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Despite a round of news that reinforced a 'mid-2015' Fed hike forecast, reminded us of impending ECB QE and kept the Greece negotiations off-balance; EURUSD refused to break a range that is little more than 100 points wide. Top news through the past session was Fed Chairwoman Janet Yellen's testimony before the Senate Banking Committee. In her remarks, carefully chosen language seems to reinforce a scenario where the Fed is preparing the market for a rate hike around the middle of the year. Yet, that scenario seems to be well priced - or at least skepticism to anything but a direct warning is dug in - as the USDollar failed to break its month-long congestion. Cues for a policy-led break are dispersed widely over the coming weeks, so this market dynamic may not prove the spark for our next drive. In the meantime, if risk trends pick up the baton; a moderation move by the S&P 500 can spur a range of opportunities. We look at the Dollar and broader market in today's Trading Video.
The most actively traded contract, for April delivery, was recently up $9.40, or 0.8%, at $1,206.70 a troy ounce on the Comex division of the New York Mercantile Exchange.
Gold inched up from a one-month low as some investors saw a bargain while others returned to the market following Lunar New Year celebrations in China. The country is the world’s second-largest gold buyer after India, but investors there typically stay on the sidelines during the holiday.
A weaker dollar also sent some investors into gold in a bid to protect their wealth. The WSJ Dollar Index was recently down 0.2% at 85.28.
“Gold is acting more as a currency hedge at this point,” said Paul Nolte, a portfolio manager at Kingsview Asset Management in Chicago.
if actual > forecast (or previous data) = good for currency (for NZD in our case)
[NZD - Trade Balance] =Difference in value between imported and exported goods during the reported month. Export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation's exports. Export demand also impacts production and prices at domestic manufacturers
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New Zealand Has NZ$56 Million Trade Surplus
New Zealand had a merchandise trade surplus of NZ$56 million in January, Statistics New Zealand said on Thursday.
That topped expectations for a deficit of NZ$158 million following the downwardly revised NZ$195 million shortfall in December (originally -NZ$159 million).
Exports were worth NZ$3.70 billion - shy of expectations for NZ$3.73 billion and down from the downwardly revised NZ$4.40 billion in the previous month (originally NZ$4.42 billion).
Imports were at NZ$3.64 billion versus forecasts for NZ$3.94 billion following the upwardly revised NZ$4.60 billion a month earlier (originally NZ$4.58 billion).
Gold trade coming back, if you can wait 2 years (based on cnbc article)
Gold will come under further pressure over the course of the year as the Federal Reserve moves closer to lifting rates, but prospects for the precious metal looks far more promising in the next few years, according to Bank of America Merrill Lynch.
"Right now, investors are not in the mood for holding gold because they see the Fed raising rates. So, I think in the next three months you'll see downside risk, $1,100 an ounce is likely," Francisco Blanch, commodities analyst at Bank of America Merrill Lynch told CNBC.
"But if you look out 2-3 years, things are a lot brighter for gold," he said.
Gold kicked off the year with a bang, rising around 8 percent in January. However, the yellow meal has since erased most of its gains as a stronger dollar – driven by rate hike expectations –and gains in equities dim its appeal. Spot gold last traded around the $1,210 level.
Blanch's positive longer-term outlook for gold is driven by two factors.
First, the growing phenomenon of negative-yielding bonds, which makes gold look attractive in comparison.
"There are a growing number of government bonds basically yielding zero or negative. As the number increases, I think a lot of investors are going to wonder why they are holding a liability as opposed to holding an outright asset like gold," he said.
Kitco News speaks with BMO’s Jessica Fung to see how she sees gold and silver set up for the coming year. Based on her research, Fung says she expects U.S. dollar strength, which has hindered upside potential for metals prices, to continue. “In this environment, where we expect the U.S. dollar to continue to strengthen, I think we’re going to maintain a very high gold-to-silver ratio,” she says, adding that this increasing ratio hasn’t allowed silver to keep up with any gold price upswings. Looking to global uncertainty, Fung says gold is ‘absolutely’ a safe-haven. “It always will be and that is what it will take to drive prices higher,” she adds. Tune in now to hear more from BMO’s commodity analyst regarding Federal Reserve rate hikes, the U.S. recovery and more from the BMO Global Metals & Mining Conference.
Video link
Why You Should Have a Gold and Silver Seat Belt
Take a quick look at our financial system. Have things really improved since the entire global system almost went down in 2008?
Exchanging some of your “paper promises” (currency) for the physical financial reality of gold and silver on a regular basis makes more than just good business sense. It helps make sure that come what may in your financial life, your “financial insurance policy” will be there to help you out, when, not if, the chickens from so many years of unsound government policies come home to roost. Look toward Argentina, Venezuela, Russia and others as harbingers. Even now, the U.S. inflation rate is arguably several percent higher than the “official” figure. You would do well to pay attention and plan accordingly.
Trading the News: U.S. Gross Domestic Product (GDP) (based on dailyfx article)
A marked downward revision in the U.S. growth rate may generate a short-term rebound in EUR/USD should the preliminary 4Q Gross Domestic Product (GDP) report dampen bets for a mid-2015 Fed rate hike.
What’s Expected:
Why Is This Event Important:
Despite bets for higher borrowing-costs, further weakness in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may push Chair Janet Yellen to endorse a wait-and-see approach and further delay the normalization cycle as the central bank struggles to achieve the 2% target for price growth.
Nevertheless, the uptick in private wages paired with the ongoing improvement in the labor market may foster a better-than-expected GDP report, and bets for a stronger recovery may heighten the bullish sentiment surrounding the U.S. dollar as the Fed remains on course to remove the zero-interest rate policy (ZIRP) over the near to medium-term.
How To Trade This Event Risk
Bearish USD Trade: Growth Rate Narrows to 2.0% or Lower
- Need to see green, five-minute candle following the GDP report to consider a long trade on EURUSD
- If market reaction favors a short dollar trade, buy EURUSD with two separate position
- Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is hit; set reasonable limit
Bullish USD Trade: 4Q GDP Report Tops Market Expectations- Need red, five-minute candle to favor a short EURUSD trade
- Implement same setup as the bearish dollar trade, just in reverse
Potential Price Targets For The ReleaseEUR/USD Daily Chart
- Break of the triangle/wedge formation favors a continuation of the bearish trend and the approach to ‘sell-bounces’ in EUR/USD.
- Interim Resistance: 1.1440 (23.6% retracement) to 1.1470 (78.6% expansion)
- Interim Support: 1.1185 (23.6% expansion) to 1.1210 (61.8% retracement)
Impact that the U.S. GDP report has had on EUR/USD during the last release(1 Hour post event )
(End of Day post event)
2014
MetaTrader Trading Platform Screenshots
EURUSD, M5, 2015.02.27
MetaQuotes Software Corp., MetaTrader 5
EURUSD M5: 19 pips price movement by USD - GDP news event
AUDIO - Finding Great Trading Opportunities with Gabe Velazquez
Over the past week, many listeners have expressed frustration with no quality supply levels on the major market indexes. Gabe Velazquez joins Merlin to look at alternatives to trading the indexes, and talks about how he is trading these markets. The duo also look at the surge in the US Dollar and how it is impacting and creating trading opportunities with currency futures.
Forex Weekly Outlook Mar. 2-6 (based on forexcrunch article)
The euro was the loser in week that saw the dollar retreat and make a comeback. The first week of the new month is packed: rate decisions in Australia, Canada, the UK and the euro-zone, GDP data from Canada and Australia and a full buildup to the US Non-Farm Payrolls. These are the main market movers on FX Calendar. Join us as we explore the highlights of this week.
Janet Yellen managed to send mixed signals and was analyzed as dovish. However, was she preparing us for the removal of forward guidance? Her colleague Bullard was quite bullish. US data came out mixed: jobless claims rose to 313,000, and CPI declined 0.7% due to continued slide in oil prices, while Core CPI surprised with a 0.2% rise and maintained a stable 1.6% y/y figure. The latter number trumped the others and allowed the dollar to make a comeback. In the euro-zone, the Greek list was approved and the crisis is off for now. Data has been somewhat upbeat. UK GDP remained supportive of the pound while in Australia, speculation mounts about an RBA cut. We’ll get lots of answers now.
US Dollar Fundamentals (based on dailyfx article)
Fundamental Forecast for Dollar: Neutral
The Dollar received a jolt of volatility this past week in a rally that followed the CPI inflation report, but the currency was unable to escape the bounds of a month-long range. It will be increasingly difficult to maintain a range going forward however. Not only are major themes like US rate forecasts and risk trends developing, but we have a range of high profile event risk. While US indicators like the February NFPs will provide a clear connection to Dollar activity; policy decisions by some of the Fed’s largest counterparts – the ECB, BoE, RBA and BoC – can generate considerable indirect force.
For Dollar traders, the outlook is steeped in two key fundamental themes: monetary policy and speculative sentiment. It is the former that has fed the Greenback’s bullish trend these past nine months (the ICE Dollar Index secured an eighth consecutive rally – a record- while the Dow Jones FXCM Dollar Index closed the month slightly lower). Yet, just as clear as the ‘relative’ hawkish outlook for the Fed has generated such a resounding performance, we can also see its limitations shaped through the month-long consolidation pattern the benchmark established through February.
Compared to the ECB and BoJ (who are executing quantitative easing programs) or the RBA and BoC (which have recently cut their benchmark rates), the FOMC is exceptionally hawkish. Though it is still plotting the time frame for its first hike in a controlled normalization regime, a tightening move offers drastic contrast. Much of this has been priced in however. Currently, the market expects a first and second rate hike in 2015 – something the other majors cannot claim. To leverage further gains on this view though, the lead needs to be extended.
According to Fed Fund futures, the first move by the Fed is expected around the October 28 meeting. Alternatively, surveys for economists, analysts and primary dealers pegs it around June 17 or July 29. That opens the door for more progress. A few particular data points stand out over the coming week that can up the market’s expected time frame – or push it back depending on the outcome. At the start of the week, we have the PCE inflation measures. Given that this is the Fed’s preferred price gauge, a surprise here could generate a greater market response than the heft Dollar bid that followed last week’s CPI release. At the end of the week, the February labor data will be a media and speculative focus. While the payrolls and jobless figure are important, we know the general trend of the past five years. The missing puzzle piece for hikes is inflation. And that leverages the importance of the average hourly wages component which last month posted the biggest monthly jump since December 2008.
A change in tide and intensity of the US rate forecast is the most direct means to motivate the Dollar, but don’t write off the strengthening or weakening of its collective counterparts as a capable impetus. The ECB is set to activate its stimulus program while the RBA and BoC are expected to each supply a consecutive interest rate cut. There is plenty of room to broaden or close that gap.
There will be plenty on the docket – and no doubt newswires – to occupy our attention in the week ahead. Yet, it is important to maintain a firm grasp of the ‘big picture’. The view of US monetary policy compared to its conterparts is a node, but how collective monetary policy influences global investor sentiment is a central pillar. ‘Risk appetite’ has not contributed much to the Dollar’s cause – bullish or bearish – recently as it has not moved with conviction (regardless of what it seems the S&P 500 is doing). It is difficult to instill confidence of a robust extension of already mature risk accumulation trends. In contrast, the correct spark can ignite an explosive value gap to risk aversion and deleveraging. When this reallocation hits, the Dollar will gain at the extremes.