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Forex with Scott Greer
Teaching on the road in NC, Scott Greer takes time out of his schedule to join Merlin for a look at the significant currency movers. Scott shares his thoughts on the US Dollar indexes and how they should be adding more thrust for future market moves, until ultimately hitting a wall! Scott and Merlin take listener questions as well, shedding some light on the current trajectory of the Cable, and Loonie.
Trading the News: Reserve Bank of New Zealand (RBNZ) Rate Decision (based on dailyfx article)
Despite expectations of seeing another 25bp rate hike from the Reserve Bank of New Zealand (RBNZ), the forward-guidancefor monetary policy will be the key focus as market participants see the central bank taking a pause from its normalization cycle.
What’s Expected:
Why Is This Event Important:
Indeed, the weaker-than-expected 2Q Consumer Price Index (CPI) has dragged on interest rate expectations as the resilience in the New Zealand dollar dampens the outlook for price growth, and the NZD/USD may face a larger correction over the near-term should the central bank soften its hawkish tone for monetary policy.
The pickup in household confidence along with the ongoing improvement in employment may encourage the RBNZ to retain a very hawkish tone for monetary policy, and the NZD/USD may recoup the losses from earlier this month should Governor Graeme Wheeler show a greater willingness to deliver another rate hike later this year.
Nevertheless, the RBNZ may strike a more balanced tone for the region amid the slowdown in private sector consumption along with the limited pickup in price growth, and the New Zealand dollar continue to press fresh monthly lows should the fresh batch of central bank rhetoric drag on interest rate expectations.
How To Trade This Event Risk
Bullish NZD Trade: RBNZ Hikes to 3.50% & Retains Hawkish Forward-Guidance
- Need green, five-minute candle following the statement to consider a long New Zealand dollar trade
- If market reaction favors buying kiwi, go long NZD/USD 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
Bearish NZD Trade: Governor Wheeler Adopts Neutral Tone & Talks Down Rate Expectations- Need red, five-minute candle to favor a short NZD/USD trade
- Implement same setup as the bullish New Zealand dollar trade, just in the opposite direction
Potential Price Targets For The ReleaseNZD/USD Daily
- Will look for fresh highs should the NZD/USD carve a higher-low in July
- Interim Resistance: 0.8841 (2011 High) to 0.8850 (61.8% expansion)
- Interim Support: 0.8600 (23.6% retracement) to 0.8620 (50.0% retracement)
Impact that the RBNZ rate decision has had on NZD during the last meeting(1 Hour post event )
(End of Day post event)
The headline reading for New Zealand inflation unexpectedly slowed during the first three-months of 2014, with the CPI figure slipping to an annualized 1.5% from 1.6% in the fourth quarter. The New Zealand dollar struggled to hold its ground following the dismal print, with the NZD/USD moving back below the 0.8600 handle, but the higher-yielding currency pared the losses during the North American trade to close at 0.8622.
2014-07-24 12:30 GMT (or 14:30 MQ MT5 time) | [EUR - Unemployment Claims]
if actual < forecast = good for currency (for USD in our case)
[EUR - Unemployment Claims] = The number of individuals who filed for unemployment insurance for the first time during the past week. Although it's generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions. Unemployment is also a major consideration for those steering the country's monetary policy.
Also Called = Jobless Claims, Initial Claims.
==========
U.S. Weekly Jobless Claims Show Unexpected DecreaseThe European Union is stronger today because of U.K 's contribution to it, European Central Bank's Jens Weidmann said in his speech at the annual dinner of the German-British Chamber of Industry & Commerce.
"The European economy is more open and dynamic as a result of Britain's commitment to open and flexible markets - a position very much in tune with the Bundesbank's" he said.
The European Union, or EU, membership has also benefited Britain, he added.
"Half of its trade is with the European Union, and studies suggest that EU membership has boosted Britain's trade in goods with other EU countries by more than 50 %"
Stressing on the need for a single market, he said, "A lot of the potential inherent in our most important European catalyst for growth, the single market, is still untapped."
"Britain, in particular, with its advanced services sector stands to gain from dismantling the existing barriers to cross-border trade in services.", he said.
Also, the digital markets should be integrated into a single market, he added.
Talking about the vulnerabilities that will arise due to the integration , "a combination of this kind gives rise to a deficit bias, as it allows the costs of fiscal imprudence to be shifted partially on to others. An unsustainable fiscal situation in one country has repercussions for monetary union as a whole. You can compare this to what economists call the "tragedy of the commons".", he said.
"Just as overfishing creates negative externalities for other countries, excessive public debt harms the euro area as a whole. Excessive debt in one member state drives up longer-term interest rates for all euro-area countries."
"And second, each member state issues debt in a currency it cannot create. Hence, a high level of fiscal discipline is needed to ensure that solvency concerns do not spiral out of control." he added.
"establishing a sustainable fiscal framework and consolidating public budgets are only two of the numerous challenges facing the euro area in becoming more stable." he noted.
"Equally important is to correct macroeconomic imbalances - through the restoration of competitiveness in those countries that have fallen behind and through a further reduction of indebtedness in the private sector there."
Further work has to done with respect to financial regulation, not just in the euro area, but globally, Weidmann said.
"Some key objectives in this respect are: spelling out international standards on the loss-absorbing capacity of systemically important banks, achieving cross-border acceptance of a bank resolution, peer reviewing measures regulating the shadow banking sector and establishing saver derivative markets."
Stressing on the importance of Britian being a member of the euro area, he concluded, "If Britain continues to make its voice heard in Europe, I am confident that the Union will become more outward-looking, open and prosperous for that."
EUR/USD Technical Analysis (based on dailyfx article)
- EUR/USD Technical Strategy: Short at 1.3644
- Support: 1.3454, 1.3396, 1.3324
- Resistance:1.3502-12, 1.3583, 1.3637
The Euro declined against the US Dollar as expected after prices put in a bearish Evening Star candlestick pattern. A daily close below support at 1.3454, the 50% Fibonacci expansion, clears the way for a decline to the 61.8% level at 1.3396. Alternatively, reversal back above the 1.3502-12 area, marked by the 38.2% Fib and the June 5 low, opens the door for another challenge of the 23.6% expansion at 1.3583.2014-07-25 08:00 GMT (or 10:00 MQ MT5 time) | [EUR - German Ifo Business Climate]
if actual > forecast = good for currency (for EUR in our case)
[EUR - GfK German Consumer Climate] = This survey is highly respected due to its large sample size and historic correlation with German and wider Eurozone economic conditions. It tends to create a hefty market impact upon release. Source changed series from a base year of 2000 to a base year of 2005 as of May 2011. It's a leading indicator of economic health - businesses react quickly to market conditions, and changes in their sentiment can be an early signal of future economic activity such as spending, hiring, and investment.
==========
German Ifo Business Confidence Declines More Than Expected In July
Germany's business confidence declined for a third successive month in July and at a faster-than-expected pace, reports said Friday, citing the survey results from the Ifo Institute.
The Ifo Business Climate Index fell to 108, which was worse than the 109.4 score forecast by economists. In June, the index had eased to a six-month low of 109.7.
The current conditions index dropped to 112.9, also much below economists' expectations for a print of 114.5. In June, the reading was 114.8.
The expectations measure declined to 104.5, which was slightly above the consensus estimate of 104.4. In June, the score was 104.8.
2014-07-25 12:30 GMT (or 14:30 MQ MT5 time) | [USD - Durable Goods Orders]
if actual > forecast = good for currency (for USD in our case)
[USD - Durable Goods Orders] = Change in the total value of new purchase orders placed with manufacturers for durable goods. It's a leading indicator of production - rising purchase orders signal that manufacturers will increase activity as they work to fill the orders
==========
U.S. durable goods orders rebound, core capital goods rise
Orders for long-lasting U.S. manufactured goods rose more than expected in June, pointing to momentum in the economy at the end of the second quarter.
The Commerce Department said on Friday durable goods orders increased 0.7 percent as demand increased from transportation to machinery and computers and electronic products.
Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, were revised to show a slightly bigger 1.0 percent fall in May.
AUDIO: 4 Years after Dodd-Frank with Paul Orme
After several years, Dodd-Frank has fallen short of its intended goal, leaving big firms to continue to reap big rewards off the average investor. Master instructor Paul Orme, joins the show to look at the plans shortcomings and what investors should be doing to secure their financial future. The duo also take a look at 401k rollovers and what to look out for.
Trading Video: Risk Trends and Rate Expectations Amid FOMC, NFPs, GDP
With the US docket alone carrying the quarterly GDP reading, nonfarm payrolls report and FOMC rate decision; it looks like we are set for a busy week. These and other major fundamental catalysts are certainly high profile and easily segue into one of the FX market's primary themes: interest rate expectations. However, a wary eye must be kept on the current for sentiment as a general trend is developing between bottoming volatility indexes, consolidating carry trades and diverging performance between risk-sensitive asset classes. As tides turn, key pairs mark progress and event risk approaches; we discuss how to prepare in the weekend Trading Video.
Key Fundamental Releases this Week (7/28-8/1)
Last week the USD strengthened in anticipation of this week’s FOMC meeting. The market has replaced concerns that stemmed from poor Q1 GDP with USD-positive reactions to Q2 data, which have been in-line or better than expectations. The euro was a big loser last week as data continues to suggest the ECB might need further stimulus (QE). This week will be full of key US fundamentals. Let’s be prepared by taking a look at this week’s key fundamental releases for the majors.
Monday (7/28)
US Pending Home Sales for June, is forecast to have contracted at -0.2%. Pending home sales have been volatile and just came off a 6.1% gain in May. A slide in June is not the end of the world. We had 3 straight months of gains, which is something we have not seen since 2010. On the other hand, a positive reading could be USD-positive in the near-term, given it has not already rallied sharply before the housing data.
Tuesday (7/29)
US Conference Board Consumer Confidence for July is expected to edge up to 85.5 from 85.2. This reading would reflect the strongest reading since January 2008. It has risen sharply since the Jan. 2013 low of 58.6 and bodes well for the USD. A reading in line with forecast or better should keep the USD-buoyed. A reading below 85.0 might weigh slightly on the USD, but we should keep the implications in the intra-session time-frame.
Wednesday (7/30)
German Preliminary CPI for July is forecast to be 0.2% on the month, after a 0.3% reading in June. The annual reading in June was 1.0%. If the annual CPI reading for Germany falls below 1.0%, we might see some more pressure on the EUR. A ready above 1.0% on the year could help EUR consolidate, but should not be able to help EUR reverse its recent downtrend.
US ADP Non-Farm Employment Change for July is a precursor to Friday’s Non-Farm Payroll, which was hot last month. The ADP report was hot last month too, and came in at 281K, which was the strongest reading since December 2011, and was the 3rd strongest reading since the financial crisis. Economists are expecting July’s job market to have leveled off, and to have added 234K jobs, which is still a strong reading.
US Advanced GDP for Q2 will probably trump the jobs data in terms of importance. Q1 GDP was -2.9% at an annualized rate. This seems distant memory now. We can’t blame the weather anymore in the second quarter, and manufacturing, sales, and other economic data points for Q2 have not disappointed. Economists forecast a 3.1% advanced reading. Ability to show 3.0% and above should help the USD maintain its recent strength. A reading below 3.0% could be seen as disappointing, and might urge traders to pare USD’s recent gains.
The Federal Open Market Committee will conclude its monetary policy meeting and make a statement. It will have the GDP data to talk about. This is important because after Q1′s dismal growth data, the Fed showed concern about Q2 data. The market will be on top of the Fed’s reaction to the Q2 GDP and how it may affect the rate hike time-line, which is current projected to mid-2015.
Australian Building Approvals for June is forecast to have grown 0.2%, after a strong 9.9% reading in May.The AUD has regained some strength after seeing Australia’s annual CPI inflation grow from 2.9% to 3.0% in Q2. The housing data should have limited impact on the Aussie.
Thursday (7/31)
Eurozone CPI Flash Estimate for July is forecast to be 0.5% on the year. It has been stuck at 0.5% since May. ECB president Mario Draghi had predicted that inflation was at the bottom when it was 0.5% in February. So far, his prediction has neither materialized or been invalidated because the annual CPI inflation is still 0.5%. A drop below 0.5% will very likely weigh on the EUR because the ECB’s inaction is based on inflation not dropping further. a drop in inflation will be further impetus for the ECB to apply more monetary stimulus.
Eurozone’s unemployment rate is expected to stay at 11.6% for the month of July. There is more room for disappointment because the prevailing trend has been a steady improvement, and if the reading is 11.5% for example, it would not be such a big surprise. A reading of 11.7% however will buck the trend and provide the ECB with more reason to loosen monetary policy further.
Canadian GDP for the month of May is forecast to be 0.3%, which would be the strongest month since January when it was 0.5%. The monthly GDP was 0.1% for April and March. There has not been any negative readings so far this year. If we can keep that up, the CAD should maintain its recent strength (though it consolidated for a couple of weeks). A negative reading might be needed to hold CAD back and keep it in consolidation or bearish correction. A reading above 0.5% can definitely revive CAD-strength.
US Jobless claims was at a 10-year low this week, at 284K. Next week’s reading is expected to rise back to 306K which would still be at the lower range of 2014-data. A reading below 300K should be positive for the USD in the near-term. A reading above 320K might be needed to hold USD, but only in the intra-session time-frame. This assessment is assuming that the FOMC did not shake things up and put the USD in a medium term bearish outlook. We are assuming the USD continues to be bullish.
Chinese Manufacturing PMI for July provided by the government, is expected to improve to 51.4 from 51.0. This would reflect 5 straight months of steady improvement in manufacturing, and also reflects the quick recovery after we saw Chinese data slump in 2013. The final version of HSBC’s Chinese Manufacturing PMI is expected to be 52.0, which would also reflect the recovery in China’s economy.
Australia’s Producer Price Index is forecast to show inflation of 0.7% in Q2, down from 0.9% in Q1. Q1 PPI inflation compared to Q1 2013 was 2.5%. If this reading increases, we might see some AUD-strength, and if it declines we should see AUD consolidate. It is still too early to anticipate any economic data point to be able to put AUD into reversal, into a bearish market.
Friday (8/1)
UK Manufacturing PMI for July is forecast to be 57.2, slightly lower than the 57.5 reading in June. This is a second tier data point and shouldn’t have much impact on the GDP other than in the very near-term. The market is focused on whether the Bank of England can raise rates in 2014. Right now lack of wage growth is the concern, so even a strong improvement in manufacturing will not ease that concern, nor should a singular worse-than-expected reading add to that concern.
US Non-Farm Payroll report for July will be the key data point to wrap up the week. The 288K reading for June revived USD strength. Economists expect about a 230K reading, which is still decent. A reading above 200K is decent, and if it is above 250K, the Fed should have more reason to raise rates earlier than mid-2015 rather than after. A reading below 200K however might bring USD back into at least some short-term consolidation, especially if it has been gaining throughout the week.
US Housing data, ADP Non-Farm Employment Change, GDP figures in the US and Canada, US rate decision and Non-Farm Payrolls are the main market movers this week. Here is an outlook on the major events coming our way.
Last week, the number of US jobless claims fell to 284K, the lowest level in nearly 8-1/2 years, indicating the labor market recovery is picking up. The 19,000 fall was contrary to analysts’ expectations of a rise to 308,000. The four-week average declined by 7,250 to 302,000, falling to the lowest level since May 2007. The US economy continues to improve suggesting the Fed may raise rates sooner than planned. Will we see a rate hike in 2014?