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IronFX Daily Commentary | 03/08/15
Language English
• Dollar rallies on end-month buying The FOMC has said that the decision on whether to raise rates depends on the US economic data, so traders are ultra-sensitive to the US data nowadays. Friday’s Q2 employment cost index (ECI) shocked the market on the downside, with the smallest qoq growth in earnings since the series began in 1982. The Fed wants to see rising compensation and people quitting their jobs at an increasing pace as indirect indications of a firmer employment market. The disappointment led to some dollar weakness as this was the last ECI report before the September FOMC meeting, but gradually investors dug into the data more and found that there were many special factors that reduced its credibility. End-month buying took over after that and the dollar ended Friday generally higher even though fed funds rate expectations fell notably – end-2016 is back below 1%, for example.
• The dollar was helped by comments from St. Louis Fed President James Bullard, who said that the outlook for the US economy “remains fairly good” and that the latest data boosts the case for a rate hike in September. Although Bullard isn’t a voting member of the FOMC right now, his comments do show how some members of the FOMC must be viewing the data.
• Oil falls sharply on OPEC output, China fears; oil currencies fall too Oil fell sharply on Friday after the OPEC Secretary General said the group is “not ready” to cut production, while sluggish demand in China may reduce demand. The fact that Exxon Mobil Corp. and Chevron Corp, the biggest US energy producers, also announced disappointing earnings didn’t help matters either. Then the Iranian oil minister was quoted as saying Iran’s production can increase by 1mn barrels a day one month after sanctions are lifted, which Iran expects to happen by late November. That’s all the market needs to hears. Then this morning, the Caixin/Markit China manufacturing PMI for July was revised down sharply to 47.8 from 48.2, showing that the contraction in manufacturing is accelerating, which has caused oil to fall further today.
• The plunging oil price explains why CAD and NOK are the two worst-performing G10 currencies and RUB the second-worst performing EM currency. (TRY remains the worst performing, falling another 4% or so.) However, MXN continued to recover, as did the Eastern European currencies. I remain bearish on oil and therefore bearish on these oil currencies in particular, commodity currencies in general.
• On the other hand, sterling looks like it could gain further as positioning is neutral (see below). There is a lot of news coming out about sterling on Thursday that could be the catalyst for a further leg up in the currency (or down too, don’t forget) (see below for details).
• Commitment of Traders report: positioning at extremes Positioning among speculators is hitting extreme levels for several currencies plus the precious metals. Investors seem very bearish indeed on the commodity-related currencies, especially those related to oil, even though positioning in oil itself is neutral. The large shorts in MXN may explain the snapback we’ve been seeing since the Mexican central bank announced that it would intervene in the FX market. Note though that positioning in the main G10 currencies – including EUR but more specifically JPY, GBP and CHF -- is quite neutral. This signals to me that there is plenty of room for speculators to expand positions in these currencies, particularly short JPY and long GBP.
• Today’s highlights: During the European day, we get the final manufacturing PMI figures for several European countries, and the Eurozone as a whole. As usual, the final forecasts are the same as the initial estimates. Market reaction on these news is usually limited unless there is a huge revision from the preliminary figures.
• The Greek stock market will reopen today. While it’s been closed, an ETF on Greek stocks listed in New York (GREK) has fallen by 17%. That may be a reasonable estimate for what will happen when the Greek market reopens.
• In the US, we get the personal income and personal spending for June. Both are forecast to decelerate on a mom basis. The market will most likely focus on personal spending, which is forecast to slow sharply from May = a negative for the dollar. Even though the preliminary US GDP expanded in Q2, solid spending is needed to suggest that the economy has the steady momentum necessary to bring the Fed closer to a rate hike this year. Therefore, a significant positive surprise is needed for the USD to remain supported. The yoy rate of the PCE deflator and core PCE for June are also coming out. The PCE deflator is expected to decelerate, while the core PCE is forecast to remain unchanged in pace from May. The ISM manufacturing PMI index comes out a bit later and is expected to be unchanged at 53.5, which may offset the negative spending figures somewhat. Also, the final Markit service-sector PMI for July is due out.
• As for the speakers, Fed Governor Jerome Powell speaks.
• Rest of the week: We have a very busy week, featuring three G10 central bank meetings and the US nonfarm payrolls.
• Tuesday: The main event will be the Reserve Bank of Australia (RBA) policy meeting. At their last meeting, the RBA kept its cash rate unchanged and maintained a neutral bias as far as their future stance. The forecast is for the RBA to remain on hold again, hence the focus will most likely be on the statement accompanying the rate decision for any hints regarding the future path of the interest rate. If they maintain their neutral stance, AUD could strengthen a bit, at least temporarily.
• Wednesday: In the US, the ADP employment report for July is coming out two days ahead of the nonfarm payroll release, as usual. The ADP report is expected to show that the private sector gained fewer jobs in July than it did in the previous month, but still above the crucial 200k level. With a little more than a month before Fed’s September meeting, further improvement in the labor market is likely to increase speculation about the Fed raising rates.
• Thursday: We have a very big day in the UK, it’s going to be a super-Thursday as we have the Bank of England policy meeting, the release of the minutes of the meeting with the officials’ votes, and new forecasts about the economy, all at the same time. On top of that, the August Inflation Report will be published simultaneously. This will be a massive amount of information and data that the market will have to digest very quickly. Besides the huge amount of data, the recent commentary by a number of MPC members suggest that a few of them are moving towards voting for the first rate increase. Therefore, we could have some dissenting votes this time. In such case, and along with new upbeat GDP and CPI forecasts, we believe that the pound would probably strengthen across the board, particularly against the weaker commodity currencies.
• Friday: The main event of the day will be the US nonfarm payrolls! The current market forecast for July is for an increase in payrolls of 223k, the same as in June. Another reading above 200k would suggest that the US labor market is gathering momentum and is likely to keep USD supported against its peers. Canada’s unemployment rate for July is also due to be released Friday.
• In addition to the employment reports, Bank of Japan hold its policy meeting Friday. Market expectations – and ours -- are for no change in BoJ policy. The focus will most likely be on Gov. Kuroda’s press conference afterwards. There will be particular interest in anything he might say about the controversy over revising the CPI statistics as part of the usual revisions every five year.
Currency Titles:
EUR/USD surges on the Employment Cost Index
GBP/USD once again hits the 1.5670 barrier
EUR/JPY climbs and hits resistance at 137.35
Gold rebounds from 1080
WTI continues its tumble and hits 46.35
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Currencies Text:
• EUR/USD surged on Friday after the US Employment Cost Index for Q2 rose by the lowest in the 33-year history of the report. Nevertheless, the rally was stopped at 1.1115 (R1) and the pair gave back a large portion of its gains. During the early European morning, EUR/UD is trading slightly above the 1.0965 (S1) line. A dip below that is likely to open the way for another test of the 1.0900 (S2) territory. Taking a look at our short-term oscillators though, I would be wary of an upside corrective bounce before the next negative leg, perhaps for a test at the 1.1020 (R1) line. The RSI shows signs of bottoming near its 50 line, while the MACD stands fractionally above its trigger line and could turn positive soon.
• As for the broader trend, as long as the pair is trading between 1.0800 and 1.1500, I would see a neutral longer-term picture. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.0965 (S1), 1.0900 (S2), 1.0870 (S3)
• Resistance: 1.1020 (R1), 1.1115 (R2), 1.1200 (R3)
• GBP/USD found support near the 1.5560 (S1) line on Friday and rebounded to hit once again the strong resistance hurdle of 1.5670 (R1). I still believe that the short-term picture is cautiously positive, and therefore, a break above that resistance would confirm a forthcoming higher high on the 4-hour chart and perhaps open the way for the 1.5735 (R2) line. The RSI, already above its 50 line, looks ready to turn up again, while the MACD stands positive and just poked its nose above its trigger line. These indicators detect positive momentum and support that the pair could trade higher, at least in the short run. On the daily chart, Cable is still trading above the 80-day exponential moving average. This makes me believe that the overall picture remains somewhat positive as well and that there is still the likelihood for the rate to trade higher in the not-to-distant future.
• Support: 1.5560 (S1), 1.5465 (S2), 1.5410 (S3)
• Resistance: 1.5670 (R1), 1.5735 (R2), 1.5780 (R3)
• UR/JPY traded higher on Friday after it hit support at 135.50 (S2). Subsequently, the rate found resistance at 137.35 (R2) and retreated to find support at 135.90 (S1). I believe that the short-term picture stays somewhat positive and therefore, I would expect the forthcoming wave to be positive, perhaps to challenge once again the 137.00 (R1) barrier. Our short-term oscillators stand near their equilibrium lines, but the RSI has turned up and looks ready to move above 50 soon. This corroborates my view that the forthcoming move is likely to be to the upside. On the daily chart, the pair is still trading above the medium-term uptrend line taken from the low of the 14th of April, and above the 133.30 support area, which stands marginally below the 50% retracement level of the 14th of April – 4th of June advance. As a result, I would see a cautiously positive longer-term picture as well. I would like to see a daily close below that area before I assume that the medium-term picture has turned negative.
• Support: 135.90 (S1), 135.50 (S2), 135.00 (S3)
• Resistance: 137.00 (R1), 137.35 (R2), 138.00 (R3)
• Gold traded higher on Friday after it hit support at 1080 (S1). The metal has been oscillating between the aforementioned support and the resistance of 1105 (R1) since the 21st of July, therefore I would consider the short-term picture to be neutral. Looking at our short-term momentum indicators though, it is possible that gold could extend a bit higher. The RSI rebounded from its 50 line, while the MACD stands above its trigger line and could obtain a positive sign soon. What is more, there is positive divergence between both these indicators and the price action. A clear move above 1105 (R1) is likely to confirm the case and perhaps extend the bullish wave towards our next resistance of 1120 (R2). In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and kept the overall bias of the yellow metal to the downside, in my view.
• Support: 1080 (S1), 1072 (S2), 1060 (S3)
• Resistance: 1105 (R1), 1120 (R2), 1130 (R3)
• WTI continued falling on Friday and during the Asian morning Monday, it hit support at 46.35 (S2). The short-term outlook remains negative, but I would now expect the forthcoming wave to be positive, perhaps for a test at the 47.40 (R1) resistance barrier. The 14-hour RSI has just exited its below-30 territory, while the hourly MACD has bottomed and could cross above its trigger line soon. On the downside, a move below 46.35 (S2) is needed to confirm a forthcoming lower low, and could probably open the way for the psychological barrier of 45.00 (S3). On the daily chart, I see that the medium-term trend is negative as well.
• Support: 46.70 (S1), 46.35 (S2), 45.00 (S3)
• Resistance: 47.40 (R1) 48.65 (R2), 49.50 (R3)
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IronFX Daily Commentary | 04/08/15
Language English
• Commodity prices continue to fall as global growth slows: Yesterday’s purchasing managers’ indices (PMIs) showed continued weakness in global growth, with seven of the Asian PMIs remaining below the 50 line that signals the difference between expansion and contraction. New orders remain sluggish, suggesting that demand is weak. This suggests continued poor trade performance from these countries and a continued preference for a weak currency. In the US too, the ISM manufacturing index fell to 52.7 from 53.5; although new orders and production were both higher, new export orders fell further into below-50 territory, corroborating the slide in global demand. Switzerland and France were both below 50. On the other hand, Italy and Spain were both in expansionary territory, indicating that some of the peripheral countries (but not all! See below) are recovering.
• One horror story: the Greek PMI collapsed to 30.2 as employment plunged. That suggests a contraction in GDP of around 16%. It’ll be interesting to see how Germany plans on getting its money back once all the Greek companies have gone bankrupt and the entire country is unemployed.
• Meanwhile, every metal listed on Bloomberg is lower this morning, as are about half the agricultural commodities. Oil prices are up from their New York close but are down substantially on the day. Of particular note is that the longer-dated oil contracts are also moving down, albeit not as much as the near-term contracts. The fall in longer-dated prices is important for monetary policy because some central banks, including the ECB, use the oil futures curves in forecasting future oil prices and therefore future inflation rates. The market’s forecast that oil prices will not rebound back to previous levels will therefore influence central banks’ forecasts for inflation and their monetary policy response. In addition of course, the broad-based decline in commodity prices means that the fall in prices is much broader than just lower oil, and so the monetary policy response is likely to be stronger as well.
• Conclusion: “currency wars” to continue The official response to these two problems – sluggish global growth and falling commodity prices – would both be to keep interest rates low and try to prevent currencies from appreciating. In other words, if each central bank responds the way it should to its domestic problems, the result is likely to be a resumption of the “currency wars” as each one tries to loosen policy relative to the next. This kind of response is generally good for financial markets, as low interest rates may support stock and bond prices, but it risks competitive devaluations and increased friction in the currency markets. Ultimately it may give rise to trade restrictions, particularly in the US, whose trade deficit (= demand excess) seems to be the counterpart to much of the world’s trade surpluses (= demand deficits).
• In this context, USD and GBP are likely to be in demand as the only currencies bucking the loosening trend. The commodity currencies, especially those dependent on trade with China, are likely to weaken as their terms of trade deteriorate further. EM currencies may continue to weaken as global growth slows and their export-oriented economic structures come under stress.
• RBA keeps rates steady, as expected; signals AUD has fallen far enough The Reserve Bank of Australia (RBA) met today and kept rates unchanged, as expected. The key point for the FX market was that it removed the line from its statement that “Further depreciation (of AUD) seems both likely and necessary, particularly given the significant declines in key commodity prices” instead saying only that “The Australian dollar is adjusting to the significant declines in key commodity prices.” The conclusion of the statement was unchanged from July, which was resolutely neutral. In the long run however I would expect AUD to remain under pressure as the slowdown in the mining sector and mining investment has been substantial, and the Bank now puts emphasis on the slowdown in non-mining business investment as well. With several surveys pointing to weak investment over the coming year, not to mention the falling commodity prices, AUD could head lower, in my opinion.
• Today’s highlights: During the European day, we have a relatively light calendar day. Eurozone’s PPI for July is expected to fall at an accelerating pace. In Norway, manufacturing PMI for July is expected to remain unchanged at 44.0, below the threshold of 50 level dividing expansion from contraction. Coming on top of the falling oil prices, this could put further selling pressure on NOK.
• In the UK, we get the construction PMI for July. Following the improved manufacturing PMI on Monday, another strong reading could strengthen GBP. The Nationwide house price index came out at +0.4% mom, as expected, showing that house prices continue to rise.
• From Canada, we get the RBC manufacturing PMI for July. No forecast is available for this indicator and the market pays more attention to the Ivey PMI to be released on Friday. Therefore, the market reaction could be limited at the release.
• From the US, the factory orders for June are forecast to rise, a turnaround from the previous month. This could prove USD-supportive.
Currency Titles:
EUR/USD falls below the 1.0965 barrier
AUD/USD races higher after the RBA decision
GBP/JPY finds support at 193.00
Gold falls back to 1080
DAX trades higher and hits resistance at 11470
Currencies Image Url:
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Currencies Text:
• EUR/USD traded lower on Monday, falling below the support (now turned into resistance) hurdle of 1.0965 (R1). I would now expect the bears to continue pushing the rate down and to eventually aim for another test at the 1.0900 (R1) territory. Our short-term oscillators detect negative momentum and amplify the case. The RSI declined after falling below its 50 line, while the MACD, already negative, has fallen below its trigger line. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would expect the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.0900 (S1), 1.0870 (S2), 1.0810 (S3)
• Resistance: 1.0965 (R1), 1.1020 (R2), 1.1115 (R3)
• AUD/USD edged higher during the early European morning Tuesday after the RBA kept its key policy rate unchanged and removed the phrase that “further fall in AUD is likely and necessary” from its statement. The rate rebounded after hitting support fractionally above the 0.7250 (S1) barrier and is now headed towards the 0.7350 (R1) obstacle. The pair has been trading between these barriers since the 24th of July, and hence, I still consider the near-term picture to be neutral. Taking a look at our short-term oscillators though, I see signs that the pair could extend higher. The RSI emerged above its 50 line and is now pointing up, while the MACD, although negative, has moved again above its trigger line. What is more, there is positive divergence between both these indicators and the price action. A break above 0.7350 (R1) would confirm the case and perhaps target our next resistance at 0.7420 (R2). On the daily chart, the completion of a head and shoulders formation and the move below the psychological zone of 0.7500 (R3) signaled the continuation of the prevailing long-term downtrend, in my opinion. Therefore, I would consider any possible future advances as a corrective move of that major down path. I would expect a clear move below 0.7250 (S1) in the future to open the way for the psychological zone of 0.7000 (S2).
• Support: 0.7250 (S1), 0.7000 (S2), 0.6900 (S3)
• Resistance: 0.7350 (R1), 0.7420 (R2), 0.7500 (R3)
• GBP/JPY declined on Monday, but during the early European morning Tuesday, it hit support at 193.00 (S1) and rebounded. I believe that the short-term outlook is somewhat positive and I would expect the forthcoming wave to be positive, perhaps for another test at the 194.50 (R1) barrier. A break above that level would probably extend the bullish wave and perhaps target the 195.15 (R2) hurdle, marked by the high of the 26th of June. The RSI has bottomed slightly below its 50 line and just poked its nose within its bullish territory, while the MACD, already positive, shows signs of bottoming and could move above its trigger line any time soon. These signs increase the likelihood that GBP/JPY might trade higher in the near term. On the daily chart, I see that on the 8th of July, the rate rebounded from the 185.00 psychological zone, which stands pretty close to the 50% retracement level of the 14th of April – 24th of June rally. As a result, I would consider the overall path of this pair to be to the upside as well.
• Support: 193.00 (S1), 192.50 (S2), 191.40 (S3)
• Resistance: 194.50 (R1), 195.15 (R2), 195.80 (R3)
• Gold tumbled on Monday to hit once again the support zone of 1080 (S1). The metal has been oscillating between that support area and the resistance of 1105 (R1) since the 21st of July, therefore I would consider the short-term picture to be neutral. A break below 1080 (S1) is likely to shift the bias to the negative and perhaps bring into play the 1072 (S2) barrier marked by the low of the 20th of July. A break below that hurdle would set the stage for more bearish extensions and perhaps target the 1060 (S3) zone. Our short-term oscillators reveal negative momentum and increase the likelihood of the metal exiting the sideways range to the downside. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and kept the overall bias of the yellow metal to the downside, in my view.
• Support: 1080 (S1), 1072 (S2), 1060 (S3)
• Resistance: 1105 (R1), 1120 (R2), 1130 (R3)
• DAX futures continued trading north on Monday, but the advance was halted at 11470 (R1). Since the index has broken the short-term downtrend line taken from the peak of the 21st of July, I would consider the near-term bias to have turned positive. As a result, I would expect a clear move above 11470 (R1) to open the way for the next resistance at 11640 (R2). Our short-term oscillators detect upside speed and corroborate my view. The RSI emerged above its 50 line, while the MACD, already above its trigger line, has turned positive. As for the broader trend, given the 20th -27th July plunge, I would switch my stance to neutral. I would like to see a clear close above 11800 (R3) before I get confident on the continuation of the major upside path. On the downside, only a daily close below 10670 would confirm a forthcoming lower low on the daily chart and turn the overall bias of DAX to the downside.
• Support: 11280 (S1), 11140 (S2), 11030 (S3)
• Resistance: 11470 (R1) 11640 (R2), 11800 (R3)
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IronFX Daily Commentary | 05/08/15
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• Lockhart changes the way of looking at Fed rate decision Will they raise rates this year? Will the data be good enough to support a rate hike? These have been the major questions for financial markets his year. Overnight the debate turned around and raising rates became the default position after Atlanta Fed President Lockhart said “the economy is ready and it is an appropriate time to make a change.” Rather than looking for an improvement in the economy to convince him to tighten in September, he said there would have to be “a significant deterioration in the economic picture” to convince him not to move. In other words, the calculus is reversed. This is important because Lockhart tends to be a centrist among the FOMC members, neither a noted dove nor hawk. For example, back in May he said, “I am more prepared to take the risks of waiting than the risks of being too early, particularly in light of what we saw in Q1.” Following St. Louis Fed President Bullard’s comments Friday that the economy is “in good shape,” his comments indicate a growing view among the Committee, albeit not yet a majority.
• Following his comments, Fed funds futures were predicting 0.185% for September and were back above 1% for December 2016, although just barely (1.03%). This strengthened the dollar against almost all currencies. I would expect the dollar to remain strong, at least this week, as the labor market data is likely to show continued gains towards the Fed’s policy goals. Unfortunately there are few Fed officials speaking in the near future to give further clarification – Lockhart gives a speech on Aug. 10th and noted dove Minneapolis Fed President Kocherlakota on Aug. 20th. We may have to wait until the annual Jackson Hole symposium on Aug. 27th to get detailed views from more Fed officials.
• Commodities rebound a little Commodities rebounded slightly on Tuesday, perhaps because of some stabilization in the Chinese stock market (which has resumed falling today). Oil gained after the API inventory report showing a bigger drawdown than expected. That helped the commodity currencies somewhat, although they were still generally lower vs USD – CAD for example was down only slightly despite the disappointing decline in the Canadian manufacturing PMI in July, reversing several months of recovery.
• AUD has been gradually moving lower but is still well above its level of before the RBA meeting as the market digests the change in its view on the currency. NZD however fell as the average winning price at the biweekly dairy auction declined once again, the ninth consecutive decline. The price is now down 38% from its peak in March, which is a dramatic fall in just a few months. Moreover the unemployment rate rose to 5.9% from 5.8%, as expected, making further loosening all the more likely.
• I believe that just as investors were talking about a “commodity supercycle” a few years ago, we are now in a chronic situation of oversupply and prices are likely to continue to decline. Against that background, we can expect the commodity currencies to weaken further.
• China’s service sector doing OK: China’s Caixin service-sector PMI for July rose to 53.8 from 51.8, as the service sector in China – as in much of the world – is doing better than manufacturing. This is particularly important for China, where the government is trying to rebalance the economy away from investment and towards domestic demand. The overall PMI however declined to 50.2 from 50.6, meaning the economy as a whole is perilously close to contraction.
• Today’s highlights: During the European day, we get the final service-sector PMIs for July from the countries we got the manufacturing data for on Monday. As usual, the final forecasts for France, Germany and Eurozone are the same as the initial estimates, therefore the market reaction is usually limited at these releases. Eurozone’s retail sales for June are coming out as well.
• The UK service-sector PMI is forecast to have slid to 58.0 in July from 58.5 in June. After the mixed manufacturing and construction PMIs for July, a slide in the service-sector PMI could prove GBP-negative.
• The main indicator for the day is the US ADP employment change for July coming out two days ahead of the nonfarm payroll release. The ADP report is expected to show that the private sector gained fewer jobs in July than it did in the previous month. Although there is a lot of variation between the ADP and the NFP reports, if the ADP report comes strong and prints another solid above 200k reading, the market is likely to assume that the nonfarm payroll figure may come in strong as well and boost the dollar. Further improvement in the labor market is likely to keep confidence up that the Fed is on track to raise rates.
Currency Titles:
EUR/USD collapses after hitting resistance at 1.0990
EUR/GBP breaks below 0.7000
USD/JPY is testing once again the 124.50 hurdle
Gold continues within the range
WTI corrects higher after hitting 45.00
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Currencies Text:
• EUR/USD plunged on Tuesday after it hit resistance at 1.0990 and crushed three support barriers in a row. Now the rate is trading slightly below the 1.0870 (R1) line and therefore I would expect the bears to extend the negative move and perhaps target the 1.0810 (S1) barrier. Our short-term oscillators detect negative momentum and amplify the case for a further downward move. The RSI slid after it hit resistance near its 50 line, while the MACD, already negative, has fallen below its trigger line. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 (S2) is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.0810 (S1), 1.0800 (S2), 1.0660 (S3)
• Resistance: 1.0870 (R1), 1.0900 (R2), 1.0930 (R3)
• EUR/GBP traded lower on Tuesday, breaking below the psychological figure of 0.7000 (R1). The rate is trading below the prior uptrend line taken from the low of the 17th of July and within the downside channel that has been containing the price action since the 24th of July. As a result, I would consider the short-term outlook to remain negative. I would expect the move below 0.7000 (R1) to target the 0.6970 (S1) barrier. A dip through that level could extend the negative move, perhaps towards 0.6935 (S2). Both our momentum studies reveal downside speed, but the RSI has turned somewhat up, raising some concerns that a corrective bounce could be on the cards before the next bearish leg. On the daily chart, the price structure remains lower peaks and lower troughs. Therefore, I believe that the overall picture is negative as well.
• Support: 0.6970 (S1), 0.6935 (S2), 0.6900 (S3)
• Resistance: 0.7000 (R1), 0.7045 (R2), 0.7100 (R3)
• USD/JPY traded higher on Tuesday after it hit support at 123.80 (S1). During the early European morning Wednesday, the rate appears ready to challenge again the 124.50 (R1) barrier, where an upside break could trigger extensions towards the psychological zone of 125.00 (R2). Our short-term oscillators show positive momentum: the RSI rebounded from its 50 line and now looks to be headed towards its 70 line, while the MACD, already positive, has bottomed and crossed above its trigger line. These indicators increase the likelihood that this time we may experience the break above 124.50 (R1).
• As for the broader trend, I still believe that the break above the downtrend line taken from the peak of the 5th of June signaled the continuation of the longer-term uptrend.
• Support: 123.80 (S1), 123.40 (S2), 123.00 (S3)
• Resistance: 124.50 (R1), 125.00 (R2), 125.80 (R3)
• Gold rebounded somewhat on Tuesday, hit resistance at 1095 (R1) and then slid to trade virtually unchanged. The metal has been oscillating between the support area of 1080 (S1) and the resistance of 1105 (R2) since the 21st of July, therefore I view the short-term picture as remaining neutral. A break below 1080 (S1) is likely to shift the bias to negative and perhaps bring into play the 1072 (S2) barrier marked by the low of the 20th of July. A break below that hurdle could set the stage for more bearish extensions and perhaps target the 1060 (S3) zone. Our short-term oscillators reveal negative momentum and increase the likelihood that the metal would exit the sideways range to the downside. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and kept the overall bias of the yellow metal to the downside, in my view.
• Support: 1080 (S1), 1072 (S2), 1060 (S3)
• Resistance: 1095 (R1), 1105 (R2), 1120 (R3)
• WTI traded higher after it found support at the psychological zone of 45.00 (S2). It moved above 45.60 (S1), but fell short of reaching the 46.50 (R1) resistance hurdle. In my opinion, the price structure on the 1-hour chart still suggests a short-term downtrend. As a result, I would treat the recovery from 45.00 (S2) as a corrective move and I would expect the bears to eventually take control again. A break back below 45.60 (S1) is likely to confirm my view and perhaps target once again the 45.00 (S2) zone. The 14-hour RSI looks ready to move back below 50, while the MACD, although positive, it points sideways. These signs show that the upside corrective move is running out of momentum and that it is possible to experience the next negative move any time soon.
• Similarly, in the absence of any major bullish reversal signals in the daily chart, I would consider the longer-term trend to still be to the downside. A break below 45.00 though is needed to confirm a forthcoming lower low. Something like that could open the way for the 44.00 zone, defined by the low of the 18th of March.
• Support: 45.60 (S1), 45.00 (S2), 44.00 (S3)
• Resistance: 46.50 (R1) 46.90 (R2), 47.35 (R3)
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IronFX Daily Commentary | 06/08/15
Language English
• Markets still watching the data: Despite Atlanta Fed President Lockhart’s comments about raising rates in September, the market is still watching the data closely. Maybe that was because Fed Gov. Jerome Powell started the US day off by saying that although the time for a rate hike was coming, he was still undecided about when the right time was and that he’d be “very, very focused on the data.” He said he would be especially attuned to employment data, which he said has been giving a better signal of growth than the GDP numbers. In that respect, Wednesday’s disappointing ADP report was definitely a negative event for the USD and the currency fell temporarily.
• But then the July non-manufacturing ISM index came in very strong, with the employment component particularly strong – both at post-crisis highs, indeed the highest levels in nearly 10 years. The implications of that number for Friday’s payroll figure partially cancelled out the weak ADP report and investors apparently still expect a number over 200k. That would be enough to satisfy those FOMC members who want to tighten in September and Fed funds rate expectations continued to rise. Nonetheless USD was opening modestly lower in Europe this morning against most of the G10 currencies, the exceptions being AUD, JPY and CHF.
• I expect that the market won’t be fully convinced about the Fed’s intentions until of course the Committee announces its decision on Sep. 17th. But until then there is still plenty of room for the market to revise up its rate expectations, which are currently pricing in only about a 50-50 chance of a rate hike in September. That means USD can still strengthen further, in my view.
• AUD falls on higher unemployment AUD fell this morning after unemployment in July rose to 6.3% from 6.1%. However, in my view the news was actually good: the number of employed people rose far more than expected and the rise in unemployment was largely due to a rise in the participation rate, not the number of unemployed persons. However the market focused on the overall number, probably due to the “challenges” that the statistics agency has said it faces in compiling the report, which makes it less trustworthy. In any event a weaker AUD would go a long with the weaker tone in commodities yet again today, so the trend seems likely to continue.
• Oil falls further despite bigger-than-expected drawdown Oil prices continued to fall in the US despite a much larger-than-expected decline in US inventories in the latest week. Nationwide refinery demand hit a record high. However, US domestic oil production continued to rise, and despite the big drawdown, inventories remain far above the usual level for this time of year, so prices fell anyway. I see this is a very bearish indication and so I remain negative on oil and the oil-related currencies. NOK was the strongest G10 currency over the last 24 hours; I’d suggest taking a look at whether it’s worth shorting it.
• Today’s highlights: focus on Bank of England The spotlight today will be squarely on the Bank of England. We have a very big day in the UK, as the Bank will release its rate decision and the minutes of the meeting, plus the quarterly Inflation Report, all at the same time. The first reaction will most likely be on the number of dissenting votes, if any, and later on the new economic forecasts. Market expectations and ours are that the two most hawkish MPC members, Weale and McCafferty, will once again vote to raise rates by 25 bps, as they did up to and including last December.
• The minutes of the last meeting showed that if it had not been for the crisis in Greece and China, a number of members would have found the decision not to raise rates more finely balanced than before. Therefore, in the absence of these uncertainties, the hawks could decide to split and vote for a small increase in interest rates. If another member joins the dissenters this could be noticeably GBP-bullish.
• Following the tidal wave of the votes, we will shift our focus to the new economic forecasts for signs of further GBP support. Even though GBP has continued its choppy price action against EUR and USD, the pound has strengthened significantly against the commodity currencies AUD, NZD and CAD, and the Nordics SEK and NOK.
• As for the indicators, German factory orders for June were much stronger than expected, rising 2.0% mom instead of 0.3% as expected. EUR/USD spiked up on the news.
• UK industrial production for June will be released.
• In the US, initial jobless claims for the week ended Aug. 1 are due to be released.
Currency Titles:
EUR/USD hits support at 1.0850 and rebounds
GBP/USD getting ready for the big day
EUR/JPY rebounds and hits resistance at 136.40
Gold trades in a quiet mode
DAX futures extend higher and hit 11640
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• EUR/USD failed to extend lower towards the 1.0810 (S2) barrier on Wednesday. It hit support at 1.0850 (S1) and following the disappointing US ADP report, it rebounded to find resistance at 1.0935 (R1). Now the rate is trading slightly below the 1.0935 (R1) line, and since the possibility for a lower high still exists, I would consider the short-term trend to remain negative. I would expect the bears to eventually take control and drive the battle down for another test at the 1.0850 (S1) barrier. Taking a look at our momentum studies though, I see signs that the rebound may continue for a while. The RSI edged higher after hitting its 30 line, while the MACD, although negative, has bottomed and crossed above its trigger line. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 (S3) is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.0850 (S1), 1.0810 (S2), 1.0800 (S3)
• Resistance: 1.0935 (R1), 1.0990 (R2), 1.1020 (R3)
• GBP/USD traded higher after it hit support at the 1.5525 (S1) line. Since there is no clear trending structure on the 4-hour chart, I consider the near-term path to be to the sideways. I prefer to wait for a break above the well-tested resistance zone of 1.5670 (R2) before I get more confident on the upside. Today, the BoE releases its rate decision, the minutes of the meeting and the quarterly Inflation Report, all at the same time. Any dissenting votes along with upbeat growth and inflation forecasts could be the catalyst for a break above the aforementioned key resistance zone. Something like that would confirm a forthcoming higher high and could initially target the 1.5735 (R3) resistance line, defined by the peak of the 1st of July. As for the broader trend, the price structure on the daily chart still suggests an uptrend. What is more, Cable is still trading above the 80-day exponential moving average. These technical signs make me believe that the overall picture remains somewhat positive and that there is still the likelihood for the rate to trade higher.
• Support: 1.5525 (S1), 1.5465 (S2), 1.5410 (S3)
• Resistance: 1.5635 (R1), 1.5670 (R2), 1.5735 (R3)
• EUR/JPY traded higher on Wednesday after hitting support at the psychological zone of 135.00 (S2). However, the advance was halted at 136.40 (R1). As long as the pair is trading within the short-term downside channel that has been containing the price action since the 31st of July, I would consider the near-term outlook to be bearish and I would expect the forthcoming wave to be to the downside, perhaps for an initial test at the 135.50 (S1) barrier. On the daily chart, the pair is still trading above the 133.30 support area, which stands marginally below the 50% retracement level of the 14th of April – 4th of June advance. As a result, I would like to see a daily close below that area before I assume that the medium-term picture has turned negative as well.
• Support: 135.50 (S1), 135.00 (S2), 134.40 (S3)
• Resistance: 136.40 (R1), 137.00 (R2), 137.35 (R3)
• Gold traded in a quiet mode on Wednesday, staying slightly above the support barrier of 1080 (S1). The metal has been oscillating between that support and the resistance of 1105 (R2) since the 21st of July, therefore I consider the short-term picture to be neutral. A break below 1080 (S1) is likely to shift the bias negative and perhaps bring into play the 1072 (S2) barrier, marked by the low of the 20th of July. A break below 1072 (S2) could set the stage for more bearish extensions and perhaps target the 1060 (S3) zone. Our short-term oscillators reveal negative momentum and increase the likelihood that the metal would exit the sideways range to the downside. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and kept the overall bias of the yellow metal to the downside, in my view.
• Support: 1080 (S1), 1072 (S2), 1060 (S3)
• Resistance: 1095 (R1), 1105 (R2), 1120 (R3)
• DAX futures continued trading north on Wednesday, breaking above the resistance (now turned into support) of 11470 (S1) and reaching the 11640 (R1) obstacle. Since the index traded higher after it broke the short-term downtrend line taken from the peak of the 21st of July, I would consider the near-term bias to stay positive. As a result I would expect a clear move above 11640 (R1) to open the way for the next resistance at 11800 (R2). The MACD stands above both its zero and trigger lines pointing north, indicating bullish momentum. However, the RSI hit resistance at its 70 line and turned down, giving evidence that a downside corrective move could be in the works before the next positive leg. As for the broader trend, given the 20th -27th July plunge, I would switch my stance to neutral. I would like to see a clear close above 11800 (R2) before I get confident on the continuation of the major upside path. On the downside, only a daily close below 10670 would confirm a forthcoming lower low on the daily chart and turn the overall bias of DAX to the downside.
• Support: 11470 (S1), 11280 (S2), 11140 (S3)
• Resistance: 11640 (R1) 11800 (R2), 11900 (R3)
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IronFX Daily Commentary | 07/08/15
Language English
• BoE disappoints; may set pattern for other central banks The Bank of England’s “Super Thursday,” during which it held a Monetary Policy Committee meeting, immediately released the minutes, and also issued its quarterly Inflation Report with new economic forecasts, surprised market participants who had expected a confirmation of BoE Gov. Carney’s hawkish line. Only one MPC member voted to hike rates – the market had expected two, and the big question was whether a third would join them. For the FX market, perhaps the main point was that the strength of sterling was a real concern for the MPC. The Bank is caught between an increase in domestic price pressures as wages rise and a fall in import prices as commodity prices fall and the pound strengthens. The minutes summed up the dilemma as follows: “(t)o the extent that the appreciation of sterling could be expected to weigh on inflation for a persistent period, the corresponding pickup in domestic costs necessary to return inflation to the target within three years would be greater.” The market took about 5 bps out of the expected tightening in GBP short-term rates and the currency weakened.
• I wonder if this concern is unique to Britain. It seems to me that with commodity prices falling, all the major central banks are likely to struggle to achieve their inflation targets. In that case, they will be particularly sensitive to the value of their currencies. Falling commodity prices and the slowing global economy may derail the process of normalizing interest rates and instead launch us on another round of “currency wars” as domestic monetary policy spills over into the international arena.
• In any event, I think it may take some time for the market to regain its confidence in GBP. BoE Gov. Carney continued with his fairly hawkish tone, emphasizing the erosion of slack in the economy and tightness in the labor market, but he isn’t the whole MPC (although he is in the middle, if not on the more dovish side). It will still take some time for the MPC to get a majority in favor of tightening. Before that happens, falling commodity prices and slowing global trade could eliminate the need for any such move, thereby wiping out the currency’s main advantage. On the other hand, that might not happen at all! The economy could continue to expand, wages could continue to rise and inflation could head back towards the target, as they expect.
• In short, it seems to me that there are the greatest possibilities for disagreement about the future course of UK monetary policy and therefore the currency is likely to be among the most volatile in the market. This should present some good opportunities for traders.
• Japan holds policy unchanged, as expected The Bank of Japan kept its policy unchanged this morning, as was unanimously expected. The focus will most likely be on Gov. Kuroda’s press conference afterwards. There will be particular interest in anything he might say about the controversy over revising the CPI statistics as part of the usual revisions every five year. Gov. Kuroda still insists that the BoJ is on its way to hitting its 2% inflation target.
• RBA gets a little more optimistic The Reserve Bank of Australia (RBA) came out with its new growth forecasts this morning in its quarterly monetary policy statement. The June 2016 growth forecasts were lowered to 2%-3% from 2.5%-3.5%, while the CPI forecasts were unchanged at 2%-3% and the core CPI forecasts actually raised 25 bps to 2%-3%. In other words, they expect growth to be a bit slower but inflation to be a bit higher – how’s that going to work? Same for December 2016: growth lower but inflation higher. June 2017, growth the same but inflation higher. They also said they expect that the unemployment rate has peaked. With unemployment having peaked and inflation revised up a bit, it makes sense that they could pause interest rates for the time being. That may support AUD for the time being.
• Personally, I question their forecast for both inflation and growth. With the global economy slowing, I think the fall in commodity prices is likely to continue. That may have a profound effect on the Australian economy. I expect that the RBA will eventually have to wind up cutting rates and that will cause the currency to weaken further.
• Fonterra lowers milk payout forecast, as expected Fonterra Cooperative Group lowered its milk payout forecast to NZD 3.85/kg from NZD 5.25/kg. The cut was pretty much in line with expectations of NZD 3.50 - NZD 4.00. Note that at this price, most dairy farmers in New Zealand are operating at a loss. This is negative for growth in NZ and therefore makes it more likely that the RBNZ will cut interest rates and the NZD depreciate. The NZD plunged on the news, but quickly recovered, perhaps because Fonterra also announced an additional support payment of NZD 0.50/kg. Nonetheless, the trend is clear. With the highest nominal and real policy rates in the G10, New Zealand also has the most room to cut rates as global trade slows and commodity prices fall. That means NZD remains vulnerable.
• Today’s highlights: The main event during the European day will be the US nonfarm payrolls! The current market forecast for July is for an increase in payrolls of 212k, below the 223k in June. Nonetheless another reading above 200k would suggest that the US labor market is gathering momentum and is likely to keep USD supported against its peers. The July FOMC statement showed more confidence in the labor market than before. A strong NFP reading would confirm this view and add to expectations for a September rate hike. At the same time, the unemployment rate is forecast to remain unchanged at 5.3%, while average hourly earnings are expected to accelerate from June. Bear in mind though that the July figure is notoriously difficult to seasonally adjust, because of auto plant shutdowns and schools getting out, among other factors. Thus the month’s data is more likely than most others to hold a surprise.
• As for other indicators, Germany, France and Norway release their industrial production for June, but none of them is usually a major market mover.
• From the UK, we get the trade balance for June.
• Canada’s unemployment rate for July is also due to be released. Coming on top of the low oil prices, a rise in the unemployment rate could keep CAD under selling pressure.
Currency Titles:
EUR/USD trades near the 1.0935 barrier ahead of the NFP
AUD/USD rebounds from 0.7320
GBP/USD collapses following BoE dovish minutes
Gold continues sideways
WTI rebounds from 44.20
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• EUR/USD traded somewhat lower, found support at 1.0875 (S1) and then rebounded to hit the resistance of 1.0935 (R1). During the early European morning Friday, the rate is trading slightly below that barrier, and since the possibility for a lower high still exists, I would consider the short-term trend to remain negative. I would expect the bears to eventually take control and drive the battle down for another test at the 1.0875 (S1) or the 1.0850 (S2) barriers. Today, we get the US employment report for July, which is expected to show another NFP print above 200k and to show that average hourly earnings have accelerated. This could be the trigger for the aforementioned down leg. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 (S3) is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.0875 (S1), 1.0850 (S2), 1.0810 (S3)
• Resistance: 1.0935 (R1), 1.0990 (R2), 1.1020 (R3)
• AUD/USD slid after reaching the 0.7420 (R1) resistance barrier, hit support at 0.7320 (S2), and subsequently it rebounded again to move back above 0.7350 (S1). I would expect the positive wave to continue and to aim for another test at the 0.7420 (R1) resistance hurdle. A break through that barrier is likely to extend the bullish wave and perhaps open the way for the psychological zone of 0.7500 (R2). Our short-term oscillators reveal upside momentum and support that the pair could trade higher for a while, at least for a test at the 0.7420 (R1) line. On the daily chart, the completion of a head and shoulders formation and the move below the psychological zone of 0.7500 (R3) signaled the continuation of the prevailing long-term downtrend, in my opinion. Therefore, I would consider any possible future advances as a corrective move of that major down path. I would expect a clear move below 0.7250 (S3) in the future to open the way for the psychological zone of 0.7000.
• Support: 0.7350 (S1), 0.7320 (S2), 0.7250 (S3)
• Resistance: 0.7420 (R1), 0.7500 (R2), 0.7585 (R3)
• GBP/USD collapsed after the minutes of Thursday’s BoE policy meeting showed that only one of its nine policy makers voted to increase interest rates. The rate broke below the support (now turned into resistance) barrier of 1.5525 (R1) and hit our next support of 1.5465 (S1). The short-term bias has now shifted somewhat negative, thus I would expect a break below 1.5465 (S1) to open the way for the 1.5410 (S2) territory. Our short-term oscillators detect negative momentum and magnify the case for further declines. The RSI slid after falling below its 50 line, while the MACD has fallen below both its zero and trigger lines. As for the broader trend, the price structure on the daily chart still suggests an uptrend. What’s more, Cable is still trading above the 80-day exponential moving average. However, given yesterday’s plunge, I would switch my stance to neutral as far as the overall outlook is concerned.
• Support: 1.5465 (S1), 1.5410 (S2), 1.5340 (S3)
• Resistance: 1.5525 (R1), 1.5635 (R2), 1.5670 (R3)
• Gold traded somewhat higher on Thursday but hit the lower bound of the downside channel that had been containing the price action from the 18th of June until the 20th of July. The precious metal has been oscillating between the support of 1080 (S1) and the resistance of 1105 (R2) since the 21st of July, therefore I would consider the short-term picture to stay neutral. A break below 1080 (S1) is likely to shift the bias negative and perhaps bring into play the 1072 (S2) barrier marked by the low of the 20th of July. A break below 1072 (S2) could set the stage for more bearish extensions and perhaps target the 1060 (S3) zone. Our short-term oscillators reveal negative momentum and increase the likelihood that the metal would exit the sideways range to the downside. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and kept the overall bias of the yellow metal to the downside, in my view.
• Support: 1080 (S1), 1072 (S2), 1060 (S3)
• Resistance: 1095 (R1), 1105 (R2), 1120 (R3)
• WTI traded lower after it fell below the psychological barrier of 45.00 (R1). However, the price fell short of reaching the 44.00 zone, defined by the low of the 18th of March, and hit support at 44.20 (S1). Subsequently the rate rebounded and is now headed to test the 45.00 (R1) area as a resistance. Taking a look at our short-term oscillators, I would expect the corrective move to continue for a while. The RSI edged higher and now looks ready to move above its 50 line, while the MACD, although negative, stands above its trigger line and is headed towards its zero line. A break back above 45.00 (R1) is likely to confirm the case and perhaps challenge the next resistance at 45.35 (R2). On the daily chart, in the absence of any major bullish reversal signals, I would consider the longer-term trend to still be to the downside. Therefore, I would treat any possible near-term advances as corrective moves providing renewed selling opportunities.
• Support: 44.20 (S1), 44.00 (S2), 43.50 (S3)
• Resistance: 45.00 (R1) 45.35 (R2), 45.80 (R3)
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IronFX Daily Commentary | 10/08/15
Language English
• NFP in line with expectations, impact lasts two hours Friday’s US nonfarm payrolls were pretty much in line with expectations. EUR/USD fell about one cent on the news, which pretty much confirmed that a rate hike is coming this year (December if not September). But the impact on market thinking was hardly straightforward: Fed funds rate expectations out to October 2016 gained up to 2 bps, but dates after that gained less and expectations for November 2017 and out actually declined. The 215,000 gain in payrolls, steady 2.1% yoy growth in average hourly earnings, and the unemployment rate remaining at 5.3% will certainly be enough for Atlanta Fed President Lockhart, who said last week that only a “significant deterioration” in the data could change his mind. On top of that, hours worked surged in July, which could indicate that the economy is gaining momentum. The question is whether the data were good enough to convince people like Fed Gov. Powell, who put forward a less certain outlook last week.
• In that case, why did the dollar reverse two hours later and why is it opening mostly lower this morning, particularly against the EM currencies? Several reasons. First off, position-cutting ahead of vacations. People may well have taken advantage of the stronger dollar to sell out in preparation for their holidays. Secondly, oil prices fell further. The Fed may want to start raising rates in September, but if commodity prices continue to weaken, the ultimate level that the Fed hikes to – the “terminal rate” – is likely to be lower than otherwise expected. That would explain why short-term expectations could rise but long-term expectations fall.
• Finally, the NFP data shows that the US labor force is barely growing. Indeed, the drop in the unemployment rate from 5.5% in May to 5.3% in June and July was entirely accounted for by a fall in the participation rate, not from higher job growth. There are some 9mn “missing” workers in the US, if we look at the trend growth in the labor force that existed for many years before the 2008 financial crisis. The Fed doesn’t expect these people to come back to work. Slower growth in the labor force plus little growth in productivity – look for the revised US productivity figures tomorrow – mean slower long-term growth in the US. That again would indicate a lower terminal Fed funds rate and hence less appreciation for USD over the long term.
• UK rate expectations no longer following US One notable point from the NFP aftermath: normally, UK rate expectations rise when Fed rate expectations rise, based on the idea that a) a Fed move would provide political cover for the Bank of England to move, and b) both countries are affected similarly by global inflationary trends. This time however it was notable that UK rate expectations didn’t budge, and in fact GBP weakened against USD. This reinforces my view that GBP may well be weak until investors regain confidence that the BoE is likely to raise rates in the foreseeable future. That could be the next BoE meeting, scheduled for Sep. 10th. The near-term technical picture too looks good for EUR/GBP (i.e., bad for GBP). See technical section for more details.
• EUR/CHF hits post-float high EUR/CHF hit 1.07892 during trading Friday. This was about the same as the highest European close (1.07894 on 19 Feb) since the pair was allowed to float again in January. Swiss National Bank (SNB) Vice President Fritz Zurbruegg was interviewed in a local paper and made some hawkish statements, such as “the franc still is strongly overvalued.” He said the SNB hasn’t seen any increase in demand for cash, which means that there’s still room for them to lower interest rates further, something they are “of course contemplating.” He added that rates are likely to remain low for longer than people may have expected, because “the global recovery is so slow.” And if that doesn’t work, they’re ready to intervene. All told, it looks to me like CHF is headed lower. It may gain vs some currencies that still have room to cut rates further, such as AUD and NZD, but it’s likely to depreciate vs EUR and USD as domestic investors move money abroad in search of not just higher yield, but indeed any yield at all, as Swiss bond yields are negative out to and including 10 years.
• China trade far below estimates, CPI accelerates China’s trade figures for July, announced on Saturday, corroborate the story of slowing global trade. Exports collapsed 8.3% yoy, far more than expected, while imports were also down 8.1% yoy, an acceleration from -6.1% yoy in June. These figures are by value, not volume, so the import side is likely to be depressed by the fall in commodity prices, but the export side relies more on manufactured goods and therefore probably is not distorted as much. (The volume figures aren’t available yet.) The data show that China can no longer rely on exports for growth. This is in fact the government’s aim, to diversify the economy away from export-led investment and towards domestic growth, so it actually shows some success. Nonetheless, there are always winners and losers from every change in the business model, and there are likely to be a lot of export firms that are losing. Weaker exports may encourage the authorities to allow CNY to weaken, which could help to trigger another round of “currency wars” in Asia. No surprise then that AUD and NZD opened lower this morning, although still higher vs USD than they were Friday morning. I expect them to continue to weaken over the medium term as the terms of trade move against them.
• China also released on Sunday its CPI and PPI for July. The longstanding trends continued: CPI growth accelerated more than expected, while PPI deflation also beat expectations. Nonetheless CPI inflation at 1.6% still remains about half the central bank’s target of 3%, so it means there’s plenty of room – make that need – for further stimulus. That may explain why stocks were up sharply this morning: falling exports and deepening deflation at the factory gate level are likely to elicit more of a policy response, the “QE with Chinese characteristics” that we are seeing now with such measures as increased funds going to the policy banks, a government fund to stabilize stock prices, and accepting municipal bonds as collateral.
• Today’s highlights: On Monday the calendar is relatively light, with only data of secondary importance due to be released.
• During the European day, Norway’s CPI for July is expected to decelerate a bit. Last month, NOK surged after the country’s core inflation rate beat estimates and the headline figure accelerated to 2.6% yoy from 2.1% yoy previously, a touch above the 2.5% target. Even though the strong data are likely to take some pressure off the Norges Bank to ease further at its September meeting, I would prefer to see the actual figure before getting confident about this idea. If indeed the July CPI is still above target, NOK could strengthen somewhat, at least temporarily.
• In the US, we get the labor market conditions index for July. This is a monthly index that draws on a range of data to produce a single measure to gauge whether the labor market is improving overall. Although not major market mover, the LMCI index will show the broader US labor conditions following Friday’s US employment report for July.
• As for the speakers, Atlanta Fed President Dennis Lockhart speaks. His comments last week touched off a firestorm after he said it would be appropriate to start hiking rates in September. It will be interesting to hear his comments on Friday’s labor market report as well as any riposte he might make to Fed Gov. Powell, who said following Lockhart’s comments last week that “nothing has been decided.”
• As for the rest of the week, on Tuesday, the main event will be the German ZEW survey for August. The survey for July added to the weak data coming out from the country, with the expectations index declining and only a modest increase in the current situation index. With the Greek crisis and Grexit risk having diminished however, we could see an improvement in expectations towards the end of the Q2. This will most likely keep alive the scenario that the Eurozone recovery could start to gather momentum again and strengthen EUR a bit.
• On Wednesday, China releases its retail sales, industrial production and fixed assets investment for July. It is expected to be a mixed report, which could boost hopes for further stimulus. It remains to be seen though whether AUD and NZD can benefit; in theory they should, but as we saw today, the local stock market rose on such hopes but the currencies didn’t.
• In the UK, we get the unemployment rate for June. Another decline in the rate and acceleration in the growth of average weekly earnings is likely to strengthen GBP.
• On Thursday, the highlight will be the US retail sales for July. Retail sales unexpectedly declined in June and the May increase was revised down. This frustrated investors who have being looking for signs that the soft Q1 data was coming to an end. Nevertheless, given the strong 1st estimate of US GDP and expectations for a rebound in July’s retail sales figure, we would expect USD bulls to gain confidence again and strengthen the greenback on the news.
• Finally on Friday, in Europe, the main data will be the preliminary Q2 GDP figures for France, Italy, Germany and the Eurozone as a whole. Eurozone’s preliminary GDP rate for Q2 is expected to have risen at the same pace as in Q1, while figures released from Germany, Europe’s growth engine, is likely to show that the economy expanded moderately from Q1. Investors will most likely watch the French, Italian and German data released earlier in the day for the overall growth outlook of the bloc and EUR will react accordingly.
Currency Titles:
EUR/USD rebounds from slightly above 1.0850
USD/JPY tumbles after hitting the 125.00 zone
EUR/GBP breaks out of a downside channel
Gold still trades within a range
WTI reaches 43.35
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• EUR/USD plunged on Friday after the US employment report showed that the US economy added 215k jobs in July. However, the rate found support near 1.0850 (S2) and rebounded to recover all the losses and to gain even more. The pair is now trading above the resistance (now turned into support) barrier of 1.0935 (S1), therefore, I would switch my stance to flat for now. A move above 1.0990 (R1) is likely to shift the short-term bias positive and perhaps set the stage for extensions towards the next resistance of 1.1080 (R2). The RSI edged above its 50 line, while the MACD, already above its trigger line, has just turned positive. These indicators reveal positive momentum and increase the likelihood for EUR/USD to trade higher, at least in the short run. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 (S3) is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.0935 (S1), 1.0850 (S2), 1.0810 (S3)
• Resistance: 1.0990 (R1), 1.1080 (R2), 1.1125 (R3)
• USD/JPY tumbled on Friday after it hit resistance near the 125.00 (R1) resistance territory. Subsequently, the rate fell below the 124.50 (R1) barrier and below uptrend line taken from the low of the 27th of July. I see the possibility that the pair could continue trading lower for a while. The RSI stands below its 50 line and has turned somewhat down, while the MACD, although positive, has topped and fallen below its trigger line. If the bears are strong enough to maintain their momentum, I would expect them to target once again the 124.10 (S1) support. A break below that level could pave the way for the 123.80 (S2) barrier. On the daily chart, I still see a major upside path. Therefore, I would treat any further near-term declines as corrective moves of that long-term uptrend.
• Support: 124.10 (S1), 123.80 (S2), 123.40 (S3)
• Resistance: 124.50 (R1), 125.00 (R2), 125.80 (R3)
• EUR/GBP continued to race higher, breaking above the upper bound of a downside channel that had been containing the price action since the 27th of July. The rate emerged above the 0.7045 (S1) hurdle and hit resistance marginally below the 0.7100 (R1) barrier. A break above that resistance is likely to have larger bullish implications and perhaps see scope for extensions towards our next resistance at 0.7160 (R2). Looking at our short-term momentum indicators, I see that the RSI rebounded from its 50 line and could now be headed towards its 70 line, while the MACD stands above both its zero and signal lines, and points north. These indicators reveal positive momentum and corroborate my view. On the daily chart, I see that on the 5th of August, the rate formed a higher low. As a result, although I would expect the rate to trade higher in the near term, I would adopt a neutral stance as far as the overall picture is concerned.
• Support: 0.7045 (S1), 0.7015 (S2), 0.7000 (S3)
• Resistance: 0.7100 (R1), 0.7160 (R2), 0.7200 (R3)
• Gold continued trading sideways, staying between the support of 1080 (S1) and the resistance of 1105 (R2). Therefore, I would consider the short-term picture to stay neutral. A break below 1080 is needed to shift the short-term bias to negative and perhaps bring into play the 1072 (S2) barrier marked by the low of the 20th of July. On the upside, a break above 1105 (R2) could turn the picture somewhat positive and could open the way for the 1120 (R3) hurdle. Our short-term oscillators reveal positive momentum and support the possibility that the metal could trade higher for a while, at least for another test at 1105 (R2). The RSI stands above its 50 line and points up, while the MACD, already above its trigger line, has obtained a positive sign. What is more, there is positive divergence between both these indicators and the price action. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and this keeps the overall bias of the yellow metal to the downside in my view.
• Support: 1080 (S1), 1072 (S2), 1060 (S3)
• Resistance: 1095 (R1), 1105 (R2), 1120 (R3)
• WTI traded lower on Friday and managed to hit support at 43.35 (S1). The short-term outlook remains negative and as a result, I would expect a move below 43.35 (S1) to open the way for the 42.00 (S2) zone. Our hourly oscillators detect strong downside speed and amplify the case that WTI could continue to trade lower. The RSI stands below its 30 line and points down, while the MACD lies well below both its zero and signal lines. However, the MACD points sideways. It could be bottoming and could cross above its signal line soon. This shows that a minor corrective bounce could be looming before the next leg down. On the daily chart, in the absence of any major bullish reversal signals, I would consider the longer-term trend to still be to the downside. Therefore, I would treat any possible near-term advances as corrective moves providing renewed selling opportunities.
• Support: 43.35 (S1), 42.00 (S2), 40.00 (S3)
• Resistance: 43.75 (R1) 44.20 (R2), 45.00 (R3)
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IronFX Daily Commentary | 11/08/15
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• Commodities rally, but not all commodity currencies The big move yesterday was in the commodities market, where many commodities from oil to copper rallied. There must have been some change in view towards the asset class as a whole, but it doesn’t seem to have been due to a change in the overall macro picture. Rather, there were individual stories for several commodities, which probably spilled over into other commodities as well. For example, oil rose after China’s crude oil imports rose to a record, easing fears that demand for energy – and other commodities -- there is slipping. Rains in Chile halted work at some of their copper mines, while excessive moisture is threatening US crops. However, don’t look for a long-lasting change in direction; all the precious metals and most of the energy futures are below their New York close now, while about half the agricultural commodities are lower too, after China revalued the CNY lower.
• Revaluation of CNY hits NZD and AUD The People’s Bank of China (PBOC) cut the central rate for USD/CNY by 1.86% to 6.2298, the largest devaluation in two decades. It said the move was a one-time adjustment because the currency’s effective exchange rate – that is, its exchange rate against all the country’s trading partners, not just the US – was stronger than other currencies. That certainly is true, although it’s probably due to a combination of A) weakness in other currencies and B) the PBOC pegging CNY largely against the dollar, which has been strong. Using the BIS’s measures of Real Effective Exchange Rates (REERs), China’s currency appreciated by 14%, the most of any major currency in the year to June (the latest data available).
• It’s quite likely that the larger-than-expected fall in exports in July that was announced over the weekend had something to do with the move. I’ve been saying for some time now that the slowdown in global trade, plus the deflationary pressures from falling commodity prices (which themselves may be just a symptom of falling demand, too) would be likely to restart the “currency wars.” Now we have the first shot fired. Although China said this was a one-off move, other countries are likely to be wary. Who will be first to react? South Korea has a Monetary Policy Committee meeting on Thursday. The country cut its policy rate back in June but kept it steady in July. All 16 economists polled on Bloomberg expect them to keep it unchanged at this week’s meeting, but following the Chinese move, for how long? We may also start to hear less from Japanese officials about how the weak yen may be hurting consumers and more about how it helps to spur exports, which are finally starting to revive there.
• China’s move is a big negative for the currencies of countries that sell to China and those that compete with it in third countries. This includes Australia, New Zealand, South Korea, Japan and the other Asian countries. Note that emerging Asia as a whole is doing no better than China in the export department, either. The weaker CNY may make life more difficult for the Eurozone as well. Total EU trade with China amounted to $638bn in 2014, only slightly less than trade with the US ($655bn). It also helps China to export deflation around the world. I doubt if it will derail the Fed’s plans to tighten, but it may well slow the pace of their tightening. It could have a bigger impact on the actions of the Bank of England, where the mandate is focused entirely on inflation.
• EUR/CHF hits post-floor high I mentioned yesterday morning that EUR/CHF had challenged the highs set since Switzerland dismantled the CHF floor back in January. The pair broke through that level in yesterday’s trading and moved higher. The weakening of this safe-haven currency may be due to Swiss investors moving funds out in search of higher yield – indeed, in search of some yield. There may also be a recovery of confidence now that Chinese stocks seem to have bottomed. CHF has been out of the spotlight recently but I think it could come back into fashion again as a funding currency, given how nicely investors are paid to borrow CHF (three-month CHF is around -0.73%.)
• Today’s highlights: During the European day, the highlight will be the German ZEW survey for August. The survey for July added to the weak data coming out from the country, with the expectations index declining and only a modest increase in the current situation index. Now however with the Greek crisis and Grexit risk having diminished, we could see an improvement in expectations towards the end of Q3. This may offset the recent soft data and will most likely keep alive the scenario that the Eurozone recovery could start to gather momentum again. EUR could strengthen a bit at these releases.
• In the US, only data of secondary importance are coming out. The NFIB small business optimism for July is expected to have increased a bit. While this indicator is not particularly market-affecting, it’s well worth watching because of the Fed’s emphasis on employment. Small businesses employ the majority of people in the US. We also get the preliminary unit labor costs and nonfarm productivity indices. This concept tracks the growth in employee compensation relative to real output in the nonfarm business sector. Taking into account that the employment cost index for Q2 rose by the least in the history of the report, the likelihood for another disappointment is high, in our view. Something like that could hurt the dollar a bit. Wholesale inventories for June are also coming out.
• From Canada, we get housing starts for July.
Currency Titles:
EUR/USD hits resistance at 1.1040 and retreats
GBP/JPY surges and hits resistance at 194.50
AUD/USD collapses after hitting resistance at 0.7435
Gold reaches the 1105 obstacle
DAX futures rebound from near 11470
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Currencies Text:
• EUR/USD raced higher on Monday, but hit resistance at 1.1040 (R1) and subsequently retreated to challenge the 1.0975 (S1) support barrier. I believe that the short-term outlook remains positive and that a move above the 1.1040 (R1) hurdle is likely to open the way for the next resistance at 1.1080 (R2). However, looking at our short-term momentum indicators, I see signs that the retreat may continue for a while before the bulls pull the trigger again. The RSI has turned down, while the MACD, although positive, shows signs of topping and could fall below its trigger line soon. A break below 1.0975 (S1) is likely to confirm the case of further pullback and perhaps challenge the 1.0935 (S2) support level. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture as staying flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 (S3) is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.0975 (S1), 1.0935 (S2), 1.0850 (S3)
• Resistance: 1.1040 (R1), 1.1080 (R2), 1.1125 (R3)
• GBP/JPY shot up after it found support near 192.15 (S1). However, the rally was stopped at 194.50 (R1) and then the rate retreated somewhat. The possibility for a lower high near 194.50 (R1) is high and therefore I see the likelihood that the forthcoming wave could be negative. A break below the 193.75 (S1) support barrier is possible to confirm the case and perhaps pave the way for a test at the 193.00 (S2) zone. Our short-term oscillators corroborate that view somewhat. The RSI, although above its 50 line, it has turned down and could fall below 50 again. The MACD stands above its trigger line, slightly above zero, but shows signs of topping and that it could turn negative again. On the daily chart, I see that on the 8th of July, the rate rebounded from the 185.00 psychological zone, which stands pretty close to the 50% retracement level of the 14th of April – 24th of June rally. As a result, I would consider the overall path of this pair to be to the upside. I could consider any near-term declines as retracements of that longer-term uptrend.
• Support: 193.75 (S1), 193.00 (S2), 192.15 (S3)
• Resistance: 194.50 (R1), 195.15 (R2), 195.80 (R3)
• AUD/USD plunged during the early European morning Tuesday after the PBoC devalued the CNY reference rate. The pair fell back below the 0.7350 barrier and hit support slightly below 0.7320 (S1). I believe that the negative wave is likely to continue. A break below 0.7320 (S1) could set the stage for extensions towards the well-tested zone of 0.7250 (S2). Our momentum studies support the notion and corroborate my view. The RSI fell below its upside support line and below its 50 level, while the MACD has topped and fallen below its trigger line. What is more, there is negative divergence between the RSI and the price action. On the daily chart, the completion of a head and shoulders formation and the move below the psychological zone of 0.7500 (R3) signaled the continuation of the prevailing long-term downtrend, in my opinion. I would expect a clear move below 0.7250 (S3) in the future to open the way for the psychological zone of 0.7000.
• Support: 0.7320 (S1), 0.7250 (S2), 0.7000 (S3)
• Resistance: 0.7350 (R1), 0.7435 (R2), 0.7500 (R3)
• Gold traded higher on Monday, hit resistance slightly above the 1105 (R1) zone, and then retreated to hit the 1095 (S1) support line. The metal is still trading between the support of 1080 (S2) and the resistance of 1105 (R2). Therefore, I view the short-term picture as remaining neutral. However, our short-term oscillators reveal positive momentum and still support the idea that the metal could trade higher for a while. The RSI rebounded from slightly above its upside support line, while the MACD stands above both its zero and signal lines, pointing somewhat up. A break above 1105 (R1) could turn the near-term picture slightly positive and could open the way for the 1120 (R2) barrier. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and this keeps the overall bias of the yellow metal to the downside, in my view. As a result, I would treat any further positive near-term waves as corrective moves.
• Support: 1095 (S1), 1080 (S2), 1072 (S3)
• Resistance: 1105 (R1), 1120 (R2), 1130 (R3)
• DAX futures traded higher after hitting support fractionally below the 11470 (S1) support barrier, near the uptrend line taken from the low of the 27th of July. Since the index is printing higher peaks and higher troughs above that short-term trend line, I would consider the near-term bias to stay positive. As a result, I would expect a clear move above 11640 (R1) to open the way for the next resistance at 11800 (R2). The RSI hit support slightly above its 50 line and edged higher, while the MACD, already positive, has bottomed and could move above its trigger line soon. These indicators detect positive momentum and amplify the case for further advances. As for the broader trend, given the 20th -27th July plunge, I would hold my flat stance. I would like to see a clear close above 11800 (R2) before I get confident on the continuation of the major upside path.
• Support: 11470 (S1), 11280 (S2), 11140 (S3)
• Resistance: 11640 (R1) 11800 (R2), 11900 (R3)
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IronFX Daily Commentary | 12/08/15
Language English
• China takes over from Greece A few weeks ago it was Greece, Greece, Greece every day. Yesterday the country effectively secured an agreement with representatives of its international creditors (at least at the technical level if not yet at the political level). Last month that would have dominated the news, but yesterday it warranted barely a glance – now it’s China, China, China. As well it should be, given the difference in the importance of the countries for the global economy.
• With the Chinese economy slowing and the stock market faltering, investors had been hoping for a Chinese fiscal stimulus package or other measures to support the domestic economy that would also be a spur for global growth. Instead the country devalued its currency, a move that simply tries to reallocate growth from elsewhere to itself. More exports for China maybe; probably less imports and hence less growth elsewhere.
• Furthermore, yesterday is not likely to be the end of the matter. While the initial depreciation of the currency was less than 2% and was accompanied by a statement saying that this was a “one-off depreciation,” the currency’s officially determined reference rate was down another 1.6% today and apparently the PBOC had to intervene in the market to prevent it from falling further. Furthermore, the PBOC made clear yesterday that the change was a first step towards a more market-determined exchange rate. Given the recent capital outflows, that’s likely to mean an even weaker CNY in the future, as Chinese investors now see downside risk in their currency. As a result, the “currency war” started almost immediately as Vietnam also widened the trading band on its currency yesterday, citing the CNY devaluation as the reason.
• Markets quickly grasped the implications: WTI was down 4.1% and copper down 3.3%. The EUR 5yr breakeven inflation rate fell 5 bps, as did the US 5yr/5yr inflation swap and yield curves flattened. Fed funds rate expectations plunged 7 or 8 bps as the market tried to assess how the Chinese move would affect central banks elsewhere. Fed Chair Janet Yellen has previously argued that the timing of the first rate hike is less important than how high the rate ends up at – the terminal rate. That’s probably what the Chinese move may affect. The FOMC’s reasoning on why they want to move rates from zero to something is one thing, their thinking for what the appropriate rate for the “new normal” conditions is another. China doesn’t affect the former but it does affect the latter.
• USD gained against most currencies as it’s now even less likely that other countries will ever raise their rates. The commodity currencies – AUD, NZD, CAD – were particular losers. I expect that they will continue to decline so long as the fears over China growth dominate. On the other hand, the Eastern European currencies – HUF, CZK and PLN – gained as they are net importers of commodities. There may be an opportunity here for a “terms of trade” trade: buy the importers, sell the exporters.
• Chinese data shows no improvement Meanwhile, China released several indicators this morning that showed no improvement from the previous month. Retail sales, industrial production and fixed asset investment for July were all either at the same pace as in June or lower, despite various measures the government has been taking to shore up the economy. This underscores the limited impact that the measures so far have had and the difficulties the country will have in boosting growth. They also show how much further the government has to go in restructuring its economy: with fixed asset investment rising 11.2% yoy, even if that’s down from 11.4% yoy the previous month we can hardly say that the growth model has shifted from investment-led to consumption-led.
• Today’s highlights: During the European day, Sweden’s PES unemployment rate for July is coming out at 4.1%, exactly in line with expectations.
• In the UK, we get the unemployment rate for June. Another decline in the rate and acceleration in the growth of average weekly earnings could support Gov. Carney’s recent comment that the timing for a rate rise is “drawing closer”. With UK inflation rate just above zero and expected to remain muted for some time given the recent drop in oil prices again, market participants will be closely watching the labor data for signs of demand-pull inflation. Therefore, another strong wage growth is likely to strengthen GBP.
• In the US, only data of secondary importance are coming out. The Job Opening and Labor Turnover Survey (JOLTS) report for June is due out and the forecast is for a moderate decline in the number of job openings. This survey will also bring the “quit rate,” a closely watched indicator of how confident people are in getting another job and by deduction how confident they are in the job market.
• New York Fed President William Dudley speaks today. Given that it takes two points to draw a line, investors are likely to pay a lot of attention to what Dudley, one of the most dovish members of the Committee, has to say. If even he is talking about a rate hike in September, then people will draw a line between him and Atlanta Fed President Lockhart and conclude that most other members are somewhere on that line and that there is probably a general consensus to hike next month.
Currency Titles:
EUR/USD reaches the 1.1080 resistance barrier
GBP/USD trades lower ahead of the UK employment data
EUR/JPY breaks above the 138.00 area
Gold hits resistance near 1120
WTI tumbles and hits support at 42.70
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• EUR/USD continued trading higher on Tuesday, hit resistance at 1.1080 (R1) and then retreating to find support at 1.1005 (S1). Subsequently the rate rebounded and is now headed for another test at 1.1080 (R1). I still believe that the short-term outlook remains positive and that a move above 1.1080 (R1) is likely to target the next resistance at 1.1115 (R2), defined by the peak of the 31st of July. Our momentum studies detect positive momentum and support the notion. The RSI, already above its 50 line, has turned up again, while the MACD stands above both its zero and trigger lines. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.1005 (S1), 1.0975 (S2), 1.0935 (S3)
• Resistance: 1.1080 (R1), 1.1115 (R2), 1.1200 (R3)
• GBP/USD traded lower yesterday after finding resistance at the 1.5610 (R1) line. Today, during the early European morning, the rate tested the support barrier of 1.5530 (S1), where a decisive break is likely to set the stage for extensions towards our next support of 1.5465 (S2). Our momentum studies corroborate the view that Cable could trade lower for a while. The RSI turned down and just crossed below its 50 line, while the MACD, slightly above zero, shows signs of topping and possibly turning negative again. As for the broader trend, the price structure on the daily chart still suggests an uptrend. What is more, Cable is still trading above the 80-day exponential moving average. However, given that buyers failed several times to overcome the 1.5670 (R2) barrier, I would hold a neutral stance as far as the overall outlook is concerned.
• Support: 1.5530 (S1), 1.5465 (S2), 1.5410 (S3)
• Resistance: 1.5610 (R1), 1.5670 (R2), 1.5735 (R3)
• EUR/JPY traded higher yesterday and managed to break above the key resistance (now turned into support) zone of 138.00 (S1). The price structure suggests a short-term uptrend and therefore I would expect the rate to continue higher and challenge the 139.00 (R1) zone. A break above that resistance is likely to see scope for extensions towards the psychological area of 140.00 (R2). Our oscillators reveal strong upside speed and magnify the case for further advances. The RSI just poked its nose above its 70 line and is pointing up, while the MACD stands well above both its zero and trigger lines, pointing north as well. On the daily chart, the pair is still trading above the 133.30 support area, which stands marginally below the 50% retracement level of the 14th of April – 4th of June advance. What is more, it still stands above the medium-term uptrend line taken from the low of the 14th of April. As a result, I would consider the medium-term trend to be positive as well.
• Support: 138.00 (S1), 137.50 (S2), 136.75 (S3)
• Resistance: 139.00 (R1), 140.00 (R2), 141.00 (R3)
• Gold traded higher on Tuesday, breaking above the resistance zone of 1105 (R1), and reached the next hurdle area of 1120 (R1). Then the metal pulled back. I believe that since the rate broke the upper bound of the sideways range it’s been trading in recently, the short-term outlook is positive. A break above the 1120 (R1) barrier is likely to target the 1130 (R2) barrier. However, taking a look at our short-term oscillators, I would be careful of further pullback before the next positive leg. The RSI hit resistance at its 70 line again and slid, while the MACD shows signs of topping. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and this keeps the overall bias of the yellow metal to the downside in my view. As a result, I would treat any further positive near-term waves as corrective moves.
• Support: 1105 (S1), 1095 (S2), 1080 (S3)
• Resistance: 1120 (R1), 1130 (R2), 1145 (R3)
• WTI tumbled on Tuesday to find support at 42.70 (S1). Then it rebounded, hit resistance slightly above 43.50 (R1) and retreated again. During the early European morning Wednesday, WTI is headed for another test at the 42.70 (S1) barrier, where a clear dip could target the 42.00 (S2) zone. Another break below the latter zone could set the stage for extensions towards the psychological round figure of 40.00 (S3). Our hourly oscillators detect downside momentum and amplify the case that WTI could continue to trade lower. The RSI has topped below its 50 line, while the MACD, at extreme low levels, crossed again below its trigger line. On the daily chart, price structure has been lower peaks and lower troughs since the 24th of June. Therefore I would consider the longer-term trend to be negative as well.
• Support: 42.70 (S1), 42.00 (S2), 40.00 (S3)
• Resistance: 43.50 (R1) 44.40 (R2), 45.00 (R3)
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IronFX Daily Commentary | 13/08/15
Language English
• PBoC: There is no basis for further yuan depreciation China’s central bank said that there is no basis for further depreciation in the yuan and that they will try to keep the currency at a stable, equilibrium level as the currency weakened for a third day after Tuesday’s unexpected devaluation. The country’s strong economic environment, sustained trade surplus and deep foreign exchange reserves provide “strong support” to the exchange rate. The Bank intervened to ease the declines and control the pace of depreciation to limit capital outflows, therefore yuan opened only slightly weaker on Thursday. Chinese state-owned banks seems to have sold dollars to support yuan from falling sharply, and also put limit on some firms’ purchases of USD. This explains the weakness seen in the greenback in the last few days.
• Under a new methodology used to determine the fixing, market makers who submit contributing prices have to consider the previous day’s close, foreign-exchange demand and supply, as well as changes in major currency rates. The reform serves the long-term goal of building a more flexible and market-based exchange rate formation system. Nevertheless, the intervention risk remains high so we will be watching closely the yuan deviations, as it can diverge maximum 2% from its daily fixing before PBoC intervenes.
• The main gainer from China’s devaluation was euro amid speculation that investors unwind trades that used the single currency to buy yuan. In addition, the concern that China’s policy will discourage Fed from raising interest rates this year also caused some weakness in the dollar, which was lower against all of its major peers. But following the New York Fed President William Dudley comments, one of the most dovish members of the Committee, that the Fed is approaching the moment when it can start raising interest rates, USD could regain its lost glamour.
• Today’s highlights: During the European day, the final German CPI data for July confirmed the preliminary reading and rose 0.1% yoy, in line with expectations. The reaction in the market was minimal.
• Sweden’s CPI and CPIF for July are also due to be released. Following the dip of the CPI back to deflation in June, another sign of weakness in prices could prompt the Bank to ease further its monetary policy. The Bank held out several times the possibility to act even between the ordinary monetary policy meetings, should the need arise. As such, any sign of softness in prices is likely to keep SEK under pressure.
• In the US, the highlight will be the retail sales for July. Retail sales unexpectedly declined in June and the May increase was revised down. This frustrated investors who have being looking for signs that the soft Q1 data was coming to an end. Nevertheless, given the strong 1st estimate of the US GDP for Q2 and expectations for a rebound in July’s retail sales, we would expect USD bulls to gain confidence again and strengthen the greenback on the news. Initial jobless claims for the week ended Aug.8 are also coming out.
Currency Titles:
EUR/USD surges and slightly above 1.1200
EUR/GBP hits the 0.7160 obstacle
NZD/USD doesn’t hold below 0.6500
Gold breaks above 1120
DAX futures collapse and hit support at 10900
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Currencies Text:
• EUR/USD surged on Wednesday, broke above both prior resistance-turned-into-support of 1.1080 (S2) and 1.1115 (S1), and hit resistance slightly above the key barrier of 1.1200 (R1). Subsequently, the rate retreated. Since the rate is trading above the uptrend line taken from the low of the 7th of August, I would consider the short-term outlook to remain positive. A move above 1.1200 (R1) could probably open the way for the next resistance at 1.1245 (R2). However, taking a look at our short-term oscillators, I see signs that further retreat could be on the cards before the next positive leg, perhaps to test the 1.1115 (S1) line as a support this time. The RSI hit resistance at its 70 line and turned down, while the MACD shows signs of topping and that it could fall below its trigger line soon. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.1115 (S1), 1.1080 (S2), 1.1020 (S3)
• Resistance: 1.1200 (R1), 1.1245 (R2), 1.1280 (R3)
• EUR/GBP surged on Wednesday, broke above the resistance (now turned into support) of 0.7100 (S1), and hit resistance slightly above the 0.7160 (R1) line. Then the rate retreated somewhat. Since EUR/GBP is still trading above the uptrend line taken from the low of the 5th of August, I would consider the short-term trend to be positive. Another attempt above 0.7160 (R1) could open the way for the next resistance at 0.7200 (R2). Taking a look out our oscillators though, I see signs that further pullback could be looming before the bulls take in charge again. The RSI hit resistance at its 70 line and turned down, while the MACD has topped and could fall below its trigger line. On the daily chart, the fact that on the 5th of August the rate formed a higher low make me keep a neutral stance as far as the overall picture is concerned. A clear daily close above 0.7160 (R1) could signal the completion of a failure swing bottom and perhaps carry larger bullish implications.
• Support: 0.7100 (S1), 0.7045 (S2), 0.7015 (S3)
• Resistance: 0.7160 (R1), 0.7200 (R2), 0.7225 (R3)
• NZD/USD raced higher after it dipped below the psychological zone of 0.6500 (S2) for a while, and hit resistance near 0.6640 (R1). The pair has been oscillating between these two zones since the 30th of July, hence I see a sideways short-term path. Nevertheless, looking at our momentum studies, there is the likelihood for the pair to trade higher. The RSI, already above 50, has turned up again, while the MACD stands above both its zero and signal lines. Moreover, there is positive divergence between both the indicators and the price action. A break above 0.6640 (R1) could confirm the case and perhaps open the way for the 0.6725 (R2) area. On the daily chart, I still see a longer-term downtrend. So, in the absence of any major bullish trend reversal signals, I would treat any further short-term advances as a corrective phase of that longer-term downtrend.
• Support: 0.6560 (S1), 0.6500 (S2), 0.6435 (S3)
• Resistance: 0.6640 (R1), 0.6725 (R2), 0.6770 (R3)
• Gold continued trading higher on Wednesday, breaking above the resistance-turned-into-support of 1120 (S1). The advance was halted at 1127 (R1), pulled back a bit and is now testing the 1120 (S1) zone as a support. I still believe that, since the rate have broken above the upper bound of the sideways range it’s been trading from the 21st of July until the 11th of August, the short-term outlook is positive. Nevertheless, taking into account the signs given by our momentum indicators, I would expect further setback. The RSI has topped within its overbought territory and looks ready to fall below 70 soon, while the MACD shows signs of topping and that it could fall below its trigger line soon. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and this keeps the overall bias of the yellow metal to the downside, in my view. As a result, I would treat the short-term uptrend as a corrective move of the longer-term downtrend.
• Support: 1120 (S1), 1105 (S2), 1095 (S3)
• Resistance: 1127 (R1), 1145 (R2), 1155 (R3)
• DAX futures collapsed, falling below the short-term uptrend line taken from the low of the 27th of July and hitting support at 10900 (S1). I believe that the near-term bias has now turned negative, but having a look at our momentum indicators, I would expect the forthcoming wave to be positive. Perhaps for a test at the resistance hurdle of 11200 (R1). The RSI has bottomed within its oversold territory and looks able to move above 30 soon, while the MACD, although below both its zero and signal lines, shows signs that it could start bottoming. As for the broader trend, I will maintain my flat stance. I prefer to see a clear close above 11800 before I assume the continuation of the prevailing major upside path, while a break below 10670 (S3) is the move that could bring a bearish trend reversal, in my view.
• Support: 10900 (S1), 10775 (S2), 10670 (S3)
• Resistance: 11200 (R1) 11280 (R2), 11430 (R3)
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IronFX Daily Commentary | 14/08/15
Language English
Greece MPs expected to vote on the terms of the 3rd bailout programGreek lawmakers are expected to vote on the terms of the third bailout to unlock as much as EUR 86bn of aid before a EUR 3.2bn payment due to the ECB on Aug. 20. The parliamentary action is necessary to pave the way for Eurozone finance ministers, who meet later in the day, to come to a political agreement on the rescue package.
Turkey’s coalition talks break down Turkey’s PM said on Thursday that talks to form a coalition government with the main opposition party broke down and early elections now appears to be the only option. The efforts to create a coalition alliance between the long-governing AKP party and the CHP have failed as the two sides could not resolve differences on main issues, including foreign policy, education and the president’s role. Turkish lira plunged to a record low and came under renewed selling pressure, as the political instability added to the country’s ongoing turmoil as it battles Islamic State insurgents on its borders and Kurdish militants at home. We would expect USD/TRY to rise further as we head into the snap election, and could test the psychological 3.00 level in the near future.
Overnight New Zealand’s retail sales excluding inflation slowed to the lowest level since March 2012, pointing to a weak consumer spending and adding to the recent disappointing data. These soft figures will increase the expectations of a rate cut by the RBNZ at its September meeting and the NZD/USD could extend its bearish trend and break again the 0.6500 psychological barrier.
Today’s highlights: During the European day, the main data will be the preliminary Q2 GDP figures for the Eurozone as a whole. Eurozone’s preliminary GDP rate for Q2 is expected to have risen at the same pace as in Q1, while figures released from Germany, Europe’s growth engine, showed that the economy expanded +0.4% qoq in Q2, from +0.3% qoq in Q1. The figure was below expectations of +0.5% qoq. French GDP figures released earlier also missed expectations, which lead us to believe that the Eurozone’s GDP could disappoint as well. In such case, EUR could weaken a bit. Eurozone’s final CPI for July is also due to be released. The final figure is expected to confirm the preliminary reading, thus the market reaction could be limited at this release.
In the US, industrial production for July is expected to have accelerated from the month before. Following the strong retail sales for July on Thursday, another strong figure could prove USD-positive. The preliminary U of M consumer sentiment index for August is also coming out along with the surveys of 1-year and 5-to-10 year inflation expectations. PPI for July is also to be released.
Currency Titles:
EUR/USD hits support at 1.1080 and rebounds
EUR/JPY rebounds from slightly above 138.00
USD/CAD rebounds from 1.2950
Gold slides after hitting resistance at 1127
WTI tumbles and hits support at 41.35
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Currencies Text:
•EUR/USD continued declining on Thursday, found support at 1.1080 (S1), and then rebounded to hit resistance at 1.1160 (R1). The price structure on the 4-hour chart still suggests an uptrend, therefore a decisive move above 1.1160 (R1) is likely to aim for another test at the 1.1200 (R1) barrier. However, taking a look at our short-term oscillators, I see signs that another retreat could be on the works, perhaps to test again the 1.1080 (S1) support line. The RSI turned down again, while the MACD has topped and fallen below its trigger line. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.1080 (S1), 1.1020 (S2), 1.0975 (S3)
• Resistance: 1.1160 (R1), 1.1200 (R2), 1.1245 (R3)
•EUR/JPY pulled back yesterday but hit support slightly above the key line of 138.00 (S1) and rebounded. Since the pair is trading above the short-term uptrend line, I would still see a short-term uptrend. A break above 139.00 (R1) is needed though to confirm a forthcoming higher high on the 4-hour chart. Something like that could see scope for extensions towards the psychological figure of 140.00 (R2). Our oscillators though give evidence that another retreat is possible. The RSI hit its downside resistance line and turned down, while the MACD has topped and fallen below its trigger line. On the daily chart, the pair is still trading above the 133.30 support area, which stands marginally below the 50% retracement level of the 14th of April – 4th of June advance. What is more, it still stands above the medium-term uptrend line taken from the low of the 14th of April. As a result, I would consider the medium-term trend to be positive as well.
• Support: 138.00 (S1), 137.50 (S2), 136.75 (S3)
• Resistance: 139.00 (R1), 140.00 (R2), 141.00 (R3)
•USD/CAD rebounded from the 1.2950 (S1) support barrier, which happens to be the 23.6% retracement level of the 18th of June - 5th of August advance. Then the rate hit resistance at 1.3090 (R1). Although USD/CAD seems to be in a downside corrective mode, I would expect the rate to extend higher. A move above 1.3090 (R1) is likely to challenge our next resistance of 1.3150 (R2). However, a break above the downtrend line taken from the peak of the 5th of August is needed to signal that the correction is over and that the prevailing uptrend is back in force. The RSI just poked its nose above its 50 line, while the MACD, although negative, has bottomed and crossed above its trigger line. What is more, there is positive divergence between the RSI and the price action. These signs corroborate my view that USD/CAD could continue trading north. On the daily chart, as long as the pair is trading above the uptrend line taken from back the low of the 11th of July 2014, I would see a positive long-term picture.
• Support: 1.2950 (S1), 1.2860 (S2), 1.2765 (S3)
• Resistance: 1.3090 (R1), 1.3150 (R2), 1.3200 (R3)
•Gold traded lower after it hit resistance at 1127 (R1). I still believe that, since the rate has broken above the upper bound of the sideways range it’s been trading from the 21st of July until the 11th of August, the short-term outlook is positive. Nevertheless, taking into account the signs given by our momentum indicators, I would expect further setback, perhaps for a test at the 1105 (S1) line as a support this time. The RSI edged lower after exiting its overbought territory, while the MACD has topped and fallen below its trigger line. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and this keeps the overall bias of the yellow metal to the downside in my view. As a result, I would treat the short-term uptrend as a corrective move of the longer-term downtrend.
• Support: 1105 (S1), 1095 (S2), 1080 (S3)
• Resistance: 1127 (R1), 1145 (R2), 1155 (R3)
•WTI hit resistance at 43.70 (R3) and then tumbled to find support at 41.35 (S2). Subsequently, the price rebounded to trade back above 41.85 (S1). As long as WTI is trading below the downtrend line taken from the peak of the 30th of July, I would consider the short-term picture to stay negative. Another break below 41.85 (S1) is likely to bring again into play the 41.35 (S2) hurdle. A dip below the latter level could set the stage for extensions towards the psychological round figure of 40.00 (S3). Taking a look at our hourly oscillators though, I would be careful of further upside corrective bounce before the next leg down. The RSI looks able to escape from its below-30 territory, while the MACD has bottomed and could cross above its trigger line soon. On the daily chart, price structure has been lower peaks and lower troughs since the 24th of June. Therefore, I would consider the longer-term trend to be negative as well.
• Support: 41.85 (S1), 41.35 (S2), 40.00 (S3)
• Resistance: 42.30 (R1) 42.80 (R2), 43.70 (R3)
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