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IronFx 2014.03.27 09:20 #272

Market Analysis 27/03/2014

Daily Commentary 27.03.2014, Time of writing: 10:10 GMT

The Big Picture Risk on or risk off? A mixed day during which it was hard to discern a consistent trend. European leaders joined US President Obama in warning Russia that it would face further sanctions if it failed to de-escalate the crisis in Ukraine. That seemed to cause some general risk aversion: stocks were lower, US bond yields fell sharply and JPY gained. Fed Funds expectations retreated nearly 5 bps in the long end, suggesting that the tightening concerns generated by the recent FOMC meeting are fading. With risk aversion dominating and tightening expectations retreating, the auction of US Treasury five-year notes came at a level through the market and saw the lowest dealer takedown in history, indicating significant end-investor demand. Yet gold fell again despite the fall in interest rates and the commodity currencies were the biggest gainers among the G10, while most EM currencies gained against USD, which are hardly risk-off trades. Rather confusing!

The euro weakened as next week’s inflation report and ECB meeting are starting to weigh on the common currency. Perhaps the various comments by various officials about the strength of the currency are starting to have an impact. While ECB officials have insisted that the Eurozone isn’t at risk of falling into deflation, in fact that depends on how you measure prices. Many EU countries have had to raise their consumption taxes in order to improve the government’s finances. If we strip out the effect of taxes, then in fact the EU is already in deflation! The harmonized indices of consumer prices at constant tax rates show that both the Eurozone and the European Union as a whole are already suffering from deflation over the last six months And the financially troubled countries are suffering particularly badly from deflation on this measure. Higher taxes are not a particularly good way of raising prices – they simply diminish demand from the household sector. That does help to improve the country’s trade balance, but doing so by repressing demand from your voters is not a healthy way to manage the economy. I still expect the ECB to loosen policy further this year in order to deal with this problem, although probably not at next week’s meeting – no smoking gun yet.

Norges Bank decides on its deposit rate today. As the market expects no change in rates, the focus will be on the press conference after the decision and any statements about when the Bank will be ready to raise rates. After the last meeting, the krona fell on the Bank’s dovish statement that it was not considering a rate hike until Q4 2015. This was a change from its statement in September that it would start raising rates in Q4 2014.

Eurozone’s M3 money supply is forecast to have grown at a +1.3% yoy pace in February, a slight acceleration from +1.2% yoy in January. This will keep the 3-month moving average unchanged at +1.2%. The market will also be watching to see whether the slowdown in the pace of decline of lending and credit creation that we saw in January continues.

Italy’s business confidence for March is forecast to rise to 99.5 from 99.1.

In the UK, the Bank of England publishes the statement from its March 19 Financial Policy Committee meeting. Meanwhile UK retail sales excluding autos are forecast to have risen +0.3% mom in February, a turnaround from -1.5% mom in January. That would be positive for the GBP.

From the US, we have the third estimate of GDP for Q4 which is expected to be revised up to +2.7% qoq SAAR from the second estimate of +2.4% qoq. Initial jobless claims for the week ended on March 22 are expected to be up at 324k vs 320k the previous week. Nonetheless, this will bring the 4-week moving average down to 321k from 327k. Pending home sales for February are forecast to have accelerated to +0.2% mom from +0.1% mom in January. All in all this would be solid news that should give USD a boost.

During the European day, Cleveland Fed President Sandra Pianalto, ECB Governing Council member Erkki Liikanen and ECB Governing Council Member Carlos Costa will speak.

The Market EUR/USD

EUR/USD moved lower and is once again near the 1.3770 (S1) support and the 200-period moving average. A clear dip below the aforementioned support zone would confirm a forthcoming lower low and may trigger extensions towards the next support at 1.3715 (S2), near the 50% retracement level of the 3rd Feb. – 13th Mar. short-term uptrend. On the other hand, an upward violation of the 1.3965 (R3) resistance may confirm that the recent decline was just a 38.2% retracement of the prevailing uptrend.

• Support: 1.3770 (S1), 1.3715 (S2), 1.3650 (S3).

• Resistance: 1.3845 (R1), 1.3880 (R2), 1.3965 (R3).

USD/JPY

USD/JPY moved lower but met support at the 101.85 (S1) bar and moved higher. The rebound may challenge the resistance of 102.70 (R1). Nonetheless, the overall outlook of the currency pair remains neutral, since the rate is trading between those boundaries since the 20th of March. Both the moving averages are pointing sideways, while on the daily chart, both the daily MACD and the daily RSI lie near their neutral levels, confirming the sideways path of the currency pair.

• Support: 101.85 (S1), 101.25 (S2), 100.75 (S3).

• Resistance: 102.70 (R1), 103.40 (R2), 103.75 (R3).

EUR/GBP

EUR/GBP fell below the 0.8340 barrier, completing a possible double top formation. The rate is now trading slightly above the 0.8300 (S1) support and a clear break below it may extend the decline and challenge the next support bar at 0.8260 (S2). Both our momentum studies continue their downward paths, while the MACD lies below both its signal and zero lines, confirming the recent bearish momentum.

• Support: 0.8300 (S1), 0.8260 (S2), 0.8200 (S3).

• Resistance: 0.8340 (R1), 0.8400 (R2), 0.8460 (R3).

Gold

Gold fell below the 1310 hurdle on Wednesday. If the bears are strong enough to maintain the price below that bar, I would expect them to challenge the support at 1290 (S2), which coincides with the 50% retracement level of the 20th Dec. - 14th Mar. advance. The 50-period moving average is getting closer to the 200-period one and a bearish cross in the near future would be an additional negative indication. As long as the metal is printing lower highs and lower lows below both the moving averages, the short term outlook remains to the downside.

• Support: 1310 (S1), 1290 (S2), 1265 (S3).

• Resistance: 1325 (R1), 1342 (R2), 1354 (R3).

Oil

WTI moved higher and managed to emerge above the 100.00 barrier. I would expect the price to continue its advance and challenge the resistance hurdle of 101.00. The MACD, already in its bullish territory, crossed above its trigger line, confirming the upside momentum of the price action. As long as WTI is trading within the purple upward sloping channel, the short-term picture remains positive.

• Support: 100.00 (S1), 98.30 (S2), 97.30 (S3).

• Resistance: 101.00 (R1), 103.00 (R2), 105.00 (R3).

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IronFx 2014.03.28 08:30 #273

Market Analysis 28/03/2014

Daily Commentary28.03.2014, Time of writing: 10:10 GMT

The Big Picture EUR fall vs falling USD suggests rethink of ECB Yesterday’s fall in EUR/USD is quite conspicuous against the background of a generally weak dollar. The common currency was the only loser vs USD among the G10 currencies during the European day yesterday despite the absence of major economic news from Eurozone. With so many ECB officials talking about the possibility of negative interest rates and even QE, the market is starting to realize the diverging policies between the ECB and the Fed and is discounting at least further talk about loosening from the ECB at the Council meeting next week. In that context, today’s announcement of Germany’s preliminary CPI for March will be closely watched as an indication of Monday’s Eurozone CPI data. (And within the German data, Saxony’s CPI always gets considerable attention as the first of the regional CPIs to be announced.) German inflation is forecast to have slowed to +0.9% yoy from +1.0% yoy in February. Considering that the Eurozone CPI for the month, to be released on Monday, is expected to have slowed to +0.6% yoy from +0.7% yoy, this could add some pressure on the ECB to ease at next week’s meeting and could be EUR-negative. Looking back to the beginning of our data in 1996, the year-on-year rate of Eurozone inflation moves in the same direction as German inflation 66% of the time. The hit ratio is a little bit higher – 73% -- for the last five years. Also, comments today from ECB Governing Council members Ignazio Visco and Jens Weidmann will be closely watched ahead of next week’s meeting. The market will particularly want to hear if Weidmann expands on his recent statements about the possibility of using negative interest rates to prevent the euro from appreciating.

The other big theme in the market is the recovery in EM currencies. BRL led the way yesterday with a stunning gain of nearly 2% despite the recent downgrade of the country. Investors are apparently re-entering carry trades (perhaps with EUR as a funding currency?) as confidence and risk appetite return. The crisis in Ukraine has apparently stabilized and does not seem to be leading any further, while Chinese equities have recovered somewhat from their lows of last Thursday, leading to increased confidence in the asset class. EM stocks for example have been outperforming DM stocks recently. Apparently the FOMC shock has waned and the search for yield continues. TRY, RUB and ZAR are among the highest-yielding currencies (focusing on those that retail clients can access). Risk-takers might want to consider looking at those, although I expect RUB in particular to be vulnerable to capital outflows in the future.

Overnight the usual end-of-month data dump from Japan left USD/JPY virtually unchanged. The national CPI for February came in as expected at 1.5% yoy, up from 1.4%, while the Tokyo CPI for March rose by more than expected at +1.3 yoy vs 1.2% expected (previous: 1.1%). But in both cases, the pace of increase of the core CPI (excluding fresh food and energy) was far below that of the overall CPI – in fact, in Tokyo the pace of increase of core CPI actually slowed to +0.4% yoy from +0.5%. Thus it still seems that the so-called rise in inflation in Japan is not much more than a rise in energy prices, which amounts in effect to a tax on household incomes. Supressing household incomes will reduce national savings, and since the current account surplus is the difference between savings and investment, it will cause the current account surplus to shrink (unless of course investment falls too, which would not be a good sign, and would probably encourage capital outflows). Thus the scene still seems to be set for a weaker yen. Looking just at the rise in headline inflation though it could in theory be JPY-positive as it means less pressure on the Bank of Japan to increase its monetary stimulus, but we’ll have to wait until after April to see the impact of the rise in the consumption tax to determine what the Bank is likely to do.

During the European day, the third estimate of the UK GDP for Q4 is expected to remain at +0.7% qoq, which was the second estimate. Sweden’s retail sales are forecast to have accelerated in February, while Norway’s unemployment rate for March is expected to see no changes.

In the US, personal income in February is expected to have risen at the same pace as in January, while personal spending is estimated to have slowed. The core PCE deflator for the same month, the Fed’s preferred inflation gauge, is expected to have remained at +1.1% yoy. The University of Michigan final consumer sentiment for March is estimated to rise to 80.5 from 79.9 in February.

As for speakers, in addition to the two ECB speakers mentioned above, Kansas City Fed President Esther George will speak about the US economic outlook and monetary policy.

The Market EUR/USD

EUR/USD moved lower on Thursday and managed to break below the 1.3770 key hurdle and the 200-period moving average. The rate is now trading between that bar and the support of 1.3715 (S1). I would expect the bears to challenge the support of 1.3715 (S1), near the 50% retracement of the 3rd Feb. – 13th Mar. short-term uptrend. A dip below that bar may trigger extensions towards the next support at 1.3650 (S2), near the 61.8% retracement of the aforementioned advance.

• Support: 1.3715 (S1), 1.3650 (S2), 1.3600 (S3).

• Resistance: 1.3770 (R1), 1.3845 (R2), 1.3880 (R3).

EUR/JPY

EUR/JPY fell below the 141.00 hurdle and the 200-period moving average, but the decline was halted at 140.20 (S1) A decisive dip below that support level may have larger bearish implications and target the next support at 139.15 (S2). Both momentum studies follow downward paths, while the MACD lies below both its trigger and zero lines and since the rate is trading below both the moving averages, the short-term outlook is mildly negative, in my view.

• Support: 140.20 (S1), 139.15 (S2), 137.55 (S3).

• Resistance: 141.00 (R1), 142.00 (R2), 143.20 (R3).

GBP/USD

GBP/USD moved higher, breaking above the upper boundary of the short-term downtrend channel and the 1.6600 (S1) key hurdle. The rate remains within the long-term upward sloping channel and if the longs are strong enough to maintain the rate above the 1.6600 (S1) support, I would expect them to challenge the 1.6700 (R1) resistance level. My only concern is that the negative divergence between the daily uptrend and our daily momentum studies is still intact, indicating decelerating upside momentum.

• Support: 1.6600 (S1), 1.6540 (S2), 1.6465 (S3).

• Resistance: 1.6700 (R1), 1.6760 (R2), 1.6820 (R3).

Gold

Gold continued moving lower and reached 1290 (S1), which coincides with the 50% retracement level of the 20th Dec. - 14th Mar. advance. A break below that bar may pave the way for a 61.8% retracement of the aforementioned advance, which would take the price to 1265 (S2). The 50-period moving average crossed below the 200-period moving average and this is an additional negative indication. Nonetheless, the RSI is trying once again to exit its oversold territory, thus some consolidation or an upward corrective wave cannot be ruled out. A long as the precious metal is printing lower highs and lower lows below both the moving averages, the short term outlook remains to the downside.

• Support: 1290 (S1), 1265 (S2), 1235 (S3).

• Resistance: 1310 (R1), 1325 (R2), 1342 (R3).

Oil

WTI moved higher and managed to reach and break the 101.00 barrier. I would expect the uptrend to continue and target the 103.00 (R1) hurdle. Nonetheless, the price met resistance at the upper boundary of the purple upward sloping channel, while the RSI is trading near its 70 bar, thus a corrective move within the channel is possible before the bulls prevail again. As long as WTI is trading within the aforementioned channel, the short-term picture remains positive.

• Support: 101.00 (S1), 100.00 (S2), 98.30 (S3).

• Resistance: 103.00 (R1), 105.00 (R2), 108.00 (R3).

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IronFx 2014.03.31 10:00 #274

Market Analysis 31/03/2014

Daily Commentary 31.03.2014, Time of writing: 10:10 GMT

The Big Picture Getting ready for this week: Friday’s market action was largely in preparation for the big week we have ahead of us. Tomorrow sees a Reserve Bank of Australia (RBA) meeting, Japan’s tankan report, and the global manufacturing PMIs. Thursday we have the European Central Bank (ECB) meeting and on Friday the US non-farm payrolls. With all that ahead of the market, investors seemed to be positioning themselves appropriately.

The ECB meeting remains the biggest event. The steady decline in peripheral Eurozone bond yields suggests that there is still some hope that the ECB will stop sterilizing the bond purchases that it made through the Securities Markets Program (SM). Irish 10-year yields are now only 25 bps or so above US Treasuries! (about 145 bps over Bunds, vs over 1250 bps at the height of the crisis). In that context, the market will be watching this morning’s announcement of the March CPI for the Eurozone closely. The market is expecting it to slow to +0.6% from +0.7% in February. Friday’s surprise plunge in the Spanish CPI into deflation took EUR/USD down to 1.3705, a level last seen the day before the last ECB meeting. But the fact that German inflation wasn’t any lower than forecast caused some disappointment after the surprising Spanish data and a big drop in inflation in the German region of Saxony. I would think we will need to see Eurozone inflation coming in below estimates today to get another challenge of that level.

Elsewhere the dollar was generally higher against the other G10 currencies, particularly vs JPY. It appears that some risk premium is developing in JPY ahead of tomorrow’s tankan report. The current condition indicators are expected to rise, but the outlook figures are expected to show that firms expect some slowdown after the consumption tax hike in Aprilo. Also last week’s retail sales figures, which showed only a small rise in spending in February despite the impending rise in the tax, is worrisome for the Japanese economy. Last time the consumption tax was hiked there was a rush to buy ahead of the tax, but with wages depressed and prices rising, families now have little opportunity to expand their spending. This increases the likelihood of more easing by the Bank of Japan. It also suggests a further fall in the current account surplus, perhaps even into deficit, which would be JPY-negative as well.

Other indicators out today include French final GDP for Q4 and Italy’s preliminary CPI for March. In Switzerland, the KOF leading indicator is forecast to have risen to 2.05 in March from 2.03 in February.

From the UK, the Bank of England mortgage approvals for February are estimated at 75.0k vs 76.9k in January.

In the US, the Chicago purchasing managers’ index for March is forecast to have declined to 59.0 from 59.8, while the Dallas Fed manufacturing activity index for the same month is expected to be up to 3.0 from 0.3.

Elsewhere, Canada’s GDP is expected to have risen 0.4% mom in January, after falling 0.5% mom in December.

Overnight the Reserve Bank of Australia meets to set rates. No change in policy is expected but it will be interesting to see whether we will have any statements after the recent appreciation of AUD.

Only one speaker is scheduled on Monday. Federal Reserve Chair Janet Yellen delivers the keynote address at the National Interagency Community Reinvestment Conference.

The Market EUR/USD

EUR/USD rebounded from the support at 1.3715 (S1) and moved higher to meet resistance at 1.3770 (R1), slightly below the 200-period moving average. A clear dip below the 1.3715 (S1) hurdle may trigger extensions towards the next support at 1.3650 (S2), near the 61.8% retracement of the 3rd Feb. – 13th Mar. short-term uptrend. Nonetheless, we can identify positive divergence between both our momentum studies and the price action, while the MACD, although in bearish territory, crossed above its trigger line, indicating decelerating bearish momentum for now.

• Support: 1.3715 (S1), 1.3650 (S2), 1.3600 (S3).

• Resistance: 1.3770 (R1), 1.3845 (R2), 1.3880 (R3).

USD/JPY

USD/JPY reached and broke above the 102.70 hurdle. If the longs are strong enough to maintain the rate above that level, I would expect them to extend the advance and challenge the resistance bar at 103.40 (R1). The MACD lies above both its trigger and zero lines, confirming the recent bullish momentum, but the RSI is testing its 70 barrier. Thus, some consolidation before the continuation of the advance cannot be ruled out.

• Support: 102.70 (S1), 101.85 (S2), 101.25 (S3).

• Resistance: 103.40 (R1), 103.75 (R2), 104.75 (R3).

EUR/GBP

EUR/GBP violated the 0.8300 bar and moved lower to reach the support at 0.8260 (S1). A clear close below that obstacle may have larger bearish implications and target the next support at 0.8200 (S2). However, since the RSI crossed above its 30 level and the MACD seems ready to cross above its signal line, an upward corrective wave is possible in my view. The rate is trading below both the moving averages, while the 50-period moving average is getting closer to the 200-period one, thus a bearish cross in the near future may confirm the negative picture of the currency pair.

• Support: 0.8260 (S1), 0.8200 (S2), 0.8160 (S3).

• Resistance: 0.8300 (R1), 0.8340 (R2), 0.8400 (R3).

Gold

Gold moved in a consolidative mode, remaining near the 1290 (S1) support level, which coincides with the 50% retracement level of the 20th Dec. - 14th Mar. advance. A break below that bar may pave the way towards the 1265 support (S2), which lies near the 61.8% retracement level of the aforementioned advance. As long as the metal is printing lower highs and lower lows below both the moving averages, the short-term outlook remains to the downside. Nonetheless, the RSI crossed above its 30 bar and is moving higher, while the MACD, although in its negative area, crossed above its signal line. As a result I still expect an upward corrective wave, maybe to test the 1310 (R1) level as a resistance this time.

• Support: 1290 (S1), 1265 (S2), 1235 (S3).

• Resistance: 1310 (R1), 1325 (R2), 1342 (R3).

Oil

WTI found resistance at the upper boundary of the purple upward sloping channel and moved lower. Since the RSI crossed below its 70 bar and the MACD seems ready to cross below its trigger line, I would expect the corrective wave to continue, maybe towards the lower boundary of the uptrend channel. However, as long as WTI is trading within the aforementioned channel, the possibility for a higher low still exists and as a result the short-term picture remains positive in my view.

• Support: 101.00 (S1), 100.00 (S2), 98.30 (S3).

• Resistance: 103.00 (R1), 105.00 (R2), 108.00 (R3).

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IronFx 2014.04.01 07:00 #275

Market Analysis 01/04/2014

Daily Commentary01.04.2014, Time of writing: 10:10 GMT

The Big Picture The Dove Spreads Her Wings After a lackluster day in Europe when even a larger-than-expected fall in inflation couldn’t support the dollar, yesterday’s speech by Fed Chair Janet Yellen – together with some mixed economic data – pushed USD down further against most currencies.

While Yellen’s speech didn’t break any new ground, it did remind the market more of her earlier dovish stance than the surprisingly hawkish sentiments she expressed following last month’s FOMC meeting. The key phrase was, “I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy-makers at the Fed.” US bond yields had been rising before her speech, but started falling afterwards and finished the day lower, with some bear flattening (which is usually USD-positive, but not today). Personally, I would look at what the FOMC does, not what they say. So far they have been steadfastly moving towards tightening policy and I expect that trend to continue. We should also remember that Yellen’s definition of “a considerable time” during her recent Congressional testimony was six months or so, so when she says “for some time,” this certainly does not mean “indefinitely.” In any event, lower rates combined with a fall in the March Chicago PMI to exert further downward pressure on USD, which fell against almost all G10 currencies and most of the EM currencies that we track as well.

The exception in G10 was JPY, which eased as risk-taking sentiment continued to pour back into the market. The fact that the TOPIX index has been up seven days in a row has also helped the recovery in USD/JPY. The tankan survey was largely worse than expected, with the Q1 condition indices as expected or worse, while the expectations for Q2 were generally worse than predicted. The prediction of a rise of only 0.1% in capital spending in the new fiscal year beginning today was also disappointing, although this figure is usually revised up as the year goes on. Nonetheless the modest impact on the stock market, which was almost unchanged (TOPIX was down fractionally earlier in the day, now up 0.06% as I write) shows that this was largely anticipated. I think USD/JPY can continue to move higher as Japan’s current account surplus continues to erode.

The Reserve Bank of Australia (RBA) left rates unchanged, as had been unanimously predicted in the pundit world. AUD fell slightly after the announcement, as Gov. Stevens said, “the decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months.” It wasn’t so long ago that officials were talking about 0.85 or even 0.82 as a more appropriate level for the AUD. I don’t expect that their views have changed, even if it’s becoming less urgent. There are signs that other parts of the Australian economy, particularly housing, are picking up the slack as mining investment wanes. The risks to Australia were underlined today after the HSBC/Markit March PMI for China was revised down slightly to 48.0 from the initial reading of 48.1 (February: 48.5), the third consecutive month below the 50 line. The official PMI on the other hand rose to 50.3 in March from 50.2, but even that would indicate only very modest expansion. I still feel that AUD should have more of a China risk premium built in and should weaken in the future.

Following the China PMI, today we get the manufacturing PMI figures for March from several European countries, the Eurozone as a whole, the UK and the US. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. The UK manufacturing PMI is estimated to be slightly down to 56.7 from 56.9, while in the US, the ISM manufacturing PMI is expected to have risen to 54.0 from 53.2, which would probably prove USD-supportive if it proves correct. However following the disappointing Chicago PMI, expectations have probably been revised down somewhat.

Besides the PMIs, we have the German unemployment rate for March and Eurozone’s unemployment rate for February. Both rates are expected to have remained unchanged at 6.8% and 12.0% respectively.

As for the speakers, Euro-area finance ministers meet to discuss the progress of the bailout programs of Cyprus, Greece and Portugal. They will also discuss possible direct recapitalization of banks by the European Stability Mechanism, financial assistance for Ukraine, legislation creating a Single Resolution Mechanism for euro-area banks and economic growth in the bloc.

The Market EUR/USD

EUR/USD moved higher despite the unexpected decline in the Eurozone inflation rate. The pair met resistance at 1.3810 (R1), near the upper bound of the purple downward sloping channel. I change my view to neutral for now, since a dip below the 1.3715 (S1) support is needed to signal the continuation of the decline. On the other hand, considering the positive divergence between both of the momentum studies and the price action, an upside violation of the 1.3845 (R2) bar would be a first indication that the recent decline was just a 50% retracement of the 3rd Feb. – 13th Mar. short-term uptrend.

• Support: 1.3715 (S1), 1.3650 (S2), 1.3600 (S3).

• Resistance: 1.3810 (R1), 1.3845 (R2), 1.3880 (R3).

EUR/JPY

EUR/JPY moved higher and violated the 142.00 hurdle. I would expect such a break to pave the way towards the next resistance at 143.20 (R1). The rate is trading above both the moving averages, while the MACD crossed above both its zero and signal lines, shifting the short-term outlook mildly to the upside. On the daily chart, the pair is trading within a triangle formation and a clear break above the upper boundary of the pattern may have larger bullish implications.

• Support: 142.00 (S1), 141.00 (S2), 140.20 (S3).

• Resistance: 143.20 (R1), 143.80 (R2), 145.15 (R3).

GBP/USD

GBP/USD continued its advance after breaking above the 1.6600 bar. The pair is now heading towards the resistance of 1.6700 (R1), where a clear upward violation may drive the battle towards the next obstacle at 1.6760 (R2). The rate remains within the long-term upward sloping channel but I am concerned that the negative divergence between the daily uptrend and our daily momentum studies is still intact, indicating decelerating upside momentum.

• Support: 1.6600 (S1), 1.6540 (S2), 1.6465 (S3).

• Resistance: 1.6700 (R1), 1.6760 (R2), 1.6820 (R3).

Gold

Gold moved lower on Monday, breaking below the 1290 hurdle, which coincides with the 50% retracement level of the 20th Dec. - 14th Mar. advance. I would expect the precious metal to continue its decline and challenge the support level at 1265 (S1), which lies near the 61.8% retracement level of the aforementioned advance. As long as the metal is forming lower highs and lower lows below both the moving averages, the short-term outlook remains to the downside.

• Support: 1265 (S1), 1235 (S2), 1187 (S3).

• Resistance: 1290 (R1), 1310 (R2), 1325 (R3).

Oil

WTI moved slightly lower yesterday. I would expect the corrective wave to continue and challenge the lower boundary of the uptrend channel or the 101.00 (S1) bar as a support this time. The RSI continued moving lower, while the MACD fell below its signal line, increasing the possibilities for further declines. However, the WTI is still trading within the purple upward sloping channel, thus the upside path remains intact. Only a clear dip below the 100.00 (S2) support may argue that the recent advance was just a 61.8% retracement of the 4th-17th March decline.

• Support: 101.00 (S1), 100.00 (S2), 98.30 (S3).

• Resistance: 102.00 (R1), 103.00 (R2), 105.00 (R3).

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IronFx 2014.04.04 14:40 #276

Market Analysis 04/04/2014

Promises, promises The ECB once again refrained from taking any action, but ECB President Draghi intensified the Bank’s dovish message. Quantitative easing had been only a theoretical possibility before, but he said that the ECB Council is now “unanimous in also using unconventional measures” if inflation expectations fall further. Draghi was not specific on what measures they would take if further action was necessary. He revealed that the big difference on the Council centers on the question of why the inflation rate has been falling: some members see deflationary pressures intensifying (and therefore want to act, presumably), while others believe that lower food and oil prices, plus the shifting of this year’s Easter holiday into April, are behind the downtrend and that it therefore does not need any corrective action. This means that if inflation doesn’t start to rise again in April and May, the Council would probably change its view and take further easing measures. Thus the next few months of data are going to be decisive for the euro; the final March CPI (11 April for Germany, 16 April for EU) and the April CPI (29 April for Germany, 30 April for EU) are the next critical dates. The final deadline for moving is probably the June ECB meeting, with the revised economic forecasts. The ECB also emphasized the importance of the exchange rate, noting in the prepared statement that “exchange rate developments will be monitored closely.” This probably caps the upside to EUR/USD. That’s not a concern for us at the present time however; on the contrary, EUR/USD seems poised both fundamentally and technically to decline from here (see below) as it should move to discount the increased possibility of further easing.

The main event today is the release of the nonfarm payrolls for March. The market consensus is for 200k, up from 175k in February. At the same time, the US unemployment rate for March is expected to have declined to 6.6% from 6.7% in February. Another solid number like this would reassure the market that the slowdown in hiring in recent months was indeed just because of the bad weather and that the US economy is healthy. That would probably send US interest rates higher and reinforce the perceived divergence with Eurozone monetary policy and therefore send the dollar higher, in my view. The one standard deviation range on the forecast is about 175k-225k, so anything over that is likely to cause a fairly good USD rally.

Our research shows that JPY and CAD have the greatest increase in volatility on payroll days, while AUD and NZD are not necessarily more volatile than usual. EUR, GBP and CHF are in the middle. EUR has a distinctive pattern: it gets much more volatile on positive surprises but it seems to have a regular day on negative surprises, which might make it a good option for people who want to position themselves for a higher figure (good upside potential, lower downside risk). JPY on the other hand is more volatile on both beats and misses. As for absolute volatility (rather than the increase in volatility compared to a normal day), JPY, CHF and NZD are approximately tied. As mentioned before, CAD sees a big increase in volatility, but its absolute level of volatility is relatively low. Conclusion? USD/JPY is probably the best pair to use to position for the payroll figures, while EUR is good for positioning just for a higher-than-expected figure.

As for other indicators, in Europe, Germany’s factory orders are forecast to have slowed to +0.2% mom in February from a revised +1.0% mom in January, while Sweden’s industrial production for February is expected to have risen 0.5% mom, after declining 0.3% the previous month.

Canada’s unemployment rate for March is expected to have remained unchanged at 7.0%.

As for speakers, Bank of England Executive Director for financial stability Andrew Haldane gives a speech at the London Business School Asset Management conference.

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Currency Titles:

EUR/USD

USD/JPY

EUR/GBP

Gold

Oil

Currencies Image Url:

http://shared.ironfx.co.uk/morning_pictures_2014/4april2014/EURUSD_04Apr2014.PNG

http://shared.ironfx.co.uk/morning_pictures_2014/4april2014/USDJPY_04Apr2014.PNG

http://shared.ironfx.co.uk/morning_pictures_2014/4april2014/EURGBP_04Apr2014.PNG

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Currencies Text:

EUR/USD moved lower and is currently testing the 1.3710 (S1) support bar. A clear dip below that support may pave the way towards the next one at 1.3650 (S2). Both our momentum studies broke below their support lines, while the MACD lies below both its zero and trigger lines, confirming the recent bearish momentum. As long as the rate is printing lower highs and lower lows within the channel and below both the moving averages, the short-term outlook is to the downside.

• Support: 1.3710 (S1), 1.3650 (S2), 1.3600 (S3).

• Resistance: 1.3810 (R1), 1.3845 (R2), 1.3880 (R3).

USD/JPY moved in a consolidative mode, maintaining its rate above the 103.75 (S1) support barrier. I still expect the bulls to trigger extensions towards the resistance of 104.75 (R1). As long as the pair is trading above both the moving averages, the short-term outlook is still positive. However, the RSI has remained within its overbought territory for an extended period of time, while the MACD seems ready to cross below its signal line, thus some further consolidation or a pullback is possible.

• Support: 103.75 (S1), 103.40 (S2), 102.70 (S3).

• Resistance: 104.75 (R1), 105.35 (R2), 106.60 (R3).

EUR/GBP moved lower after failing to achieve a close above the 0.8300 (R1) resistance area. The rate is now trading within a range between the support of 0.8255 (S1) and the aforementioned resistance. A clear dip below the support of 0.8255 (S1) may have more bearish implications and pave the way towards the next hurdle at 0.8200 (S2). On the upside, a violation of the 0.8300 (R1) resistance, will probably target the next one at 0.8340 (R2).

• Support: 0.8255 (S1), 0.8200 (S2), 0.8160 (S3).

• Resistance: 0.8300 (R1), 0.8340 (R2), 0.8400 (R3).

Gold moved lower after finding resistance at 1295 (R1), but remained above the support barrier of 1280 (S1). The positive divergence between both our momentum studies remains in effect, indicating decelerating bearish momentum. Nonetheless, since the price is trading below both the moving averages and since it is too early to argue for a short term reversal, I would consider any advance to be a correction and I would expect it to be limited. A clear dip below the 1280 (S1) support would signal the continuation of the downtrend and may target the next hurdle at 1265 (S2).

• Support: 1280 (S1), 1265 (S2), 1235 (S3).

• Resistance: 1295 (R1), 1310 (R2), 1325 (R3).

WTI moved higher after finding support at 98.80 (S2) and is back above 100.00 (S1) and above both the moving averages. Nonetheless, the price remains below the lower bound of the purple uptrend channel and the possibility for a lower high still exist. I would change my view to neutral for now, since a move above 102.00 (R2) may reinforce the prior short-term uptrend, while a move below the 98.30 (S3) support is needed to keep the picture negative. On the daily chart both the daily RSI and the daily MACD lie near their neutral levels, not giving any clues about the forthcoming directional movement of WTI.

• Support: 100.00 (S1), 98.80 (S2), 98.30 (S3).

• Resistance: 101.00 (R1), 102.00 (R2), 103.00 (R3).

Momentum - Oscillators - Executing Trades - Trading Relative Strength Index -

IronFx 2014.04.07 07:00 #277

Market Analysis 07/04/2014

Language English

A surprising surprise Friday’s market action was confusing: a seemingly good nonfarm payroll figure resulted in sharply lower bond yields yet a lower stock market too. Higher gold prices – a sign of risk-off – went along with renewed interest in carry trades, yet the yen was the best-performing G10 currency.

The US nonfarm payroll headline number was largely in line with expectations, even though the previous months were revised up – meaning it was really better than it looked. Most of the other detail were favourable too, including a surprising rise in the participation rate and a big increase in the length of the average workweek (which actually means more for incomes, and hence spending, than the rise in the payrolls themselves). Yet the dollar fell all around as interest rates came down sharply: five-year yields were off around 10 bps while the implied interest rates on long-dated Fed Funds futures were down as much as 9.5 bps. One possible explanation was that average hourly earnings were flat after rising 0.4% last month. This brought the year-on-year rate of growth down to 2.1% from 2.2% (instead of rising to 2.3% as expected) and confirmed that the February jump in earnings was a one-off, not the beginning of an acceleration in wages. Fed Chair Yellen recently highlighted sluggish wage growth as providing confirmation of still slack labor markets, which she said was “another sign that the Fed’s job is not yet done.” That would explain the fall in Fed Funds expectations and the resulting fall in the dollar vs several of the other G10 currencies, as well as most of the EM currencies that we track.

EUR/USD stayed under pressure on a report that the ECB had attempted to model the impact of buying EUR 1tn of securities as part of QE. This is only natural, as they would of course be expected to try modelling the impact of such a move before trying it out. Nonetheless the size of the example and the contrast with the Fed’s “tapering” kept the EUR weak. It is opening this morning below 1.37 for the first time since Feb. 27th. It looks to me from a fundamental and technical point of view (see below) that the trading range is likely to shift lower from here as investors anticipate further easing moves from the ECB.

The other surprise was that US stocks fell despite the pared-back expectations for US rates, which would usually be bullish for the market. The rout was centered in small-cap stocks and some high PE stocks, which hedge funds had apparently been buying with little success. The S&P 600 small cap index was down 2.1% and the NASDAQ off 2.6%, which dragged down the broader market as well. This could be a bad omen for stocks – until recently, the mantra in the stock markets has been “buy the dips,” but the usual logic didn’t work this time in the NASDAQ, which closed below its 100-day moving average for the first time since Dec. 2012.

Yet it isn’t totally a risk-off environment. EM countries are likely beneficiaries if the Fed doesn’t tighten as rapidly or as far as expected, and as mentioned above the dollar lost ground against almost every EM currency we track, including nearly 1% vs TRY and ZAR and nearly 2% vs BRL. Carry trades seem back in style and I would expect some of the harder-hit EM currencies and those with higher interest rates to come back somewhat.

Another contradiction: although investors were putting carry trades back on, JPY was the best-performing G10 currency, perhaps because of the 1.8% fall in the TOPIX today (USD/JPY tends to move together with Japanese stocks). A two-day Bank of Japan policy board meeting begins today. I do not expect any change yet as they will probably want to gauge the impact of the hike in the consumption tax before taking any steps, particularly as the BoJ’s recent survey showed that inflation expectations are rising towards their goal. Later in the year however I do expect them to take further steps to push matters along, as the rise in wages is lagging behind the rise in prices, meaning their efforts are actually deflationary, not inflationary.

There is relatively little on the schedule for today. The ECB publishes its annual report. Germany’s industrial production is forecast to have slowed to +0.3% mom in February from +0.8% in January. Norway’s industrial production is also coming out but no forecast is available. In Switzerland, the CPI rate for March is forecast at -0.1% yoy the same as in February, although the mom rate is expected to have accelerated to +0.2% from +0.1%. There are no US indicators coming out.

We have four ECB and one Fed speaker scheduled on Monday. ECB Executive Board member Yves Mersch speaks on regulation, ECB Governing Council member Ewald Nowotny speaks on "EU Sentiment in Austria and France" in Vienna, ECB Governing council member Weidmann gives a lecture in Amsterdam and ECB’s Vice President Vitor Constancio presents ECB's annual report to the European Parliament in Brussels. St. Louis Fed President James Bullard speaks on monetary policy in Los Angeles.

Currency Titles:

EUR/USD

EUR/JPY

GBP/USD

Gold

Oil

Currencies Image Url:

http://shared.ironfx.co.uk/morning_pictures_2014/7april2014/EURUSD_07Apr2014.PNG

http://shared.ironfx.co.uk/morning_pictures_2014/7april2014/EURJPY_07Apr2014.PNG

http://shared.ironfx.co.uk/morning_pictures_2014/7april2014/GBPUSD_07Apr2014.PNG

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http://shared.ironfx.co.uk/morning_pictures_2014/7april2014/CLK4_07Apr2014.PNG

Currencies Text:

EUR/USD moved lower, breaking below the 1.3710 bar. If the bears are strong enough to maintain the rate below that level, I would expect them to trigger extensions towards the support level of 1.3650 (S1). The MACD remains below both its zero and trigger lines, while the 50-period moving average crossed below the 200-period moving average, confirming the short-term downtrend. As long as the rate is printing lower highs and lower lows within the purple downward sloping channel, I consider the short-term outlook to be negative.

• Support: 1.3650 (S1), 1.3600 (S2), 1.3560 (S3).

• Resistance: 1.3710 (R1), 1.3810 (R2), 1.3845 (R3).

EUR/JPY failed to violate the resistance hurdle of 143.20 (R2) and moved significantly lower to trade once again below 142.00 (R1). The rate is now trading near the 200-period moving average and since the possibility for a higher low still exist, I would keep a neutral stance for now. The MACD, already below its signal line, fell below its zero line, indicating negative momentum, but the RSI is finding support near the 30 level, thus a price rebound near the 200-period moving average cannot be ruled out. On the daily chart, the pair is trading within a triangle formation and a break above the resistance of 143.80 (R3) may confirm the escape from the formation and probably signal the resumption of the longer-term uptrend.

• Support: 141.00 (S1), 140.20 (S2), 139.15 (S3).

• Resistance: 142.00 (R1), 143.20 (R2), 143.80 (R3).

GBP/USD failed to maintain its rate above 1.6600 and fell below that level. The price is now trading near the lower boundary of the long-term uptrend channel, where a dip, followed by a clear violation of t the 1.6540 support, may pave the way towards the lows of 1.6465 (S2). Both our momentum studies follow downward paths, while the MACD lies below both its signal and zero lines, confirming the recent negative momentum of the price action. On the upside, a break above the key resistance of 1.6700 (R2) is needed to revive the bullish case and target the 1.6760 (R3) barrier.

• Support: 1.6540 (S1), 1.6465 (S2), 1.6380 (S3).

• Resistance: 1.6600 (R1), 1.6700 (R2), 1.6760 (R3).

Gold moved higher, breaking above the 1295 hurdle and confirming the positive divergence identified between both our momentum studies and the price action. The precious metal is now trading between the aforementioned support and the resistance of 1315 (R1), where a clear break may challenge the resistance of 1325 (R2), near the 38.2% retracement level of the 17th Mar. - 1st Apr. short-term downtrend. As I mentioned in previous comments, it’s too early for argue for a trend reversal and I would consider the recent advance as a correcting phase for now.

• Support: 1295 (S1), 1280 (S2), 1265 (S3).

• Resistance: 1315 (R1), 1325 (R2), 1342 (R3).

WTI continued moving higher, but met resistance at 101.60 (R1), slightly below the lower boundary of the purple upward sloping channel. A dip below the support of 100.00 (S1) may challenge once again the recent lows at 98.80 (S2), However, I would maintain my neutral view, since a move below the 98.30 (S3) support is needed to turn the picture negative, while a move above 102.00 (R2) may reinforce the prior short term uptrend.

• Support: 100.00 (S1), 98.80 (S2), 98.30 (S3).

• Resistance: 101.60 (R1), 102.00 (R2), 103.00 (R3).

Benchmark Currency Rates:

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Market Summary Url:

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Executing Trades - Trading Relative Strength Index - Relative Strength Index -

IronFx 2014.04.08 07:20 #278

Market Analysis 08/04/2014

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Fear winning out In the perennial battle of fear vs greed, those two great factors motivating the market, fear seems to have won out temporarily, at least in the stock markets. Stock markets continued to fall yesterday on no particular macroeconomic news, even though Fed Funds expectations continued to retreat (down another 5 bps in the long end). AUD and CAD, two growth currencies, were generally weaker, while all other G10 currencies gained against USD. We can hope for a better turnout today, as Chinese stocks hit a six-week high on expectations of government stimulus, many other Asian stock markets were stable to higher, and the S&P 500 futures were up slightly in early European trading. A rebound in stocks, if it happens, would probably boost the growth currencies (AUD in particular) and aid in the dollar’s recovery.

This “risk off” episode is different from previous ones in that EM currencies continue to gain, probably on expectations of lower US rates, which would help maintain the inflow of capital into these countries and reduce the pressure on them to hike rates. BRL rose sharply as the Brazilian stock market was one of the few in the world to gain yesterday (+2.1!). TRY and ZAR continued their recent recovery as well. On the other hand, RUB was the big loser among the EM currencies as events in Ukraine heated up again.

The big question for me is when the market will start paying attention to Ukraine again. The country’s leaders yesterday warned that their country was at risk of being torn apart as armed pro-Russian separatist occupied government buildings in three eastern Ukrainian cities, according to the FT. Although Ukraine’s acting president blamed Moscow for the unrest, Russian politicians have avoided suggesting that their country intervene militarily. Nonetheless I think these events warrant our attention, because the initiative may now be with individuals on the ground rather than politicians in the capital, and people on the ground tend not to think of the larger implications of what they do. An ill-thought-out action by a few hotheads could have larger geopolitical implications that would impact the FX market. Moreover, at least one other region wants to follow Crimea’s example; the president of Transnistria, which is part of Moldova, said that his region wants to join Russia after gaining its independence (a long shot maybe, but indicating that the upheaval isn’t over yet). It strikes me as potentially negative for EUR/USD, although the pair is back above the 1.37 level this morning.

It’s noticeable that despite the weaker dollar, lower interest rate expectations and increasing tensions in Ukraine, gold continues to fall. Although the technical picture remains bullish (see below), fundamentally it looks as if something has changed in investors’ perception. CHF was the best-performing G10 currency overnight, indicating some drive for safe havens, yet apparently gold does not feature very high among those safe-haven assets any more. This contrasts with the behaviour of silver, which gained on the day.

The Bank of Japan Policy Board finished its two-day meeting and refrained from adding any additional stimulus. Also the current account returned to surplus by JPY 613bn in February from the record JPY 1.6trn deficit in January. JPY was higher nonetheless, probably due more to the 1.5% fall in the TOPIX rather than any reaction to the BoJ meeting or the current account figures, which were both as expected. I still expect the BoJ to take some action as the economy slows following the consumption tax hike this month.

During the European day, Switzerland’s unemployment rate for March is forecast to have remained unchanged at 3.2% on a seasonally adjusted basis. From the UK, industrial production is expected to have accelerated to +0.3% mom in February, from +0.1% in January. This indicator can have a substantial effect on GBP, especially when it misses estimates.

In Canada, housing starts for March are forecast at 192k, as in February, while building permits for February are estimated to have declined 2.0% mom, after rising 8.5% in January.

We have four speakers scheduled on Tuesday. Philadelphia Fed President Charles Plosser delivers a keynote speech titled "Enhancing Prudential Standards in Financial Regulations", Minneapolis Fed President Narayana Kocherlakota will deliver a speech to the Rochester Chamber of Commerce, and Chicago Fed President Charles Evans will be speaking at a symposium titled "Managing the Transition to Normality - Implications for Fiscal Policy.” ECB’s Governing Council member Jens Weidmann speaks in Berlin at 20th German Banking Congress Program.

Currency Titles:

EUR/USD

USD/JPY

EUR/GBP

Gold

Oil

Currencies Image Url:

http://shared.ironfx.co.uk/morning_pictures_2014/8april2014/EURUSD_08Apr2014.PNG

http://shared.ironfx.co.uk/morning_pictures_2014/8april2014/USDJPY_08Apr2014.PNG

http://shared.ironfx.co.uk/morning_pictures_2014/8april2014/EURGBP_08Apr2014.PNG

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Currencies Text:

EUR/USD moved higher on Monday and is trading once again above 1.3700. Nonetheless, since the rate is still trading below both the moving averages and the downtrend line, I would consider the recent advance as a corrective wave and the short-term downside path to be intact. A dip below 1.3695 (S1) would confirm a lower low and will probably challenge the support of 1.3650 (S2).Only a move above the prior high of 1.3810 (R1) could change the outlook of the currency pair.

• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).

• Resistance: 1.3810 (R1), 1.3845(R2), 1.3880 (R3).

USD/JPY fell after finding resistance at 104.00 (R2), but the decline was halted slightly above the support of 102.70 (S1) and the 200-period moving average. A rebound near that support zone could challenge the 103.40 (R1) resistance where an upward violation may pave the way for another test at the 104.00 (R2) hurdle. The MACD lies within its negative territory, confirming the recent bearish momentum, but the RSI met support at its 30 level and moved higher, increasing the possibilities for a forthcoming rebound.

• Support: 102.70 (S1), 101.85 (S2), 101.25 (S3).

• Resistance: 103.40 (R1), 104.00 (R2), 104.75 (R3).

EUR/GBP remains within the range between the support of 0.8255 (S1) and the resistance of 0.8300 (R1). The rate met resistance near the 50-period moving average yesterday and moved slightly lower. A clear dip below the support of 0.8255 (S1) may have more bearish implication and open the way towards the next hurdle at 0.8200 (S2). On the upside, a move above the resistance of 0.8300 (R1) may trigger extensions towards the 0.8340 (R2) obstacle. Both the RSI and the MACD are moving in a sideways mode, indicating neutral momentum at the moment.

• Support: 0.8255 (S1), 0.8200 (S2), 0.8160 (S3).

• Resistance: 0.8300 (R1), 0.8340 (R2), 0.8400 (R3).

Gold moved slightly lower to meet support at the 1295 (S1) hurdle. If the bulls are strong enough to push the precious metal higher I would expect them to target the 1315 (R1) resistance, where a break may see the next one at 1325 (R2), near the 38.2% retracement level of the 17th Mar. - 1st Apr. short-term downtrend. Both our momentum studies follow upward paths, while the MACD lies above both its trigger and zero line, confirming the recent positive momentum of the metal.

• Support: 1295 (S1), 1280 (S2), 1265 (S3).

• Resistance: 1315 (R1), 1325 (R2), 1342 (R3).

WTI moved lower but after finding strong support at the 100.00 (S1) key barrier and the 200-period moving average, moved higher. The price remains between the 100.00 (S1) support and the resistance of 102.00 (R1). Both the moving averages are pointing sideways, thus I would maintain my neutral view. A move below the 98.80 (S2) support would confirm a lower low and may turn the picture negative, while a move above 102.00 (R1) may reinforce the prior short-term uptrend.

• Support: 100.00 (S1), 98.80 (S2), 98.30 (S3).

• Resistance: 102.00 (R1), 103.00 (R2), 105.00 (R3).

Benchmark Currency Rates:

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Market Summary Url:

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Executing Trades - Trading Momentum - Oscillators - Elliott Wave Theory -

IronFx 2014.04.09 06:10 #279

Market Analysis 09/04/2014

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Back to the old range It looked to me like EUR/USD was likely to slip into a new range, but the FX market at least ignored the worsening tensions in Ukraine and EUR/USD is opening in Europe with a 1.37 handle again this morning. It has opened with a 1.37 or 1.38 handle 32 out of the last 38 trading days (since Feb. 17th); the exceptions were twice with 1.36 and four times with 1.39. Pretty narrow range. FX vol is falling all around; the Deutsche Bank CVIX index, which measures the historical volatility of FX options, has fallen to its lowest level since 2007. One might attribute the lack of volatility to the dominance of central banks, except it seems to be spilling over into other markets with less connection to monetary policy. The volatility of oil for example has recently been about half of its historical average. Stock market volatility on the other hand is lower than in recent years but still at a level that was normal before the financial crisis.

There were two somewhat contradictory moves overnight. The currency that gained the most vs USD was AUD, which in theory would be a sign of risk-on, risk-seeking appetite. But right behind it was JPY, which normally gains on risk-off, risk-aversion behaviour. How to reconcile these two moves? AUD gained on a sharp 2.3% mom rise in home loans in February (estimate: +1.5%). JPY was probably moving in response to the fall in Japanese stocks, although it’s noticeable that the recovery in US stocks did not do anything to change the JPY trend. The unifying factor seems to be a weak dollar all around, despite unchanged US interest rates and decent data: a larger-than-expected rise in US small business confidence and a higher-than-expected level of job openings in the JOLTS (Job Openings and Labor Turnover Survey) report. In fact every G10 currency gained vs USD. Even CAD gained vs USD despite much weaker-than-expected Canadian housing starts. Meanwhile most EM currencies continued to rally too as carry trades continue to come back in style. BRL was up again even though the Brazilian stock market was down this time. (KRW and HUF were the biggest gainers on the day.) The only sign of some risk aversion was perhaps in gold, which bounced back somewhat as the Ukrainian crisis continues to deteriorate. Still, an $11 or 0.9% rise is hardly a major reaction.

It’s difficult to keep being be a dollar bull in such a situation. In particular I think we have to watch USD/JPY. If it continues to decline, then again many investors are likely to shift their funding out of JPY and into USD, which could give the dollar another leg down.

During the European day, the Fed releases the minutes from its March 18-19 meeting. The Riksbank meets; the market expects it to keep its benchmark rate unchanged but it may revise down its rate path. Publication of a monetary policy update with revised forecast will accompany the decision.

As for the indicators, both the German trade and current account surpluses are forecast to have risen in February, while the UK trade deficit is expected to have narrowed.

In the US, wholesale inventories for February are expected to have slowed to +0.5% mom from a revised +0.7% mom in January. The MBA mortgage applications for the week ended on April 4 are also coming out.

We have four speakers on Wednesday’s agenda. ECB Executive Board member Sabine Lautenschlaeger, ECB Governing Council Member Carlos Costa, ECB Executive Board member Benoit Cœuré and Chicago Fed President Charles Evans.

Currency Titles:

EUR/USD

EUR/JPY

GBP/USD

Gold

Oil

Currencies Image Url:

http://shared.ironfx.co.uk/morning_pictures_2014/9april2014/EURUSD_09Apr2014.PNG

http://shared.ironfx.co.uk/morning_pictures_2014/9april2014/EURJPY_09Apr2014.PNG

http://shared.ironfx.co.uk/morning_pictures_2014/9april2014/GBPUSD_09Apr2014.PNG

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http://shared.ironfx.co.uk/morning_pictures_2014/9april2014/CLK4_09Apr2014.PNG

Currencies Text:

EUR/USD moved higher on Tuesday, violating the short-term downtrend drawn from the highs back in March, but the advance was halted by the resistance hurdle of 1.3810 (R1). I change my view to neutral for now since only a break above the aforementioned bar would confirm a higher high and may signal that the 13th Mar. – 4th April decline was just a correcting phase. On the other hand, a clear dip below the support at 1.3695 (S1) may have larger bearish implications.

• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).

• Resistance: 1.3810 (R1), 1.3845(R2), 1.3880 (R3).

EUR/JPY continued declining and fell below the 141.00 barrier to meet support at the hurdle of 140.20 (S1). I consider the overall picture to be neutral since the pair is not in a clear trending mode. The MACD lies below both its signal and zero lines, confirming the recent bearish momentum, but the RSI seems ready to exit its oversold zone. Thus I would expect an upside price wave, maybe for a test at the 141.00 bar as a resistance this time. On the daily chart the rate remains within a triangle formation and only a break out of the pattern could give further indications about the forthcoming long-term directional movement of the rate.

• Support: 140.20 (S1), 139.15 (S2), 137.55 (S3).

• Resistance: 141.00 (R1), 142.00 (R2), 143.20 (R3).

GBP/USD rallied after UK industrial production for February rose more than the market anticipated. The pair violated the 1.6700 obstacle and is now trading slightly below the resistance of 1.6760 (R1). The outlook is now back to the upside and a clear violation of that bar could pave the way towards February’s highs at 1.6820 (R2). In the bigger picture, cable remains within the upward slopping channel, keeping the long-term outlook positive.

• Support: 1.6700 (S1), 1.6600 (S2), 1.6540 (S3).

• Resistance: 1.6760 (R1), 1.6820 (R2), 1.6885 (R3).

Gold moved higher after finding support at the 1295 (S1) hurdle. The advance was halted slightly below the resistance bar of 1315 (R1), where an upward violation may see the 1325 (R2) area near the 38.2% retracement level of the 17th Mar. - 1st Apr. short-term downtrend. Both our momentum studies continue to follow upward paths, while the MACD remains above both its trigger and zero line, confirming the recent positive momentum of the metal.

• Support: 1295 (S1), 1280 (S2), 1265 (S3).

• Resistance: 1315 (R1), 1325 (R2), 1342 (R3).

WTI moved higher and managed to overcome the 102.00 hurdle. The price is now trading between that bar and the resistance of 103.00 (R1). A clear violation of the 103.00 (R1) resistance may trigger further bullish extensions towards the highs of 105.00 (R2). The MACD lies above both its zero and signal lines, but the RSI met resistance slightly below its 70 level and is now pointing down, thus some consolidation or a pullback before the bulls prevail again cannot be ruled out.

• Support: 102.00 (S1), 100.00 (S2), 98.80 (S3).

• Resistance: 103.00 (R1), 105.00 (R2), 108.00 (R3).

Benchmark Currency Rates:

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Momentum - Oscillators - Momentum - Oscillators - Momentum - Oscillators -

IronFx 2014.04.10 06:10 #280

Market Analysis 10/04/2014

Language English

Fed minutes change market’s perception FOMC minutes have generally confirmed the views of those who expect the Fed to move to a more restrictive policy, but this time around they gave a more dovish impression of the Fed’s thinking than the market’s understanding. On the one hand, several members said they had not significantly revised their projections of moderate economic growth despite the recent soft indicators, which they largely attributed to bad weather and higher mortgage rates. They also generally agreed that the labor market had continued to improve. But the key point for market participants was that there was no mention of the famous “six months” time frame that FOMC Chair Janet Yellen had previously said constituted the “considerable time” that rates would be held at current levels after the Fed finished its bond purchase program. Moreover, several members expressed their concern that the market might misconstrue FOMC members’ projections for interest rates as indicating that they were moving to a less accommodative reaction function (which is precisely what did happen, in fact). Fed funds expectations in the long end fell 6.5 bps, equities rallied, the yield curve steepened (short bond yields fell, long end rose on expectations of short rates staying low for longer resulting in higher long-term inflation) and the dollar was sold aggressively.

The dollar is starting the European day this morning lower against all G10 currencies and many EM currencies as well. Carry trades improved further as investors now assume that US rates will remain low for longer than they had previously anticipated, which relieves some of the pressure on EM countries and makes their relatively high interest rates all the more attractive.

In the G10, the currencies with the highest carry are NZD, AUD, NOK and CAD and SEK, in that order. Among EM currencies, they are TRY, BRL, INR, RUB, IDR and ZAR. These currencies could be the ones to see the most interest in the near future, although I expect RUB to remain troubled because of the Ukrainian situation. India and Indonesia also have elections that could impact the currencies.

Australia saw a better-than-expected unemployment figure for March overnight, with unemployment falling to 5.8% from 6.0% instead of rising to 6.1% as the market had expected. Yet the impact of that favorable number was offset somewhat by disappointing trade figures from China, which showed imports collapsing 11.3% yoy in March instead of rising 3.9% as expected. Exports were also down however, resulting in a higher-than-expected trade surplus.

During the European day, we have a Bank of England policy meeting. Once again that is likely to be another non-event as all economist surveyed by Bloomberg expect the Bank to keep its policy unchanged. Last month, sterling rose about 25 pips after the release but returned its gains within the next minutes. Meanwhile, the ECB publishes its monthly report.

As for the indicators, French industrial production is forecast to have risen 0.2% mom in February after a decline of the same pace in January, while Italy’s IP for the month is expected to have fallen 0.3% mom after rising +1.0% mom.

We have several CPI figures coming out Thursday that should reaffirm the idea that inflation in Europe is slowing. France’s EU harmonized CPI is expected to have slowed to +0.8% yoy from +1.1% yoy, corroborating the slowdown in the preliminary Eurozone CPI for March. Sweden’s CPI for March is expected to fall further into deflation at -0.3% yoy vs -0.2% yoy in February. Norway however is moving differently: its CPI is estimated to remain unchanged at +2.1% yoy, while the underlying CPI however is forecast to have accelerated to +2.5%yoy from +2.1% yoy. That could support NOK as one of the few European countries where the central bank is not confronting below-target inflation.

In the US, initial jobless claims for the week ended on April 5 are expected to have risen 320k vs 326k the previous week. This would bring the 4wk moving average at 319k, not much of a change from 319.5k previously.

From Canada, the new housing price index for February is expected to have slowed to +0.1% mom from +0.3% mom in January.

Thursday’s agenda includes five speakers. During the Asian day, we have Federal Reserve Governor Daniel Tarullo and Bank of Japan Board member Ryuzo Miyao. As for the European day, ECB’s Executive Board member Peter Praet, Vice President of the ECB and Chicago Fed president Charles Evans will speak.

Currency Titles:

EUR/USD

USD/JPY

EUR/GBP

Gold

Oil

Currencies Image Url:

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Currencies Text:

EUR/USD rallied yesterday, violating two resistance hurdles in a row. The pair is trading between the support of 1.3845 (S1) and the resistance of 1.3880 (R1). A clear violation of the 1.3880 (R1) may pave the way towards the highs of 1.3965 (R2). The rate overcame the peak of 1.3810 and this confirms a forthcoming higher high, turning the outlook positive. The MACD remains in its positive territory, confirming the recent bullish momentum, but the RSI lies within its overbought zone. On the other hand, the RSI has started to come down, indicating that momentum is slowing. I believe EUR/USD is likely to pull back when the indicator exits from extreme conditions.

• Support: 1.3845 (S1), 1.3810 (S2), 1.395 (S3).

• Resistance: 1.3880 (R1), 1.3965 (R2), 1.4000 (R3).

USD/JPY moved in a consolidative mode, remaining slightly above the support level of 101.75 (S1). A clear dip below that barrier may pave the way towards the 101.25 hurdle (S2). The MACD remains below both its signal and zero lines, confirming the negative momentum of the price action. I would ignore the oversold RSI for now, since it is pointing down, and I would expect an upward corrective wave to begin only when the RSI exits from the extreme zone.

• Support: 101.75 (S1), 101.25 (S2), 100.75 (S3).

• Resistance: 102.15 (R1), 102.70 (R2), 103.40 (R3).

EUR/GBP fell below 0.8255 (R1) the lower boundary of the recent sideways path it was trading on Tuesday, but yesterday returned higher to test that bar as a resistance. The short-term outlook is now turned negative and I would expect further bearish extensions, towards the support hurdle at 0.8200 (S2). Relying on our momentum indicators does not seem a solid strategy for now, since the MACD, although in its bearish territory, lies above its signal line, while the RSI hit its blue resistance line and is pointing down.

• Support: 0.8230 (S1), 0.8200 (S2), 0.8160 (S3).

• Resistance: 0.8255 (R1), 0.8300 (R2), 0.8340 (R3).

Gold met support once again at the lower boundary of the short-term channel and moved higher to violate the 1315 bar. I still expect the bulls to target the 1325 (R2) resistance level, near the upper bound of the channel and the 38.2% retracement level of the 17th Mar. - 1st Apr. short-term downtrend. As long as the precious metal is printing higher highs and higher lows within the short-term upside channel, the picture remains positive.

• Support: 1315 (S1), 1295 (S2), 1280 (S3).

• Resistance: 1325 (R1), 1342 (R2), 1354 (R3).

WTI continued moving higher and managed to overcome the 103.00 barrier. The price path remains to the upside since WTI is printing again higher highs and higher lows above both the moving averages and I would expect extensions towards the highs of 105.00 (R2). Nonetheless, since the RSI seems ready to cross below its 70 bar, a bearish corrective wave before the bulls prevail again is likely.

• Support: 103.00 (S1), 100.00 (S2), 100.00 (S3).

• Resistance: 105.00 (R1), 108.00 (R2), 110.00 (R3).

Benchmark Currency Rates:

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Market Summary Url:

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