477 low at the beginning of December, making 2018 low and the lowest level since April 2017. 

As mentioned above, 1.2000 is historically a very importance rebound area for GBP/USD that served as a post-Brexit referendum low also in March 2017. With Sterling approaching the 1.2000 level, it will really take a hard Brexit scenario for GBP/USD to overcome this support level as more and more value investors will ponder of entering the market just for the sake of the bargain buy. Sterling traded below 1.2000 level only for three months in from December 1984 till February 1985 on a chart tracking the history back to 1970.

Regardless of how the economic fundamentals are doing in the UK and the US, the Brexit is likely to drag Sterling lower at the beginning of 2019 before the summertime release of Brexit tensions and subsequent rebound higher. We expect the GBP/USD to chart a check mark in 2019. 

 

GOLD

The direction for gold on Wednesday will continue to be influenced by the direction of the U.S. Dollar. The greenback will strengthen and gold will weaken if investors once again express concerns over U.S.-China trade relations. Additionally, the deal to avert the government shutdown could hit a snap or President Trump could change his mind about signing the bill into law. Based on recent performance, this would also send investors back into the safe-haven U.S. Dollar.

However, traders have calmed a little since the start of high level talks between the two economic powerhouses began earlier in the week, and after Washington announced a deal had been struck to avert a government shutdown.

The problem for gold bulls is the dollar right now. Traders get the correlation trade, where a weak dollar makes dollar-denominated gold a more attractive asset. That trade worked fine when the greenback was being pressured by the dovish Federal Reserve.

However, trading conditions began to change nearly two weeks ago when several central banks also turned dovish on global economic growth. Furthermore, concerns over China’s economy were recently raised after it announced weak GDP. Additionally, the International Monetary Fund (IMF) lowered its outlook for the global economy. Furthermore, last week, the European Commission slashed its forecast for growth in 2019.

With all this negative news about the global economy piling up, the dollar became a more attractive asset and demand for gold fell.

 

BITCOIN and ALTCOINS

Bitcoin price predictions 2019: Can Bitcoin see the old good $20,000 days in 2019?

Bitcoin, the first and largest cryptocurrency, has had it rough since it reached its peak at $19,500. After the 2017 December to 2018 January frenzy ended, everyone was expecting BTC to recover. Unfortunately, it didn’t recover and things only got worse. Right now, BTC is hovering around $4,000 and there is no saying when another bear grip will take the price below this level.

As expected, some experts have given their opinion about the current bear market and many of them don’t think it’s going to end soon. While BTC may find stability short-term, it’s going to take a lot of long-term effort for it to get to its all-time high of almost $20,000.

A Bitcoin and technology researcher, Boris Hristov had a lot to say about the current market conditions. According to him, the only way BTC is going to regain its garner legitimacy and composure is if institutional investors enter the market. This is already happening and cryptocurrency markets will be extremely interesting to follow in 2019.

We have talked before about the potential for a sharp break-out and still see this as a strong possibility going into the 2019.