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Market Analysis 17/12/14
Language English
Market gripped by panic
Yesterday’s moves clearly smelled of panic in the markets. The nearly 20% drop in the ruble plus the huge moves in NOK (a nearly 7% move in EUR/NOK in two hours that was totally reversed in the next four hours) were not rational. However, the markets calmed down somewhat by the end of the US day and many of the bigger moves were reversed. USD/JPY for example went from a low of 115.57 to end the US day around 117.30, barely changed from where it had opened in Europe that morning. In such conditions, fundamentals go out the window and it all becomes a matter of market sentiment. The Russian central bank governor has ruled out capital controls, but that would seem to be the only way to keep the currency from depreciating further.
The dollar’s continued gains against the EM currencies spells trouble for the world economy. It’s been widely discussed how companies in many EM countries have raised money through dollar-denominated bonds in recent years. Every time the dollar moves up, their interest costs increase. This is likely to be a growing strain in many countries.
Oil fell further yesterday as the market continues to ignore all the bullish news and focus simply on the larger, longer-term supply/demand picture. Problems facing the market include: production in the US state of North Dakota has decreased, the number of idle oil rigs is increasing, Libya stopped loading crude at two ports due to fighting, and oil workers are striking in Nigeria. Eventually the panic should subside and we should start to see oil stabilize, which might bring some needed respite to other markets. However the technical show continued strong downward momentum (see below) and so I don’t look for this to happen today.
In the US, housing starts and building permits fell in November but the strong revision of the previous figures kept the overall trend consistent with an improving housing market. This signals that the housing market is supporting what appears to be growing strength in the broader economy. However, with all the excitement elsewhere in the world, economic news like this is not that relevant.
Today: FOMC meeting The highlight today will be the FOMC meeting. After the Committee ended its QE3 program at October’s meeting, expectations are now that they will change their stance and drop the “considerable time” phrase from their language, although not all FOMC members agree. If they do drop it, the market will debate the nuance of whatever they replace it with (if anything). (Just for the record, I do expect that they will replace it with a phrase that still indicates a delay before the first hike, but just less of a delay.) The Committee will also give new forecasts for the economy, inflation and interest rates, including the famous “dot plot” of Fed funds rate expectations.
Given the data we’ve had since the previous forecasts, I would expect the new growth forecasts to be revised up and the unemployment and inflation forecasts revised down. Despite the better growth outlook, the interest rate forecasts also may be revised down slightly because of lower inflationary pressures. That could offset some of the bullish implications and be consistent with current expectations of the first rate hike coming around the middle of the year. As a result there might not be that much impact on the markets at the end of the day. Although many investors are wondering if the current turmoil in the financial markets would encourage the Fed to delay rate hikes, officials have always said that they expect some volatility in markets, and the recent gyrations are not (yet) out of the ordinary, at least in the US. We will hear more when Fed Chair Yellen holds a press conference following the decision.
During the European day, Eurozone’s final CPI for November is expected to confirm the preliminary reading.
In the UK, we get the minutes from the latest BoE meeting. Once again the focus will be on the number and the names of the dissenters. At BoE’s November inflation report, Kristin Forbes, who is one of the Monetary Policy Committee's new members, suggested that wages may be starting to pick up and also that slack in the labor market could be lower than has been estimated. These views put her on the “hawkish” end of the scale and we wouldn’t be surprised if she joins the other two MPC members in voting for a rate hike anytime soon.
As for the indicators, the UK unemployment rate is expected to have declined to 5.9% in October from 6.0%, suggesting less slack in the labor market. Average weekly earnings are anticipated to accelerate to 1.2% yoy, adding to the positive employment report. On the other hand, given that the CPI rate for October was 1.3% yoy this could leave real wages unchanged or negative. Labor market data remain crucial since if wage growth remains muted then the market is likely to remain convinced that the first rate hike won’t come before the general election in May.
The US CPI and trade data are also to be released. The CPI will be of less interest than usual as it coincides with the FOMC meeting.
In the political sphere, the Greek parliament will vote for a new President for the country. It’s pretty certain that the government’s candidate will fail to get enough votes, which means another vote in five days. It’s likely that he will fail to get enough votes then too, necessitating a final vote on Dec. 29th. That’s the key date for Greece and the Eurozone.
Currency Titles:
EUR/USD above the 200-period moving average
USD/JPY test the 117.35 as a resistance
GBP/USD break two resistance in a row
WTI below 55.00
Gold just above 1190 again
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/17december2014/EURUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/17december2014/USDJPY.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/17december2014/GBPUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/17december2014/WTI.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/17december2014/XAUUSD.PNG
Currencies Text:
EUR/USD firmed up on Tuesday and broke above the 200-period moving average. However, the pair declined somewhat after finding resistance at the 1.2570 (R2) line and during early European hours it is heading for a test of the aforementioned moving average as a support this time. I would expect for the pair to move a bit higher again given the positive sentiment towards EUR from yesterday’s surprisingly strong ZEW figures, at least until the FOMC decision and Fed Chair Janet Yellen’s press conference. In the bigger picture, the rate is still printing lower peaks and lower troughs below both the 50- and the 200-day moving averages and this keeps the overall path to the downside.
• Support: 1.2410 (S1), 1.2360 (S2), 1.2300 (S3).
• Resistance: 1.2530 (R1), 1.2570 (R2), 1.2620 (R3).
USD/JPY declined on Tuesday and broke below the support-turned-into-resistance hurdle of 117.35 (R1). The move was stopped few pips above our 115.45 (S1) support line, which happens to be the 38.2% retracement level of the 15th October - 8th December advance. During the early European hours, the pair is testing the 117.35 (R1) resistance level. Looking at our short-term momentum signals, the RSI found support just below the 30 line and moved up, while the MACD shows signs of bottoming and seems ready to cross above its trigger line. These momentum signs point to a halt in the decline, at least temporarily. As for the broader trend, the price structure is still higher highs and higher lows above both the 50- and the 200-day moving averages and this keeps the overall path of the pair to the upside. Therefore, I still consider the recent setback or any extensions of it as a correction of the longer-term uptrend.
• Support: 115.45 (S1), 114.00 (S2), 113.400 (S3).
• Resistance: 117.35 (R1), 120.00 (R2), 121.85 (R3).
GBP/USD advanced sharply on Tuesday, breaking two resistance levels in a row. The move was halted by the 200-period moving average pushing the rate below 1.5740 (R1) again. While the GBP/USD gyrations around 1.5700 may continue as the pair is in a consolidative mode since early November, the price is more likely to trend down than up. I would wait for Fed Chair Janet Yellen and the new forecasts for the economy including the “dot plot” of Fed funds rate expectations to print a better technical picture. On the daily chart, I maintain the view that the overall path is to the downside and I would treat any upside correction waves that stay limited below the 80-day exponential moving average as renewed selling opportunities.
• Support: 1.5655 (S1), 1.5600 (S2), 1.5550 (S3).
• Resistance: 1.5740 (R1), 1.5800 (R2), 1.5840 (R3) .
WTI seems to be on a freefall as it breaks below the support-turned-into-resistance 55.00 (R1) level. The dip was stopped at 53.80 (S1) support line, defined by the lows of 30th January 2007. A break below that line could push the price even lower, perhaps towards our next support of 52.60 (S2). On the daily chart, the bigger picture remains to the downside and our daily technical studies support this notion. Both the 50- and the 200-day moving averages remain above the price structure and their slope stays to the downside. The 14-day RSI remains within its oversold territory pointing sideways, while the daily MACD, already at extreme low levels, stands below its trigger line pointing down. These momentum signals designate strong downside momentum and amplify the case that we are likely to see even lower oil prices in the near future.
• Support: 53.80 (S1), 52.60 (S2), 50.35 (S3).
• Resistance: 55.00 (R1), 56.25 (R2), 58.60 (R3).
Gold jumped on Tuesday and broke two resistance in a row but dipped afterwards, breaking through our 1190 (S1) support line, only to end the day back at its previous day’s level. Looking at our short-term momentum signals, the RSI found support again near its 30 line and is pointing up, while the MACD although in its negative territory seems willing to cross its trigger line any time soon. Another test of the 1210 (R1) resistance hurdle seems possible, as the bears seem unable to push the price lower. Nevertheless, I would wait for the FOMC decision later in the day to help see a better technical picture.
• Support: 1190 (S1), 1186 (S2), 1175 (S3).
• Resistance: 1210 (R1), 1215 (R2), 1235 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/17december2014/Benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/17december2014/Table.PNG
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Market Analysis 18/12/14
Language English
We now need to be patient for a considerable period The FOMC meeting turned out as was widely expected: they dropped the “considerable period” phrase and instead said the Committee “can be patient in beginning to normalize the stance of monetary policy.” The statement was dovish in that they tried to smooth over the difference by saying that the new phrase was “consistent” with the old one – in which case, why change it? But Fed Chair Janet Yellen firmly tilted to the hawkish side by clarifying in her press conference that the new phrase meant they would not begin to raise rates “for at least the next couple of meetings,” which means not before April 2015. That’s earlier than expected previously. Moreover, she said specifically that rate hikes can occur at meetings when there is no press conference scheduled, which makes the timing even less predictable (there’s no press conference scheduled for next April, July or October). Clearly the volatility in the markets and the problems in Russia did not weigh on their thinking much – they remain focused on the domestic US economy and particularly the labor market, which is improving.
At the same time, the “dot plot” of forecasts by FOMC members did result in a lower average weighted forecast for the Fed funds rate at the end of 2015 and 2016, but only 14 bps lower or half a rate hike (and only 4 bps lower at end-2017). Also, the dispersion of views for 2015 and 2016 narrowed considerably, indicating that the Committee’s views are starting to coalesce, even though there were more dissenters this time (two hawks, one dove). As a result, the implied interest rates on Fed funds futures rose by 11 bps at the long end. The news corroborates our view that the dollar rally is likely to continue.
The market’s view was swift and unanimous: nearly everything with a dollar sign in front of it rose. The dollar strengthened, US equities had their best day of 2014, and credit spreads tightened. That’s quite an achievement for a more hawkish view. The good tone throughout markets may have had as much to do with what happened in oil and Russia as it did with the Fed, however.
Is the oil/ruble panic over? Oil prices rebounded yesterday, with Brent futures jumping as much as 5.8% in intraday trading. It’s hard to say what caused the rebound: US crude oil supplies fell by far less than expected and indeed there was a large rise in inventories of WTI, but inventories of some fuels fell more than expected. It looks more like just a sudden change in sentiment and a short-covering rally, rather than any reaction to fundamental news. RUB recovered too, gaining 16% against the dollar as the central bank intervened to support its currency and adjusted accounting rules to help banks cope. I wouldn’t say that the problems are over for either of these assets. In particular, the Russian economy faces long-term difficulties that will continue to weigh on the currency. However, it does appear that the one-way trade in both oil and RUB is over and there may be more volatility (up days as well as down days) from here. We could be in for further mean reversion for now.
The Greek parliament resoundingly rejected the government’s presidential candidate, who only received 160 votes. This was at the low end of expectations and is far below the 180 votes necessary to avoid a general election in January. The next vote, scheduled for next Tuesday, is meaningless as it’s almost sure to have the same result. The crucial vote will be the final one on Dec. 29th. If the government can’t find another 20 votes --- which seems difficult -- then the polls say the left-wing opposition party SYRIZA is likely to come into office with its policy of renegotiating the EU’s terms for bailing out Greece. At that point it becomes a case of the irresistible force meets the immovable object – will one budge, or will Greece leave the Eurozone? I expect that if it gets there, SYRZIA will back down to avoid being kicked out, but nothing in life is certain.
Today’s schedule: We have a relatively light calendar today. The main event during European time will be the German Ifo survey for December. All three indices are expected to have risen. Following the unexpected surge in the ZEW survey earlier this week, I believe that the Ifo survey could exceed the forecast as well. This could favor the continuation of the upside corrective phase of EUR/USD as it will indicate that the bloc’s growth engine is gaining momentum again.
In the UK, retail sales excluding gasoline are expected to have decelerated in November from the previous month.
In the US, we get the preliminary Markit service-sector and composite PMI for December and the Philadelphia Fed business activity index for the same month. Initial jobless claims for the week ended on Dec. 13 and the Conference Board leading index for November are also coming out.
Currency Titles:
EUR/USD plunged to 1.2320
USD/JPY above 117.35 again
GBP/USD lower on heightened risk on growth and inflation
WTI finds buy orders near 54.80
Gold remains above 1190
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/18december2014/EURUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/18december2014/USDJPY.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/18december2014/GBPUSD.png
http://shared.ironfx.co.uk/morning_pictures_2014/18december2014/XAUUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/18december2014/WTI.PNG
Currencies Text:
EUR/USD plunged on Wednesday after comments in the Wall Street Journal from ECB Executive Board member Benoit Coeure, who hinted that the ECB is poised to embark a large-scale asset purchases centered on government bonds. The move was halted by our support-turned-into-resistance level of 1.2410 (R1). The pair declined even more after the FOMC decision and Fed Chair Janet Yellen’s press conference. EUR/USD found support at 1.2320 (S1) where it gyrated during the early European hours Thursday. Looking at our short-term momentum studies, the RSI found support at its 30 level and is pointing up, while the MACD fell into negative territory but shows signs of bottoming and is willing to turn around. These signals suggest that we may see small upward movement before the bears prevail again. On the daily chart, the rate is still printing lower lows and lower highs below both the 50- and the 200-day moving averages and this keeps the overall path to the downside.
• Support: 1.2320 (S1), 1.2300 (S2), 1.2250 (S3)
• Resistance: 1.2410 (R1), 1.2450 (R2), 1.2470 (R3)
USD/JPY firmed up on Wednesday and broke above the resistance-turned-into-support hurdle of 117.35 (S1). The move was stopped a few pips below the 119.10 (R1) resistance line and is testing that level during the early European hours. Looking at our short-term momentum signals, the RSI found resistance just above the 50 line and moved lower, while the MACD bottomed, crossed above its trigger line and is moving towards its positive territory. The mixed momentum signs point to a halt in the advance, at least temporarily, and I would wait for a break above 120.00 (R2) to get confident for further advances. As for the broader trend, the price structure is still higher highs and higher lows above both the 50- and the 200-day moving averages and this keeps the overall path of the pair to the upside.
• Support: 117.35 (S1), 115.45 (S2), 114.700 (S3)
• Resistance: 119.10 (R1), 120.00 (R2), 121.85 (R3)
GBP/USD declined sharply on Wednesday despite the strong labor data. The plunge came after the BoE minutes of its early December policy meeting revealed that the majority of MPC members saw heightened risk that growth may soften more than expected or that inflation may stay below target for longer than expected. The rate declined further following the FOMC meeting but the move was halted by the 1.5550 (S1) support area. With no clear trending direction on the 4-hour chart, I would adopt a neutral stance as far as the short-term picture is concerned. GBP/USD is in a consolidative mode since early November, although the price is more likely to trend down than up. As for the broader trend, I still believe that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative.
• Support: 1.5550 (S1), 1.5500 (S2), 1.5420 (S3)
• Resistance: 1.5655 (R1), 1.5740 (R2), 1.5800 (R3)
WTI jumped on Wednesday after finding some buy orders near the 54.80 (S2) level but the advance was limited to a few cents above our resistance-turned-into-support line of 56.25 (S1). In the bigger picture the overall path remains to the downside and our daily technical studies support this notion. However, we may see some further advances before the sellers prevail again. Both the 50- and the 200-day moving averages remain above the price structure and their slope stays to the downside. The 14-day RSI stays within its oversold territory pointing up, while the daily MACD, although at extreme low levels, seems willing to cross its trigger line. These momentum signs designate strong downside momentum and reinforce the case that we are likely to see lower oil prices in the near future. Yet, as I said before, we could see a small corrective wave upwards.
• Support: 56.25 (S1). 54.80 (S2), 53.80 (S3)
• Resistance: 58.60 (R1), 60.00 (R2), 62.00 (R3)
Gold dipped briefly on Wednesday and bounced back up after finding support just below the 1186 (S2) area. The price remains capped below the 200-period moving average and I would expect a break above that hurdle for another test of the 1210 (R1) resistance line. Looking at our short-term momentum signals, the RSI found support again at its 30 line and moved up, while the MACD, although in its negative territory, poked its nose above its trigger line. This is likely to show that the sellers seem unable to push the price lower, thus another test of the 1210 (R1) resistance hurdle seems possible.
• Support: 1190 (S1), 1186 (S2), 1175 (S3)
• Resistance: 1210 (R1), 1215 (R2), 1235 (R3)
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/18december2014/Benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/18december2014/Table.PNG
currency tags:
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Market Analysis 19/12/2014
Language English
Commodity currencies out front as confidence returns
Yesterday was a fairly quiet day, apart from a brief flurry of excitement when the Swiss National Bank (SNB) announced negative interest rates. The FOMC meeting continued to reverberate through the market and the implied interest rate on Fed funds futures rose a further 3 bps in the long end while 10-year bond yields rose another 7 bps on top of Wednesday’s 7. US economic data was pretty much in line with expectations and in line with past data and so did not change the picture of the US economy in any great way. On the other hand, the second consecutive rise in the German Ifo survey and UK retail sales rising at their fastest annual pace in over a decade, plus a calmer situation in Russia (USD/RUB fairly stable during the day, MICEX stock index +4.5%) seemed to bring greater confidence about global growth next year and the commodity currencies gained against the dollar, even though commodities themselves were generally lower. The same rationale meant less demand for safe-haven currencies and JPY and CHF were the worst-performing G10 currencies. EM currencies were mixed.
I noted yesterday that the S & P 500 had the best day of the year on Wednesday, however it beat that on Thursday with a 2.4% rise = up 4.5% in two days. The last time the market had back-to-back best days for the last 12 months was apparently in 1987, following the stock market crash then. The fact that stocks can put in such a great performance while rate expectations and bond yields are rising shows confidence in the US economy that is likely to support the USD going forward. Greek stocks also had a fairly good day (+1.5%) after the head of the opposition SYRIZA party said that he wanted a negotiated debt relief solution with the EU and wanted to keep the country in the Eurozone. It seems that as the election approaches, he is toning down some of his more extreme positions.
Oil continued to fall after the Saudi oil minister said OPEC would find it “difficult, if not impossible” to give up market share by cutting production. But he also said he was optimistic about the future, and indeed there’s good reason for him to be. Oil prices for far out in the future – 2020, for example – are rising, because so many companies are cutting their investment plans now. That may not have any impact on output this year or even next year, but it should limit the increase in output several years down the road.
The Bank of Japan kept policy unchanged, as expected. Having surprised the market with a boost in stimulus in October, it will probably be many more months before we see any change from the BoJ. The focus in Japan rather should be on PM Abe’s efforts to reform the economy, the so-called “third arrow” of his economic plans. So far however there aren’t many victories to see there, so the pressure on the BoJ will remain.
From New Zealand, both ANZ Business confidence for December and credit card spending for November were lower than expected. That didn’t prevent NZD from being the best-performing G10 currency however as commodity currencies recovered. Since New Zealand has little energy in its export basket and is little exposed to Chinese construction, I would expect the currency to perform well as confidence comes back. The only concern is fear of a change in monetary policy there.
Today’s events: During the European day, German PPI for November is expected to fall at an accelerating pace of -1.1% yoy, from -1.0% yoy previously. This would show that the risk of deflation in the Eurozone is continuing or even increasing. The bloc’s current account for October is also to be released.
In Norway, the official unemployment rate for December is expected to rise a bit. On top of the falling oil prices, I expect weakening fundamentals to weigh on the Norwegian krone.
From Canada, the CPI for November is expected to decelerate, while core CPI is forecast to have accelerated. Although the BoC inflation target is specified in terms of the total CPI, for policy purposes, the Bank also monitors the “core” CPI. Overall, given that both headline and core CPIs are in the Bank’s target range, I would expect this to be CAD-supportive. Retail sales for October are also due to be out.
We have three speakers scheduled: Chicago Fed President Charles Evans, San Francisco Fed President Williams and Richmond Fed President Jeffrey Lacker. They are all voting members in 2015. Evans is considered a dove, Williams is dovish, and Lacker is a hawk. Willams and Lacker are speaking on monetary policy and the US economy so look for comments on their forecasts as well. Williams forecast 3% growth for 2015 while Lacker looked for 2%-2.5% as of their last comments.
Currency Titles:
EUR/USD just above 1.2250
USD/JPY in a consolidating mode
GBP/USD has lost some of its downside momentum
WTI collapsed breaking two support lines in a row
Gold capped within 1210 and 1190 levels
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/19december2014/EURUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/19december2014/USDJPY.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/19december2014/GBPUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/19december2014/WTI.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/19december2014/XAUUSD.PNG
Currencies Text:
EUR/USD plunged on Thursday following the decision from the Swiss National Bank to introduce negative interest rates. The rise in USD/CHF kept EUR/USD under pressure because of the EUR/CHF floor and pushed EUR/USD down to break two support lines in a row. The pair fell below 1.2300 and found support few pips above our support level of 1.2250 (S1). A break of the 1.2250 (S1) support line would make me confident about further declines. Our short-term momentum studies support the notion for an initial test of 1.2250 (S1). The RSI found support at its 30 line and is pointing down, while the MACD, already below its trigger line, moved further into its negative territory. The momentum signs amplify the case for further declines, but as mentioned above, a clear break of the 1.2250 (S1) support hurdle is necessary for further declines. In the bigger picture, the rate is still printing lower lows and lower highs below both the 50- and the 200-day moving averages and this keeps the overall path to the downside.
• Support: 1.2250 (S1), 1.2160 (S2), 1.2120 (S3)
• Resistance: 1.2345 (R1), 1.2410 (R2), 1.2470 (R3)
USD/JPY consolidated on Thursday, staying below the psychological level of 120.00 (R1). I would wait for a break above that level to see further advances perhaps towards our next resistance of 121.85 (R2). Looking at our short-term momentum signals, the RSI remained elevated just above the 50 line, while the MACD, already above its trigger line, moved into its positive territory. The mixed momentum signs confirm the halt in the advance, at least temporarily, and I would wait for a break above the key 120.00 (R1) level to get confident for further advances. As for the broader trend, the price structure is still higher highs and higher lows above both the 50- and the 200-day moving averages and this keeps the overall path of the pair to the upside.
• Support: 117.35 (S1), 115.45 (S2), 114.700 (S3)
• Resistance: 120.00 (R1), 121.85 (R2), 122.44 (R3)
GBP/USD advanced on Thursday and recovered half of its Wednesday losses. However the move was halted just above the 1.5655 level and few pips below the 50-period moving average. With no clear trending direction on the 4-hour chart, I would still adopt a neutral stance as far as the short-term picture is concerned. This is supported by our mixed short-term momentum signals. The RSI found resistance at its 50 line and is pointing down, while the MACD crossed above its trigger line and is heading up to cross the zero line. As for the broader trend, I still believe that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative. Our daily momentums however are on a rising mode suggesting that the decline has lost some of its downside momentum and that we could see an upward correction before the sellers prevail again.
• Support: 1.5550 (S1), 1.5500 (S2), 1.5420 (S3)
• Resistance: 1.5740 (R1), 1.5790 (R2), 1.5830 (R3)
WTI collapsed and broke two support lines in a row after finding resistance near the 58.60 (R2) area. The decline was stopped few cents above our support line of 53.80 (S1). Our near-term momentum indicators suggest to take to the sidelines and wait for a break below the 53.80 (S1) support hurdle to get confident for further declines. On the daily chart, the overall path remains to the downside and our daily technical studies support this notion. Both the daily RSI and the daily MACD remain at their extreme low levels, yet they both point sideways, giving me enough reasons to adopt a neutral stance at the moment. Again, a clear break of the 53.80 (S1) level is necessary for another leg down.
• Support: 53.80 (S1). 52.60 (S2), 50.35 (S3)
• Resistance: 56.25 (R1), 58.60 (R2), 60.00 (R3)
Gold jumped briefly to test our 1210 (R1) resistance zone and retreated afterwards to continue gyrating around 1200. The price remains capped within the 1210 (R1) resistance zone and 1190 (S1) support level and a decisive break in either direction is probably going to determine the near-term bias. Looking at our short-term momentum signals, the RSI lies just below its 50 line, while the MACD, although in its negative territory, crossed above its trigger line. Both momentum indicators are pointing sideways, reflecting the indecisiveness of the market.
• Support: 1190 (S1), 1186 (S2), 1175 (S3)
• Resistance: 1210 (R1), 1215 (R2), 1235 (R3)
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/19december2014/Benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/19december2014/Table.PNG
currency tags:
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Market Analysis 22/12/2014
Language English
Divergence in monetary policy to be continuing theme in 2015
The action Friday showed that divergence in monetary policy, one of the main themes for 2014, will continue apace in 2015. Two senior ECB officials expressed their concern about negative inflation and their determination to use all possible monetary tools, including quantitative easing, to fight the trend. On the other hand, three Fed presidents indicated that the FOMC intends to begin normalizing policy (= raise rates) in the coming year even if inflation hasn’t returned to their 2% target. The divergence drove EUR/USD to a new 2014 low Friday, reminiscent of its 2013 high on Dec. 27th that year. This theme of policy divergence is set to run and run and will continue to push the pair lower next year, in my view.
Oil had a fantastic day, with WTI up 6.3% and Brent up 4.8% from Friday’s opening levels, apparently on comments by the Saudi Arabian oil minister that crude prices will rebound as world economic growth boosts demand. Personally, I think this is the lamest excuse for a rally I’ve ever heard, since most economists continue to downgrade their forecasts for world growth next year and also the world is using less and less oil for each increase in growth. I think market participants have simply decided that enough is enough and prices have fallen too far too quickly. Friday’s Commitment of Traders report shows that speculators increased their long positions in WTI in the week ended Dec. 16th and we can presume they increased them further during the rest of the week. I don’t think the fundamentals for the oil market have changed and I don’t think world economic growth is likely to accelerate so quickly next year, but oil may be in for a temporary rebound after the recent plunge as the market tries to find a new equilibrium price where the increased supply balances the expected lower demand. This is likely to impart increased volatility to the commodity currencies. I wouldn’t be surprised to see the oil-related currencies (AUD, CAD and NOK) rally today – they have vastly underperformed the other G10 currencies in recent weeks.
Canada’s CPI ratedeclined to 2% yoy in November, from 2.4% yoy previously, missing expectations of a decline to 2.2% yoy. But the deceleration in core CPI to 2.1% yoy was even more of a surprise as it had been expected to accelerate. That gives little reason for the Bank of Canada to raise rates any time soon. Moreover, the October retail sales report showed the impact of falling energy prices on the Canadian economy as nominal retail sales were largely flat and sales declined in nine of the ten provinces. USD/CAD jumped briefly to touch our 1.1635 resistance line but fell back immediately and this morning is opening in Europe around 1.1600. The failure of buyers to push the rate higher despite the weak economic data raise concerns over their strength and heightens the possibility of a corrective wave down before they seize control again.
Today’s indicators: The calendar is relatively light today. During the European day, Eurozone’s preliminary consumer confidence for December is forecast to remain near its previous month’s levels. In Sweden, retail sales for November are expected to remain unchanged from the previous month.
In the US, we get existing home sales for November. Last week, housing starts and building permits fell in November but the strong revision of the previous figures kept the overall trend consistent with an improving housing market. Thus, the possibility for another strong housing data is high and this could support USD. Chicago Fed national activity index for November is also to be released.
In New Zealand, the trade deficit for November is expected to narrow a bit. This could be NZD-positive.
Rest of the week: Tuesday we get final GDP figures for Q3 from several countries. In France and the UK, the final Q3 GDP data are expected to confirm the preliminary growth figures. In the US, the 3rd estimate of GDP for Q3 is expected to show that the US economy expanded at a faster pace than initially estimated. The 3rd estimate of the core personal consumption index, the Fed’s favorite inflation measure, is forecast to have remained unchanged from the 2nd estimate. The monthly rate of the Core PCE and PCE deflator for November are also coming out. Canada’s GDP for October is also due out.
On Wednesday, US initial jobless claims for the week ended Dec. 20 is released a day early because of Christmas.
Thursday will obviously be a very quiet day because of the Christmas holiday. The Bank of Japan releases the minutes from its Nov. 18-19 policy meeting, which is not the most recent meeting but rather the previous one. Considering the fact that at their latest meeting they didn’t introduce any new measures, the minutes of the previous meeting shouldn’t make that much of a stir.
Friday should also be a quiet day as many European centers are still out. The focus will be on the usual end-of-month data dump from Japan. Japan’s national CPI for November is forecast to have decelerated a bit, while Tokyo CPI rate for December is expected to have remained unchanged. Slowing inflation should eventually put pressure on the Bank of Japan to loosen further, but that’s a story for next year. At the same time, Japan’s jobless rate and job offers-to-applicants’ ratio, both for November, are expected to have remained unchanged from October. Preliminary industrial production and retail sales for November are also coming out.
Currency Titles:
EUR/USD fell below 1.2250
USD/JPY still in a consolidating mode
GBP/USD is moving sideways
WTI soars, but correction expected to be temporary
Gold remains capped within 1210 and 1190 levels
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http://shared.ironfx.co.uk/morning_pictures_2014/22december2014/USDJPY.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/22december2014/GBPUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/22december2014/WTI.PNG
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Currencies Text:
EUR/USD declined on Friday and fell below our support-turned-into-resistance line of 1.2250 (R1). During early European hours Monday the pair is headed back up and testing that level as a resistance. The failure to breach it could push the rate even lower, probably towards our next support of 1.2160 (S1), the lows of 3rd of August 2012. Looking at our short-term momentum studies, the RSI found resistance at its 30 line, while the MACD, already below its trigger line, moved further into its negative territory. These momentum signs amplify the case for further declines, but I would be cautious for a small correction before the bears take the reins again. In the bigger picture, the rate is still printing lower lows and lower highs below both the 50- and the 200-day moving averages and this keeps the overall path to the downside.
• Support: 1.2160 (S1), 1.2120 (S2), 1.2050 (S3)
• Resistance: 1.2250 (R1), 1.2345 (R2), 1.2410 (R3)
USD/JPY consolidated on Friday, staying below the psychological level of 120.00 (R1). I would wait for a break above that level to see further advances perhaps towards our next resistance of 121.85 (R2). Looking at our short-term momentum signals, the RSI remained elevated just above the 50 line, while the MACD, already above its trigger line, moved into its positive territory. The momentum signs support the notion for another leg up, at least temporarily, and I would wait for a break above the key 120.00 (R1) level to get confident for further advances. As for the broader trend, the price structure is still higher highs and higher lows above both the 50- and the 200-day moving averages and this keeps the overall path of the pair to the upside.
• Support: 117.35 (S1), 115.45 (S2), 114.700 (S3)
• Resistance: 120.00 (R1), 121.85 (R2), 122.44 (R3)
GBP/USD moved sideways on Friday gyrating around the 1.5655 level a few pips below the 50-period moving average. With no clear trending direction on the 4-hour chart, I would maintain a neutral stance as far as the short-term picture is concerned. This is supported by our short-term momentum signals. The RSI found resistance near its 50 line, while the MACD is a touch below its trigger line, moving further into its negative territory. As for the broader trend, I still believe that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative. Our daily momentums however are on a rising mode suggesting that the decline has lost some of its momentum and that we could see an upward correction before the sellers prevail again.
• Support: 1.5550 (S1), 1.5500 (S2), 1.5420 (S3)
• Resistance: 1.5740 (R1), 1.5790 (R2), 1.5830 (R3)
WTI firmed up on Friday but the advance was halted few cents below our resistance area of 58.60 (R1) and the 50-period moving average. A break above that resistance level could confirm the break above the double bottom formation seen in the 4-hour chart and could amplify the case for an upside correction move. Looking our short-term momentums this is likely to happen as the RSI moved above its 50 line and is pointing somewhat up, while the MACD already above its trigger line seems willing to enter into its positive territory. Nevertheless, on the daily chart, the overall path remains to the downside therefore I could treat any upside wave as a correction of the longer-term downtrend.
• Support: 56.25 (S1), 54.40 (S2), 52.60 (S3)
• Resistance: 58.60 (R1), 60.00 (R2), 62.00 (R3)
Gold consolidated on Friday gyrating around 1200. The price remains capped within the 1210 (R1) resistance zone and 1190 (S1) support level and a decisive break in either direction is probably going to determine the near-term bias. Looking at our short-term momentum signals, the RSI lies just below its 50 line, while the MACD, although in its negative territory, crossed above its trigger line. Both momentum indicators are pointing sideways, reflecting the indecisiveness of the market.
• Support: 1190 (S1), 1186 (S2), 1175 (S3)
• Resistance: 1210 (R1), 1215 (R2), 1235 (R3)
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Market Analysis 23/12/14
Language English
Wrong about oil
I had thought the technical rally in oil yesterday would last longer than it did, but in fact it started to falter by midday in Europe. After rising a dramatic 7.5% from Friday’s lows by midday in Europe, WTI finished the US day down about 5% from its opening levels in Europe (up a modest 1.4% from Friday’s lows). I guess traders agreed with me – the idea that the global economy will come to the rescue of oil markets is more of a hope than a strategy. Sentiment was hurt by more comments from the Saudi Arabian oil minister, who said OPEC would not cut production at any price (he mentioned USD 20 a barrel!). To make matters worse, the Iraqi oil minister said his country intended to boost output next year, increasing the glut on the market. The trend in the oil market is distinctly negative for the energy-related currencies – AUD, CAD, NOK and of course RUB – over the coming months. NOK was the worst-performing G10 currency yesterday.
Nonetheless, oil was recovering slightly in Asian trading this morning on expectations that Wednesday’s US inventories data will show a drawdown for the second week in a row. I still expect oil to become more of a two-way market for now as some short-covering is likely to come in at these low levels. That should increase volatility in the oil-related currencies.
RUBrecovered substantially despite the fallback in oil prices. It appears that exporters are responding to government pressure to sell foreign currencies, especially as tax payment deadlines approach. Moreover the Russian FX market will be closed from Jan. 1st and only reopen on Jan. 12th, so investors shorting the RUB may be closing out their positions ahead of that time rather than take the risk along with the negative carry. I doubt though if this is the end of the story for RUB, as it looks like the price of energy – which makes up about two-thirds of the country’s exports -- are not going to recover substantially any time soon.
Lower oil prices and a rising dollar pressured gold, which crashed through several support levels to trade near a three-week low. Who needs an inflation hedge now? And with US stocks rising into record territory (see below) and Chinese stocks doing well too, many investors see better things to do with their money.
Sight deposits at the Swiss National Bank(SNB) rose by only CHF 3.11bn or about 1% last week. This figure – cash-like holdings of commercial banks at the central bank – is a loose proxy for FX intervention. The figure was lower than expected, because analysts had assumed that only major intervention would have forced the SNB to impose negative deposit rates. (The December FX reserve data will be released on Jan. 7th.) The fact that the SNB imposed the negative rates in such circumstances shows their determination to keep the EUR/CHF floor intact. Swiss short-term yields fell further into negative territory as the market priced in further action from the SNB. Market confidence in the EUR/CHF floor is high and it seems to be as close to a one-way bet as exists in the FX world today.
The S & P closed up again for the fourth day in a row to hit a record high, by definition also a high for the year. Apparently this is the first year since 1928 (at least) that the market has not been down four days in a row! Such good performance makes investment professionals nervous – their starting point for 2015 is a record high and thus it may be difficult for them to deliver gains.
Today’s schedule: During the European day, we get the final GDP figures for Q3 from several countries. In France and the UK, the final Q3 GDP data are expected to confirm the preliminary growth figures. Following the concerns from the BoE MPC members over the heightened risk on growth in the Dec. meeting minutes, we could see a decline in the final Q3 growth rate. This could prove GBP-negative.
In Norway, the AKU unemployment rate for October is forecast to have remained unchanged at 3.7%. The official unemployment rate for the same month had remained unchanged, thus the possibility for a positive surprise is limited which could keep NOK under selling pressure.
We have a very busy day in the US with several important figures expected to show strong growth, which may boost the dollar. The 3rd estimate of Q3 GDP is expected to show that the US economy expanded at a faster pace than initially estimated. The 3rd estimate of the core personal consumption index, the Fed’s favorite inflation measure, is forecast to have remained unchanged from the 2nd estimate. The monthly rate of the core PCE and PCE deflator for November are also coming out and the forecast is for both to decelerate a bit. Durable goods orders for November are forecast to be good: the headline figure is expected to accelerate, while the figure excluding transportation equipment is estimated to rebound from the previous month. Personal income and personal spending for November are also expected to accelerate, adding to the overall positive data. The Richmond Fed manufacturing index and the final University of Michigan confidence index, both for December are also coming out. The Federal Housing Finance Agency (FHFA) home price index for October and new home sales for November are likely to show that the housing sector is on a strong path. Overall, the strong data are probably going to show that the US economy is on a strong path. This is likely to keep the USD supported and confidence up.
Canada’s GDP for October is also due out.
On Tuesday Greece holds the second round of its Presidential election. Last week, the government’s candidate got only 160 votes, far below the 200 needed to win. He’s likely to lose today’s vote as well. The focus is therefore on the Dec. 29th vote when he only needs 180 votes to win and thereby avert a general election.
Currency Titles:
EUR/USD fell below 1.2250 again
USD/JPY a touch above 120.00
GBP/USD in a consolidative mode
WTI plunged but found buy orders near the 54.40 level
Gold remains capped within 1210 and 1190 levels
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/23december2014/EURUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23december2014/USDJPY.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23december2014/GBPUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23december2014/WTI.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23december2014/XAUUSD.PNG
Currencies Text:
EUR/USD moved up somewhat on Monday but found resistance around the 1.2250/60 (R1) area and fell back below that level. I would expect the failure to breach that resistance zone to push the rate even lower, probably towards our next support of 1.2160 (S1), the lows of 3rd of August 2012. Looking at our short-term momentum studies, the RSI found support at its 30 line and moved along with it, while the MACD, although in its negative territory, crossed above its trigger line and moved a bit up. These mixed momentum signs suggest that we could see a small upward correction before the bears take the reins again. In the bigger picture, the rate is still printing lower lows and lower highs below both the 50- and the 200-day moving averages and this keeps the overall path to the downside.
• Support: 1.2160 (S1), 1.2120 (S2), 1.2050 (S3)
• Resistance: 1.2250/60 (R1), 1.2345 (R2), 1.2410 (R3)
USD/JPY advanced on Monday and rose just above the psychological level of 120.00. Since I am not convinced that this is a solid break of that level, I would wait for a break above 120.25 (R1) to see further advances, perhaps towards our next resistance line of 121.85 (R2). Looking at our short-term momentum signals, the RSI lies just below the 70 line, while the MACD, already above its trigger line, moved further into its positive territory but shows signs of topping. The momentum signs support the notion for another leg up, at least temporarily, but as I said above I would wait for a clear break above the 120.25 (R1) level to get confident about further advances. As for the broader trend, the price structure is still higher highs and higher lows above both the 50- and the 200-day moving averages and this keeps the overall path of the pair to the upside.
• Support: 117.35 (S1), 115.45 (S2), 114.700 (S3)
• Resistance: 120.25 (R1), 121.85 (R2), 122.44 (R3)
GBP/USD is still in a consolidative mode trading just above our 1.5550 (S1) support line. With no clear trending direction on the 4-hour chart, I would maintain a neutral stance as far as the short-term picture is concerned. This is supported by our short-term momentum signals. The RSI found support near its 30 line, while the MACD lies below its zero and trigger lines, increasing the case for an initial test of the 1.5550 (S1) level. A clear break of that level is needed for another leg down. As for the broader trend, I still believe that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative.
• Support: 1.5550 (S1), 1.5500 (S2), 1.5420 (S3)
• Resistance: 1.5740 (R1), 1.5790 (R2), 1.5830 (R3)
WTI dipped briefly to find some buy orders few cents above our support area of 54.40 (S1). Following the sharp declines in the recent months, WTI seems to have stabilized within the resistance line of 58.60 (R1) and the support level of 54.40 (S1). Looking at our short-term momentums, the RSI found resistance near its 50 line, while the MACD crossed below its trigger line and is pointing sideways. These momentum signals suggest that the consolidation within the aforementioned levels is likely to continue and a decisive break in either direction is probably going to determine the near-term bias. On the daily chart, the overall path remains to the downside therefore I could treat any upside wave as a correction of the longer-term downtrend.
• Support: 54.40 (S1), 52.60 (S2), 50.50 (S3)
• Resistance: 58.60 (R1), 60.00 (R2), 62.00 (R3)
Gold plunged on Monday and broke two support lines in a row. The precious metal found support near the 1170 (S2) area and bounced a bit up. During the early European hours the price is heading towards our support-turned-into-resistance line of 1186 (R1). A break above that level is necessary for further advances. Our short-term momentum signals support the notion for an initial test of 1186 (R1) resistance zone. The RSI found support at its 30 line and moved up, while the MACD, although below its zero and trigger lines shows signs of bottoming. If the bulls fail to push the price higher, we could see gold falling again below the 1175 (S1) support line.
• Support: 1175 (S1), 1170 (S2), 1165 (S3)
• Resistance: 1186 (R1), 1190 (R2), 1210 (R3)
Benchmark Currency Rates:
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Market Analysis 24/12/2014
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US GDP revisions shock…again It was only a six months ago that the third revision of US Q1 GDP shocked the market with a 1.9 percentage point downward revision to -2.9% qoq SAAR. Now the opposite: a 1.1 ppt upward revision to Q3 to +5.0% qoq SAAR. So in just six months, the US economy has gone from recession-level contraction to the fastest rate of growth in over a decade. The rest of the US indicators were mixed, with November durable goods orders weak but personal income and expenditure better than expected, but that didn’t matter; markets focused on the GDP figure. US interest rates jumped, with the implied rate on the long end Fed funds futures contract rising 5-6 bps and 10-year yields soaring 10 bps. As a result, the dollar rose against almost all the G10 currencies and hit a high for the year against several – EUR, GBP, CHF and AUD, for example. This is the trend that I expect to dominate the FX market during 2015: US economic outperformance leading to higher interest rates and USD outperformance.
Oil rallied somewhat on the higher US GDP figure on hopes that faster economic growth might boost demand for energy. However, the weather suggests otherwise. While the market has been fixated on lower oil prices, natural gas prices have been falling too, in this case because of unseasonably warm weather in the US. The price fell over 9% on Monday alone and is now at a two-year low. This is also going to save the US consumer money. Recent forecasts are for the relatively warm weather to persist in January and February in many parts of the US, which won’t add to demand for heating fuel. It’s an open question what an unusually warm winter means for growth – often when the weather is unseasonably warm in winter or cool in summer, people buy less seasonal goods and growth can slow. Plus of course energy demand for heating is counted in consumption, too.
The second round of the Greece Presidential election failed to elect the government’s presidential candidate, Stavros Dimas, bringing early elections a step closer. Dimas got only 168 votes, which was in the middle of expectations. The Greek press is reporting that “it currently seems very difficult” for the government to get the 180 votes that it needs on Dec. 29th and that a general election in late January or early February “seems inevitable.” That could be a sensitive time for EUR/USD. The market is already through the consensus forecast for Q1 2015 (1.22, according to Bloomberg) and so it would come as a surprise – meaning there could be a lot of position-adjusting.
We have little on Wednesday’s agenda. The only noteworthy indicator we get is the US initial jobless claims for the week ended Dec. 20. The market consensus is for the number to remain more or less unchanged. The 4 week moving average is expected to decline to 293k from 299k, consistent with an improving labor market.
NOTE: There will be no market comment Thursday or Friday. Happy holidays!
Currency Titles:
EUR/USD finds support near 1.2160 area
USD/JPY testing 120.25 as a support
GBP/USD falls below 1.5550
WTI finds resistance at the 50-period moving average
Gold well entrenched near the 1175 area
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/24december2014/EURUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/24december2014/USDJPY.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/24december2014/GBPUSD.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/24december2014/WTI.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/24december2014/XAUUSD.PNG
Currencies Text:
EUR/USD plunged following the strong US Q3 GDP data to find support a few pips above our 1.2160 (S1) level, the lows of 3 August 2012. Given the positive sentiment towards USD and the absence of any material economic events today, a break of that level could challenge our next support line of 1.2120 (S2). Looking at our short-term momentum studies, the RSI has been moving along the 30 line since 17th of December, while the MACD lies below its trigger and zero lines. Although these indicators suggest accelerating bearish momentum, I would wait for a break of the 1.2160 (S1) support line for another leg down. On the daily chart, the rate is still printing lower lows and lower highs below both the 50- and the 200-day moving averages and this keeps the overall path to the downside.
• Support: 1.2160 (S1), 1.2120 (S2), 1.2050 (S3)
• Resistance: 1.2250 (R1), 1.2345 (R2), 1.2410 (R3)
USD/JPY advanced on Tuesday and rose just above the resistance-turned-into-support of 120.25 (S1). During the early European hours the pair is testing the 120.25 (S1) support line and if the bears prove too weak to push the rate lower, I would expect for an advance towards our 121.85 (R1) resistance zone. Looking at our short-term momentum signals, the RSI found resistance just above the 70 line and moved down, while the MACD shows signs of topping and seems willing to cross below its trigger line. These signals indicate that the advance has lost some of its momentum and the bulls may not be strong enough to push the rate higher any time soon. In the bigger picture, the price structure is still higher highs and higher lows above both the 50- and the 200-day moving averages and this keeps the overall path of the pair to the upside.
• Support: 120.25 (S1), 118.30 (S2), 117.35 (S3)
• Resistance: 121.85 (R1), 122.44 (R2), 123.10 (R3)
GBP/USD slid on Tuesday and broke our support-turned-into-resistance of 1.5550 (R1). I would expect the break of that strong level to trigger further extensions and could push the rate towards the 1.5420 (S2) support zone, defined by the lows of 8 August 2012. During early European hours the pair is testing our support level of 1.5500 (S1), where a break is necessary for further declines. Our short-term momentum indicators support this notion. The RSI found resistance at its 30 line and is pointing down, while the MACD, already below its trigger line, moved further into its negative territory. As for the broader trend, I still believe that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative.
• Support: 1.5500 (S1), 1.5420 (S2), 1.5300 (S3)
• Resistance: 1.5550 (R1), 1.5680 (R2), 1.5740 (R3)
WTI consolidated on Tuesday and remained capped below the 50-period moving average that provided good resistance to the price action recently. Following the sharp declines in recent months, WTI seems to have stabilized within this range, keeping the intraday bias neutral. Looking at our short-term momentum indicators, the RSI is moving along its 50 line, while the MACD crossed above its trigger line and is pointing sideways. These momentum signals suggest that the price is likely to continue consolidating within the aforementioned levels and it will take a decisive break in either direction to determine the near-term bias. On the daily chart, the overall path remains to the downside therefore I could treat any upside wave as a correction of the longer-term downtrend.
• Support: 54.40 (S1), 52.60 (S2), 50.50 (S3)
• Resistance: 58.60 (R1), 60.00 (R2), 62.00 (R3)
Gold remained well entrenched near the 1175 (S1) support area. There were one or two attempts to break that level but none found much support and the precious metal continued to trade just above that area. The failure to break that zone strengthens the likelihood for an upward movement, perhaps towards our 1186 (R1) resistance line. Our short-term momentum signals support the notion for an initial test of 1186 (R1) resistance zone. The RSI found support at its 30 line and moved up, while the MACD, although within its negative territory, poked its nose above the trigger line and points up.
• Support: 1175 (S1), 1170 (S2), 1165 (S3)
• Resistance: 1186 (R1), 1190 (R2), 1210 (R3)
Benchmark Currency Rates:
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Market Analysis 29/12/2014
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Greek election in focus Currencies were little changed from their Friday levels Monday morning as the year draws to a close.
SEK, which fell on Friday, recovered somewhat but was still below its Friday opening levels. Sweden cancelled its plans to hold a snap election in March. The ruling party, which has only a minority in the parliament, reached an agreement with some of the opposition parties that will allow it to pass a budget. The accord runs for seven years. However the agreement does not seem to have done very much to bolster the currency, which failed to regain even the ground that it lost on Friday. That makes me even more bearish on SEK.
NZD was the biggest gainer, with AUD not far behind. The region’s currencies were boosted after China’s central bank Sunday said it would change the definition of deposits for the purpose of calculating banks’ loan-to-deposit ratio in a way that would allow the banks to lend more money. A greater-than-expected decline in Chinese industrial profits in November had no impact on them. Nonetheless, I expect the commodity currencies to do poorly in 2015. Economic adjustments in China like this one are meant to cushion the country’s economic slowdown, not stop it. I expect the Chinese economy to slow as part of the country’s economic restructuring and for the commodity currencies, particularly AUD, to be hit as a result.
RUB fell as oil prices continued to drop. No rest for the weary.
Today’s calendar: Greek election The main event today is the third and final round of the Greek Presidential election. This time, former European Commissioner Stavros Dimas needs only 180 votes to be elected, not 200 as before. But in the previous round of voting he only got 168 votes, so he is still not sure of getting elected. Voting is due to start at midday local time (1000 GMT) and the result is likely to be known around one hour later. If he is not elected, Parliament will be dissolved and there will be a general election in late January or early February, a few weeks before the country’s EUR 240bn bailout expires.
A Greek election would probably be a big risk event for EUR. Recent polls have shown that the left-wing opposition coalition SYRIZA, which opposes the terms of the bailout, has kept its lead over the ruling centre-right New Democracy party, but its lead has been narrowing. A poll on Saturday by the Alco institute showed SYRIZA leading New Democracy by 3.3 percentage points, a slightly narrower lead than in the previous poll. It put support for SYRIZA at 28.3% and for New Democracy, 25%. But even if PM Samaras’ New Democracy party does get the largest share of the vote, the situation is complicated by the weakness of other parties. New Democracy is currently in a coalition with the PASOK party, but the latter has serious internal problems and may split. That could prevent the creation of a stable coalition majority.
As for the economic indicators, the only noteworthy one out today is the US Dallas Fed manufacturing activity index for December.
Rest of the week Not that much on the calendar this week, as one might expect. On Tuesday, Eurozone’s M3 money supply for November is forecast to have slightly accelerated from October. This will push the 3-month moving average higher if the forecast is met. Despite the stimulus efforts from the ECB, money supply growth has failed to take off, adding pressure for further action. In the US, we get the S & P/Case-Shiller house price index for October and the Conference Board leading index for December.
On Wednesday, we get the US initial jobless claims for the week ended Dec.27. The Chicago purchasing manager index for December and pending home sales for November are also to be released. The Japanese market will be closed today as well as Thursday and Friday.
Thursday, New Year’s Day, while much of the world is on holiday, China’s official manufacturing PMI for December is expected to decline to 50.0, the threshold dividing expansion from contraction.
Friday is PMI day for the rest of the world. It starts with the manufacturing PMI figures for December 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 have slightly increased. In the US, the final Markit manufacturing PMI and the ISM manufacturing index both for December are also to be released.
Currency Titles:
EUR/USD finds again support at 1.2165
EUR/JPY in a short-term sideways range
GBP/USD continues higher after hitting support at 1.5500
Gold shoots up after hitting support near 1173
WTI finds hits again the 54.40 barrier
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EUR/USD moved slightly lower on Friday after hitting resistance at 1.2220 (R1). However, the slide was halted by the support barrier of 1.2165 (S1), marked by the low of last Tuesday. Given the inability of sellers to dominate and overcome that hurdle, I would be cautious of a possible upside corrective move before the next leg down. Our near-term momentum indicators support this notion. The RSI moved slightly higher after finding support above its 30 line, while the MACD, although negative, stands above its trigger. On the daily chart, the price structure still suggests a longer-term downtrend. We have lower highs and lower lows below both the 50- and the 200-day moving averages, hence I believe that the overall path of EUR/USD remains to the downside. A move below the 1.2165 (S1) line is likely to lead the rate towards our next support zone of 1.2130 (S2), defined by the lows of 2nd of August 2012. Besides these technical signs, we need to bear in mind that today we have the final round of the Greek presidential elections. If the ruling party’s candidate fails to gather 180 votes in parliament, this will automatically lead the country to a snap elections. In such a case, an upside corrective move may never occur and we may experience the aforementioned down leg earlier than under normal circumstances.
• Support: 1.2165 (S1), 1.2130 (S2), 1.2040 (S3)
• Resistance: 1.2220 (R1), 1.2300 (R2), 1.2345 (R3)
EUR/JPY moved in a consolidative manner on Friday, staying slightly below the resistance obstacle of 147.15 (R1). The last couple of weeks, this pair has been oscillating between that resistance and the support zone of 145.50 (S1). Hence I would consider the intraday bias to be flat. This is also supported by our short-term oscillators, which gyrate around their neutral lines. In the bigger picture, on the daily chart, the pair is still trading above both the 50- and the 200- day moving averages, something that keeps the overall trend to the upside in my view. However, the daily MACD points out that another corrective wave may be looming. Although positive, it stands below its trigger line and is pointing south.
• Support: 145.50 (S1), 144.75 (S2), 143.40 (S3)
• Resistance: 147.15 (R1), 148.20 (R2), 149.45 (R3)
After hitting support near the psychological barrier of 1.5500 last Tuesday, GBP/USD continued its upside corrective wave. During the early European morning, the rate is trading between the support line of 1.5540 (S1) and the resistance of 1.5600 (R1). In my view, a decisive violation of the latter line is likely to signal the extension of the retracement and perhaps pull the trigger for the next resistance of 1.5680 (R2), defined by the highs of the 18th and 19th of December. Taking a look at our oscillators, I see that the RSI edged higher and moved above its 50 line, while the MACD, although below zero, lies above its signal line and is pointing up. These momentum signals magnify the case for further upside correction. As for the broader trend, I repeat for the umpteenth time that as long as Cable is trading below the 80-day exponential moving average, I believe that the overall path of this pair remains negative. I would treat any upside waves that stay limited below that moving average as retracements.
• Support: 1.5540 (S1), 1.5500 (S2), 1.5430 (S3)
• Resistance: 1.5600 (R1), 1.5680 (R2), 1.5740 (R3)
Gold surged on Friday after triggering some buy orders near the 1173 (S3) support barrier, which happens to coincide with the 61.8% retracement level of the 7th of November – 9th of December advance. During the early European morning Monday, the precious metal is trading between the support line of 1192 (S1) and the psychological number of 1200 (R1). In my view, a clear break above the 1200 (R1) key bar is needed to trigger further bullish extensions. Such a move is likely to target the next obstacle at 1214 (R2), determined by the high of the 18th of December. Friday’s bullish sentiment is also reflected on our near-term momentum studies. The RSI moved above 50, while the MACD, already above its trigger line, obtained a positive sign.
• Support: 1192 (S1), 1185 (S2), 1173 (S3)
• Resistance: 1200 (R1), 1214 (R2), 1223 (R3)
WTI moved somewhat higher on Friday after triggering some long orders near our support hurdle of 54.40 (S1). Since the 15th of the month, WTI has been trading between that support and the resistance area of 58.60/59.00 (R2). With no trending no clear trending conditions in the short term, I would see a sideways near-term path and I would consider the intraday bias to stay neutral. Looking at our short-term momentum indicators, the RSI moved slightly higher and is now approaching its 50 bar, while the MACD moves along its zero line, confirming the trendless mode of WTI, at least as far as the short term is concerned. As for the broader trend, the price remains below both the 50- and the 200-day moving averages, thus I would consider the longer-term downtrend to stay intact.
• Support: 54.40 (S1), 52.60 (S2), 50.50 (S3)
• Resistance: 56.60 (R1), 58.60 (R2), 60.00 (R3)
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Market Analysis 30/12/14
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Dollar surges into year-end The dollar index hit a 2014 high yesterday despite falls in US interest rates. The continued demand for USD even in the face of lower rates shows the strength of the USD rally, which I expect to be one of the defining features of 2015.
European activity was dominated by Greece, where the failure of Parliament to elect a President yesterday automatically triggers a general election on Jan. 25th. The political turmoil sent Greek stocks down about 4% at the close, although that’s not so bad considering they were down 11.4% at one point. Greek three-year yields rose 1.6 ppt to 12.09% (they hit a low of 3.16% in early September) while German and French yields fell further to yet another record low as investors moved into safer markets. German yields are now negative out to 4 years and are lower than Japanese yields out to 5 years! There is concern that Greek banks may still rely on the ECB for funding, which could be cut off if negotiations on the country’s bailout package fail.
Yet Portuguese 3-year yields were up only 6 bps to a still-low 1.03%, while Spanish 3-year yields actually fell 10 bps to 0.6%. Both of these are lower than US three-year Treasuries at 1.11%, indicating that the markets no longer contagion from Greece’s problems to the other troubled peripheral Eurozone countries. That means the impact of the political uncertainty on EUR/USD is likely to be much less than in 2012, when Greece held two elections in two months and the threat of a “Grexit” seemed quite real. Nonetheless it is likely to weaken EUR as the yield spread between Bunds and UST widens.
I think the impact of Greece’s politics on the other countries depends to a large degree on whether SYRIZA gets elected and, if it does, how big a change they can negotiate in their bailout conditions. They insist that they want to stay in the euro and have dropped their previous threat to stop repaying their debts as soon as they took office. If they are successful in renegotiating the terms of their agreement with their lenders to ameliorate the humanitarian crisis in the country, then that will embolden the alternative parties in other countries, particularly Spain.
The flight to safety plus lower oil prices sent US interest rates down as well, with longer-dated Fed funds rate expectations falling 6 bps and 10-year bond yields down 5 bps despite the Atlanta Fed raising its US Q4 GDP forecast. Inflation expectations fell back towards the multi-year low levels seen before the December FOMC meeting. Yet the lower rates did not prevent the DXY index from making a 2014 high. This to me demonstrates the demand for USD and the continued assumption that even if tightening in the US is delayed, it will still come before anything like it occurs in the Eurozone. Also, no matter how low US yields fall, at least they are still positive. You have to be pretty bullish EUR to accept negative yields in preference to positive UST yields.
USD/RUBcontinued to move higher, rising another 4% or so back towards 60. GDP shrank 0.5% yoy in November, according to data released yesterday, showing that the Western sanctions and the fall in oil prices have already started to hurt the economy. The continued fall in oil prices yesterday despite an attack on Libya’s largest oil port augers poorly for RUB and indeed for other commodity currencies as well. USD/CAD closed at a 2014 high yesterday while AUD/NZD hit what looks to me like a record low. I think the continued decline in oil and commodity-linked currencies will be another theme for 2015, at least for the beginning of the year. Later on, US oil production may decline as high-cost wells are taken offline, but so far there’s little indication of that happening yet. To add to the problems for AUD, China’s leading index fell in November to the lowest level since the depths of the international financial crisis in early 2009.
Gold fell further despite the news about Greece and lower US interest rates. One wonders just what could push it back up.
Today’s indicators: Eurozone’s M3 money supply for November is forecast to have slightly accelerated to +2.6% yoy from +2.5% yoy in October. This would push the 3-month moving average higher but still only to 2.5%. Meanwhile, credit continues to contract. It shows that the ECB has failed to transmit its monetary policy adequately to the banking system despite its efforts and adds pressure for further action.
In the US, the S & P/Case-Shiller house price index for October is forecast to have accelerated somewhat, while the Conference Board consumer confidence index for December is expected to have risen.
No speakers are scheduled on Tuesday.
Currency Titles:
EUR/USD hits support at 1.2130
GBP/JPY slightly lower
AUD/USD stays supported by the 0.8100 zone
Gold tumbles but finds support at 1180
WTI breaks below 54.40
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EUR/USD advance somewhat on Monday, but after hitting again the resistance of 1.2220 (R2), it tumbled to break below the support (turned into resistance) line of 1.2165 (R1) and to reach our next obstacle of 1.2130 (S1), defined by the low of the 2nd of August. The short-term bias is now back to the downside and I would expect a clear break below the 1.2130 (S1) support to set the stage for extensions towards the 1.2040 (S2) key zone, determined by the low of the 24th of July. The near-term oscillators show that downside momentum is accelerating: the RSI turned down and is now approaching its 30 line, while the MACD, already negative, has topped and appears able to fall below its signal line. On the daily chart, the price structure still suggests a longer-term downtrend. We have lower highs and lower lows below both the 50- and the 200-day moving averages, hence I maintain the stance that the overall path of EUR/USD remains to the downside.
• Support: 1.2130 (S1), 1.2040 (S2), 1.2000 (S3)
• Resistance: 1.2165 (R1), 1.2220 (R2), 1.2300 (R3)
GBP/JPY moved slightly lower yesterday after finding resistance fractionally below the 188.00 (R1) barrier. Since the 18th of the month, the pair has been oscillating between that resistance and the support zone of 186.00 (S1). The RSI slid below 50, and that the MACD, although within its positive field, stands below its trigger pointing down. These signs of weakening momentum make me think that we are likely to experience a near-term pullback in the short term, perhaps for a test at the 186.00 (S1) line. A dip below this bar could lead the rate lower and aim the 185.00 (S2) line. On the daily chart, the pair is still trading above both the 50- and the 200- day moving averages, something that keeps the overall uptrend intact in my view.
• Support: 186.00 (S1), 185.00 (S2), 183.20 (S3)
• Resistance: 188.00 (R1), 190.00 (R2), 192.80 (R3)
AUD/USD moved in a consolidative mode on Monday, staying above the support area of 0.8100 (S1). Given that the last couple of weeks the bears failed to overcome that zone, and having in mind the positive divergence between both our near-term oscillators and the price action, I would be careful that an upside corrective move maybe in the works. This notion is also supported by our daily momentum studies. The 14-day RSI edged up and looks ready to exit its oversold territory, while the MACD has bottomed and moved above its signal line. However, the pair is still trading below both the 50- and the 200- day moving averages and its structure still suggests a longer-term downtrend. As a result, I would treat any possible forthcoming bullish waves as retracements before the bears take the reins again. A move below the 0.8100 (S1) in the not-to-distant future could pull the trigger for the psychological level of 0.8000 (S2).
• Support: 0.8100 (S1), 0.8000 (S2), 0.7865 (S3)
• Resistance: 0.8200 (R1), 0.8275 (R2), 0.8375 (R3)
Gold tumbled on Monday falling below 1192 (R1) and hitting support near 1180 (S1). The bulls were not able to break decisively above the 1200 (R2) key level, but at the same time the metal stayed above 1173 (S2), the 61.8% retracement level of the 7th of November – 9th of December advance. This inability to break out in either direction makes prefer a “wait and see” stance for now. A dip below that barrier would probably shift the near term bias back to the downside. On the other hand, I would like to see a move above 1200 (R2) before getting confident about a near-term bullish extension. Our oscillators do not confirm each other, adding to the mixed picture of the metal. The RSI bottomed and is now testing its 50 line from below, while the MACD has topped within its positive territory and is now testing its zero line.
• Support: 1180 (S1), 1173 (S2), 1165 (S3)
• Resistance: 1192 (R1), 1200 (R2), 1214 (R3)
WTI tumbled yesterday, falling below the key support (turned into resistance) area of 54.40 (R1). In my view, this move signaled the exit of the near-term sideways range and confirmed a forthcoming lower low for the longer-term downtrend. If the bears manage to drive the battle below yesterday’s low of 52.85 (S1), I would expect them to see scope for extensions towards the psychological area of 50.00 (S2). Both our short-term momentum studies stand in their negative territories indicating downward momentum, with the RSI lying near its 30 line and looking able to fall below it. In the bigger picture, as long as WTI is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages, the overall path stays to the downside.
• Support: 52.85 (S1), 50.00 (S2), 48.00 (S3)
• Resistance: 54.40 (R1), 56.60 (R2), 60.00 (R3)
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Market Analysis 31/12/2014
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Market goes into reverse ahead of New Years With one day left in trading, the market went into reverse on Tuesday, selling what’s been bought for much of the year and buying what was sold in order to square up their books for the year. Interest rates in both Europe and the US continued to fall, encouraged by a surprisingly low -1.1% yoy CPI print from Spain for December, which foreshadows a fall into deflation for the Eurozone as a whole next week (consensus forecast: -0.2% yoy, down from +0.3%). EUR/USD did make another 2014 low but recovered. Yet it was the yen that took most of the attention yesterday as the weakness in Japanese stocks pushed USD/JPY lower, as usual.
AUD rose as iron ore prices rosefor the fourth consecutive day on speculation that the Chinese government will take measures to bolster growth and support the property market, such as discontinuing limits on house purchases. While the authorities may well do so, I think they will also takes steps to close down loss-making steel producers. In my opinion that is likely to have more of an impact and I expect Chinese steel production to continue to fall. Moreover, iron ore is still profitable at current prices and so I expect supply to continue to expand, putting downward pressure on ore prices and AUD over the course of next year.
Speaking of China, during the Asian morning, China’s final HSBC manufacturing PMI for December was revised slightly higher to 49.6 from the initial estimate of 49.5, the first sub-50 number since April. Domestic demand led the slowdown as new orders contracted and the employment sub-index fell for the 14th month in a row. The market responded with the now-usual “bad news is good news” rally on the assumption that the fall will spur the government to take steps to boost the economy. I expect the authorities are aiming more to soften the decline than to engineer an acceleration and that investors will eventually be disappointed.
The drop in interest rates and the dollar supported gold, which closed yesterday at 1,203.53, according to Bloomberg. It closed Dec. 30th 2013 at 1,205.05. Not a great performance, but given that German and Japanese bond yields are negative out to four years, it’s not that bad, either. Gold and bonds are now both non-interest-bearing assets – the only question is which you will lose more money in. Bonds probably have less downside but then again they have precious little upside unless you can leverage yourself up considerably in order to take advantage of a few basis points’ return. I don’t expect gold to do that well in 2015 as I think the US Fed will raise interest rates, which should change the picture for the precious metal.
A new indicator for you to watch: the Baker Hughes oil and gas rig count. This is a weekly index of the number of oil and gas drilling rigs in use to explore for, develop and produce oil or natural gas. It’s one way of measuring activity in the oil fields and therefore could be used as a leading index of oil and gas production, although the correlation must be very loose – it says nothing about how big a well is being produced, or whether they find oil, or whatever. In any case, the index for the US peaked recently at 1,929 on Nov. 21st and is now down by 89 rigs or 4.6%. Some commentators say this is just seasonal, but I didn’t see much of a drop last year; in Q4 2013 the index peaked on Dec. 13th and fell by only 1.4% by the end of the year, but was back up to the previous level by the end of January 2014. So it does look like lower oil prices are cutting into exploration at least. The impact on oil prices is likely to be some time in the future however because of course it takes a long time for wells to be drilled and start producing oil. Nonetheless oil for distant future delivery has started rising.
Today’s market: There are no major European indicators out today. US initial jobless claims are expected to have risen to 290k from 280k previously. Nonetheless this will drive the 4-week moving average lower, corroborating the idea of continued improvement in the US labor market. The Chicago purchasing managers’ index is forecast to have declined fractionally in December, while pending home sales for November are expected to have rebounded from the previous month.
Currency Titles:
EUR/USD rebounds after hitting support near 1.2130
USD/JPY dips below 120.00 again
GBP/USD finds again solid support at 1.5500
Gold surges above 1200
WTI in a consolidative mode
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EUR/USD rebounded on Tuesday after finding support at the 1.2130 (S1) area and hit resistance near 1.2180 (R1). A clear move above that resistance hurdle is likely to trigger the extension of the rebound and perhaps take aim at the next obstacle at 1.2220 (R2), defined by the highs of the 26th and the 29th of December. Our near-term momentum studies support my view. The RSI rebounded after finding support near its 30 line, while the MACD, although negative, stands above its trigger line and is pointing north. I also see positive divergence between both these indicators and the price action. These signs designate decelerating downside momentum and magnify the case for the extension of the rebound. Nevertheless, as far as the broader trend is concerned, I still see a longer-term downtrend. On the daily chart, we still have lower peaks and lower troughs below both the 50- and the 200-day moving averages, thus I would treat any possible extensions of yesterday’s rebound as corrective moves before sellers seize control again. I still believe that a clear break below the 1.2130 (S1) support could set the stage for extensions towards the 1.2040 (S2) key zone, determined by the low of the 24th of July 2012.
• Support: 1.2130 (S1), 1.2040 (S2), 1.2000 (S3)
• Resistance: 1.2180 (R1), 1.2220 (R2), 1.2300 (R3)
USD/JPY tumbled yesterday falling again below the support (turned into resistance) of 120.00 (R1), but the decline was halted by the 118.85 (S1) support level. Although the RSI rebounded from just above its 30 line, the MACD, already below its trigger, turned negative and is pointing down. Thus although I expect the price to move higher, I would be careful because the down wave could continue. A clear move below 118.85 (S1) is likely to lead the rate lower and perhaps challenge our next support bar at 117.75 (S2). Zooming out on the daily chart, USD/JPY is still trading above both the 50- and the 200-day moving averages, and the price structure still suggests an uptrend. Therefore, I would expect the recent pullback or any possible extensions of it to provide renewed buying opportunities.
• Support: 118.85 (S1), 117.75 (S2), 115.50 (S3)
• Resistance: 120.00 (R1), 120.85 (R2), 121.85 (R3)
GBP/USD firmed up after finding again solid support near the psychological barrier of 1.5500 (S1). During the early European morning Wednesday, Cable is trading marginally below the resistance hurdle of 1.5585 (R1), where an upside violation is likely extend the bullish wave and perhaps pull the trigger for the next resistance of 1.5680 (R2), defined by the highs of the 18th and 19th of December. Taking a look at our oscillators, I see that the RSI edged higher and moved above its 50 line, while the MACD stands above its trigger and looks willing to obtain a positive sign any time soon. I can also spot positive divergence between the oscillators and the price action. These indications corroborate yesterday’s positive sentiment towards this pair and increase the possibilities for the continuation of the current rebound. In the bigger picture, I maintain the stance that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative. I would treat any upside waves that stay limited below that moving average as retracements.
• Support: 1.5500 (S1), 1.5430 (S2), 1.5200 (S3)
• Resistance: 1.5585 (R1), 1.5680 (R2), 1.5740 (R3)
Gold surged on Tuesday breaking above the key line of 1200 (S1) and confirming a forthcoming higher high on the 4-hour chart. Nonetheless, the precious metal failed to reach our next resistance of 1214 (R1) and pulled back to settle around the 1200 (S1) barrier. Having in mind that yesterday’s move printed a higher high and that both our momentum studies are in a rising mode (as marked by their black upside support lines), I would consider the short-term bias to be mildly to the upside. I would expect the bulls to eventually challenge the 1214 (R1) line, a resistance defined by the high of the 18th of December. Our daily oscillators support the notion as well. The 14-day RSI moved above 50, while the daily MACD appears able to move above both its trigger and zero lines. These signs show that the momentum is probably turning positive again.
• Support: 1200 (S1), 1192 (S2), 1180 (S3)
• Resistance: 1214 (R1), 1223 (R2), 1238 (R3)
WTI moved in a consolidative manner yesterday, staying between the support line of 52.65 (S1) and the resistance of 54.30 (R1). The momentum indicators confirm yesterday’s neutral activity: the RSI is gyrating around its 50 line, while the MACD lies marginally below its zero line, pointing sideways. In the bigger picture, as long as WTI is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages, the overall path stays to the downside. As a result, I would expect a dip below 52.65 (S1) in the not-to-distant future to pull the trigger for the psychological area of 50.00 (S2).
• Support: 52.65 (S1), 50.00 (S2), 48.00 (S3)
• Resistance: 54.30 (R1), 55.60 (R2), 56.60 (R3)
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Market Analysis 02/01/2015
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Dollar starts 2015 on a high note The dollar ended 2014 at its highs for the year, as measured both by the most widely traded pair (EUR/USD) and the most widely followed dollar index (DXY). The Bloomberg USD index and the Fed’s trade-weighted dollar index however both peaked for the year on Dec. 23rd. It also closed at its high for the year against CHF and NOK and near its highs vs AUD, GBP, and CAD. The Bloomberg index opens today above its 2014 peak, demonstrating that the dollar’s rally continues. I expect that dollar strength will be one of the major themes in the FX market for 2015.
NZD was the biggest loser in the G10 overnight with AUD not far behind after China’s official PMI fell to 50.1 in December from 50.3 in November. Although this was a little higher than expectations (50.0), it did contradict the improvement seen between the preliminary and the final HSBC/Markit PMI for December. On the contrary it corroborated the decline in the HSBC index between November and December. It was therefore seen as negative. I expect slowing Chinese growth to be another major theme for 2015 and therefore these two currencies to remain weak.
Some questions creep in about ECB QE The ECB’s chief economist, Peter Praet, Tuesday said the fall in oil prices means the Eurozone risks deflation for a substantial part of 2015 and that the ECB “cannot simply look through” that risk. The comment was a big hint that quantitative easing is coming. Yet Netherlands central bank governor Klaas Knot Wednesday said that the ECB would discuss it at its meeting this month but he was doubtful, because of the politics. “As long as Europe isn’t politically willing to share more risks within the euro zone, it’s not up to us to take such a decision ourselves via the back door,” he said.
And how about the newest member of the ECB Board? Lithuania joins the euro as of Jan. 1st. The country’s central bank chief, Vitas Vasiliauskas, said it’s too early to say how he’ll vote but that he is “flexible” on policy.
In fact the ECB may have to delay QE because of the Greek election. The IMF has already announced that it is suspending financial aid to Greece until a new government is formed. That won’t happen until after the next ECB meeting on Jan. 22nd. It’s not clear (to me, at least) whether the ECB can buy Greek bonds if Greece isn’t in an IMF program. And if SYRIZA gets into power and the Greek government is not in compliance with its rehabilitation program, it may still be problematic for the ECB to buy Greek bonds, and if the ECB can’t buy the bonds of all Eurozone members, then it might not be able to begin its QE program at all. That might help the euro – after all, if anticipation of a QE program is one reason the euro has fallen, then in theory the absence of a QE program should cause it to rise. However, I believe it would make things worse for the euro. It would mean a slower economic recovery and probably longer and deeper in deflation. It would mean no reason for investors to hold onto their Eurozone bonds, which are currently yielding less than comparable US Treasuries in many maturities. It could mean disorderly markets.
Today’s schedule: Friday is PMI day for the rest of the world. It starts with the manufacturing PMI figures for December 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 have increased slightly.
UK mortgage approvals for November are expected to have declined.
In Canada, the RBC manufacturing PMI is coming out but no forecast is available. The Ivey PMI, due out on Jan. 7th, is a more important indicator for Canada.
In the US, the final Markit manufacturing PMI and the ISM manufacturing index are to be released. Usually the market pays more attention to the ISM index, which is estimated to have declined. Nevertheless, investors may want to start the year by reestablishing their USD-long positions after the holidays and so I’m not sure USD would suffer.
Currency Titles:
EUR/USD ready to challenge the 1.2040 line
GBP/JPY rebounds from 185.00
NZD/USD falls after hitting the resistance of 0.7850
Gold finds again support at 1180
WTI rebounds from slightly below 52.65
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Currencies Text:
EUR/USD tumbled on Wednesday, falling below the support (turned into resistance) area of 1.2130 (R1). During the early European morning Friday, the rate is approaching the key zone of 1.2040 (S1), determined by the low of the 24th of July 2012. I would see as a next support the psychological number of 1.2000 (S2). A clear and decisive dip below that psychological support area could prompt extensions towards the 1.1880 (S3) obstacle, marked by the low of the 7th of June 2010. Our near-term momentum studies indicate accelerating bearish momentum and strengthen the case that we are likely to see EUR/USD falling below 1.2040 (S1) soon. The RSI fell below its 30 line and is pointing down, while the MACD, already negative, has crossed below its signal line. As far as the broader trend is concerned, I still see a longer-term downtrend. On the daily chart, we still have lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.2040 (S1), 1.2000 (S2), 1.1880 (S3).
• Resistance: 1.2130 (R1), 1.2180 (R2), 1.2220 (R3).
GBP/JPY edged higher after hitting the support line of 185.00 (S1) and the 200-period moving average. On Friday, this rate is heading towards the key resistance line of 188.00 (R1), where a break is likely to pull the trigger for the psychological barrier of 190.00 (R2). The recent positive sentiment towards GBP/JPY is also printed on our near-term oscillators. The RSI shot up after hitting its 30 line and edged above 50, while the MACD has bottomed slightly below its zero line, crossed above its trigger and looks likely to turn positive soon. On the daily chart, the pair is still trading above both the 50- and the 200- day moving averages, something that keeps the overall uptrend intact in my view.
• Support: 185.00 (S1), 183.20 (S2), 181.55 (S3) .
• Resistance: 188.00 (R1), 190.00 (R2), 192.80 (R3).
NZD/USD fell sharply on Wednesday after triggering some sell orders near the resistance hurdle of 0.7850 (R2). Currently, the bears are testing the support line of 0.7745 (S1). If they manage to break it, I would expect them to lead the rate towards our next support obstacle at 0.7700 (S2). Our short-term momentum studies corroborate my view. The RSI tumbled below 50 after finding resistance near its 70 line, while the MACD has topped, fallen below its trigger and looks able to move below its zero line in the close future. As far as the bigger picture is concerned, I would prefer to sit on the sidelines for now, since I see positive divergence between our daily oscillators and the price action, indicating that the prevailing longer-term downtrend is running out of momentum.
• Support: 0.7745 (S1), 0.7700 (S2), 0.7660 (S3).
• Resistance: 0.7800 (R1), 0.7850 (R2), 0.7915 (R3).
Gold fell on Wednesday but the decline was halted once again by the 1180 (S1) support zone. The bulls were not able to maintain the price above 1200, but at the same time the metal stayed above 1173 (S2), the 61.8% retracement level of the 7th of November – 9th of December advance. Having that in mind, I would change my stance to neutral again and wait for a clearer trending structure. A dip below the 1173 (S2) barrier would probably shift the near term bias back to the downside. On the other hand, only a move above 1210 (R2) could confirm a forthcoming higher high on the daily chart. Once again our oscillators do not confirm each other, adding to the mixed picture for the yellow metal. The RSI, although below 50, has turned up, but the MACD, already below its trigger line, obtained a negative sign.
• Support: 1180 (S1), 1173 (S2), 1165 (S3).
• Resistance: 1197 (R1), 1210 (R2), 1222 (R3).
WTI firmed up after finding some buy orders marginally below the 52.65 (S1) support barrier. However, the advance was halted slightly above our resistance line of 54.30 (R1). Taking into account that WTI has been oscillating between these levels since the 29th of December, I would consider the short-term path to be sideways and I would expect the forthcoming wave to be to the downside, perhaps for another test near the 52.65 (S1) area. Our short-term momentum studies support the notion. The RSI has turned down and is now heading towards its 50 line, while the MACD, although positive, shows signs of topping and could move below its trigger line at any time. In the bigger picture, as long as WTI is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages, the overall path stays to the downside. As a result, I still expect a dip below 52.65 (S1) in the not-to-distant future to pull the trigger for the psychological area of 50.00 (S2).
• Support: 52.65 (S1), 50.00 (S2), 48.00 (S3).
• Resistance: 54.30 (R1), 55.60 (R2), 56.60 (R3) .
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