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Market Wrap - January 2019


Several significant issues have lingered into the New Year including Brexit, in which U.K. Prime Minister Theresa May was crushed in the crucial vote on her Brexit plans in the House of Commons.  The U.S. Federal Reserve have also recently been hinting at changing their policy stance which have now been made official in their latest two-day Federal Open Market Committee (FOMC) meeting.  "The case for raising rates has weakened somewhat," Powell said during a news conference following this week's FOMC meeting. 


During the month of January, the EURUSD has remained above the key 1.13 level and in doing so has continued to remain within its current trading range between 1.13 and 1.15.  Apart from a small excursion above 1.15 earlier in the month when it reached a three-month high near 1.1570, it has tested the resistance at 1.15 level a couple of times however it has been turned every time with aggressive selling.  The 1.13 level continues to provide rock solid support.  For the last couple of months now the EURUSD has been content to trade within a narrow range enjoying support from 1.13 and meeting resistance at the 1.15 level.  It is interesting to note that its recent excursion above 1.15 didn’t last long as it was quickly sold down at those three-month highs.  The 1.13 level has also become quite significant of late, and even though it has fallen through this level a few times, it was quickly pushed higher through strong buying which will provide some confidence that the 1.13 level will provide strong support should the EURUSD attempt to decline again.

The President of the European Central Bank (ECB) Mario Draghi has again warned that euro zone's (EZ) economy is weakening more than expected, has performed worse than expected in recent months and still needs "significant" support from the ECB.  "Over the past few months, incoming information has continued to be weaker than expected on account of softer external demand and some country and sector-specific factors," Draghi told the European Parliament's committee on economic affairs in Brussels.  "The persistence of uncertainties in particular relating to geopolitical factors and the threat of protectionism is weighing on economic sentiment," Draghi added.  "Significant monetary policy stimulus remains essential to support the further build-up of domestic price pressures and headline inflation developments over the medium term," Draghi added. "The Governing Council stands ready to adjust all of its instruments, as appropriate."




The GBPUSD has enjoyed a stellar January as it has moved from below 1.27 up to multi-month highs around 1.32.  Looking a little further back, the GBPUSD has slowly but steadily climbed higher from a two year low below 1.25 up to the current key level of 1.27 and beyond, reaching a three-month high above 1.32 in the last week.  As expected, it met some resistance from the 1.27 level in the last few weeks as multiple attempts to push higher were thwarted and now that it has cleared, you could expect the pound to receive some support from this level should it be called upon.  In early December, the 1.27 level gave way to immense selling pressure, after the sterling was again enjoying much needed support from this level as it had firmly established as a key support level as the currency pair had enjoyed considerable support from this level on several occasions in the few months prior. 

Earlier this month the majority of the U.K. Parliament rejected the original Brexit deal, also known as the "Withdrawal Agreement."  However, this week Members of Parliament voted on seven amendments that had been tabled by lawmakers to change the course of Brexit.  Now British Prime Minister Theresa May faces the difficult task of reopening Brexit talks with Brussels.  She is due to return to her European counterparts shortly to renegotiate a controversial part of the Brexit deal she struck with them.  However Commission President Jean-Claude Juncker said earlier that the bloc’s Brexit divorce deal with London cannot be renegotiated.  “(May) was clear that this wasn’t going to be an easy process and that there would be reluctance on the EU side to reopen the Withdrawal Agreement,” a spokesman for the British PM said.  “The facts are very clear: the EU says it wants the UK to leave with a deal, we want to leave with a deal, the deal which we reached with the EU was rejected by parliament by 230 votes so therefore ... we are going to have to make changes to that deal in order to win parliamentary support.” 




The AUDUSD has enjoyed a reasonably solid January having made some solid ground over the last few weeks rebounding from a multi-year low below 0.67 back up to firmly within the range between 0.7150 and 0.73.  The 0.7150 level has played a role of late as the AUDUSD has spent considerable time trading within close reach of this level.  In the last week to finish out the month the AUDUSD has moved strongly and looks likely to threaten the key level of 0.73 again which it attempted on several occasions towards the end of last year.  The 0.73 level remains significant and previous attempts to break through the resistance at this level has shown strong selling pressure repelling prices lower.

Despite concerns about a global growth slowdown which includes Australia, the Australian job data has surprised with the unemployment rate easing to 5% in December.  21,600 new jobs were created which was better than all expectations, however most of these additions were part-time positions with 3,000 full-time jobs being lost over the month.  By historical standards, participation rates remain high however the unemployment rate was helped by a minor reduction in the number of people looking for work.  Interestingly, the data seems to contradict other economic indicators, for example inflation, growth or house prices.  Many would expect employment growth to ease this year given the softer economic conditions, including falling property prices.  The unemployment data is the equal lowest level of unemployment since June 2011, in seasonally adjusted terms.  




US equities have generally moved very well throughout January pushing to a two-month high above 25,000.  After consolidating for a week or so between the two key levels of 24,000 and 25,000, the US30 index has rallied higher to threaten the resistance at 25,000 and look to push through.  In the last month or so, the index has done very well to move back within this range after falling to its lowest levels in 18 months below 21,500.  It met some resistance at 24,000 before moving through.  Both the 24,000 and 25,000 levels have played a significant role with the index in the last few months and both remain significant.

In a unanimous decision, the U.S. Federal Reserve (Fed) held interest rates steady at their recent two-day Federal Open Market Committee (FOMC) meeting.  In a clear change in policy, the Fed vowed to be patient in any raising of interest rates, which was the clearest signal we have seen that the tightening cycle it began in 2015 may have ended.  "The case for raising rates has weakened somewhat," Powell said during a news conference following this week's FOMC meeting.  Citing rising uncertainty about the U.S. economic outlook, Fed Chairman Jerome Powell said the case for raising rates had “weakened” and, in a statement, the central bank dropped its earlier expectation for “some further” tightening.  “The situation now calls for patience,” he said, referring to the idea of further rate rises.  “I think it’s the right thing. I feel strongly that it is.”  The Fed raised rates four times last year including in December, when it indicated it would do so twice more this year.




Gold has been the star performer throughout the month of January, as even though it consolidated for a few weeks, it resumed its strong upwards move continued to move strongly and reach an eight-month high above $1320.  In the last week for the month it was able to break through resistance at $1300, after meeting stiff resistance there for several weeks.  This break higher was on the back of a solid surge higher throughout December.  The $1300 level is now likely to offer support should gold decline a little and look to ease lower.  The move higher in December saw gold move to a then six-month high just shy of $1300 after enjoying some solid support from the key $1240 level and the $1200 level before that. 

Gold has been well supported of late by several factors, which include the recent U.S. government shutdown and the subsequent slowdown in the United States economy, which have put the spotlight back on the U.S. Federal Reserve and their plan for 2019 with regards to interest rates.  A few weeks ago, gold was propped up by Fed Chairman Jerome Powell, who downplayed suggestions that interest rates would be raised twice more this year and reaffirmed that the central bank could remain patient on monetary policy.  Gold prices have behaved as you would expect during the recent period of uncertainty, rising as expectations of Fed tightening next year have been cut sharply and equities have sold off.  The markets are also digesting the recently completed Federal Open Market Committee (FOMC) meeting, when the central bank left interest rates unchanged.  




Generally, oil hasn’t moved that far throughout the month of January, as it has traded within a narrow range above $58.  The $58 level continues to play a role and has provided some support in the last few weeks as oil consolidates a little in that time.  The $58 level supported oil very well for several weeks at the end of last year and is likely to continue to do so.  The positive is that oil has started this year well rallying from 16-month lows below $50 at the end of last year, back up to the key $58 level and beyond, after its doom and gloom to close out 2018.   

Oil is being influenced by several factors of late however the overriding factor presently is concerns over a possible global economic slowdown.  Other concerns include the ongoing trade war between the United States and China.  It is widely accepted that the downside risks of the trade dispute for the market were too big and difficult to quantify, and that China remains the biggest concern, especially given the weakness in the latest economic data.  There are also concerns that a widespread economic slowdown may dent growth in demand for fuel.   Oil had received a small boost on reports that China and Japan would take fiscal stimulus measures to stem the slowdown, however this was short lived as rising oil output from the United States, together with the effects of the U.S.-China trade war and growing prospects of the United States hitting its debt ceiling started to weigh on prices.



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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.