A Range Affair In Forex?
There were three important price developments among the major currencies in the past week.
encouraged by more hawkish signals from the Bank of England, in
contrast to the Federal Reserve, Bank of Japan and the European Central
Bank, sterling was bid to new multi-year highs. The Commitment of
Traders data show the continued building of gross long sterling
positions, and this was prior to the pound sustaining the move above
Still, sterling was not the strongest of the major currencies and the euro actually narrowly outperformed it (0.4% vs. 0.3%).
The market appears stretched as sterling approached the upper Bollinger
Band. Although sterling closed two consecutive sessions above $1.70,
including on a weekly basis, its foothold is precarious near-term.
Pullbacks will likely be bought. The key issue is how shallow of a dip. A
break of $1.6975 would signal a deeper pullback and the next objective
would be closer to $1.6920.
The second important price development was the euro itself.
Although a week ago, the euro had appeared poised to fall through the
$1.3500 level, the bears ran into a wall of buyers, including, market
talk suggested, reserve managers. The euro's upside though seems to be
capped at the bearish underlying sentiment and the expected divergence
of monetary policy.
This leaves the single currency in a range.
The immediate near-term range is roughly $1.3560 to $1.3650, The
broader range appears to be $1.3500-$1.3700. This will keep implied
volatility grinding lower, even though near 5%, it has already slipped
to fresh multi-year lows. The fact that three-month implied volatility
is above the historic (realized) volatility is also consistent with this
The third significant technical development was the breakdown of the US dollar against the Canadian dollar.
It took a rise in Canadian retail sales twice what the consensus
expected (1.1% vs. 0.6%) and a greater rise in inflation to two-year
highs (2.3% on the headline and 1.7% on core) to push the US dollar
below CAD1.08 for the first time since early this year. The US dollar
closed below its 200-day moving average (~CAD1.0780) for the first time
since Q1 13.
While the breakout is noteworthy, the technical
readings caution against expecting strong follow through gains in the
Canadian dollar immediately. The RSI and MACDs are not generating
strong signals, and the US dollar finished below the lower Bollinger
Band (~CAD1.0785). That said, the CAD1.0800-20 area should offer initial
resistance now. On the downside, a break of CAD1.0740 signals a test on
CAD1.07. The Bank of Canada meets on July 16, and after this string of
data, it will likely be a bit less dovish in its neutrality.
2014-06-23 01:45 GMT (or 03:45 MQ MT5 time) | [CNY - HSBC Manufacturing PMI]
if actual > forecast = good for currency (for CNY in our case)
[CNY - HSBC Manufacturing PMI] = Level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. It's a leading indicator of economic health - businesses react quickly
to market conditions, and their purchasing managers hold perhaps the
most current and relevant insight into the company's view of the economy
Acro Expand : The Hongkong and Shanghai Banking Corporation (HSBC), Purchasing Managers' Index (PMI).
HSBC flash manufacturing PMI tops 50 for first time this year
CHINA’S factory sector appears to be
doing well, with the HSBC flash manufacturing Purchasing Managers’
Index rising to a seven-month high of 50.8 in June, from May’s 49.4.
It’s the first time the index has topped 50 — the dividing line
between expansion and contraction — so far this year (although a
competing, official PMI has been stronger). That suggests a combination
of government spending and improving exports may be arresting the
downward slide the economy has seen so far this year — though a weak
housing market remains a major concern.
The reading came in well
above forecasts. A survey of analysts by Bloomberg tipped a slight rise
in the survey to 49.7. The flash index is published ahead of final PMI
data and is usually based on 85 per cent to 90 per cent of total survey
responses each month.
HSBC’s chief China economist Hongbin Qu said
the improvement in the PMI was broadbased, with both domestic orders
and external demand subindices in expansionary territory.
“This month’s improvement is consistent with data suggesting that
the authorities’ mini-stimulus are filtering through to the real
economy,” he said.
“Over the next few months, infrastructure
investments and related sectors will continue to support the recovery.
We expect policy makers to continue their current path of accommodative
policy stance until the recovery is sustained.”
Here’s what the major economists said:
June HSBC flash PMI came as a big upside surprise, jumping to 50.8 from
49.4 in May (versus a market forecast of 49.7). This rebound reflects
the initial impact of Beijing’s mini-stimulus programs. As Beijing is
determined to deliver stable growth with a slew of mini-stimulus
measures, including central bank relending (QE in China) and targeted
reserve requirement ratio cuts (a total of RMB200bn), we observed a
bounce-back of confidence in the economy which will help bolster demand.
-- Ting Lu and Xiaojia Zhi, Bank of America Merrill Lynch
PMI reading is the latest sign that, in some sectors at least,
downwards pressure on growth has largely eased. The continued recovery
of both manufacturing PMIs in recent months, despite further weakness in
the property sector, suggests that the government’s targeted approach
to shoring up growth is working. The rebound in infrastructure
investment since the end of Q1, along with more recent measures to boost
lending to small firms, appears to have eased downwards pressure on
manufacturing and industrial output. -- Julian Evans-Pritchard, Capital Economics
demand is picking up, given the government’s supportive policies. On
the monetary policy side, the central bank recently lowered the reserve
requirement ratio for selected banks to support small and medium-sized
enterprises and rural-related sectors. This will improve small business
financial conditions in the coming months as banks will have more money
available to pump into the economy ... But given the difficulties from
the removal of excess capacity and the downturn in the property market,
the pace of recovery will be mild. -- Fan Zhang, CIMB
the last few months the Chinese government has rolled out quite a lot
of easing plans, but the pick-up is still quite mild. It’s too early to
say the economy has bottomed out. What the government can do now is buy
time to allow the impact of reforms to kick in. We are still quite
worried about the property sector, but there’s a chance we could see the
economy improve based on more fiscal spending. -- Xie Dongming, OCBC
seems the selective easing is working, with the help of exports,
although I wouldn’t say so soon that everything’s well. The housing
downturn could continue to deepen, so the downside risk is still there.
The drag from the housing sector will remain, so we’re unlikely to see a
very strong rebound like we saw in the third quarter last year. Growth
will probably flatline — that’s the best scenario in my view. -- Wei Yao, Société Générale
GBP/USD: Forex Trading – June 23, 2014
GBP/USD has recently made a strong convincing forex trading online break
past its yearly highs at the 1.7000 major psychological level,
indicating a continuation of the long-term rally. However, price has
retreated back to the 1.7000 area after reaching highs past the 1.7060
Stochastic is also exhibiting a bearish divergence, which indicates
forex trading online trend exhaustion. The technical indicator is
currently pointing down from the overbought level, which means that
bulls might not be ready to push the pair higher anytime soon. This
could mean that a pullback near the broken resistance area is in play.
Going long at the 1.7000 level with a stop below the 61.8% Fibonacci
retracement level at 1.6975 could yield a high return on risk if one
aims for new highs. Moving the stop to entry once price tests the latest
resistance at 1.7060 could be a good way to protect forex trading
Forex Trading Online Forecast
Recall that the BOE recently emphasized their hawkish bias, as the
minutes of their latest monetary policy committee meeting revealed that
policymakers are looking to hike interest rates this year. This is
mostly because the U.K. economy showed signs of a pickup while rising
home prices might warrant tighter monetary policy sooner or later.
BOE Governor Carney has already expressed this bias earlier in the month
when he spoke of hiking rates sooner rather than later. He previously
mentioned that the BOE was ready to tighten before the UK general
elections take place next year.
As for the US, the FOMC statement turned out much less dovish than what
many forex trading online analysts expected. For one, the Fed downgraded
their growth forecasts for the year, although they upgraded employment
and inflation estimates. Yellen decided against giving a timeline for
interest rate hikes, saying that future monetary policy changes will
continue to be dependent on a wide range of data.