Press review - page 178
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AUDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Australian Dollar: NeutralThe Australian Dollar managed a strong showing last week, rising to a two-month high just below the 0.95 figure against its US counterpart. The advance tracked an improvement in monetary policy expectations, with a Credit Suisse gauge tracking the priced-in 12 month outlook rising to the highest level since mid-May. High-profile event risk on the domestic and the external fronts in the week ahead threatens to undermine the rally however.
The spotlight initially falls on minutes from June’s RBA policy meeting. The policy announcement struck a familiar tone, arguing for a period of stability in interest rates. With that in mind, traders will look to the text of the minutes for added color, attempting to gauge how long the standstill is likely to last and the direction that policy is likely to take thereafter.
Minutes from a likewise status-quo flat rate decision in May proved telling, revealing a dovish lean in the Bank’s posture and sending the Aussie lower. Australian economic data dramatically deteriorated relative to expectations between the May and June meetings (according to data from Citigroup), warning that a similar dynamic may play out again.
Later in the week, the focus returns to the Federal Reserve the rate-setting FOMC committee convenes for its policy meeting.
This outing takes on particular significance in that it will be accompanied by the release of an updated set of policymakers’ economic forecasts as well as a press conference from Fed Chair Janet Yellen. As we’ve discussed previously, the fate of the Fed’s effort to “taper” QE asset purchases with an eye to end the program this year – paving the way for interest rate hikes – has been a formative catalyst for the markets this year.
US economic news-flow has broadly improved relative to consensus forecasts since early April but a string of disappointing releases over the past three weeks have rekindled doubts about the strength of the recovery from a dismal performance in the first quarter.
Indeed, the US Dollar has come under renewed selling pressure as traders scaled back bets on swift Fed policy normalization, putting the greenback’s multi-year uptrend in jeopardy. For their part, FOMC officials have adamantly maintained that the first quarter was a hiccup in an otherwise supportive environment. If that sentiment is reflected in an upgraded set of economic forecasts and/or an upbeat Yellen presser this dynamic may be overturned, undermining the Aussie’s perceived yield advantage and sending it lower anew.
EURUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Euro: NeutralThe Euro finished near four-month lows versus the Dollar, but the lack of volatility in recent markets makes it unlikely it breaks significantly lower. We’re watching key event risk for a potential breakdown.
A relatively empty European economic calendar leaves focus on the upcoming US Federal Open Market Committee meeting, and any surprises from the Fed could force major USD pairs out of their recent trading ranges.
It’s almost a given that the FOMC will taper their Quantitative Easing purchases by a further $10 billion through their decision. Thus instead of the actual decision traders will focus on official statements, changes in Fed inflation and growth forecasts, and the press conference to follow the announcement. Of particular interest is whether the Committee hints at the timing of future interest rate hikes.
Interest rates are especially important for the Euro as traders have sent it to multi-month lows on the widely-expected European Central Bank rate cuts. The fact that the US Federal Reserve is headed in the opposite direction helps explain why the EURUSD trades near key lows. Yet clear uncertainty in Fed forecasts leaves ample room for disappointment and potential for Euro volatility.
Any major FOMC surprises could ultimately force the Euro out of its recent range versus the Dollar. Yet FX options markets show volatility prices continue to trade near record-lows, and recent price action offers few clues on when volatility might return. Even a sharp two-day sell-off in the US S&P 500 and broader global equities wasn’t enough to drive the safe-haven US Dollar above key resistance versus the Euro.
The lack of volatility and conviction thus keeps us focused on buying the Euro near support, selling near resistance. Our Senior Strategist warns that a close below $1.3520 could spark a larger decline, but until then watch for the Euro to remain in a tight range versus the Greenback.
GOLD (XAUUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Gold: NeutralGold prices are markedly higher on the week with the precious metal up 1.64% to trade at $1273 ahead of the New York close on Friday. The gains come amid losses in broader equity markets and continued weakness in the greenback with the Dow Jones dollar index making fresh monthly lows on Friday.
Building geopolitical tensions in Iraq and Ukraine have offered some much needed support to gold prices which had fallen more than 10% off the March high.
Heading into next week the Federal Open Market Committee Monetary Policy meeting will be central focus as the Fed releases its quarterly economic projections as they pertain to growth, interest rates and inflation. Despite expectations for another $10Billion taper, the updated economic projections may have the greatest impact on markets as participants continue to weigh the timing of the first Fed rate hike.
Should the updated forecasts undermine market expectations for a mid-2015 rate hike, look for gold to remain well supported with a break above interim resistance targeting levels just below $1300. From a technical standpoint, gold looks poised to close the week above the $1270 threshold.
For weeks now we have continued to target this region between $1260/70 as it's offered major pivots in price dating back to June of last year. Near-term resistance is eyed at the confluence of the 50% retracement from the May decline and the January High at $1277. A break back below $1260/70 shifts our focus back broader decline seen off the March highs with support targets seen lower at $1236 and $1214/16. With the monthly opening range yielding little in the way of technical clarity we will maintain a neutral stance heading into the FOMC rate decision on Thursday.
The S&P 500 had a negative week over the last 5 sessions, but as you can see bounced a bit towards the end in order to show signs of support. This support of course was found out the 1920 level, an area that we said was important. With that, we feel that the market should more than likely bounce from here, and continue to go much higher. We still have a target of 2000 over the longer term, and therefore have no interest whatsoever in selling this market.
The Dow Jones Industrial Average fell during the course of the week, slamming into the 16,750 level. This is an area that on the shorter-term charts does show a significant amount of support, so the fact that we could not go below there isn’t exactly a surprise. With that being the case, we believe that a supportive candle should appear, and that should allow us to keep going long of this market. We believe ultimately that the Dow Jones will continue to offer value, and therefore continue to go higher.
The silver markets rose during the course of the week, and close the very strong. We are just above the $19.50 level however, and as a result we think that the market is starting to pick up steam. It does appear that we will more than likely clear the resistance, so we are buyers above the $20 level. At that point time, we would expect the $22 level to be targeted next, and then perhaps $25 given enough time. The $19 level continues to be a significant amount of support, something that we anticipate going forward as well.
The gold markets rose during the course of the week, using the $1250 level as a support base. The market looks as if it’s ready to tackle the $1300 level, an area that should be somewhat resistive. If we can get above there, this market would more than likely find its way to the $1400 level over the course of time. Pullbacks from here and more than likely will find buyers all the way down to the $1200 level, so we do feel that this market has more bullish bias to it in the next few candles, but suspect that he will continue to be essentially sideways.
The USD/JPY pair fell during the majority of the week, testing the 102 level several times. That being the case, the market looks like it wants to continue going sideways as it has been for some time now. In fact, since the beginning of the year, this market has been in a fairly tight range. With that type of range, we feel that the market will continue to be difficult to be involved in for longer-term traders, and as a result we believe that the market will be able to be but until we get above the 103 level on at least a daily candle.
The USD/CAD pair fell during the course of the week, as you can see on the chart. This market seems to find plenty of support near the 1.08 handle, so we feel that the market is supportive enough that we can continue to buy on dips and believe that the market will ultimately be bullish enough to continue on to the 1.12 level or so. With this, we also believe that the uptrend line that we have seen for some time now is going to continue to push the market higher as well. Pullbacks should be thought of as value.
The NZD/USD pair rose during the course of the week, testing the 0.87 level for resistance. That level did in fact hold, but what is most interesting is the fact that the Friday session ended up forming a hammer, suggesting that the market is trying to build up enough momentum to breakout finally, which is something that we do fully anticipate seeing. Pullbacks in this general vicinity should be buying opportunities, and as a result we are “buy only” at this moment time. Selling certainly can’t be done in a very bullish market like this.