Trading the News: U.S. Durable Goods Orders (based on dailyfx article)
A 0.6% rebound in orders for U.S. Durable Goods may heighten the appeal
of the greenback and spur a bearish retraction in EUR/USD as it raises
the fundamental outlook for the world’s largest economy.
Why Is This Event Important:
Signs of a stronger recovery may encourage bets for a mid-2015 Fed rate
hike, but the recent slew of weaker-than-expected data prints may
encourage the central bank to further delay its normalization cycle in
an effort to combat the ongoing slack in the real economy.
However, fading discounts along with the ongoing weakness in household
spending may drag on orders for durable goods, and a dismal print may
dampen the appeal of the greenback as it raises the Fed’s scope to
retain its current policy beyond mid-2015.
How To Trade This Event Risk
Bullish USD Trade: Orders Rebound 0.6% or Greater
Orders for U.S. Durable Goods unexpectedly shrank 1.4% in February
following a revised 1.9% expansion the month prior. The contraction was
largely drive by a drop in transportation, with demand for non-defense
aircrafts slipping 8.9% from the previous month. The slowdown in
private-sector consumption may become a growing concern for the Fed as
lower energy costs fail to boost household spending, and the central
bank may look to further delay its normalization cycle in an effort to
encourage a stronger recovery. Despite the weaker-than-expected prints,
the initial market reaction was rather limited as EUR/USD struggled to
hold above the 1.1000 handle during the North American trade to end the
day at 1.0973.
The Biggest EURUSD Resistance Test of the Year ( based on dailyfx article)
“EURUSD rolled over at slope resistance but several longer term
technical observations are worthy of note; the rate found low at an
important long term level (line off of 2008 and 2010 lows) and the
ownership profile (as per COT) is at a record. The speculative crowd has
never been more bearish…ever. Such conditions typically precede
important reversals…although not necessarily right away. A break above
the resistance lines (old support) would indicate that behavior has
significantly changed and open up a run on 1.13.” It is decision time
US Dollar Fundamentals (based on dailyfx article)
Fundamental Forecast for Dollar: Bearish
The stage is set and the curtain is rising. The
Dollar has wobbled these past weeks, but it hasn’t managed to turn its
nine-month long bull trend. That is difficult to do when the
undercurrent of the FX market maintains solid support for the benchmark
currency. Economic potential, monetary policy course and disaster
insurance premium all bolster the Greenback’s case for a medium-to-long
term climb. Yet, that doesn’t render the currency infallible. Speculative appetite – as it has in equities and other asset classes – has likely overreached on the Dollar. But, what would unnerve such a comfortable trade? Heavy event risk.
There is a lot going on in the financial markets
over the coming week. Subsequently, there will be a lot of crosswinds
working on the consensus view for the Dollar. That said, we will likely
see the market discount the influence of many of these catalysts in
deference for the concentrated event risk on Wednesday: 1Q US GDP and the FOMC rate decision.
Over the past year, one theme has commanded the reins of the broader FX
market – divergent monetary policy views. The Fed has shifted from the
world’s most accommodative central bank to one of the first majors to
contemplate a rate hike. What has resulted from this shift is one of the
most impressive runs the currency market has seen in a while.
The trouble for the Dollar is that the premium
afforded the currency is so-far unrealized. While there is general
agreement that the Fed will lift rates over the coming year, there is
considerable debate as to when the actual move will be realized. At the
turn of the year, speculation for a ‘mid-2015’ move was robust with
meaningful support for a June or July liftoff. However, in the past
three months, the hawkish mood has soured. Data has softened and fallen
increasingly short of forecasts (the Citigroup Economic Surprise Index
dropped to a three-and-a-half year low). Rhetoric from central bank
officials in turn has also backed off a campaign to acclimatize
speculators to an earlier move. Maintaining a measure of skepticism
market has pushed back its timing of a first move through Fed Funds
futures from September (at the start of the year) to January 2016
Whether or not the central bank will be forced to
sit on its hands will be heavily dictated by the fundamental duo
Wednesday. Chronologically, the growth report for the opening quarter of
the year crosses the wires first. The forecast is already calling for a
significant moderation of the economy’s pace from 2.2 percent in 4Q to a more reserved 1.0 percent clip.
While many – including some Fed members – believe this could be a
repeat of last year where the lull is temporary, it would likely kill
any lingering hope for a June move.
As for the central bank decision, this is not one of
the quarterly events where we receive updated forecasts and a press
conference to work our speculative assessments off of. That said, the
statement will be thoroughly processed and that is where the market
derived most of its interest at the last meeting. If the group’s tone is
materially more cautious or concerned on the state of the economy,
inflation and global conditions, it could further dovish skepticism. Of
course, the most potent outcome for the Dollar would be a combined economic slowdown and softer rhetoric.
USDJPY Fundamentals (based on dailyfx article)
Fundamental Forecast for the Japanese Yen: Neutral
The Bank of Japan seems unlikely to expand stimulus
at its upcoming policy meeting. Recent comments from Governor Haruhiko
Kuroda suggest he sees no urgency in fighting the pullback in headline
inflation played out since mid-2014. The drop played out alongside a
steep slide in oil
prices, suggesting weakness will dissipate once rebasing takes effect
in the second half of 2015. Indeed, core inflation has been remarkably
stable near the target 2 percent level for the past 12 months and
price-growth bets implied in bond yields have been rising since the
beginning of the year.
The policy announcement may still prove
market-moving if an updated set of economic forecasts proves especially
ominous, foreshadowing a larger easing effort on the horizon.
Follow-through on such a development may be limited however since
leading economic activity surveys have pointed to decelerating growth
since January. That means only a dramatically aggressive downgrade would
deliver something material enough to force a rebalancing of already
Meanwhile on the external front, potent volatility catalysts abound. The outcome of negotiations between Greece
and its EU/IMF creditors at a meeting of Eurozone finance ministers and
central bankers in Riga over the weekend will set the tone initially.
Athens is due to present the fourth revision of a reform package
designed to unlock further bailout funding.
Both sides seem vested in a successful accord. EU
and IMF officials want to avoid setting a precedent for a sovereign
default within the Eurozone that potentially leads Greece out of the
currency bloc. Meanwhile, Prime Minister Alexis Tsipras and company
surely understand that disorderly redenomination will probably compound
their country’s economic woes and may cost them their jobs. On balance,
the announcement of an agreement that keeps Greece afloat – even if only
in the near term – is likely to boost risk appetite and weigh on the
Japanese Yen amid ebbing haven demand for the safety-linked currency.
The next major inflection point comes by way of the
Federal Reserve policy meeting. A rate hike seems overwhelmingly
unlikely just yet, putting the onus on the statement accompanying the
announcement. The central bank seemed to switch to a month-to-month
guidance regime at the March sit-down. If this continues, Chair Yellen
and her colleagues on the rate-setting FOMC committee are unlikely to
say much beyond hinting that tightening probably won’t arrive in May.
Such a result may embolden the recent dovish shift
in investors’ perceived Fed rate hike timeline. This may lead the Yen
higher, considering the average value of the Japanese unit against its
top counterparts has displayed an increasingly significant inverse
correlation with front-end US bond yields over recent weeks.
GBPUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for British Pound: Bullish
An important jump in interest rate expectations
helped push the British Pound to fresh two-month highs versus the US
Dollar. Yet a great deal of uncertainty surrounding upcoming UK
Elections could slow gains as traders prepare for potential volatility.
The coming week will be an important one for the UK and broader financial markets as national agencies release British and US Gross Domestic Product (GDP) growth figures for the first quarter, while a highly-anticipated US Federal Reserve policy meeting and Nonfarm Payrolls report will likewise drive market volatility.
Last week we argued that fundamental strength could fuel a sustained GBP
reversal, and indeed recent developments suggest the British Pound
could claw back further losses through upcoming trade. The key caveat is
that any number of top-tier economic data releases and events in the
coming two weeks could change outlook. Any large surprises out of
upcoming UK GDP figures could have an especially significant impact for
Sterling pairs. And the US Fed decision as well as NFPs results always
threatens major moves in USD currency pairs.
The true test for the Sterling may ultimately come in the following week as there remains a great deal of uncertainty surrounding UK Elections. A sharp jump in GBPUSD volatility prices/expectations
underlines the risk, and it remains especially difficult to predict the
outcomes of the elections and much less implications for the GBP itself.
We remain cautiously bullish the British Pound as
recent Bank of England rhetoric suggests that domestic interest rates
may rise sooner than expected. Yield-seeking investors continue to favor
currencies with higher rates of return, and interest rate differentials
remain one of the most important drivers of exchange rate volatility.
The key question is whether upcoming data and/or political uncertainty
can derail what seems to be the start of a larger reversal for the UK
AUDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Australian Dollar: Neutral
is likely to face increased volatility in the week ahead amid the key
developments coming out of the U.S. economy, but fresh commentary coming
out of the Reserve Bank of Australia (RBA) may continue to heighten the
appeal of the higher-yielding currency as Governor Glenn Stevens
appears to be in no rush to further embark on the easing cycle.
The advance U.S. Gross Domestic Product (GDP) report
is expected to show the growth rate climbing an annualized 1.0% after
expanding 2.2% during the last three-months of 2014, and fears of a
slowing recovery may push the Federal Open Market Committee (FOMC)
to further delay its easing cycle as a growing number of central bank
officials adopt a more cautious tone for the region. With that said, the
fresh developments coming out of the Fed’s April 29 interest rate
decision may show little evidence for a June rate hike, and the
near-term weakness in the greenback may turn into a larger correction
should Janet Yellen and Co. show a greater willingness to carry its
current policy into the second-half of the year.
Even though the RBA keeps the door open to further
reduce the official cash rate, Governor Glenn Stevens may continue to
endorse a wait-and-see approach next week at the Australian Financial
Review Banking & Wealth Summit amid sticky price growth in the $1T
economy. The unexpected uptick in the core rate of inflation may keep
the RBA on the sidelines at the May 5 policy meeting and the central
bank may soften its dovish tone for monetary policy as record-low
borrowing costs raise the risk for housing market imbalance.
In turn, the rebound from earlier this month may
spur a test of the March high (0.7987) on the back of dismal
developments coming out of the U.S. economy, but the policy divergence
should continue to foster a long-term bearish outlook for AUD/USD as the
Fed remains on course to raise its benchmark interest rate. Moreover,
the aussie remains at risk of facing additional headwinds over the
near-term as the RBA retains the verbal intervention on the local
GOLD Fundamentals (based on dailyfx article)
Fundamental Forecast for Gold: Neutral
fell for a third consecutive week with the precious metal off more than
2.17% to trade at 1177 ahead of the New York close on Friday. The
decline marks the largest weekly loss in seven as equity markets probed
fresh record highs alongside a pullback in the dollar. Bullion looks to
close the week just above key near-term support with major US data on
tap next week.
Heading into next week, traders will be closely eyeing key US event risk with the release of 1Q Advanced Gross Domestic Product (GDP) & the FOMC policy decision
on Wednesday. Consensus estimates are calling for an annualized read of
1.0% for the first quarter, down from 2.2% in 4Q. The GDP report may
ultimately fall short of market expectations as seasonal factors are
blamed for the recent batch of soft data and a set of weak prints may
press the Fed to carry its highly accommodative policy stance through
the second-half of 2015. As such, look for the release to impact
interest rate expectations with a stronger print likely to weigh more
heavily on gold.
From a technical standpoint, gold broke below slope
support on Friday, opening up a decline targeting the 61.8% retracement
of the advance off the yearly lows at 1173 (key support). Note that a
median-line extending off the monthly high converges on this level into
the start of next week and we’ll reserve this region as our bullish
invalidation level with a break below risking a decline back into
critical weekly support at 1150/51. Interim resistance is eyed at 1191
with a breach above 1200 needed to shift our attention back to the
long-side of the trade. That said, we’ll take a neutral stance heading
into next week while noting that the short bias remains at risk above
keys support at 1173.
EURUSD forecast for the week of April 27, 2015, Technical Analysis (based on fxempire article)
The EURUSD pair
initially fell during the course of the week but found enough support
to turn things back around and form a hammer. However, we recognize that
the 1.10 level above is still resistive, so therefore it’s difficult to
take a longer-term trade. In fact, we are comfortable with longer-term
trades until we are well above the 1.15 level, which is something that
we are obviously not going to see anytime soon. With that, we remain on
the sidelines as far as long-term trades are concerned, but will pay
attention to the shorter-term daily chart.
Forex - Weekly outlook: April 27- May 1 (based on investing.com article)
The dollar ended the week lower against the other major currencies on
Friday, the second consecutive weekly decline as fresh economic data
underlined concerns that the recovery is losing momentum.
The Commerce Department reported Friday that orders for durable
goods, excluding aircraft, fell 0.5% in March, after a downwardly
revised 2.2% drop in February.
The headline figure rose 4.0%, beating expectations for a 0.6% gain, but investors focused on underlying weakness in the report.
The data came after recent weak reports on home sales, retail sales
and industrial production, adding to signs of a slowdown in economic
growth since the start of the year.
The weak data added to pressure on the dollar which has been hit as
investors pushed back expectations on the timing of an initial rate hike
by the Federal Reserve.
The U.S. dollar index,
which measures the greenback’s strength against a trade-weighted basket
of six major currencies, was last down to 97.07 late Friday. The index
ended the week down 0.62%.
EUR/USD was up 0.48% to 1.0874 in late trade, to end the week with gains of 0.61%.
The single currency was held in check as concerns over Greece’s debt
negotiations continued. Euro area finance ministers said Friday that
Greece must present a full economic reform plan by early May in order to
access any further funding.
The dollar was also lower against the yen, with USD/JPY down 0.51% to one-week lows of 118.98.
Sterling also pushed higher against the weaker dollar, with GBP/USD
adding 0.88% to trade at 1.5188 late Friday. The pound shrugged off
uncertainty over the outcome next month’s U.K. general elections.
In the week ahead investors will be looking to Wednesday’s Fed
statement for clues on the possible timing of a rate increase. Investors
will also be focusing on Wednesday’s preliminary reading on U.S. first
quarter growth as well as reports on inflation, consumer confidence and
Central bank meetings in Japan and New Zealand will also be in focus,
as will Thursday's preliminary data on euro zone inflation.
Monday, April 27
Tuesday, April 28
Wednesday, April 29
Thursday, April 30
Friday, May 1
EUR/USD Forecast Apr. 27 – May 1 (based on forexcrunch article)
a choppy week, feeling some pressure but not falling too far. Inflation
data stands out just before the May 1st holiday. Here is an outlook
for the highlights of this week and an updated technical analysis for
Greek headlines drifted between deteriorating conditions and
Grexit talk to optimism or at least a deadline delay. This had a
growing impact on the common currency. For a change, most euro-zone
figures fell short of expectations and that also took its toll. In the
US, data began looking better, with existing home sales beating expectations. But it’s far from looking rosy and as the week advanced, the dollar was hit by weak data. All in all, it’s a mixed picture with quite a lot of action.