AUDIO - Trading Currencies with Merlin Rothfeld (based on fxstreet article)
Alone in studio, Merlin looks to answer several listener
questions covering a wide variety of currencies and commodities. Merlin
focuses on the Euro, and offers some insights as to what to expect from
the ECB press conference on Thursday. He also looks at gold and the
potential to jump on the momentum.
Daily Forex Market Update: NZD/USD Signaling Long (based on forexmagnates article)
trading saw the Euro, Pound, Kiwi and Dollar indexes all sell off. The
Aussie and Swiss remain relatively flat. From a macro perspective I
still like the Kiwi for a cyclical move higher. The Aussie, Euro, Pound
and Dollar are also signaling cyclical moves higher but their price
action is much more neutral which impacts the risk profile. I’d prefer
to see them at a more substantial support level than they are right now.
The Pre-Trade Matrix has 14 regression signals, seven of those have
cyclical support, only the NZD/USD isn’t displaying counter momentum as
we head into the US Session. That pair is currently signaling long.
The GBP/JPY and the NZD/CAD were closed in the Asian session for a loss
of just over half a percent. The NZD never really went anywhere but the
Pound did retrace and eventually came to an adjusted support zone,
which, by that time, was into negative territory. This morning I’ve
entered the long NZD/USD and will let this grind a while and evaluate
again this evening.
if actual > forecast (or actual data) = good for currency (for GBP in our case)
[NZD - Performance of Manufacturing Index] = Level of a diffusion index based on surveyed manufacturers. Survey of manufacturers which asks respondents to rate the relative
level of business conditions including employment, production, new
orders, prices, supplier deliveries, and inventories.
"The seasonally adjusted PMI for December was 57.7(a PMI
reading above 50.0 indicates that manufacturing is generally expanding;
below 50.0 that it is declining). This was 2.1 points higher than
November, and a positive end to the year for the sector."
BNZ senior economist Doug Steel said, "The PMI results for manufacturing
are consistent with broader indicators showing that the economy is in
good heart. There is a lot to like with activity expanding at a solid
clip with no inflation."
Kiwi To Fall In Line? (based on dailyfx article)
The NZD/USD daily chart is beginning to look interesting again. Over the
past few months while other developed market currencies have been in a
virtual free fall against the Greenback, NZD/USD has held its own and
traded in a fairly well defined range. With the exchange rate testing
the bottom end of the range today we can’t help but wonder if the Bird
is about to fall in line with the rest of the currency world? We say
this mostly because of the sentiment picture. This outperformance by the
Kiwi over the past few months has seen sentiment towards NZD rise well
above 50% bulls on the DSI when most other currencies are sporting
bullish sentiment levels closer to 10%. In our view this neutral
sentiment profile makes the Kiwi much more vulnerable to a decent move
lower if the range lows break as there will be plenty of “fuel” for the
decline. The .7607 December low looks key with weakness below needed to
trigger this negative scenario.
Trading the News: European Central Bank (ECB) Interest Rate Decision (based on dailyfx article)
EUR/USD may face fresh monthly lows over the next 24-hours of trade as
the European Central Bank (ECB) is widely expected to announce more
non-standard measures to further mitigate the risk for deflation.
Why Is This Event Important:
Despite headlines for a EUR 50B/month asset-purchase program, the
details surrounding the new initiative may play a greater role in
driving EUR/USD especially as the Governing Council struggles to achieve
its one and only mandate for price stability.
However, the ECB may provide limited details and make an attempt to buy
more time as President Mario Draghi struggles to produce a unanimous
vote within the Governing Council, and we may see a more meaningful
rebound in EUR/USD should the central bank disappoint.
How To Trade This Event Risk
Bearish EUR Trade: ECB Unveils Open-Ended QE Program
MetaTrader Trading Platform Screenshots
EURUSD, M5, 2015.01.22
MetaQuotes Software Corp., MetaTrader 5
EURUSD M5: 62 pips price movement by EUR - Interest Rate news event
Daring Draghi's Massive Stimulus Beats Expectations (based on rttnews article)
European Central Bank President Mario Draghi unleashed a massive
quantitative easing programme on Thursday, the size of which exceeded
market expectations, determined to combat the threat of deflation and
revive the euro area economy.
widely expected quantitative easing measure was described by Draghi as
"an expanded asset purchase programme". Under the plan, the combined
monthly purchases of public and private sector securities will amount to
EUR 60 billion ($70 billion), he said.
In response to the ECB announcement, the euro weakened and the Euro
Stoxx strengthened to fresh 7-year highs. Earlier today, the bank left
its interest rates unchanged for the fourth straight month.
main refi rate was kept at a record low 0.05 percent and the deposit
rate at -0.20 percent. The marginal lending rate was retained at 0.30
The size of monthly asset purchases exceeded the EUR 50
billion reported in the press since Wednesday. With the latest decision,
Draghi has crossed the Rubicon to join ECB's peers US Federal Reserve
and Bank of Japan who took the QE route long back.
Draghi revealed his daring by entering the uncharted territory of
negative interest rates last June in his mission to defend the ECB's
price stability target.
His resolve must have been strengthened
by last week's EU court backing for ECB's earlier bond-buying programme
known as the Outright Monetary Transactions. That said, the German
opposition to stimulus, especially ECB purchases of state debt, remains.
pressure, Eurozone inflation turned negative in December for the first
time in more than five years in December with consumer prices falling
0.2 percent. Falling oil prices are set to make the picture murkier.
High unemployment is another grave concern.
The asset purchases
are intended to be carried out until end-September 2016. They will
remain in place until there is "a sustained adjustment in the path of
inflation which is consistent with" the ECB's aim of achieving inflation
rates below, but close to, 2 percent over the medium term, Draghi said
in his customary post-decision press conference in Frankfurt.
March 2015 the Eurosystem will start to purchase euro-denominated
investment-grade securities issued by euro area governments and agencies
and European institutions in the secondary market," he added.
Video: ECB Move Drives EURUSD to 11-Year Low, EURJPY On the Edge (based on dailyfx article)
The monetary policy ranks provided the markets another large injection
with the news that the ECB was following its largest counterparts down
the path of QE. The response for the Euro was decisive as EURUSD marked
its worst daily tumble in over three years on the way to the lowest
exchange rate since 2003. This pair will be particularly important to
monitor moving forward as we gauge the net influence of stimulus as well
as its relative effectiveness. With EURUSD, we now pair the most
accommodative central bank (ECB) pitted against the most hawkish (Fed).
Will the European authority be effective - even through the upcoming
Greek election? Will the FOMC maintain its drive towards a mid-2015 hike
next week? Meanwhile, the net impact of global stimulus on speculator
interest may be better reflected in a pair like EURJPY. With new
stimulus upgrade and a high-level sensitivity to risk trends, a 135
break can signal a broader tide change. We talk big themes, upcoming
event risk and well-placed currency pairs in today's Trade Video.
Trading the News: Canada Consumer Price Index (CPI) (based on dailyfx article)
A slowdown in Canada’s Consumer Price Index (CPI) may spur fresh monthly
highs in USD/CAD especially as the Bank of Canada (BoC) reverts back to
its easing cycle.
Why Is This Event Important:
After unexpectedly cutting the benchmark interest rate at the
January 21 meeting, a marked slowdown in Canada price growth may put
increased pressure on the BoC to further reduce borrowing costs, and the
Canadian dollar remains at risk of facing more headwinds over the near
to medium-term as Governor Stephen Poloz keeps the door open to
implement additional monetary support.Nevertheless, the pickup in economic activity may generate a
stronger-than-expected CPI print, and an uptick in the core rate of
inflation may spur a near-term correction in USD/CAD as the stickiness
limits the BoC’s scope to further reduce the benchmark interest rate.
How To Trade This Event Risk
Bearish CAD Trade: Weak CPI Print Drags on Interest Rate Expectations
USDCAD M5: 28 pips price movement by CAD - CPI news event
Canada’s Consumer Price Index (CPI) slowed to an annualized rate of 2.0%
in November from 2.4% the month prior, while the core rate of inflation
slipped to 2.1% from 2.3% during the same period. Indeed, falling
energy prices attributed to a 1.7% decline in transportation costs, but
we may see Canadian firms continue to offer discounted prices in an
effort to draw greater demand. As a result, the Bank of Canada (BoC) may
further delay normalizing monetary policy, and Governor Stephen Poloz
may continue to endorse the accommodative policy stance over the near to
medium-term in order to encourage a stronger recovery. The market
reaction was short-lived as USD/CAD quickly slipped back below the
1.1625 region, and the pair continued to consolidate throughout the
North American trade as it ended the day at 1.1602.
USDCAD, M5, 2015.01.23
USDCAD M5: 51 pips price movement by CAD - CPI news event
NZD/USD Technical Analysis: Selloff Extends for Fifth Day (adapted from dailyfx article)
The New Zealand Dollar fell against its US namesake as expected,
with prices now hitting levels unseen since May 2012. A daily close
below the 38.2% Fibonacci expansion at 0.7420 exposes the 38.2% level at
0.7275. Alternatively, a move above channel floor
support-turned-resistance at 0.7529 opens the door for a challenge of
the 23.6% Fib at 0.7599.
US Dollar Fundamentals (based on dailyfx article)
Fundamental Forecast for Dollar: Bullish
In the past few weeks, we have seen a nearly
universal dovish shift in global monetary policy. The ECB, BoE, BoJ, BoC
and other central banks have offered up either actions or commentary
that is tangiably more accommodative in its policy slant. This is
reaction to cooler global growth winds, stagnant inflation pressures and
perhaps even in response to an unofficial currency war. Yet, through
this broad effort to head off economic trouble and financial crisis,
there is one policy body standing firmly on the opposite end of the
spectrum: the Fed. Can the US central bank continue to carve such a divergent path? And, what does this mean for the Dollar and capital markets?
When the scope of a market is international – as the
FX market is – capital flows are driven by relative demand along
national borders. The relative appeal of the US market and Dollar has
grown exceptional over the past six months. Taking the temperature of
the developed and emerging world’s health, we have seen economic
forecasts – recently refreshed by the IMF’s WEO – downgraded. Meanwhile,
the US was one of the few that continues to win upgrades. That bodes
well for investor returns when market participants are still vying for
higher yield even as confidence wavers.
A direct measure of returns itself, monetary policy
is also leaning heavily in the Dollar’s favor. Working off the Fed’s
remarks that a move towards normalization was justify as recently as the
minutes, there is a hawkish (if moderate) intention from the US
authority. This represents a particularly dramatic contrast in the
global scales following the introduction of a new, large-scale stimulus
program from the ECB this past week. But it isn’t just the ECB that is on a sharply divergent path.
The BoJ is maintining its own QQE program (recently upgraded in
October), the BoE minutes showed hawks quieted their voice at the last
meeting, the BoC surprised with a rate cut, the SNB failed to hold its
EURCHF floor, and the RBA tipped back from neutral to dovish rhetoric.
The question that should be on traders’ minds this
week is whether or not the Fed can maintain its push towards the
eventual rate hike when the rest of the world is reverting to
accommodation. Given a rise swell of cross-asset volatility these past
months, the ECB’s dramatic moves and semi-regular shocks in the
headlines; it would seem that a softening of stance would be likely.
However, many of these issues were already in play or expected during
the last meeting when the Fed gave its optimistic remarks. In the US,
conditions continue to show considerable improvement (even if it is
slow) without financial shocks that instigated the unorthodox policy in
the first place. What’s more, there is an opportunity one of the primary
players in the global central bank community to make a move to
normalize under relatively steady conditions with a backdrop where other
major participants are readily offsetting the possible negative
When the Fed meets on Wednesday,
the primary question is whether the group maintains its tone to fuel
speculation of a ‘mid-2015’ rate hike. That doesn’t require
pre-commitment nor any rhetoric materially more hawkish than the last
gathering. Rather, the market needs to simply see a lack of dovish cues
in the monetary policy statement. If that is the case, the Dollar’s rate
bearing will push it even farther off course of its counterparts.
Beyond, the forward rate advantage traders will be
looking to glean from the event, the broader market will also measure
the sentiment impact this event holds. If the Fed doesn’t push back a
hike to 2016, it can upset a carefully crafted status quo and
stimulus-smoothed investment environment. In other words, a ‘hawkish’
Fed generate risk aversion sentiment and perhaps finally turn holdout
speculative benchmarks (like the S&P 500 and US equities) lower. If that is the case, the Dollar could also gain on a safe haven / liquidity bid.