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Market Analysis 04/07/2014
Language English
Superb US NFP leads to…very little?The big mystery in the markets is why yesterday’s much better than expected US nonfarm payrolls led to such a small movement in the USD. Although USD was up against most of its G10 counterparts (CAD and GBP being the exceptions), the gains were not as big as one might have expected, given how much the nonfarm payrolls beat expectations (288k vs forecast 215k, unemployment rate falling to 6.1% instead of remaining unchanged at 6.3%). There are probably two reasons:
o Although the jobs data was excellent, the pace of growth in average hourly earnings actually slowed to 2.0% from 2.1%. Fed Chair Janet Yellen has pointed to wage growth as an indicator of tightness in the labor market – so long as wages are not rising, then the labor market cannot be said to be tightening. With the CPI rising 2.1% yoy, 2.0% wages growth is nothing more than keeping pace with inflation. Fed Funds rate expectations for 2017 rose another 6 bps on top of Wednesday’s 6 bps, but they still remain well below what the FOMC itself has forecast.
o The ECB clarified the rules for banks wanting to use the targeted long-term refinancing operations (TLTRO) that it announced at the June meeting. Despite some harsh stern words from ECB President Draghi during the press conference, the documentation makes clear that there won’t be anything preventing banks from using this money to buy sovereign bonds. This helped European bonds to rally yesterday. With European yields moving even lower, it’s difficult for US yields to rise significantly and this dampened the USD rally.
I still expect the market to revise up its forecast for Fed Funds to bring it more closely in line with the FOMC’s expectations. Indeed, given how quickly the US is progressing towards what is now accepted as “fully employment,” I expect the FOMC to raise its expectations for Fed Funds as well. That should support the dollar over the medium term.
CAD gained yesterday as Canada’s trade deficit for May came in at only half as wide as expected (a deficit of CAD 152mn rather than CAD 300mn as expected), owing to a rise in auto and energy shipments. Canada is apparently benefiting from the rebound in the US auto market. The rapidly improving US employment situation may prove beneficial for Canada and we could see CAD outperforming.
Friday is a relatively light day as it is a national holiday in the US. During the European day, Germany’s factory orders are expected to have fallen 1.1% mom in May, after increasing 3.1% mom in April. Sweden’s service production for May is expected to have decelerated in pace from the previous month.
Currency Titles:
EUR/USD breaks the blue support line
USD/JPY climbs above 102.00
EUR/GBP continues the downtrend
Gold in a retracing mode
WTI remains within the downside channel
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Currencies Text:
EUR/USD tumbled on Thursday, breaking below the blue upward sloping support line. However, the decline was halted slightly above our support barrier of 1.3587 (S1). A dip below that hurdle may signal that the recent advance was just a 38.2% retracement level of the 8th May- 5th June decline, and could pave the way towards the key support of 1.3500 (S2). The MACD, already below its signal line, turned negative, but the RSI rebounded near its 30 level, thus I cannot rule out a bounce before the bears prevail again.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3690 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY surged yesterday, crashing two resistance barriers in a row. The rally found a ceiling at 102.25 (R1), where a decisive violation could carry larger bullish implications and aim for the hurdle of 102.65 (R2). The MACD lies above both its trigger and zero lines, signaling bullish momentum of the currency pair, but the RSI exited its overbought zone and is now pointing down. In light of this, I would expect the forthcoming wave to be to a downside corrective wave, maybe towards the 101.85 (S1) support zone, which coincides with the 38.2% retracement level of the prevailing rally.
• Support: 101.85 (S1), 101.60 (S2), 101.22 (S3).
• Resistance: 102.25 (R1), 102.65 (R2), 103.00 (R3).
EUR/GBP fell below the 0.7960 barrier, confirming a forthcoming lower low and signaling the continuation of the downtrend. I would now expect the rate to challenge the 0.7900 (S1) zone, where a clear break could pave the way towards 0.7830 (S2). I would ignore the oversold reading of the RSI for now, since the oscillator is pointing sideways and could stay within its extreme territory for an extended period of time. As long as the pair is forming lower highs and lower lows below both the moving averages and below the blue downtrend line drawn from back the 11th of April, I consider the overall outlook to be to the downside.
• Support: 0.7900 (S1), 0.7830 (S2), 0.7760 (S3).
• Resistance: 0.7960 (R1), 0.8030 (R2), 0.8080 (R3).
Gold continued declining on Thursday and found support at 1310 (S1). Having in mind that the negative divergence between our momentum studies and the price action is still in effect, I cannot rule out the continuation of the retracing wave. Nevertheless, as long as the precious metal is trading above both the moving averages and above the blue uptrend line, the overall technical picture remains positive and I would see any further declines as a renewed buying opportunity, at least for now. On the daily chart, yesterday's candle confirmed the spinning top candle pattern and this amplifies the case for the continuation of the pullback.
• Support: 1310 (S1), 1305 (S2), 1285 (S3) .
• Resistance: 1325 (R1), 1330 (R2), 1342 (R3).
WTI moved in a consolidative mode, remaining near the lower boundary of the purple downward sloping channel. The MACD shows signs of bottoming while the RSI found support near its 30 level. Moreover, zooming on the 1-hour chart, I can identify positive divergence between our hourly momentum studies and the price action. As a result, I still expect the forthcoming wave to be an upside corrective wave within the downtrend channel. Nevertheless, as long as WTI is printing lower highs and lower lows within the downward sloping channel, the short-term outlook remains to the downside.
• Support: 103.05 (S1), 101.85 (S2), 100.80 (S3).
• Resistance: 104.60 (R1), 106.05 (R2), 107.35 (R3).
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Market Analysis 12/09/14
Language English
“No” campaign is back in lead The latest YouGov survey showed that the pro-unionists campaign moved back into a narrow lead before the September 18 Scottish vote. With less than a week to go until the Scottish independence referendum, the pound rallied following the survey, but failed to fill Monday’s gap. The gap down was formed when a poll from the same opinion firm put the Yes campaign ahead for the first time. Next week a number of surveys are expected to be released, that could give us a better view on the tight referendum race. The uncertainty over the outcome has increased dramatically and if any of the polls show signs that “Yes” votes gain, this could push Cable further down. On the other hand, a “No” vote is likely to see much of the GBP losses recovered.
Less momentous than Scotland’s referendum but equally important, is Sweden’s general elections this Sunday. Thursday’s data showed that the Swedish economy fell back to deflation and the official and PES unemployment rates both increased. On top of the recent poor data, the worse-than-expected figures add to the growing body of evidence that Sweden’s economy is worsening. The data raise concerns over the present government’s administration and questions whether Riksbank’s unexpected 50 bps rate cut at their June meeting had any positive impact on the country’s economy. Recent polls have shown that neither of the two major blocs will win a majority, reflecting somehow the fragile handling of the nation’s economy and increasing the possibilities for a political turmoil on Sunday’s elections. The tight and complicated situation over the possible outcome, especially a minority-government, could weaken the Nordic currency for a long time.
Overnight from New Zealand, BusinessNZ manufacturing PMI rose in August from the previous month, while REINZ house sales dropped 16.3% yoy in August from -13.0% yoy in July. The mixed data had no major impact on Kiwi. Yet, NZD and other commodity currencies kept their downtrend due to declining commodity prices.
Today, Eurozone’s industrial production for July is expected to rise on a mom basis, a turnaround from June’s reading.
In the UK, construction output for July is coming out and the market consensus is for the pace to have declined.
In the US, we get retail sales for August. Both the headline figure and sales excluding the volatile items of autos and gasoline are forecast to accelerate, adding strength to the greenback ahead of the September 16-17 FOMC meeting. The minutes of the meeting released on October 8 will most likely reveal that the discussions over the timing of the first rate hike are becoming more intense. The preliminary University of Michigan consumer confidence sentiment for September is also coming out.
We have two speakers on Friday’s agenda. Bank of Japan Governor Haruhiko Kuroda and European Central Bank Governing council member Jens Weidmann speak.
Currency Titles:
EUR/USD still quiet
USD/JPY surges above 107.00
AUD/USD plunges below 91.00
Gold breaks the lower bound of the channel
WTI rebounds from slightly above 90.00
Currencies Image Url:
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Currencies Text:
EUR/USD continued moving quietly, remaining between the support line of 1.2860 (S1) and the psychological barrier of 1.3000 (R1). The MACD continued higher after crossing above its trigger, while the positive divergence between the RSI and the price action is still in effect. Bearing these signs in mind, I will stick to the view that we may see the pair slightly higher in the close future, maybe to test the psychological line of 1.3000 (R1) as a resistance this time. Nevertheless, on the daily chart, the price structure remains lower highs and lower lows below both the 50- and the 200-day moving averages, thus I still see a negative overall picture. A clear move below 1.2860 (S1), is likely to trigger extensions towards the key support zone of 1.2760 (S2), defined by the lows of March and July 2013.
• Support: 1.2860 (S1), 1.2760 (S2), 1.2660 (S3).
• Resistance: 1.3000 (R1), 1.3100 (R2), 1.3160 (R3).
USD/JPY accelerated higher, violating the 107.00 line for the first time since September 2008. I believe that such a move could open the way for the 108.00 (R1) line, defined by the highs of the 19th of September 2008. I will repeat that as long as the price is trading above the blue uptrend line and above both the moving averages, I consider the near-term bias to be to the upside. Shifting our attention to our momentum studies, the MACD, already positive, crossed again above its signal line, while the RSI does not seem willing to exit its overbought zone any time soon. This designates aggressive bullish momentum and corroborates my view for further advances. In the bigger picture, I still see a newborn long-term uptrend, since, after the exit of a triangle, the price structure remains higher highs and higher lows above both the 50- and the 200-day moving averages.
• Support: 107.00 (S1), 105.70 (S2), 104.65 (S3).
• Resistance: 108.00 (R1), 109.00 (R2), 110.00 (R3).
AUD/USD collapsed and fell below our barrier of 0.9130 (support turned into resistance) after finding resistance near the 0.9200 (R2) line. I would expect the plunge to continue and challenge the psychological hurdle of 0.9000 (S1) and if the bears are strong enough to ignore that line, I would expect them to pull the trigger for extensions towards the support level of 0.8920 (S2), the low of the 12th of March. In the bigger picture, the dip below 0.9240 signalled the downside exit of the sideways path (marked by the blue horizontal lines) and turned the picture negative. Our daily momentum indicators support the negative outlook, since the MACD dipped below both its zero and signal lines, while the RSI entered its oversold zone, but is still pointing down.
• Support: 0.9000 (S1), 0.8920 (S2), 0.8890 (S3).
• Resistance: 0.9130 (R1), 0.9200 (R2), 0.9240 (R3).
Gold continued declining on Thursday, falling below the 1240 barrier (support turned into resistance), defined by the lows of the 3rd of June. During the early European morning, the precious metal is heading towards the support line of 1230 (S1), where a break could trigger extensions towards the next support hurdle at 1220 (S2). The RSI entered its oversold field, but is pointing down, while the MACD, already negative, crossed below its trigger line. These momentum signs indicate accelerating negative momentum and amplify the case for further declines in the near future. In the bigger picture, the precious metal is printing lower highs and lower lows below bot the 50- and 200-day moving averages, and below black line drawn from back at the low of the 31th of December. As a result I consider the overall path of the yellow metal to be to the downside.
• Support: 1230 (S1), 1220 (S2), 1200 (S3).
• Resistance: 1240 (R1), 1250 (R2), 1260 (R3).
WTI tried to move lower but found some buy orders between the barriers of 90.00 (S2) and 91.30 (S1). The price rebounded and moved above the upper bound of the possible wedged pattern. However, as I said in yesterday’s comment, I would maintain my neutral stance until I see a clear move above 93.95 (R1). Such a move is likely to confirm the break out in my view and could set the stage for extensions towards our next resistance of 96.00 (R2). On the downside, we need a dip below 90.00 (S2) to have a forthcoming lower low, something that could signal the continuation of the prior downtrend and perhaps target the 85.75 (S3) area, defined by the lows of the 18th of April 2013.
• Support: 91.30 (S1), 90.00 (S2), 85.75 (S3).
• Resistance: 93.95 (R1), 96.00 (R2), 96.70 (R3) .
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Market Analysis 27/10/14
Language English
Capital shortfall of €25 billion at 25 banks, while twelve have already covered their capital needs The European Central Bank unveiled on Sunday that 13 out of 130 largest Eurozone banks will need to raise additional capital in order to survive another financial crisis. The results come less than two weeks before the ECB take over supervision of the major Eurozone banks on Nov. 4. A total of 25 banks technically failed the comprehensive assessment – which consisted of the asset quality review (AQR) and a forward looking stress test of the banks - , but most have already taken steps to solve their capital shortfall problem. The tests are part of an effort to restore confidence towards Europe’s financial system and to reassure investors and the public that the region’s lenders are on solid ground. At the same time, in another report, the European Banking Authority published the results of the 2014 stress test to assess the resilience of EU banks to adverse economic developments, where 14 out of 123 banks fall below the defined capital thresholds.
Nevertheless, following the results several questions remain to be answered. ECB’s AQR showed the carrying values of banks’ assets as of 31 December 2013. Have the values changed since then? The stress test scenarios did not include the Eurozone’s deflation risk and thus the situation may be underestimated and more banks could need capital. Now that the majority of the banks passed the test, will there be more demand in the second LTRO (Long-Term refinancing operations) allotment in December? Will the banks start to lend in order to boost the region’s economic growth? And one of the most important questions yet to be answered is the size of the possible demand for those loans. The banks have no incentive to take the ECB loans unless they can use them to generate profit.
Despite the remaining questions which could be answered in next week’s ECB meeting, the euro started the week with a very small gap up against the dollar as the results scaled back concerns about the health of the region’s banks. I believe that unless the uncertainty lessens, weakening fundamentals are expected to weigh on the currency.
During early European morning the greenback was lower against almost all of the currencies we track except RUB, probably due to the fact that pro-western parties seems to dominate the country’s parliamentary elections Sunday.
Today’s indicators: The main event will be the German Ifo survey for October. All three indices are expected to have declined, in line with the fall in the ZEW survey earlier this month. This could add to evidence that the German recovery is petering and may put down pressure on the common currency. Eurozone’s M3 money supply is forecast to have risen 2.2% yoy in September, from 2.0% yoy in August. This will push the 3-month moving average to accelerate if the forecast is met. The European Central Bank is expected to reveal how much it spent on covered bonds since the program began on Oct. 20.
Later from the US, the preliminary Markit service-sector PMI for October is anticipated to have declined a bit but to remain in relatively high levels. The preliminary composite figure is also coming out. Pending home sales for September are anticipated to accelerate, a turnaround from August and in line with the yoy rate which is projected to rebound as well. The Dallas Fed manufacturing index is also released.
As for the rest of the week, the highlight will be the FOMC rate decision and the projected announcement to end its asset purchases program on Wednesday. Following the comments by St. Louis Fed President James Bullard that the Fed should consider continuing with its bond-buying program it remains to be seen whether the Fed will end its QE program.
On Tuesday, Sweden’s central bank meets to decide on its key policy rate. Following Riksbank’s unexpected 50bps rate cut in early July and given that the country’s economics haven’t improved, the Bank is expected to cut its main policy rate by another 15bps in order to boost the economy and fight deflation. Later in the US, durable goods for September are expected to take center stage and to rebound from their biggest drop.
On Wednesday, despite the FOMC rate decision, the Reserve Bank of New Zealand meets to decide on its key interest rates. The Bank is anticipated to leave its policy rate unchanged at 3.5% and Governor Graeme Wheeler could reiterate the view that the exchange rate has yet to adjust materially to the lower commodity prices and that its current level remains “unjustified and unsustainable”.
On Thursday the preliminary German CPI for October is forecast to rise from the previous month. As usual the drama will start several hours earlier when the CPI for Saxony is released ahead of the country’s headline CPI. From the US, we have the 1st estimate of GDP for Q3 which is expected to show a rise of +3.0% qoq SAAR, down from +4.6% qoq SAAR in Q2. The 1st estimate of the core personal consumption index, the Fed’s favorite inflation measure, is forecast to have declined from the Fed’s 2% target.
Finally on Friday, the Bank of Japan ends its two-day policy meeting. On Thursday, the Ministry of Finance sold 3-month T-bills at an average yield of -0.0037%, the first time that a government auction in Japan has resulted in a negative yield. This comes as a result of the massive easing program by the BoJ, which has created a shortage of paper in the market. Thus we could see further action from BoJ. As for the indicators, Japan’s national CPI for September is released, while usually not market affecting, if weak it could give extra reasons for additional stimulus from the Bank of Japan. In Germany, retail sales for September are due out. In the US, we get the personal income and personal spending for September, as well as the PCE deflator and core PCE for the same month.
Currency Titles:
EUR/USD continues higher
EUR/JPY breaks above 137.00
Is GBP/USD forming a Head and Shoulders bottom?
Gold moves in a quiet mode
WTI declines but remains above 80.00
Currencies Image Url:
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Currencies Text:
EUR/USD continued moving higher on Friday and today, during the early European morning, it is trading near the 50-period moving average. Taking a look at our short-term technical oscillators, I see that the RSI moved above its 50 line, while the MACD, already negative lies above its trigger and is pointing up. Having these signs in mind, I would be watchful of further upside, perhaps for a test near the lower line of the black channel, or near the 1.2840 (R1) barrier, which happens to lie marginally below the 23.6% retracement level of the 8th of May - 3rd of October downtrend. However, since the possibility for a lower high still exist, I would hold the view that EUR/USD may be resuming the prior downtrend and that the recovery from 1.2500 (S2) probably ended near the 200-period moving average. I would adopt a wait and see stance for now, and I would wait for a dip below the 1.2600 (S1) hurdle to reaffirm the case. Such a break could open the way for another test of the psychological barrier of 1.2500 (S2), which happens to be the 76.4% retracement level of the July 2012- May 2014 major advance.
• Support: 1.2600 (S1), 1.2500 (S2), 1.2465 (S3)
• Resistance: 1.2710 (R1), 1.2840 (R2), 1.2900 (R3)
EUR/JPY surged on Thursday after finding some buy orders near the 135.20 (S3) line. On Friday, the pair moved in a consolidative mode, remaining below the 137.00 barrier and today, during the Asian morning, it managed to overcome that hurdle. That move confirms a forthcoming higher high on the 4-hour chart, and could pull the trigger for extensions towards the resistance area of 137.85 (R1). The RSI remains above its 50 line, while the MACD lies above both its zero and signal lines, designating bullish momentum. Our daily oscillators support the notion as well. The 14-day RSI poked its nose above its 50 barrier, while the daily MACD, although negative, has bottomed and moved above its trigger line. These momentum signs support the scenario for further upside, at least towards the resistance obstacle of 138.80 (R2)
• Support: 137.00 (S1), 136.20 (S2), 135.20 (S3)
• Resistance: 137.85 (R1), 138.80 (R2), 139.20 (R3)
GBP/USD is probably forming an inverted Head and Shoulders formation on the 4-hour chart, but confirmation is still needed. A clear and decisive move above the 1.6200 (R1) is likely to confirm the break of the pattern’s neckline (blue line) and could trigger extensions towards the resistance of 1.6340 (R2) at first stage. Moreover, the positive divergence between our short-term momentum studies and the price action is still in effect, while both the indicators are back within their bullish zones. On the daily chart, the rate escaped from a falling wedge formation on the 20th of October, and on Thursday it tested the formation’s upper boundary as a support. This is another technical sign that we are likely to experience further upside legs in the near future. Moreover, I see positive divergence between the daily momentum studies and the price action as well. However, I will retain the view that as long as Cable remains below the 80-day exponential moving average, the overall trend remains to the downside. I would see any possible near term advances as a corrective move of the longer-term down path.
• Support: 1.6000 (S1), 1.5950 (S2), 1.5870 (S3)
• Resistance: 1.6200 (R1), 1.6340 (R2), 1.6415 (R3)
Gold moved in a consolidative mode on Friday, remaining capped by the resistance line of 1235 (R1) and both the 50- and the 200-period moving averages. I will hold the view that Thursday’s dip below that line flipped the short-term bias to the downside and I would now expect sellers to challenge our support hurdle of 1222 (S1) in the close future. A fall below the 1222 (S1) line is likely to trigger extensions towards 1205 (S2), the low of the 8th of October. On the daily chart, the 14-day RSI moved below its 50 line, while the daily MACD has topped marginally above its zero line and seems ready to turn negative and to cross below its signal line. These momentum signs amplify the case for further declines.
• Support: 1222 (S1), 1205 (S2), 1183 (S3)
• Resistance: 1235 (R1), 1255 (R2), 1260 (R3)
WTI moved lower on Friday, but it remained above the psychological barrier of 80.00 (S1). I will keep the view that the price structure on the daily chart still suggests a downtrend. Nevertheless, given Thursday’s strong rebound from the 80.00 line I would prefer to maintain my neutral approach. Moreover, the 14-day RSI moved higher after exiting its oversold territory, while the daily MACD has bottomed and appears willing to cross above its trigger any time soon. These momentum signs give me extra reasons to remain on the sidelines, at least for now. In my view, only a dip below 79.40 (S2) would confirm a forthcoming lower low and flip the bias back to the downside.
• Support: 80.00 (S1), 79.40 (S2), 79.00 (S3)
• Resistance: 82.40 (R1), 83.50 (R2), 85.00 (R3)
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Market Analysis 28/10/14
Language English
Sweden’s Riksbank steps up its fight against deflationThe spotlight of the day will be on the Riksbank policy meeting where the consensus is for a rate cut. Sweden’s economy hasn’t improved since their last rate cut in early July. Inflation rate has been falling for months and recently it surprised the markets falling deeper into deflation at -0.4% yoy. Moreover, the country’s unemployment rate remains at high levels. Despite the unexpected 50bps rate cut at their July meeting, inflation did not pick up, which makes us believe that market consensus of a 15bps may not be enough for the inflation to revive. Yet, with interest rates getting closer to the zero bound, Sweden’s central bank is running out of conventional options. Our view is that the Riksbank could cut interest rates down to zero and revise down the repo rate path, pushing expectations of a rate hike back even further. On top of the rate cut, a dovish statement by Governor Stefan Ingves would likely keep the SEK under selling pressure.
With no major economic releases or central bank comments overnight, things have been fairly calm for the major currencies during the Asian session. The dollar remained within ±0.20% range against its G10 peers. The only indicator released overnight was the Japan retail sales for September. The monthly figure accelerated however, leaving JPY intact.
Today’s indicators:Besides the Riksbank meeting, Sweden’s retail sales for September are forecast to drop in pace, a turnaround from the previous month, while the small trade deficit in September is anticipated to rebound and turn into a surplus again. The mixed data are most likely to be ignored since they are released at the same time as the main policy rate. Riksbank’s Governor Stefan Ingves will hold a press conference following the rate decision.
We have no major data to be released from Eurozone or the UK.
Later from the US, the durable goods orders for September will take center stage. The headline figure is forecast to show a 0.5% mom rise, a rebound from -18.4% mom in the previous month. On the other hand, durable goods excluding transportation equipment are estimated to rise at a slower pace. Conference Board consumer confidence for October is forecast to remain near its seven-year high, adding to signs of an improved US economic outlook. The Richmond Fed manufacturing index for October and S & P/Case-Shiller house price index for August are also coming out.
As for the speakers, in addition to Riksbank Governor Stefan Ingves, Norges Bank Deputy Governor Jon Nicolaisen speaks.
Currency Titles:
EUR/USD stays virtually unchanged
GBP/JPY remains elevated
AUD/USD still ranging
Gold finds support at 1222
WTI rebounds from near the 79.40 line.
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Currencies Text:
EUR/USD moved in a consolidative mode on Monday, remaining near the 50-period moving average and the 1.2710 (R1) resistance hurdle. Looking at our momentum studies, I see that the RSI remains above its 50 line, while the MACD, already above its trigger, appears willing to emerge above its zero line. Taking these signs into account, I would stay watchful of further upside, perhaps for a test near the lower line of the black channel, or near the 1.2840 (R2) barrier, which happens to lie marginally below the 23.6% retracement level of the 8th of May - 3rd of October downtrend. However, since the possibility for a lower high still exist, I will retain the view that EUR/USD is likely to be resuming the prior downtrend and that the recovery from 1.2500 (S2) probably ended near the 200-period moving average. As a result, I would prefer to stay to the sidelines for now. I would wait for a dip below the 1.2600 (S1) hurdle to reaffirm the case. Such a break could open the way for another test of the psychological barrier of 1.2500 (S2), which happens to be the 76.4% retracement level of the July 2012- May 2014 major advance.
• Support: 1.2600 (S1), 1.2500 (S2), 1.2465 (S3)
• Resistance: 1.2710 (R1), 1.2840 (R2), 1.2900 (R3)
GBP/JPY moved in a quiet mode yesterday, staying above the 173.00 (S1) support line and above the 200-period moving average. As long as the price structure is higher highs and higher lows, I would consider the near-term bias to be to the upside and I would expect extensions towards the key resistance line of 175.00 (R1). Both our momentum studies lie within their bullish territories, but the MACD just crossed below its trigger line. Thus, I cannot rule out a pullback before the bulls pull the trigger again, perhaps for a test near the support line of 173.00 (S1). On the daily chart, the 14-day RSI moved above its 50 line, while the daily MACD has bottomed and crossed above its trigger. These momentum signs support the near-term positive tone, and increase the likelihood for further up legs in the close future.
• Support: 173.00 (S1), 171.00 (S2), 170.15 (S3)
• Resistance: 175.00 (R1), 176.60 (R2), 178.00 (R3)
AUD/USD moved higher yesterday to challenge again the resistance of 0.8830 (R1). Nevertheless, the pair kept its trendless mode. The rate remains within a sideways path between the 0.8640 (S2) support obstacle and the resistance of 0.8900 (R2). As a result, I would hold my “wait and see” approach and wait for the pair to exit the aforementioned range. On the daily chart, the 14-day RSI moved higher and seems ready to challenge its 50 line any time soon, while the MACD remains above its trigger line pointing up. However, the absence of any bullish trend reversal signals from the price action give me additional reasons to stay flat.
• Support: 0.8700 (S1), 0.8640 (S2), 0.8565 (S3)
• Resistance: 0.8830 (R1), 0.8900 (R2), 0.9000 (R3)
Gold moved slightly lower yesterday to touch our support barrier of 1222 (S1). As long as the price remains below the 1235 (R1) obstacle, I would hold the view that the short-term bias remains to the downside. A clear fall below the 1222 (S1) support is likely to trigger extensions towards the next hurdle, at 1205 (S2), defined by the low of the 8th of October. On the daily chart, the 14-day RSI moved below its 50 line, while the daily MACD has topped marginally above its zero line, turned negative and appears willing to move below its trigger line in the close future. These momentum studies designate bearish momentum and amplify the case for further declines.
• Support: 1222 (S1), 1205 (S2), 1183 (S3)
• Resistance: 1235 (R1), 1255 (R2), 1260 (R3)
WTI tumbled on Monday falling below the psychological line of 80.00 (S1). However, the price touched our next support at 79.40 (S2) and rebounded strongly to trade back above 80.00 (S1). As a result I would maintain my neutral approach and I will repeat that I would prefer to see a dip below 79.40 (S2), before getting more confident on the downside. Such a break would confirm a forthcoming lower low on the daily chart and could flip the bias back to the downside in my view. Moreover, the 14-day RSI moved higher after exiting its oversold territory, while the daily MACD has bottomed and appears willing to cross above its trigger any time soon. These momentum signs give me extra reasons to remain on the sidelines, at least for now.
• Support: 80.00 (S1), 79.40 (S2), 79.00 (S3)
• Resistance: 82.40 (R1), 83.50 (R2), 85.00 (R3)
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Market Analysis 29/10/14
Language English
To QE or not to QE…Pre-FOMC uncertainty dominates the market The highlight of the day will be the FOMC rate decision, where the Committee is widely expected to confirm the end of its QE3 program. Since there is no press conference following the rate decision and the Fed’s economic projections will not be updated, not many changes are expected in the October FOMC statement. The main reason for this is that without a press conference it will be difficult to explain some of the changes, thus the Committee may choose the December meeting to reexamine more comprehensively the forward guidance language. It will be interesting to see if the closely watched phrase of keeping rates near zero for a “considerable time” will remain or if it could be altered to become something more “dependent on economic conditions”. While the FOMC isn’t likely to delay the end of QE3, comments by St. Louis Fed President James Bullard that the Fed should consider continuing with its bond-buying program, somewhat increased the uncertainty over the final outcome.
Our studies show that people wanting to take a view on the FOMC should do it in USD/JPY, not EUR/USD. USD/JPY has been more volatile than usual on FOMC days this year, whereas EUR/USD and GBP/USD have seen only average ranges. Nevertheless, due to the significance of today’s meeting we might see more movement than usual.
Later near the US closing session we have another monetary policy decision. The Reserve Bank of New Zealand meets to decide on its key interest rates. The Bank is anticipated to leave its policy rate unchanged at 3.5% and Governor Graeme Wheeler could reiterate the view that the exchange rate has yet to adjust materially to the lower commodity prices and that its current level remains “unjustified and unsustainable”. If the statement accompanying the decision has a more dovish tone and focuses on the low Q3 inflation rate released last week, we could see NZD weaken.
With no major economic releases overnight, things were a bit calm for the major currencies. The only noteworthy indicator we had was Japan’s preliminary industrial production, which rose 2.7% mom in September, a turnaround from -1.9% mom in August. This indicator’s percentage change has been switching from positive to negative since February, failing however to break above 1% mom. Nevertheless, the rise above that level had no major impact on JPY.
As for today’s economic indicators: French consumer confidence for October is expected to remain unchanged from the previous month.
In Sweden, the economic tendency survey for October is forecast to decline, adding to the growing body of evidence that the economy is weakening. SEK declined sharply following yesterday’s rate decision and is set to come under increasing pressure given the decline in the survey.
In Norway, the AKU unemployment rate for August is anticipated to increase, while retail sales excluding sales of motor vehicles for September are forecast to accelerate. The market will probably focus on the employment figure, which could prove NOK-negative.
In the UK, mortgage approvals for September are forecast to have declined somewhat.
As for the speakers, Norges Bank Deputy Governor Jon Nicolaisen speaks and Bank of Canada Governor Stephen Poloz appears before the Senate Committee.
Currency Titles:
EUR/USD breaks above 1.2710
USD/JPY marginally below 108.35
Could GBP/USD break above 1.6200?
Gold moves sideways
WTI continues higher
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EUR/USD edged higher on Tuesday after the US durable goods orders for September disappointed and broke above the resistance (turned into support line) of 1.2710 (S1). Looking at our momentum studies, I see that the RSI remains above its 50 line, while the MACD, already above its trigger, obtained a positive sign. Taking these signs into account, I would stay watchful of further upside, perhaps for a test near the lower line of the black channel, or near the 1.2840 (R1) barrier, which happens to lie marginally below the 23.6% retracement level of the 8th of May - 3rd of October downtrend. However, since the possibility for a lower high still exist, I will retain the view that EUR/USD could be resuming the prior downtrend and that the recovery from 1.2500 (S3) probably ended near the 200-period moving average. As a result, I would prefer to maintain my “wait and see” approach, especially ahead of the FOMC decision later in the day. I would wait for a dip below the 1.2600 (S2) hurdle to reaffirm the case. Such a break could open the way for another test of the psychological barrier of 1.2500 (S3), which happens to be the 76.4% retracement level of the July 2012- May 2014 major advance.
• Support: 1.2710 (S1), 1.2600 (S2), 1.2500 (S3)
• Resistance: 1.2840 (R1), 1.2900 (R2), 1.3000 (R3)
USD/JPY moved higher yesterday, but the advance was halted marginally below the 108.35 (R1) resistance line, near the 61.8% retracement level of the 1st - 15th October down move. The price structure remains higher highs and higher lows within the purple upside channel and this keeps the short-term picture positive. However, I would wait for a break above the 108.35 (R1) to signal a forthcoming higher high and the continuation of the short-term uptrend. Such a move is likely to pull the trigger for a run at the next resistance at 109.25 (R2). The RSI moved higher after finding support near its 50 line, while the MACD, already positive appears willing to move above its trigger line in the close future. On the daily chart, the 14-day RSI remains above its 50 line, while the MACD bottomed, turned positive and crossed above its signal line. These momentum signs support the scenario that the retracement from the 110.00 zone probably ended near 105.20 and that further upside could be expected.
• Support: 107.40 (S1), 106.25 (S2), 105.75 (S3)
• Resistance: 108.35 (R1), 109.25 (R2), 110.00 (R3)
GBP/USD moved higher and tried to move above the neckline of a possible inverted Head and Shoulders formation identified on the 4-hour chart. However, the advance was halted fractionally below the 200-period moving average. This reaffirms my choice to wait for a move above the 1.6200 (R1) hurdle to confirm the completion of the pattern. A clear and decisive break above that hurdle could trigger extensions towards the resistance of 1.6340 (R2) at first stage. Moreover, the positive divergence between our short-term momentum studies and the price action is still in effect, while both the indicators remain within their bullish zones. On the daily chart, the rate remains above the upper bound of a falling wedge formation. This is another technical sign that we are likely to experience further upside legs in the near future. Moreover, I see positive divergence between the daily momentum studies and the price action as well. However, I will retain the view that as long as Cable remains below the 80-day exponential moving average, the overall trend remains to the downside. I would see any possible near term advances as a corrective move of the longer-term down path.
• Support: 1.6000 (S1), 1.5950 (S2), 1.5870 (S3)
• Resistance: 1.6200 (R1), 1.6340 (R2), 1.6415 (R3)
Gold moved sideways yesterday, remaining between the support line of 1222 (S1) and the resistance of 1235 (R1). Although the metal remains capped by the 1235 (R1) barrier and both the 50- and the 200- period moving averages, looking at our short-term oscillators, I would prefer to take the sidelines for now. The RSI moved higher after finding support marginally above its 30 line, while the MACD, although negative, has bottomed and crossed above its trigger line. A dip below the 1222 (S1) line is needed to turn the bias back to the downside. Such a break could open the way for the 1205 (S2) zone. On the upside, a clear move above the 1235 (R1) line could trigger bullish extensions for another test at 1255 (R2), the high of the 21st of October.
• Support: 1222 (S1), 1205 (S2), 1183 (S3)
• Resistance: 1235 (R1), 1255 (R2), 1260 (R3)
WTI continued higher yesterday after rebounding from our 79.40 (S2) support line on Monday. I would maintain my neutral approach and I will repeat that I would prefer to see a dip below 79.40 (S2), before getting more confident on the downside. My choice to stand aside is also supported by the positive divergence between both our short-term oscillators and the price action. On the upside, I believe that a move above 83.50 (R2) is needed to flip the short-term outlook positive. In the bigger picture, although I still see a downtrend structure, the 14-day RSI exited its oversold field and moved higher, while the MACD, although below zero, has crossed above its trigger line. These momentum signs give me additional reasons to remain neutral, at least for now.
• Support: 80.00 (S1), 79.40 (S2), 79.00 (S3)
• Resistance: 82.40 (R1), 83.50 (R2), 85.00 (R3)
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Market Analysis 30/10/14
Language English
The dollar surged after a slightly hawkish statement The Federal Reserve officially announced an end to its QE3 program, as was widely expected, and expressed confidence that the US recovery remained on a stable path. In the statement following the two-day meeting, the Fed dropped the characterization of the US labor market slack as “significant” and appeared confident in the economy’s prospects. The Committee retained however the phrase to keep interest rates near zero for a “considerable time”, following the end of its asset purchase program this month. They noted though, that this should happen especially if projected inflation continues to run below the Fed’s 2% target. Nevertheless, the Committee suggested that if incoming information indicates faster progress toward the Fed’s employment and inflation objectives, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.
The FOMC statement strengthened the greenback against all of its major peers and pushed the DXY index to an almost four-week high. I believe that the dollar probably ended its corrective phase and following the positive statement it should regain its glamour boosted by the relative strength of the US economy and that the policy divergence driving USD strength still exists.
The USD gained the most against the New Zealand dollar, which tumbled after the Reserve Bank of New Zealand kept its official interest rate at 3.5%. Yet, the Bank pointed to remain on hold before considering any changes. In the statement accompanying the decision, Governor Graeme Wheeler removed the phrase “we expect some further policy tightening will be necessary”, which gave no indication when the Bank might consider raising rates again. This pushed expectations for the next rate hike out to late next year. The RBNZ Governor repeated, that high NZD remained "unjustified and unsustainable". Bearing this in mind, I would expect the “on-hold” stance of the RBNZ to weigh on the Kiwi, especially against its US counterpart.
As for today’s economic indicators, the preliminary German CPI for October is forecast to accelerate to +0.9% yoy, from +0.8% in September. As usual the drama will start several hours earlier when the CPI for Saxony is released ahead of the country’s headline CPI. Market consensus of a rise in the inflation rate could strengthen somewhat the EUR. The country’s unemployment rate for October is also coming out. In Eurozone, final consumer confidence for October is anticipated to remain unchanged from its September’s print.
In the UK, the Nationwide house price index for October is coming out.
From the US, we have the 1st estimate of GDP for Q3 which is expected to show a rise of +3.0% qoq SAAR, down from +4.6% qoq SAAR in Q2. The 1st estimate of the core personal consumption index, the Fed’s favorite inflation measure, is forecast to have declined from the Fed’s 2% target. The softer growth could be offset by the lower fuel prices and the US could stay on a positive path, although at a slower pace. On the other hand, the ease in inflation rate could add to worries over the US recovery. Initial jobless claims for the week ended Oct.25 are also due out.
In New Zealand, building permits for September are forecast to accelerate, following a stalled activity in the previous month.
As for speakers: Fed Chair Janet Yellen speaks but she is not expected to take any questions and ECB Governor Luis Maria Linde also speaks.
Currency Titles:
EUR/USD tumbles as Fed ends QE
EUR/JPY pulls back
NZD/USD collapses after hitting 0.7975
Gold dips below 1222
WTI slightly higher
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EUR/USD plunged on Wednesday after the Federal Reserve ended bond purchases and said that there has been a substantial improvement in the US labor market. The pair collapsed after finding resistance near 1.2765 (R1) and confirmed a lower high on the 4-hour chart. Today, during the early European morning, EUR/USD is trading slightly above our support line of 1.2600 (S1). As a result I will stick to the view that the pair could be resuming the prior downtrend and that the recovery from 1.2500 (S2), probably ended near the 1.2840 (R1) barrier, which happens to lie marginally below the 23.6% retracement level of the 8th of May - 3rd of October downtrend. I would wait for a dip below the 1.2600 (S1) hurdle to reaffirm the case. Such a break could open the way for another test of the psychological barrier of 1.2500 (S2), which happens to be the 76.4% retracement level of the July 2012- May 2014 major advance.
• Support: 1.2600 (S1), 1.2500 (S2), 1.2465 (S3).
• Resistance: 1.2765 (R1), 1.2840 (R2), 1.2900 (R3).
EUR/JPY pulled back yesterday after finding resistance near our 137.85 (R1) obstacle. Since the rate is still trading above both the 50- and the 200-period moving averages, I will still see a short-term uptrend. I would expect a clear and decisive break above the 137.85 (R1) to pull the trigger for another leg higher. Such a move is likely to target our next resistance area, near the 138.80 (R2) line. However, taking a look at our short-term oscillators, I would be watchful of further pullback before the bulls take control again. The RSI declined after hitting its 70 line, while the MACD topped and crossed below its trigger line.
• Support: 137.00 (S1), 136.20 (S2), 135.20 (S3).
• Resistance: 137.85 (R1), 138.80 (R2), 139.20 (R3).
NZD/USD also collapsed on the Fed’s optimistic tone. The pair fell after finding resistance at 0.7975 (R2), near the 200-period moving average. Today, during the early European morning, the pair is testing our support line of 0.7785 (S1), where a clear break is likely to target once again the key line of 0.7710 (S2), determined by the low of the 6th of October and the low of the 29th of September. Both our momentum studies support the notion. The RSI moved lower and appears willing to cross below its 30 line, while the MACD fell below both its zero and signal lines, designating accelerating bullish momentum. On the daily chart, the 14-day RSI moved lower after finding resistance near its 50 line, while the MACD, already negative, appears willing to dip below its trigger. These momentum signs, alongside the fact that the rate is still trading below both the 50- and the 200-period moving averages, still point to a downtrend. However, I prefer to see a clear close below 0.7680 (S3), the low of June 2013 before gaining more confidence in the overall downtrend.
• Support: 0.7785 (S1), 0.7710 (S2), 0.7680 (S3).
• Resistance: 0.7875 (R1), 0.7975 (R2), 0.8035 (R3).
Gold also fell sharply after the FOMC decision. The metal dipped below our support (turned into resistance) line of 1222 (R1), but found support slightly above the 1205 (S1) hurdle. The dipped below the 1222 (R1) barrier flipped the picture negative again in my view, and if the bears manage to break the 1205 (S1) line, I would expect them to trigger extensions for another test at the critical support zone of 1180/83, defined by the low of the 6th of October 2014 and the lows of June and December 2013. The RSI is back within its oversold field, pointing down, while the MACD, already negative, dipped again below its signal line. This confirms yesterday’s negative momentum and amplifies the case for further declines in the close future.
• Support: 1205 (S1), 1183 (S2), 1180 (S3).
• Resistance: 1222 (R1), 1235 (R2), 1255 (R3).
WTI continued higher on Wednesday, but remained below the resistance line of 83.50 (R1). I would maintain my neutral approach and I will repeat that a move above 83.50 (R2) is needed to flip the short-term outlook positive in my view. On the other hand, I would prefer to see a dip below 79.40 (S2), before getting more confident on the downside. My choice to stand aside is also supported by the fact that I still see positive divergence between both our short-term oscillators and the price action. In the bigger picture, although I still see a downtrend structure, the 14-day RSI exited its oversold field and moved higher, while the MACD, although below zero, has crossed above its trigger line. These momentum signs give me additional reasons to remain neutral, at least for now.
• Support: 80.00 (S1), 79.40 (S2), 79.00 (S3).
• Resistance: 83.50 (R1), 85.00 (R2), 86.30 (R3).
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Market Analysis 31/10/14
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Bank of Japan expands its monetary stimulusThe Bank unexpectedly eased its monetary policy and said that it will conduct money market operations to increase the country’s monetary base to JPY 80 trillion per year from JPY 70 trillion targeted previously. In addition, it will increase its purchases of government debt and extend the average duration to about 7-10 years. The JPY plunged to a six-year low against the dollar while Nikkei surged almost 3% following the announcement. The additional stimulus measures introduced from the Bank are due to worries over weak growth in consumer prices. The move from BoJ is opposite to the Fed’s end of QE this Wednesday, and it could keep JPY under increased selling pressure. On top of that, data released earlier showed that Japan’s unemployment rate ticked up and consumer prices slowed for a second consecutive month, adding to evidence that the BoJ is likely to miss its inflation target.
Elsewhere, the New Zealand dollar strengthened after Chinese authorities lifted a temporary import ban from the New Zealand’s biggest dairy exporter. Following the sharp decline witnessed on Wednesday, high-yielding currencies have regained some lost ground regardless of their central banks attempt to push the currencies down.
As for today’s indicators, German retail sales for September are forecast to fall on a mom basis adding to concerns that the Eurozone’s strongest economy is weakening. Eurozone’s unemployment rate for September is also coming out along with the bloc’s CPI estimate for October. With less than a week before the ECB meeting, the rise in the CPI rate may be a sign that the stimulative measures announced by the ECB in June and September are starting to have some positive impact, although it will clearly take time for all the measures to be enacted and take full effect. On the other hand, the decline in the German inflation rate on Thursday increases the likelihood for a possible below expectations reading in the region’s CPI estimate. This could add to fears that deflation risk in Eurozone hasn’t gone away. What’s more of a concern, is that the ECB’s stress test results released on Sunday did not consider a deflation scenario and the region’s risk of falling into deflation could undermine those results.
In Norway, we get the official unemployment rate for October. The forecast is for the rate to decline a bit, in contrast with the AKU unemployment rate released earlier this week. Following the increase in the AKU unemployment rate and the drop in September’s retail sales, NOK has been under increased selling pressure. If the official unemployment rate comes in line or better than expectations this could strengthen the Norwegian krone somewhat before the bears prevail again.
From Canada, the GDP for August is expected to have remained unchanged from the previous month. This is likely to signal that the economy is struggling for a second successive month and a possible contraction could weigh on the Canadian dollar.
In the US, we get the personal income and personal spending for September. Personal income is expected to rise at the same pace as in August, while personal spending is anticipated to decelerate from the previous month. The nation’s yoy rate of the PCE deflator and core PCE are forecast to remain unchanged, in contrast with the slowdown in the 1st estimate of Q3 core PCE in Thursday’s GDP figures. The Chicago Purchasing managers’ index and the final University of Michigan consumer sentiment, both for October are also due out.
As for the speakers, ECB Governor Luis Maria Linde speaks.
Currency Titles:
EUR/USD stays virtually unchanged
GBP/JPY surges above 175.00
EUR/GBP is heading lower
Gold breaks below 1205
WTI remains trendless
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EUR/USD moved below the 1.2600 line, but the dip lasted only several hours. Then, the pair rebounded somewhat to find resistance at 1.2635 (R1). However, I will stick to the view that the recovery from 1.2500 (S1) probably ended near 1.2840 (S3), which lies near the 23.6% retracement level of the 8th of May – 3rd of October decline, and that the pair could be resuming its prior downtrend. I still expect the bears to pull the trigger for another test of the psychological barrier of 1.2500 (S1), which happens to be the 76.4% retracement level of the July 2012 – May 2014 major advance. Our daily momentum studies support the notion. The 14-day RSI moved lower after finding resistance marginally below its 50 line, while the MACD, already within its negative territory, appears willing to cross below its trigger line.
• Support: 1.2500 (S1), 1.2465 (S2), 1.2400 (S3)
• Resistance: 1.2635 (R1), 1.2765 (R2), 1.2840 (R3)
GBP/JPY surged during the early European morning, breaking above the psychological resistance (turned into support line) of 175.00 (S1). I would now expect the rate to challenge our resistance hurdle of 176.60 (R1) any time soon. If the longs are strong enough to overcome that obstacle, we are likely to experience further advances, perhaps towards our next resistance at 178.00 (R2). Shifting my attention to our momentum oscillators, I see that the RSI entered its overbought territory and is pointing up, while the MACD, already positive, just crossed above its trigger line. This designates accelerating upside speed and magnifies the case for further advances in the close future.
• Support: 175.00 (S1), 173.00 (S2), 171.00 (S3)
• Resistance: 176.60 (R1), 178.00 (R2), 178.80 (R3)
EUR/GBP moved lower yesterday, but remained above the support line of 0.7850 (S1). In my view, as long as the resistance of 0.7915 (R1) holds, the short-term bias remains to the downside and I would expect the rate to reach the support barrier of 0.7850 (S1) in the close future. A clear and decisive break below that obstacle is likely to see scope for extensions, towards our next support at 0.7820 (S2). Moreover, our momentum studies maintain a negative tone. The MACD crossed below both its zero and trigger lines, while the RSI moved lower after finding resistance near its 50 barrier. As for the broader trend, on the daily chart the pair is trading below the longer-term black downtrend line (taken from back at the high of the 1st of August), keeping the overall technical picture negative.
• Support: 0.7850 (S1), 0.7820 (S2), 0.7785 (S3)
• Resistance: 0.7915 (R1), 0.7940 (R2), 0.7980 (R3)
Gold continued plummeting on Thursday, reaching and breaking below the support (turned into resistance) line of 1205 (R1). I would now expect sellers to trigger extensions for another test at the critical support zone of 1180/83, defined by the low of the 6th of October 2014 and the lows of June and December 2013. The MACD remains below both its zero and trigger lines, designating strong bearish momentum and supporting the negative short-term outlook of the precious metal. However, the RSI shows signs of bottoming within its oversold territory, thus I would be careful of a possible upside corrective move before the next leg down.
• Support: 1183 (S1), 1180 (S2), 1156 (S3)
• Resistance: 1205 (R1), 1222 (R2), 1235 (R3)
WTI declined on Thursday, but remained within its sideways path, between the support barrier of 79.40 (S2) and the resistance line of 83.50 (R1). Hence, I would maintain my neutral approach and I will repeat that a move above 83.50 (R2) is needed to flip the short-term outlook positive in my view. On the other hand, I would prefer to see a dip below 79.40 (S2), before getting more confident on the downside. In the bigger picture, although I still see a downtrend structure, the 14-day RSI exited its oversold field and moved higher, while the MACD, although below zero, stands above its signal line. These momentum signs give me additional reasons to remain neutral, at least for now.
• Support: 80.00 (S1), 79.40 (S2), 79.00 (S3)
• Resistance: 83.50 (R1), 85.00 (R2), 86.30 (R3)
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Market Analysis 03/11/14
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Aussie and Kiwi plunge Australian dollar and New Zealand dollar opened the Asian session with an approximately 0.50% and 0.20% gap down respectively. The drop came after data during the weekend showed that China’s manufacturing activity fell to its lowest level since May. The nation’s official Manufacturing PMI declined to 50.8 in October from 51.1 in September, below expectations of an unchanged reading. Even though the index remained above the 50 level, which indicates expansion, the decline in October’s figure suggests that further measures are needed to boost China’s economic growth.
The greenback already boosted by the relative strength of the US economy, remained elevated against its major peers during the Asian time. Based on the overall appetite for dollars and the strong fundamentals, I will maintain my longer-term USD bullish view.
As for today’s economic indicators, Monday is a (final) PMI day in Europe. It starts with the manufacturing PMI figures for October from several European countries, including the UK, and the final figure for the Eurozone as a whole. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. The UK manufacturing PMI is estimated to slightly decline to 51.4 from 51.6.
From Canada, the RBC Manufacturing PMI for October is expected with no forecast available.
In the US, the final Markit manufacturing PMI and the ISM manufacturing index both for October are also to be released.
We have two ECB and two Fed speakers on Monday’s agenda: ECB Governing Council member Carlos Costa, ECB Governing Council member Ewald Nowotny, Chicago Fed President Charles Evans and Dallas Fed President Richard Fisher.
As for the rest of the week, many Central Banks hold their policy meetings. The spotlight will be on the ECB policy meeting on Thursday. The Bank has signaled that they will probably take time to assess the impact of stimulus measures announced in the recent months, especially after the first estimate of the region’s CPI showed a rise in the inflation rate.
On Tuesday, the Reserve Bank of Australia is expected to keep rates unchanged. Last time, the Bank seemed less concerned about the level of the currency than it was before and since then the currency rate gyrated around 0.8800 against the dollar. It remains to be seen if they retain their stance. We also wait to see if they say anything about the currency beyond its usual comment that it “remains above most estimates of its fundamental value”. In New Zealand, the Q3 unemployment rate is anticipated to decline a bit, while the participation rate is expected to increase and average hourly earnings are forecast to accelerate. The positive labor market data could prove NZD supportive.
On Wednesday, the final manufacturing PMIs for the countries we got the preliminary figures for on Monday are coming out. In the US, we have the ADP employment report two days ahead of the NFP release. The ADP report is expected to show that the number of jobs gained in October increased from September.
On Thursday, the Bank of Japan releases its Oct. 6-7 meeting minutes. However, these are not the minutes from the most recent meeting and following the announcement of further stimulus on Friday, they will probably have little importance. Besides ECB, Bank of England meets to decide on its policy rate. The BoE is unlikely to change policy and therefore the impact on the market as usual should be minimal. The minutes of the meeting however should make interesting reading when they are released on 12th of November.
Finally on Friday, the major event will be the US non-farm payrolls for October. The market consensus is for a rise of 235k, down from the unexpected increase of 248k in September. At the same time the US unemployment rate for October is forecast to remain unchanged at 5.9%, while average hourly earnings for the same month are expected to accelerate on a yoy basis. The strong employment data are consistent with the FOMC report saying that the underutilization in the labor market is "gradually diminishing”. Canada’s unemployment rate for October is also coming out and net change in employment is expected to switch back to negative again.
Currency Titles:
EUR/USD dips below 1.2500
USD/JPY breaks above the psychological line of 110.00
GBP/USD in a consolidative mode
Gold breaks below the strong barrier of 1180
WTI still trendless
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EUR/USD continued its plummet on Friday, reaching and falling below the psychological line of 1.2500, which happens to be the 76.4% retracement level of the July 2012- May 2014 major advance. Today, during the Asian morning, the pair found support at 1.2435 (S1). A dip below that line could challenge our next support of 1.2400 (S2). In my view, a clear break of the latter level is the move that could trigger another strong leg down, perhaps towards the 1.2300 (S3) area, defined by the low of the 20th of August 2012. As for the bigger picture, the dip below the critical line of 1.2500 (R1) confirmed a forthcoming lower low on the daily chart and signaled the continuation of the longer-term downtrend.
• Support: 1.2435 (S1), 1.2400 (S2), 1.2300 (S3).
• Resistance: 1.2500 (R1), 1.2635 (R2), 1.2700 (R3).
USD/JPY surged after the Bank of Japan expanded its monetary stimulus, breaking above the psychological zone of 110.00. The pair gapped higher today, confirming that the short-term bias is still positive. In my view, the bulls could continue driving the pair higher, probably towards the highs of December 2007, at 114.60 (R1) at first stage. On the daily chart, the rally above 110.00 (S3) confirmed a forthcoming higher peak, something that keeps the overall path of USD/JPY to the upside. Furthermore, the daily MACD rebounded from marginally below zero, turned positive, and crossed above its signal line, while the 14-day RSI surged above its 70 line and is still pointing up. This designates accelerating bullish momentum in my view and magnifies the case for further advances.
• Support: 112.25 (S1), 110.70 (S2), 110.00 (S3).
• Resistance: 114. 60 (R1), 115.00 (R2), 116.00 (R3).
GBP/USD moved in a consolidative manner, staying near the support barrier of 1.5950 (S1). A break below that line could target the low of the 15th of October at 1.5875 (S2). However, bearing in mind our momentum signs I would prefer to take the sidelines as far as the short-term picture is concerned. The RSI moved somewhat higher after finding support at its 30 line, while the MACD, although negative, shows signs of bottoming and could cross above its signal line any time soon. As for the broader trend, I will maintain the view that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative. But I would prefer to see a break below 1.5875 before getting again confident on the downside. Such a dip would signal a forthcoming lower low on the daily chart and could trigger extensions towards the resistance-turned-into support barrier of 1.5720 (S3), defined by the high of the 21st of August 2013. Moreover, I still see positive divergence between our daily oscillators and the price action. This confirms my view to wait for a move below 1. 5875 (S2) to signal the continuation of the down path.
• Support: 1.5950 (S1), 1.5875 (S2), 1.5720 (S3).
• Resistance: 1.6000 (R1), 1.6200 (R2), 1.6340 (R3).
Gold continued falling on Friday, reaching and breaking below the key area of 1180 (R1). It is worth noting that the last time we saw the precious metal trading below that level was back in July 2010. However, the decline was halted marginally above 1160 (S1), which coincides with the 61.8% retracement level of the October 2010 - September 2011 advance. In my view, the dip below 1180 (R1) strengthens the likelihood that the price could go even lower. A clear violation of the 1160 (S1) barrier could set the stage for extensions towards the low of the 19th of April 2010, at 1125 (S2). Our daily momentum studies support the notion. The 14-day RSI dipped below its 30 line and is pointing down, while the daily MACD lies below both its zero and signal lines, confirming the recent strong negative momentum. However, back on the 4-hour chart, I see that the RSI lies within its oversold territory and could move above its 30 line in the close future. Hence, I would be watchful of a possible upside corrective wave before the bears pull the trigger again.
• Support: 1160 (S1), 1125 (S2), 1100 (S3).
• Resistance: 1180 (R1), 1205 (R2), 1222 (R3).
WTI declined on Friday, but found support slightly above the 79.40 (S2) barrier. As long as WTI is trading between that support obstacle and the resistance line of 83.50 (R1), I would maintain my flat approach. I still prefer to see a dip below 79.40 (S2), before getting again confident on the downside. On the other hand, a move above 83.50 (R1) is needed to flip the short-term outlook positive in my view. In the bigger picture, although I still see a downtrend structure, the 14-day RSI remains above its 30 line, while the MACD, although below zero, stands above its signal line. These momentum signs give me additional reasons to remain neutral, at least for now.
• Support: 80.00 (S1), 79.40 (S2), 79.00 (S3).
• Resistance: 83.50 (R1), 85.00 (R2), 86.30 (R3).
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Market Analysis 04/11/14
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RBA remains on hold The Reserve Bank of Australia kept the official cash rate unchanged, as was universally expected, and went back to saying that the exchange rate “remains above most estimates of its fundamental value.” This month the members decided to drop the line that the rate “remains high by historical standards,” as it had said several times before. As in the statement accompanying the decision, the Bank said that recent data on prices confirmed that inflation is running between their 2%-3% target and the Board members showed confidence that this is likely to continue. On the other hand, they kept their concerns over the labor market which has some time yet before it declines consistently. AUD/USD strengthened following the decision, most likely due to the confidence over the inflation rate but continued gyrating around 0.8800. As for the country’s data releases, trade deficit widened more-than-expected in September while retail sales for the same month accelerated beating market estimates. The mixed data caused AUD/USD to dip briefly at the release but gained in the following minutes to trade unchanged until the rate decision. (see the technical below)
With no other major economic releases overnight, USD kept its strength against most of its peers. It was lower only against EUR, CHF and GBP.
Elsewhere, oil prices plunged after reports showed that Saudi Arabia lowered its export prices for the US. The price cut can be seen as an effort from the Kingdom to preserve market share in the US, where it has fallen recently and to compete with the US shale production. The New York benchmark oil price, West Texas Intermediate for December delivery, dropped to trade around USD 78.30 a barrel, while European benchmark Brent oil for December dropped approximately to USD 84.30 a barrel.
As for today’s indicators, Eurozone’s PPI for September is expected to fall at an accelerating pace indicating that the deflation risk persists in the region.
From the UK, the construction PMI for October is expected to decline.
In the US, we get factory orders and trade balance, both for September.
In New Zealand, the Q3 unemployment rate is anticipated to decline somewhat, while the participation rate is expected to increase and average hourly earnings are forecast to accelerate. Last week, the RBNZ remained on hold without any indication on when they may raise rates. This together with the decline of the inflation rate to the lower boundary of the Bank’s range target of 1%-3% over the medium term, kept Kiwi under increased selling pressure. The positive labor market data however and the fact that the pair is trading near a strong support level could push NZD/USD up before the bears prevail again.
We have several speakers on Tuesday’s agenda. ECB Coeure, ECB Governing Council member Carlos Costa, Riksbank Deputy Governor Martin Floden speak, while Bank of England Deputy Governors Jon Cunliffe and Andrew Bailey are questioned by the Lords panel.
Currency Titles:
EUR/USD rebounds back above 1.2500
GBP/JPY pauses at 182.50
AUD/USD stays within its sideways path
Gold in a quiet mode
WTI breaks below 79.40
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Currencies Text:
EUR/USD moved higher on Monday to trade back above the 1.2500 line. Taking into account our momentum signs, I would stay watchful that the rebound may continue. The RSI exited its oversold zone and moved higher, while the MACD has bottomed and seems willing to cross above its trigger. However, since the possibility for a lower high still exists, I would stick to the view that the near-term outlook stays negative. I would treat this rebound or any extensions of it as a corrective wave before sellers take the reins again. I would expect a clear dip below the support of 1.2400 (S2) to trigger another strong leg down, perhaps towards the 1.2300 (S3) area, defined by the low of the 20th of August 2012. As for the broader trend, as long as the price structure is lower peaks and lower troughs below both the 50- and the 200-day moving averages, the overall trend remains to the downside in my view.
• Support: 1.2435 (S1), 1.2400 (S2), 1.2300 (S3).
• Resistance: 1.2550 (R1), 1.2635 (R2), 1.2700 (R3).
GBP/JPY continued its rally on Monday to reach and break above the psychological zone of 180.00 (S2). The surge found resistance at 182.50 (R1), where a clear upside break could trigger extensions towards the next psychological zone of 185.00 (R2). Nonetheless, checking our momentum oscillators, I would expect a short-term pullback before the next up leg. The RSI lies within its overbought territory and is pointing somewhat down, while the MACD has topped and could cross below its signal line in the near future. As for the bigger picture, the move above the high of the 19th of September, at 180.70 (S1), confirmed a higher high on the daily chart and this keeps the overall outlook of the pair positive.
• Support: 180.70 (S1), 180.00 (S2), 178.00 (S3).
• Resistance: 182.50 (R1), 185.00 (R2), 188.50 (R3).
AUD/USD moved lower yesterday, but after finding support near the 0.8640 (S1) hurdle, it rebounded somewhat. The rate remains within a sideways range between the 0.8640 (S1) support obstacle and the resistance of 0.8900 (R3). Our oscillators show that the pair could stay within this path for a bit longer. The RSI rebounded from slightly above its 30 line and is now pointing up, while the MACD, although negative, shows signs of bottoming and could move above its signal line soon. As a result, I will maintain my flat approach and I will prefer to wait for the pair to exit the sideways path.
• Support: 0.8640 (S1), 0.8565 (S2), 0.8500 (S3).
• Resistance: 0.8760 (R1), 0.8850 (R2), 0.8900 (R3).
Gold traded in a consolidative manner on Monday, remaining between the 1160 (S1) hurdle, which happens to be the 61.8% retracement level of the October 2008 - September 2011 major advance, and the key support-turned-into-resistance barrier of 1180 (R1). If the bears are strong enough to overcome the 1160 (S1) I would expect them to target the low of the 19th of April 2010, at 1125 (S2). I believe that as long as the 1180 line holds as a resistance, the outlook of the precious metal remains negative. However, bearing in mind our momentum signs, I would be watchful of a possible upside corrective wave before the bears pull the trigger again. The RSI appears willing to exit its oversold territory any time soon, while the MACD just crossed above its signal line.
• Support: 1160 (S1), 1125 (S2), 1100 (S3).
• Resistance: 1180 (R1), 1205 (R2), 1222 (R3).
WTI dipped below 79.40 (R1), the lower bound of the sideways range it’s been trading recently, as Saudi Arabia cut prices for crude exports to US customers. The fall found support near the 78.00 (S1) line, where a clear break could have larger bearish implications and perhaps pave the way towards the psychological zone of 75.00 (S2), defined by the lows of October 2011. The plummet below the 79.40 (R1) barrier confirmed a forthcoming lower low on the daily chart and turned the bias back to the downside in my view. Moreover, the 14-day RSI moved lower and appears willing to enter again its oversold field, while the daily MACD, already negative, has turned down and could cross below its signal line any time soon. This shows accelerating bearish momentum and magnifies the case for further declines in the close future.
• Support: 78.00 (S1), 75.00 (S2), 71.00 (S3).
• Resistance: 79.40 (R1), 81.00 (R2), 83.50 (R3).
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Market Analysis 05/11/14
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Euro advanced due to tensions within the ECB The euro strengthened on Tuesday following a report citing internal tensions within the European Central Bank. The Eurozone’s national central bankers plan to challenge the ECB President Mario Draghi at Thursday’s meeting, over his move to set a target for increasing the Bank’s balance sheet size, after the Governing Council agreed not to make any figure public. This left the market expecting limits on future ECB monetary policy and a balance sheet size target to be achieved. The euro advance could be attributed to the fact that the markets where pricing a large scale QE program, but after the reported tensions and disagreements within the ECB these expectations have been reduced.
What’s more, the reported tensions came after the European Commission slashed its Eurozone economic growth forecast. However, this had limited impact on the single currency as the market had already partly priced in the slower growth.
Elsewhere, the Bank of Japan Governor Haruhiko Kuroda who last week surprised the markets by expanding the Bank’s massive monetary stimulus program, said that the Bank is ready to do more to hit its inflation target. The Japanese yen weakened further following Governor’s comments on expectations that further measures could be taken if the Bank fails to reach its target.
In New Zealand unemployment rate fell to 5.4% in Q3, from 5.5% in Q2, the lowest level last seen in Q1 2009. At the same time, the participation rate rose to 69% in Q3 from 68.9% in Q2 and average hourly earnings accelerated to 1.4% qoq from 0.5% qoq. Given that the inflation rate remained unchanged at 0.3% qoq in Q3, this suggests that the real average earnings accelerated in Q3. This could add upward pressure on consumer prices in the coming months. NZD/USD surged following the strong employment data and broke our resistance level of 0.7800 and remained elevated during the Asian session. I believe that even though labor market seems to gain momentum, the Reserve Bank of New Zealand will need more evidence on the country’s economic condition to alter its on-hold stance.
As for today’s indicators, we get the final service-sector PMIs for October from the countries we got the manufacturing data for on Monday. As usual, the final forecasts from France, Germany and Eurozone are the same as the initial estimates, while the UK service-sector PMI is expected to have decreased slightly. The revisions in the final manufacturing PMIs on Monday, increase the possibilities that we could see revisions in the service-sector PMIs as well. Eurozone’s retail sales for September are also coming out and they are expected to have declined on a monthly basis, adding to the recent weak data coming from the bloc.
In the US, the most important indicator we get is the ADP employment report for October two days ahead of the NFP release. The ADP report is expected to show that the private sector gained slightly more jobs in October than it did last month. That would probably be USD-supportive. The final Markit service sector PMI and the ISM non-manufacturing index both for October are also to be released.
We have three Fed speakers on Wednesday’s agenda. Minneapolis Fed President Narayana Kocherlakota, Richmond Fed President Jeffrey Lacker and Boston Fed President Eric Rosengren also speak.
Currency Titles:
EUR/USD continues higher
EUR/JPY maintains the strong bullish momentum
GBP/USD stays near 1.6000
Gold stays above 1160
WTI dips below 78.00
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Currencies Text:
EUR/USD continued higher on Tuesday, confirming my concerns that the recovery from 1.2435 (S1) may continue. Checking our momentum studies, I cannot rule out further upside at the moment. The RSI just crossed above its 50 line, while the MACD lies above its trigger line and is pointing up. However, since the possibility for a lower high still exists, I still see the recent up leg as a corrective move. On the daily chart, the price structure remains lower peaks and lower troughs below both the 50- and the 200-day moving averages, and this keeps the overall downtrend intact. But, taking into account that I see positive divergence between our daily oscillators and the price action, I would prefer to sit on the sidelines for now and wait for momentum and price action to confirm each other.
• Support: 1.2435 (S1), 1.2400 (S2), 1.2300 (S3).
• Resistance: 1.2635 (R1), 1.2765 (R2), 1.2840 (R3).
EUR/JPY firmed up yesterday, violating the resistance (turned into support) line of 142.60 (S1). Today, during the early European morning, the rate is heading towards the highs of April, at 143.50 (R1), where a decisive upside break is likely to see scope for extensions towards the support-turned-into-resistance hurdle of 144.35 (R2), defined by the low of the 31st of December 2013. In the bigger picture, the break above the highs of the 19th of September confirmed a forthcoming higher high on the daily chart and this keeps the overall outlook of EUR/JPY to the upside. Shifting my attention at our daily momentum studies, I see that the 14-day RSI entered its overbought zone and is pointing up, while the daily MACD remains above both its zero and signal lines. These signs confirm the strong bullish sentiment towards the pair and support my view that we may see the rate higher in the close future.
• Support: 142.60 (S1), 141.70 (S2), 141.00 (S3).
• Resistance: 143.50 (R1), 144.35 (R2), 145.00 (R3).
GBP/USD moved somewhat higher, staying near 1.6000. The pair appears to be oscillating between the support line of 1.5950 (S1) and the resistance of 1.6040 (R1), thus I would prefer to keep my neutral stance as far as the short-term picture is concerned. . As for the broader trend, I will maintain the view that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative. But taking into account that I still see positive divergence between both the daily momentum indicators and the price action, I would stay mindful of an upside corrective phase before the next leg down. I would prefer to see a dip below 1.5875 before getting again confident on the downside. Such a dip is likely to confirm a forthcoming lower low and perhaps trigger extensions towards the resistance-turned-into support barrier of 1.5720 (S3), defined by the high of the 21st of August 2013.
• Support: 1.5950 (S1), 1.5875 (S2), 1.5720 (S3).
• Resistance: 1.6040 (R1), 1.6200 (R2), 1.6340 (R3).
Gold continued ranging, staying between the 1160 (S1) hurdle, which coincides with the 61.8% retracement level of the October 2008 - September 2011 major advance, and the key support-turned-into-resistance barrier of 1180 (R1). Today, during the early European morning, the metal moved lower somewhat and could challenge again the 1160 (S1) area any time soon. If the bears are strong enough to overcome that obstacle, I would expect them to target the low of the 19th of April 2010, at 1125 (S2). Although the MACD remains above its trigger line and is pointing up, the RSI found resistance near its 30 line, turned down and seems willing to stay a bit longer within its extreme zone. This adds to my view that we may see the yellow metal lower in the near future.
• Support: 1160 (S1), 1125 (S2), 1100 (S3).
• Resistance: 1180 (R1), 1205 (R2), 1222 (R3).
WTI continued tumbling on Tuesday, falling below the support (turned into resistance) hurdle of 78.00. However, WTI found support near 76.00 before rebounding somewhat. As long as the 79.40 (R2) line holds as a resistance, I would maintain the view that the price is likely to challenge the psychological zone of 75.00 (S2), defined by the lows of October 2010. On the daily chart, the price structure remains lower lows and lower highs below both the 50- and the 200- day moving averages, keeping the overall path to the downside. Moreover, the 14-day RSI dipped again within its oversold field, while the daily MACD, already negative, has turned down and fell below its signal line. This designates accelerating downside momentum and amplifies the case for further declines in the close future.
• Support: 76.00 (S1), 75.00 (S2), 71.00 (S3).
• Resistance: 78.00 (R1), 79.40 (R2), 81.00 (R3).
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