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Market Analysis 23/05/2014
Language English
The dollar was higher against most of the other G10 currencies during the early European morning, Friday. It was lower only against CAD and virtually unchanged against NOK. The losers were SEK, AUD, EUR, JPY, GBP, CHF and NZD in that order.
The Australian dollar was among the main losers as the rally on the better-than-expected Chinese manufacturing data from HSBC did not last for long. As mentioned in previous comments, I see a mildly bearish picture since a decisive dip below 0.9200 could signal the completion of a trend reversal, in my view. The New Zealand dollar also declined, but less than its Australian counterpart, enhancing my view of a weaker AUD/NZD in the future.
The British pound also declined after the second estimate of the UK GDP for Q1 came in line with market estimates at +0.8% qoq. GBP was rising ahead of the release, probably in anticipation of an upward revision after March’s retail sales figures were revised up on Wednesday. However, as soon as the data came out merely in line with expectations, the pair declined to trade below its pre-rally levels.
The preliminary manufacturing and service-sector PMIs for May from France, Germany and Eurozone as a whole were also announced on Thursday. The French data started the day, coming out not just lower than expected but even worse, falling below the 50 barrier. EUR/USD declined at the release, but found support after the service-sector PMIs from Germany and Eurozone as a whole exceeded estimates. Nonetheless, the support was limited and at the time of writing the pair is found trading below 1.3650. This confirms my view that any upside waves should remain limited as the ECB has more than hinted it is likely to cut rates at its June council meeting and market participants are now faster to sell rallies than to buy dips.
The Canadian dollar was the only winner, maybe in anticipation of the acceleration in Canada’s CPI coming out later in the day. The headline inflation rate is estimated to have accelerated to +2.0% yoy from +1.5% yoy and the core CPI to quicken slightly to +1.4% yoy from +1.3% yoy. This could prove CAD-positive, but in the longer run I would expect USD/CAD to move higher, given that the BoC said at its latest policy meeting that a weakening local currency would support the nation’s exports. The likely course of Canadian monetary policy is diverging from that of the US, which we expect will support USD/CAD.
The main event today will be the German Ifo survey for May. The current assessment index is expected to rise slightly to 115.4 from 115.3, but the expectations index is estimated to decline to 106.5 from 107.3. This kind of mixed picture – happy with the way things are but pessimistic about the future – has been the usual pattern recently in Germany. For example, the ZEW survey on May 13th came out mixed, with the expectations index declining and driving EUR/USD down about 20 pips. Based on that, investors may give more attention on the Ifo expectation index, which is forecast to decline, and push the common currency lower. The final German GDP for Q1 is also coming out. The forecast is the same as the initial estimate.
From the US, we only get new home sales for April, which are expected to have improved along with existing home sales.
Two ECB speakers are scheduled on Friday. ECB Governing Council member Luis Maria Linde and ECB Executive Board member Sabine Lautenschläger speak in Madrid.
On Sunday, we have the European elections and the presidential elections in Ukraine.
Currency Titles:
Is EUR/USD ready for the 1.3600 hurdle?
EUR/JPY in a retracing mode
GBP/USD lower after hitting the 1.6900 zone
Gold meets resistance slightly below 1305
WTI consolidates below the highs of April
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/23may2014/EURUSD_23May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23may2014/EURJPY_23May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23may2014/GBPUSD_23May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23may2014/XAUUSD_23May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23may2014/CLN4_23May2014.PNG
Currencies Text:
EUR/USD fell below the 1.3650 barrier, after finding resistance at 1.3685 (R2). If the bears are strong enough to maintain the rate below 1.3650 (R1), I would expect them to target the support of 1.3600 (S1). Both the RSI and the MACD moved lower, with the latter one lying below both its zero and signal lines, confirming the bearish momentum of the price action. In the bigger picture, the 1.3600 (S1) zone coincides with the 200-day moving average, thus, a decisive dip below that zone could have larger bearish implications targeting the lows of February at 1.3475 (S2).
• Support: 1.3600 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3650 (R1), 1.3685 (R2), 1.3745 (R3).
EUR/JPY moved higher after finding support at 138.15 (S1). Currently, the rate is heading towards the resistance of 139.30 (R1), near the 50-period moving average. A decisive move above that strong resistance zone, could trigger extensions towards the psychological barrier of 140.00 (R2). Nonetheless, as long as the rate is printing lower highs and lower lows below both the moving averages I still see a negative short-term outlook, and thus, I would consider any further advance as a corrective phase. The RSI follows an upside path, while the MACD, already above its trigger line, is getting closer to its zero line, favoring further correction.
• Support: 138.15 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 139.30 (R1), 140.00 (R2), 141.00 (R3).
GBP/USD moved lower after finding resistance at the area of 1.6900 (R1). During the early European morning, the pair is trading near the 50-period moving average, slightly above the support of 1.6840 (S1). A clear move above the resistance of 1.6900 (R1) could pave the way for another test at the 1.7000 (R2) zone. My concern is that the RSI moved lower after finding resistance near its 70 level, while the MACD, although in its bullish territory, fell below its trigger line. Thus some consolidation of further pullback cannot be ruled out. In the bigger picture, the rate remains within the long-term upside channel, but the negative divergence between the daily MACD and the price action remains in effect. As a result, I would maintain a neutral stance as far as the long-term picture is concerned.
• Support: 1.6840 (S1), 1.6760 (S2), 1.6700 (S3).
• Resistance: 1.6900 (R1), 1.7000 (R2), 1.7100 (R3).
Gold tried to move higher on Thursday, but met resistance slightly below the 1305 (R1) bar and moved lower to settle near the moving averages. The precious metal continues to prefer a sideways path between the support of 1280 (S1) and the resistance of 1315 (R2). Both our moving averages continue to point sideways, while both the daily MACD and the daily RSI lie near their neutral levels, confirming the trendless picture of the yellow metal. A break above 1315 (R2) is needed to turn the picture positive and could target the resistance of 1330 (R3), while a dip below 1280 (S1) may see the support of 1268 (S2).
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI moved in a consolidative mode remaining slightly below the highs of April at 104.10 (R1). If the longs are strong enough to push the price higher, I would expect them to overcome the aforementioned resistance and trigger extensions towards the critical barrier of 105.00 (R2). As long as WTI is printing higher highs and higher lows above both the moving averages, the uptrend remains in effect. However, the MACD, although in its bullish territory, crossed below its signal line, while the RSI exited overbought conditions and moved lower. Thus, some further consolidation or a pullback near the blue uptrend line cannot be ruled out.
• Support: 103.00 (S1), 102.40 (S2), 101.70 (S3).
• Resistance: 104.10 (R1), 105.00 (R2), 108.00 (R3).
Benchmark Currency Rates:
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Market Summary Url:
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Market Analysis 26/05/2014
Language English
The dollar was higher against most of the other G10 currencies during the early European morning, Monday. It was lower only against CAD and virtually unchanged against AUD. The losers were SEK, NZD, NOK, EUR, GBP, CHF and JPY in that order.
The focus during the weekend was on the European Parliament elections and the presidential elections in Ukraine. Protest parties made significant gains across the European Union, with the anti-EU wave hitting hardest in France, Greece and the UK. This stretches the anti-European mood across the economic divide opened up by the sovereign debt crisis. Voters in Greece gave the first place to Syriza, the party which argues that the bailouts weren’t generous enough, while in France, the anti-euro National Front took the first place with more than 25% of the vote. In the UK, the winner was UKIP, the Independence Party which wants to pull Britain out of the European Union. Parliament leaders will meet on the morning of May 27 to discuss the election results and the Commission presidency.
In Ukraine, the leading candidate Petro Poroshenko was elected as president, receiving more than 50% of yesterday’s vote and as a result no second round will be needed in a few weeks. In a fragile situation, early clarity helps. One of the main issues Poroshenko will have to deal with will be to ease tensions in the East, where the separatists’ revolution continues to be a major destabilizing problem. Pro-Russian rebels prevented people from voting in much of the big urban centers of the Eastern Donbass region.
On Friday, the common currency extended its losses after the worse-than-expected German Ifo survey for May. The current assessment index declined to 114.8 from 115.3 a month earlier, missing market estimates of 115.4, while the expectations index fell to 106.2 from 107.3. The forecast for the expectations index was for a decline to 106.5. EUR/USD moved further below the 1.3650 barrier. I still expect the pair to challenge the 1.3600 zone, near the 200-day moving average. A clear dip below that support area could have larger bearish implications, targeting the lows of February at 1.3475.
The Swedish Krona was the main loser after Sweden’s confidence data for May missed market estimates, while the Canadian dollar was the main gainer after Canada’s headline inflation quickened in April to reach the Central Bank’s 2% target for the first time in two years. Nonetheless, I still expect the loonie to weaken in the longer run. At its latest meeting the Bank of Canada said that a weakening local currency would support the nation’s exports. Bank of Canada Gov. Poloz also said he will dismiss faster inflation this year as temporary, because of slack in the economy.
Today, the calendar is relatively light as it is a public holiday in the UK and the US. We only get PPI and retail sales data from Sweden, both for April. Sweden’s PPI is forecast to have accelerated to +1.8% yoy from +1.0% yoy in March, while retail sales are expected to have declined 0.5% mom, after rising 1.1% mom the previous month.
We have one speaker scheduled on Monday: Bank of Japan Deputy Governor Iwata.
As for the rest of the week, on Tuesday, the UK BBA mortgage approvals for April are coming out, while in the US, we have durable goods orders for the same month. The Federal Housing Finance Agency (FHFA) and the S&P/Case-Shiller housing price indices for March are also due out. On Wednesday, the German unemployment rate for May and Eurozone’s M3 money supply for April are to be released. On Thursday, in the US, we get the second estimate of GDP for Q1 and pending home sales for April. On Friday, during the Asian morning, we have the usual end-of-month data dump from Japan and New Zealand’s building permits for April. As for the European day, Sweden’s GDP for Q1 and Italy’s preliminary CPI for May are coming out. In the US, we have personal income and personal spending for April, alongside the University of Michigan final consumer sentiment for May. We also get Canada’s GDP data for Q1.
Currency Titles:
EUR/USD is getting closer to 1.3600
USD/JPY touches 102.00
EUR/GBP finds support at 0.8080
Gold continues sideways
WTI’s uptrend is losing momentum
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/26may2014/EURUSD_26May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/26may2014/USDJPY_26May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/26may2014/EURGBP_26May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/26may2014/XAUUSD_26May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/26may2014/CLN4_26May2014.PNG
Currencies Text:
EUR/USD declined on Friday after the German Ifo survey for May missed estimates. The pair moved further below the 1.3650 (R1) barrier and I would still expect the bears to target the support zone of 1.3600 (S1). Both the RSI and the MACD moved lower, with the latter one lying below both its zero and signal lines, confirming the bearish momentum of the price action. In the bigger picture, the 1.3600 (S1) zone coincides with the 200-day moving average, thus, a decisive dip below that zone could have larger bearish implications targeting the lows of February at 1.3475 (S2).
• Support: 1.3600 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3650 (R1), 1.3685 (R2), 1.3745 (R3).
USD/JPY moved above the 101.60 hurdle and reached the resistance of 102.00 (R1) and the 200-period moving average. Considering that on the 1-hour chart, we have negative divergence between our hourly momentum studies and the price action, I would not rule out a forthcoming bearish wave, maybe to test the 101.60 (S1) bar as a support this time. In the bigger picture, the long-term path of USD/JPY remains to the sideways, since we cannot identify a clear trending structure.
• Support: 101.60 (S1), 101.10 (S2), 100.80 (S3).
• Resistance: 102.00 (R1), 102.35 (R2), 102.70 (R3).
EUR/GBP declined to find support at the 0.8080 (S1) barrier. If the bears are strong enough to push the rate below that barrier, I would expect them to target the next support at 0.8035 (S2). As long as the rate is printing lower highs and lower lows below both the moving averages and below the blue downtrend line, I see a negative picture. The RSI met support at its 30 level and moved higher, while the MACD, although in its bearish territory, crossed above its signal line, thus an upside corrective wave cannot be ruled out.
• Support: 0.8080 (S1), 0.8035 (S2), 0.8000 (S3).
• Resistance: 0.8130 (R1), 0.8200 (R2), 0.8246 (R3).
Gold continued its consolidative mode on Friday, remaining within the sideways path between the support of 1280 (S1) and the resistance of 1315 (R2). Both our moving averages continue to point sideways, while both the daily MACD and the daily RSI lie near their neutral levels, confirming the trendless picture of the yellow metal. A break above 1315 (R2) is needed to turn the picture positive and could target the resistance of 1330 (R3), while a dip below 1280 (S1) may see the support of 1268 (S2).
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI broke the 104.10 barrier, but failed to maintain its price above that level and declined to trade once again below it. As long as WTI is printing higher highs and higher lows above both the moving averages and above the blue trend line, the uptrend remains in effect. However, I would adopt a neutral stance for now, since we can identify negative divergence between both our momentum studies and the price action, indicating that the trend is running out of momentum.
• Support: 103.50 (S1), 103.00 (S2), 102.40 (S3).
• Resistance: 104.10 (R1), 105.00 (R2), 108.00 (R3).
Benchmark Currency Rates:
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Market Summary Url:
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Market Analysis 27/05/2014
Language English
Easing seems fully discounted in EUR Market activity was quiet yesterday, with both the US and UK out for the Memorial Day holiday. One point of interest was the recovery in EUR despite further confirmation from ECB President Draghi that the Council is contemplating further easing. EUR/USD hit the lowest it’s been since the May ECB meeting (1.3612) on both Friday and Monday, but has since recovered despite comments yesterday from ECB President Draghi that the ECB must be “particularly watchful” about the possibility of a “negative spiral” between low inflation, falling inflation expectations and credit. The fact that that level held twice suggests it may be near or at the bottom. The 3m EONIA swap rate 3 months forward is now priced at 5 bps, compared with 13-15 bps that prevailed in the month or so before the 8 May ECB meeting. The ECB may go for a negative deposit rate but is unlikely to push its refi rate negative as well, so zero is as far as EONIA can go. Thus I think the rate cut is largely priced in and EUR could remain fairly stable until the 5 June meeting and indeed could rebound slightly after that if the ECB’s measures disappoint the market. The market will be listening to more of Draghi and several of his colleagues later today (see below).
The other point of interest was the lack of any response in the yen to an article on Reuters saying that “the Bank of Japan has begun shifting its focus from supporting growth to ways of phasing out its massive stimulus…” “Current and former central bankers familiar with internal discussions say an informal debate is under way on how to prepare for an exit from the BOJ's 13-month-old "quantitative and qualitative monetary easing,” it said. Recent polls have shown that many analysts who previously had expected the BoJ to add to its stimulus have been moving back their forecast for when it might do so or even dropping the idea of further stimulus, because the economy has held up better than expected to the rise in the consumption tax and BoJ Gov. Kuroda has exuded confidence that the central bank would hit its inflation target. The debate apparently isn’t about whether to end the program early, but rather “how long the BOJ should maintain its stimulus after it reaches the two-year mark in April 2015.” The fact that the yen failed to strengthen on this report suggests that perhaps other, more fundamental reasons are behind the currency’s decline, such as the shrinking current account surplus, and underlines why I’m bearish JPY long term.
The end of the BoJ’s intervention could be catastrophic for Japan; according to one report that could not be verified, when the BoJ stepped away from the market recently not one single bond traded for 1 ½ days. This suggests the bond market could collapse if and when the BoJ stops its intervention. Many people, myself included, had expected further monetary stimulus that would weaken the yen. But the possibility that the withdrawal of stimulus could weaken the yen even more by causing the collapse of the Japanese government bond market is a new idea that the market may have to consider.
In general, the dollar is opening weaker in Europe against the G10 currencies and mixed against the EM currencies.
Today’s market: During the European day, we get consumer confidence data from France and Italy, both for April. The French index was unchanged, while the Italian one is expected to have declined.
In the UK, the BBA mortgage approvals are expected to have fallen in April.
A large number of indicators due out from the US today are forecast to show a somewhat disappointing picture of the US economy, which may leave the dollar under further pressure. The main figure will be US durable goods orders for April, which are expected to be not particularly wonderful. The headline figure is forecast to show a 0.7% mom decline after a 2.5% mom rise the previous month, while durable goods excluding transportation are estimated to have remained unchanged on a mom basis, after rising 2.1% mom in March. This indicator, while important for the overall outlook for the US economy, is not that market-affecting for FX. On average, EUR/USD has moved about ±0.14% an hour after the indicator comes out depending on whether it beats estimates or disappoints.
We also get house price data: both the Federal Housing Finance Agency (FHFA) and S&P/Case-Shiller house price indices are estimated to have slowed in March. The preliminary Markit service-sector PMI for May is expected to have been down modestly, while the Conference Board consumer confidence index for the same month is expected to have risen. Both the Richmond and Dallas manufacturing activity indices for May are forecast to show a decline.
We have four speakers on Tuesday’s agenda. ECB President Mario Draghi and ECB Executive Board member Peter Praet speak at a panel in Portugal, while Austrian Central Bank Governor and ECB Governing Council member Ewald Nowotny holds a press conference after the Bank’s annual shareholder meeting. In the UK, Bank of England Governor Mark Carney gives a speech at a conference.
Currency Titles:
EUR/USD rebounds from 1.3612
EUR/JPY meets resistance at 139.30
GBP/USD ready to challenge 1.6900 again
Gold stuck moving sideways
Will WTI reach 105.00?
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/27may2014/EURUSD_27May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/27may2014/EURJPY_27May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/27may2014/GBPUSD_27May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/27may2014/XAUUSD_27May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/27may2014/CLN4_27May2014.PNG
Currencies Text:
EUR/USD failed to reach the 1.3600 level and after finding support at 1.3612 (S1), moved higher to trade again above 1.3650. The pair is now trading below the resistance of 1.3685 (R1), which lies near the 50-period moving average. Comparing both our momentum studies with the price action, we can identify positive divergence, thus I cannot rule out further advances. Moreover, on the daily chart, we can see a possible piercing line candle formation, favoring the continuation of the rebound. Nonetheless, considering that ECB policy makers are “comfortable” of taking action at the Bank’s meeting next week, I still consider any bullish waves as renewed selling opportunities before the bears prevail again.
• Support: 1.3612 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
EUR/JPY continued moving higher and managed to reach the resistance barrier of 139.30 (R1). A decisive move above that zone could trigger extensions towards the psychological barrier of 140.00 (R2). Both the RSI and the MACD follow upside paths, with the latter lying above both its trigger and zero lines, confirming the recent positive momentum of the currency pair. On the daily chart we can identify a hammer formation at the low of 138.15 (S1), favoring the continuation of the upside wave. However, it’s too early to argue for the establishment of an uptrend, thus I would consider the current wave as a correcting phase of the prevailing decline.
• Support: 138.15 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 139.30 (R1), 140.00 (R2), 141.00 (R3).
GBP/USD met support at the 200-period moving average and moved higher to trade once again above the 1.6840 bar. Considering that the MACD, already above its zero line, seems ready to cross above its trigger line, we may see the bulls challenging the 1.6900 (R1) hurdle. A clear move above the resistance of 1.6900 (R1) could pave the way for another test at the 1.7000 (R2) zone. In the bigger picture, the rate remains within the long-term upside channel, but the negative divergence between the daily MACD and the price action remains in in effect. As a result, I would maintain a neutral stance as far as the long-term picture is concerned.
• Support: 1.6840 (S1), 1.6760 (S2), 1.6700 (S3).
• Resistance: 1.6900 (R1), 1.7000 (R2), 1.7100 (R3).
Gold moved quietly once again, remaining stuck within its sideways path. The precious metal seems to confined within a symmetrical triangle formation. Both our moving averages continue to point sideways, while both the daily MACD and the daily RSI lie near their neutral levels, confirming the trendless picture. A move above the upper boundary of the formation may see 1315 (R2) first, and a clear break of that level would target the next resistance at 1330 (R3). On the other hand a dip below the lower boundary of the triangle and the 1280 (S1) support would challenge the obstacle of 1268 (S2).
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI managed to move above 104.10 again and we may experience extensions towards the key barrier of 105.00 (R1) this time. As long as WTI is printing higher highs above both the moving averages and above the blue trend line, the uptrend remains in force. However, the negative divergence between our momentum studies and the price action is still in effect, indicating that the trend is running out of momentum and that it may be poised for its last leg.
• Support: 104.10 (S1), 103.50 (S2), 103.00 (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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Market Analysis 28/05/2014
Language English
Stability scare hits gold: Last week we had three Fed officials worrying out loud about excessively low volatility, an unusual occurrence since officials normally are concerned about excessively high volatility. Their concern was that investors are getting too confident about the future, which encourages them to take more risks and paradoxically raises the likelihood of an extreme movement in the future. Markets are ignoring what they said however. The receding fear about the future hit the precious metals market yesterday as gold fell below the lower boundary of the symmetrical triangle it was trading in and collapsed, falling 2.1% and silver off 1.3% over the last 24 hours (see technical comment below).
Some of the immediate fundamental reasons for the collapse include: US stocks moving further into record-high territory; speculation that the election of Poroshenko as Ukraine’s president will ease tensions between that nation and Russia; stronger-than-expected US data, which raises the likelihood that the Fed will continue reducing its monetary stimulus; the fading of hopes for a post-election burst of gold imports to India; and concern that demand for gold in China is waning. With regards to the latter point, Bloomberg calculated that China’s net gold imports from Hong Kong fell to 65.4 tonnes in April from 80.6 tonnes in March and 75.9 tonnes a year ago. Gold plunged despite a sharp rise in gold holdings in exchange traded products (ETP) of about 0.5% yesterday, undoing more than half of the 0.9% fall in ETP holdings up to then in May.
But the bigger picture reason for the fall in gold is probably what the Fed officials said: the increasing confidence about the future that is leading to a decline in historical and implied volatility in all asset prices. As market expectations of volatility recede, investors feel less need for a safe-haven asset to protect them against some unforeseen disaster in the future. With the technical picture changing and so many of the fundamental underpinnings for gold turning to naught, we can only conclude that the metal is headed lower once again.
As for the currency markets, the dollar gained broadly yesterday, standing effectively unchanged to higher against all the G10 currencies and most of the EM currencies we track (the only exception being KRW). Its biggest gains were against GBP, which fell yesterday after the UK BBA mortgage approvals declined more than expected in April, which suggests that the prudential tightening of mortgage regulations is having an impact on the housing market, thus reducing the need for the Bank of England to use interest rates for that purpose. EUR/USD remains in the new trading range defined last week despite the results of the European Parliament election. We would have to see a decisive break of the 1.3612 lows for me to get enthusiastic about selling the pair.
Today: Eurozone’s M3 money supply is forecast to have risen 1.1% yoy in April, the same pace as in March. This will keep the 3-month moving average unchanged at +1.2% yoy. The key point in the Eurozone money supply data will be to see whether bank lending is picking up. So far, the signs are that it isn’t. Total private sector credit growth contracted by a record 2.5% yoy in March while loans contracted by 2.2% yoy, not far off the record of -2.3%. This is why when the ECB considers ways to ease further, it is likely to adopt some measures targeted at increasing financing to the private sector, such as purchases of asset backed securities. Without such measures, simply providing more liquidity to banks is to some extent just pushing on a string. German unemployment for May is forecast to have remained unchanged at 6.7%. Eurozone’s final consumer confidence for May is also coming out, with the forecast being the same as the initial estimate. In the US, we only get the MBA mortgage approvals for the week ended on May 23.
Currency Titles:
EUR/USD decline halted at 1.3612 again
USD/JPY consolidated near 102.00
EUR/GBP keeps the downtrend intact
Gold breaks the triangle to the downside
WTI halted by 104.48
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/28may2014/EURUSD_28May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/28may2014/USDJPY_28May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/28may2014/EURGBP_28May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/28may2014/XAUUSD_28May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/28may2014/CLN4_28May2014.PNG
Currencies Text:
EUR/USD met support once again at the 1.3612 (S1) barrier and moved higher. Comparing both our momentum studies with the price action, the positive divergence remains in effect. As mentioned in previous comments, on the daily chart we can identify a possible piercing line candle formation, while the rate remains supported by the 200-day moving average. As a result, I cannot rule out a forthcoming upside wave, maybe for a test near the 1.3685 (R1) resistance. Nonetheless, it’s too early to argue for the establishment of a new uptrend and I still consider any bullish waves as corrective waves.
• Support: 1.3612 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY tried to emerge above the hurdle of 102.00 (R1), but failed to do so and is back below it. The 102.00 (R1) barrier coincides with the 200-period moving average, which makes that resistance zone even stronger. The MACD, although in its bullish territory, fell below its trigger line, while the negative divergence between our hourly momentum studies and the price action remains in effect. Thus, I would not rule out a forthcoming bearish wave, maybe to test the 101.60 (S1) bar as a support this time. In the bigger picture, the long-term path of USD/JPY remains sideways, since we cannot identify a clear trending structure.
• Support: 101.60 (S1), 101.10 (S2), 100.80 (S3)
• Resistance: 102.00 (R1), 102.35 (R2), 102.70 (R3).
EUR/GBP moved slightly higher, remaining between the support of 0.8080 (S1) and the resistance of 0.8130 (R1). The RSI continues its upside path, while the MACD lies above its trigger line and seems ready to challenge its zero line. Thus, further upside and a test at the 0.8130 (R2) resistance zone is possible. However, as long as the rate is printing lower highs and lower lows below both the moving averages and below the blue downtrend line, I still see a negative picture. If the bears are strong enough to push the rate below 0.8080 (S1), I would expect them to target the next support at 0.8035 (S2).
• Support: 0.8080 (S1), 0.8035 (S2), 0.8000 (S3).
• Resistance: 0.8130 (R1), 0.8200 (R2), 0.8246 (R3).
Gold collapsed on Tuesday, breaking below the lower boundary of the triangle that it has been trading in recently and violating the 1280 hurdle. The precious metal also moved below 1268, thus I would expect the decline to continue and challenge the 1250 (S1) support initially. If the bears are strong enough to push the price below the later level, I would expect them to see as a target 1235 (S2), slightly above the 161.8% extension level of the formation’s width.
• Support: 1250 (S1), 1235 (S2), 1218 (S3).
• Resistance: 1268 (R1), 1280 (R2), 1305 (R3)
WTI met resistance at 104.48 (R1) and declined to meet support at the 103.50 (S1) bar, near the blue uptrend line.
As long as WTI is printing higher highs above both the moving averages and above the blue trend line, the uptrend remains in force. However, the negative divergence between our momentum studies and the price action is still in effect, indicating that the trend is running out of momentum and as a result I would keep a neutral stance for now. A move below the 103.50 (S1) support would signal the completion of a failure swing top and could probably turn the picture negative.
• Support: 103.50 (S1), 103.00 (S2), 102.40 (S3)
• Resistance: 104.48 (R1), 105.00 (R2), 108.00 (R3).
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Market Analysis 29/05/2014
Language English
Disconnect between US rates and USD One of the mysteries of the financial markets nowadays is the disconnect between US interest rates and the direction of the USD. Interest rates have been falling and falling – 10-year yields peaked at the end of last year at 3.03% and are now down to 2.43%. Fed Funds expectations have fallen dramatically as well, not just from their peak last September (down 100 bps) but even from their level at the beginning of the month, before the better-than-expected nonfarm payrolls came out (down 31 bps). Yet the dollar has gained 0.9% over the month, as measured by the DXY index. Usually, higher interest rates pull a currency up and lower rates push it down. What’s going on?
Part of the dollar’s strength is no doubt due to the weakness of the euro. The ECB’s apparent resolve to loosen policy further, including instituting negative rates, is helping to boost the dollar. But it’s not only that – USD is up in May against most other G10 currencies, including 1.6% vs CHF, 1.0% vs NZD and 0.6% vs GBP (although it’s down vs JPY, CAD and NOK). One reason is that with European yields also declining, Treasuries retain a healthy (although narrowing) yield advantage. Also, the dollar is following the better US economic news – it’s been rising more or less in parallel with the economic surprise index, a measure of how far indicators exceed or fall below expectations.
But if positive economic surprises are helping to support the dollar, then they should also be pushing Treasury yields higher, not lower. Morgan Stanley explained yesterday’s Treasury rally by saying “positioning was again the prime suspect in this latest in a run of seemingly out-of-the-blue rallies in recent weeks.” They say the recent rally has been due to a shift out of “net short/underweight positioning established earlier in the year as investors anticipated an impact on yields from stronger growth, QE tapering…and looking ahead to Fed rate hikes that certainly hasn’t happened to this point.” Bond on both sides of the Atlantic also seem to be affected by recent comments by officials, including former Fed Chairman Ben Bernanke, that the terminal level of policy rates when policy is finally normalized is likely to be well below the historical average. European bonds have been rallying on expectations of further ECB easing, and with US yields higher than Bunds, they remain attractive to foreign investors. Finally, looking at the decline in Treasury yields as US stocks extend their rally into record territory, the US markets may be forecasting a Goldilocks scenario of strong yet non-inflationary growth. It’s possible. Japanese 10-year yields haven’t been above 2% since February 1999.
In any event, the dollar continued its gains overnight, rising against all the G10 currencies except JPY and AUD (see below). EUR/USD broke below the 1.3612 level that has provided support until now, which suggests that USD is likely to continue to gain (see technical comment below). It even gained vs GBP despite comments by Martin Weale, an external member of the Bank of England’s Monetary Policy Committee (MPC), in a Financial Times interview that rates would have to start rising earlier than expected and could rise by up to one percentage point a year, faster than the market currently anticipates. The failure of GBP to respond to these comments suggests sentiment towards the pound has changed significantly. The technical picture has also turned poor (see below). I am becoming more cautious on the currency.
Overnight news: Overnight Japan announced that retail sales for April fell at a record 13.7% mom, exceeding market estimates (guesses, really) of an 11.7% mom decline. Nobody really had any idea how much demand would fall off after the consumer splurge in March, ahead of the April 1st hike in the consumption tax. Now we will be waiting to see how long it takes for demand to bounce back to normal. One might have thought that the larger-than-expected decline would depress the yen as it makes further BoJ easing marginally more likely, but the currency was strengthening before the news and didn’t really react to the report.
Australia’s private capital expenditure fell 4.2% qoq in Q1, far more than the -1.5% the market expected, but the market focused instead on the forward-looking news, the spending plans for FY14/15. These showed a rise of AUD 12.2bn from the previous estimate to AUD 137.1bn, “well above” expectations. The key point was that this rise was due to increased investment intentions of the services sector, suggesting that other industries may be able to take over from the mining industry as the engine of growth for the Australian economy.
Today’s indicators: There are no major European indicators coming out today. On the other hand, there are several important US indicators coming out. The second estimate of the nation’s GDP for Q1 is forecast to show a 0.5% qoq SAAR decline after the initial estimate of +0.1% qoq SAAR growth. The contraction in output will probably be attributed to cold weather. The slowdown to +0.1% qoq SAAR growth caused the dollar to weaken somewhat, so news of a contraction could have an even bigger impact, but on the other hand, the second estimate of GDP usually does not have as strong an impact as the initial impact, since by this time Q1 ended almost two months ago and the Q2 data has been shaping up fairly well. Initial jobless claims for the week ended on May 24 are estimated to have declined to 318k from 326k the previous week, bringing the 4wk moving average down to 316k from 322.5k. Finally, pending home sales for April are expected to slow.
As for speakers, Cleveland Fed President Sandra Pianalto gives welcoming remarks at a conference entitled “Inflation, Monetary policy and the Public”.
Currency Titles:
EUR/USD breaks the 1.3612 hurdle
EUR/JPY declines after hitting 139.30
GBP/USD breaks below the long-term uptrend channel
Gold continues falling
WTI confirms the weakness signs
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Currencies Text:
EUR/USD fell below the 1.3612 barrier to meet support at 1.3587 (S1). I would expect the dip below the 1.3612 barrier to have larger bearish implications and open the way for the lows of February at 1.3475 (S2). As long as the rate is printing lower highs and lower lows within the purple downtrend channel and below both the moving averages, the outlook remains to the downside. Nonetheless, the positive divergence between our momentum studies and the price action remains in effect, thus I still cannot rule out an upside corrective wave within the channel. On the daily chart, yesterday’s candle closed below the 200-day moving average, increasing the possibilities for the continuation of the downtrend.
• Support: 1.3587 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3612 (R1), 1.3685 (R2), 1.3745 (R3).
EUR/JPY declined after finding strong resistance at 139.30 (R1) and is now trading near the support of 138.15 (S1). The rate seems to follow a sideways path between the two aforementioned barriers and a rebound near the 138.15 (S1) zone may see the resistance of 139.30 (R1) again. Relying on our momentum studies does not seem a solid strategy, since the MACD lies below both its trigger and zero lines, while the RSI found support near its 30 level and is now pointing up.
• Support: 138.15 (S1), 137.55 (S2), 136.20 (S3)
• Resistance: 139.30 (R1), 140.00 (R2), 141.00 (R3).
GBP/USD fell below the lower boundary of the long-term uptrend channel but the decline was halted at 1.6700 (S1). The near-term picture has now turned negative and a dip below the 1.6700 (S1) key hurdle could see the 1.6600 (S2) zone. The 50-period moving average is getting closer to the 200-period average and a bearish cross in the near future will be an additional negative sign for the currency pair. The MACD lies below both its trigger and zero lines, confirming the recent bearish momentum, but the RSI exited its oversold zone, thus an upside corrective wave is likely before the bears prevail again.
• Support: 1.6700 (S1), 1.6600 (S2), 1.6550 (S3).
• Resistance: 1.6760 (R1), 1.6815 (R2), 1.6900 (R3).
Gold continued its plunge after the exit from the triangle formation. The yellow metal moved further below 1268 (R1) level and I still expect it to challenge the 1250 (S1) support. If the bears are willing the push the price below that hurdle, they may see as a target the next support at 1235 (S2), slightly above the 161.8% extension level of the formation’s width. Zooming in on the 1-hour chart, we can identify positive divergence between our hourly momentum studies and the price action, thus a pull-up before the continuation of the decline seems likely.
• Support: 1250 (S1), 1235 (S2), 1218 (S3).
• Resistance: 1268 (R1), 1280 (R2), 1305 (R3)
WTI fell below the short term blue uptrend line and the 103.50 barrier, completing a failure swing top and turning the picture negative. The decline confirms the negative divergence between our momentum studies and the price action. During the early European morning, the price is trading below the 103.00 (R1) barrier and I would expect the decline to continue and challenge the 102.40 zone, near the 38.2% retracement level of the prevailing advance. On the daily chart, yesterday’s candle confirmed Tuesday’s candle which looks like a hanging man, thus I would expect the decline to continue.
• Support: 102.40 (S1), 101.70 (S2), 100.95 (S3)
• Resistance: 103.00 (R1), 103.50 (R2), 104.48 (R3).
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Market Analysis 30/05/2014
Language English
The big disconnect It’s hard to explain why, on the day when GDP was revised down to show a much larger-than-expected drop, Fed Funds rate expectations rose a bit, bond yields crept upwards and the US stock market hit a new record high. It could be that the larger-than-expected drop in initial jobless claims was encouraging, but then again pending home sales for April were also below expectations, too. At the end of the day it probably has more to do with sentiment than with the data, which in any event all came out before the start of US trading.
There was the usual end-of-month data dump overnight from Japan. What it showed was worrisome: a larger-than-expected decline in consumption, expectations of weak output, and slowing price rises. In other words, Abenomics isn’t working. The BoJ may have to redouble its stimulus later in the year after all, with negative implications for the yen.
Apparently the rush to buy in March ahead of the consumption tax hike and the subsequent drop-off in demand in April was greater than during the previous consumption tax hike in 1997. Demand soared by 10.7% mom (SA) in March and then collapsed 13.3% mom in April. Meanwhile, industrial production also fell 2.5% mom in April as companies scaled back production in line with the fall-off in domestic demand. The government lowered its assessment of production to “appears to be flat” from “continues to show an upward movement,” as one might expect given companies’ forecast for basically flat output in May and June. It looks like the fall-out from the consumption tax hike may be bigger than people had anticipated.
On the other hand, the impact on prices may be less than anticipated. The April core national CPI (that is, excluding fresh foods), came in at +3.2% yoy, which would be 1.5% yoy after factoring out the estimated 1.7 ppt boost from the tax hike. This is up from +1.3% yoy in March. But the Tokyo core CPI for May apparently slowed to +0.9% yoy from +1.0% yoy after taking account of the impact of the tax hike in May. Corporate prices also peaked last November. It looks like upward pressure on prices is actually diminishing. With output flat and prices falling, the likelihood of further Bank of Japan policy moves may rise further. Nonetheless, JPY strengthened slightly.
There was one other worrisome point in the figures. The unemployment rate was unchanged at 3.6% in April, but this hides a worrisome trend: the labor force population declined by 260,000. The labor force had been boosted recently by more women going to work, but the number of female workers began to shrink in January. Overall the number of workers apparently peaked last November and has started to shrink again. This is of course the nightmare scenario for Japan: how is a shrinking workforce going to support a growing number of pensioners and repay the ever-rising mountain of debt?
The commodity currencies were the best performing ones over the last 24 hours. In New Zealand, building permits for April surprised the market by rising +1.5% mom instead of declining 3.5% as expected, while in Australia, private sector credit rose by a faster-than-expected 0.5% mom in April (consensus: +0.4%). CAD meanwhile gained on technical factors after stop-losses were triggered in areas below recent lows.
Today: The European day starts with Germany’s retail sales for April, which are expected to have risen 0.2% mom, after declining 0.7% in March. Italy’s preliminary CPI rate for May is expected to have remained unchanged at +0.5%, while Sweden’s GDP for Q1 is forecast to have slowed.
In the US, personal income and personal spending are expected to have slowed in April, while the final UoM consumer sentiment for May is estimated to have risen.
From Canada, GDP for March is expected to have slowed to +0.1% mom from +0.2% in February, driving the yoy rate down to 2.3% from 2.5%.
We have four speakers on Friday’s schedule: Cleveland Fed President Sandra Pianalto gives opening remarks at the second day of conference entitled “Inflation, Monetary Policy and the Public”. Incoming Cleveland Fed President Loretta Mester will speak at the conference. Richmond Fed President Jeffrey Lacker and European Central Bank Governing Council member Carlos Costa also speak.
Currency Titles:
EUR/USD in a consolidative mode
USD/JPY declines after finding resistance at 102.00
EUR/GBP hits the downtrend line
Gold in a retracing mode
WTI higher but finds resistance
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Currencies Text:
EUR/USD moved in a consolidative mode, remaining between the support of 1.3587 (S1) and the resistance of 1.3612 (R1). As long as the rate is printing lower highs and lower lows within the purple downtrend channel and below both the moving averages, the outlook remains to the downside. A dip below 1.3587 (S1) could have larger bearish implications, targeting the lows of February at 1.3475 (S2). Nonetheless, the positive divergence between our momentum studies and the price action remains in effect, thus I still cannot rule out further consolidation or an upside corrective wave within the channel. On the daily chart, the rate is trading below the 200-day moving average, increasing the possibilities for the continuation of the downtrend.
• Support: 1.3587 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3612 (R1), 1.3685 (R2), 1.3745 (R3).
USD/JPY moved lower after finding strong resistance at the 102.00 zone, which coincides with the 200-period moving average. The bearish wave confirmed the negative divergence between our hourly momentum studies and the price action. In early European trading the pair is trading slightly above the 101.45 (S1) support. A clear break of that support could target the next one at 101.10 (S2). The MACD, already below its signal line, obtained a negative sign, shifting the momentum to the downside. In the bigger picture, the long-term path of USD/JPY remains sideways, since we cannot identify a clear trending structure.
• Support: 101.45 (S1), 101.10 (S2), 100.80 (S3).
• Resistance: 102.00 (R1), 102.35 (R2), 102.70 (R3).
EUR/GBP moved higher to hit the blue downtrend line. Considering that the RSI found resistance at its 70 level and moved below its blue support line, and the fact that the MACD shows signs of topping, I would expect the forthcoming wave to be to the downside. Such a move may target again the lows of 0.8080 (S2). As long as the rate is printing lower highs and lower lows below the downtrend line, the path remains to the downside. However, we need a dip below 0.8080 (S2) to have a forthcoming lower low and the continuation of the trend.
• Support: 0.8130 (S1), 0.8080 (S2), 0.8035 (S3).
• Resistance: 0.8200 (R1), 0.8246 (R2), 0.8285 (R3).
Gold moved slightly higher after finding support one dollar above our 1250 (S1) barrier. The RSI, already in its oversold zone, is approaching its 30 level, while the MACD, although in its bearish territory, crossed above its trigger line, favoring the continuation of the retracement. Nonetheless, I still see a negative picture and if the bears are strong enough to regain control and push the yellow metal below 1250 (S1), I would expect them to target the next support at 1235 (S2), slightly above the 161.8% extension level of the triangle’s width.
• Support: 1250 (S1), 1235 (S2), 1218 (S3).
• Resistance: 1268 (R1), 1280 (R2), 1305 (R3).
WTI moved higher on Thursday, but the advance was halted by 103.90 (R1). The price remains below the prior blue uptrend line and since the possibility for a lower highs still exist, I would still consider the outlook negative. Our short-term momentum studies continue their downward paths, while the MACD lies below both its signal and zero lines, favoring a bearish wave. Such a move may target the 102.40 zone, near the 38.2% retracement level of the prevailing advance.
• Support: 102.40 (S1), 101.70 (S2), 100.95 (S3).
• Resistance: 103.90 (R1), 104.48 (R2), 105.00 (R3).
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Market Analysis 02/06/2014
Language English
Central bank week again:Once again we have several central bank meetings coinciding. On Tuesday we have the Reserve Bank of Australia (RBA); Wednesday, the Bank of Canada (BoC); and on Thursday, the Bank of England (BoE) and the main event, the European Central Bank (ECB).
No change in rates is expected from the RBA, which has already said several times that it expects “a period of stability in interest rates.” Rather, the market will focus on the RBA’s view of the labor market, its assessment of whether investment in the non-mining sector is likely to pick up the slack from the mining sector, and also whether the exchange rate “remains high by historical standards,” as they said at their last meeting. AUD/USD has been quite stable over the last month.
For Canada too the market unanimously expects no change in rates. BoC has been neutral in its policy guidance, saying only that “(t)he timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks.” Its central view is that it expects “a gradual strengthening in the fundamental drivers of growth and inflation in Canada,” which it says “hinges critically on the projected upturn in exports and investment.” So far the export part is coming through, as exports have been rising about 7.4% yoy, outpacing the 5.4% yoy growth in imports, but investment has fallen for four out of the last five quarters. With investment falling, export performance becomes all the more important, and so BoC may try to talk down the CAD, which has been the best-performing G10 currency over the last month.
The BoE meeting is likely to be a non-event, as usual. We won’t learn anything interesting from the meeting until the minutes are announced on June 18th.
That leaves the main event of the week, month, quarter or maybe even year: the ECB meeting. The ECB’s new inflation forecasts are due to be announced and it is quite likely, indeed almost certain, that they will be revised down and the ECB will be moved to loosen policy further as a result. According to a poll by Nomura, 95% of the firm’s clients expected a cut in the refinancing rate and 89% expect a cut in the deposit rate (which would mean a negative deposit rate). The market is less certain though about further measures: 34% expect another long-term refinancing operation (LTRO), 32% expect an extension of fix-rate, full-allotment operations beyond the current limit of mid-2015, 28% expect an end to SMP sterilisation, 11% expect a cut in the minimum reserve requirement and only 10% expect some form of asset purchases, also known as quantitative easing.
The problem with all of these measures is that they will not have that much impact on the real economy. It’s hard to see how lowering the refi rate by 10, 15 or even 25 bps would cause a major change in banks’ attitude towards lending. A negative deposit rate might change banks’ behaviour somewhat, but whether it will induce them to lend more to the private sector is doubtful. They could just park their extra money in government bonds. The ECB needs ways to ensure that its policy is transmitted to the private sector and not just through a wealth effect of boosting financial markets. The most direct way for the ECB to help get funds to the private sector would be for it to purchase asset-backed securities, but it will take some time to improve that market. An LTRO conditional on banks’ using the money for lending to households and businesses would be another option that could be easier to implement. Outside of that, the next best thing would be to weaken the euro. That’s what I expect them to aim at, although they will have to do so indirectly in order to maintain appearances. I am concerned though that the ECB’s moves this week may be interpreted as too cautious and the euro could actually strengthen after the announcement if the measures are considered “too little, too late.” I suspect we are likely to see further loosening measures later in the year after this week’s measures prove insufficient to restore growth to the Eurozone.
Today’s market: Today is PMI day. China started things off on Saturday with its official manufacturing PMI, which rose to 50.8 from 50.4. We get the manufacturing PMI data from several countries of Europe and the US. The final figure for Germany, France and Eurozone as whole, as usual, is the same as the initial estimate, while the UK manufacturing PMI for May is expected to have risen slightly to 57.4 from 57.3. That could help to boost GBP today. In the US, the ISM manufacturing index for May is expected to have risen to 55.5 from 54.9, which could strengthen USD. Besides PMIs, we get Germany’s preliminary CPI for May, which is expected to have slowed to +1.0% yoy from +1.1% yoy. That could feed through to expectations of ECB easing and hence a weaker euro, although as mentioned above most analysts already expect the ECB to move this week so a change in policy is probably fully discounted by now.
We have three speakers on Monday. ECB Executive Board member Yves Mersch speaks in Amsterdam, while ECB Governing Council member Luis Maria Linde speaks in Madrid. Chicago Fed President Charles Evans will also speak.
We have really busy week ahead of us even aside from the central bank meetings. On Tuesday, HSBC publishes China’s final manufacturing PMI for May. During the European day the main event will be Eurozone’s preliminary CPI for May, two days before the ECB holds its monetary policy meeting. Eurozone unemployment for April is also coming out. In the US, we get factory orders for April. On Wednesday, we get the service-sector PMIs for the countries we got the manufacturing data for on Monday. We also get the US ADP employment change for May, ahead of Friday’s nonfarm payrolls release, while the Fed releases its Beige Book. Finally, Friday is NFP day. The figure for May is expected to decline to 219k from 288k in April and together with the US unemployment rate for the month, which is expected to have risen to 6.4% from 6.3%, they could prove modestly USD-negative, although in general a number over 200k should be sufficient for the Fed to continue tapering off its bond purchases. At the same time, as usual we get Canada’s unemployment rate for May.
Currency Titles:
EUR/USD higher but within the downtrend channel
EUR/JPY rebounds from the 138.15 hurdle
GBP/USD finds resistance at the 1.6780 zone.
Gold breaks below 1250
WTI finds support at 102.40
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Currencies Text:
EUR/USD moved higher on Friday, but the advance was halted at 1.3650 (R1), near the 50-period moving average and slightly below the lower boundary of the purple downward sloping channel. As long as the rate is printing lower highs and lower lows within the channel and below both the moving averages, the outlook remains to the downside. A dip below 1.3587 (S1) could signal the continuation of the downtrend and have larger bearish implications, targeting the lows of February at 1.3475 (S2). Nonetheless, the positive divergence between our momentum studies and the price action remains in effect, indicating that the downside momentum is decelerating.
• Support: 1.3587 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3650 (R1), 1.3685 (R2), 1.3745 (R3).
EUR/JPY rebounded from the 138.15 (S1) hurdle, as expected, remaining within the sideways range, between that support level and the resistance of 139.30 (R1). The rate is now heading towards the resistance of 139.30 (R1), where an upside break could signal the completion of a short-term double bottom formation and target the psychological bar of 140.00 (R2). The MACD, already above its signal line, seems ready to obtain a positive sign, while the RSI continues moving higher, favoring the continuation of the advance. However, if the bulls are not strong enough to violate the 139.30 (R1) level, the rate will remain within the range and we may experience another decline towards 138.15 (S1).
• Support: 138.15 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 139.30 (R1), 140.00 (R2), 141.00 (R3).
GBP/USD rebounded from the 1.6700 (S1) barrier and moved higher to find resistance at 1.6780 (R1). The rate remains below the lower boundary of the long-term uptrend channel, while the 50-period moving average crossed below the 200-period moving average, keeping the picture negative. As a result, I would expect the bears to take control again and challenge once more the 1.6700 (S1) support. A clear dip below that level could pave the way for the 1.6600 zone. Relying on our momentum studies does not seem a solid strategy for now, since the RSI is pointing down, while the MACD lies above its trigger line, pointing up.
• Support: 1.6700 (S1), 1.6600 (S2), 1.6550 (S3).
• Resistance: 1.6780 (R1), 1.6815 (R2), 1.6900 (R3).
Gold declined again and managed to violate the 1250 barrier. I would expect such a move to trigger further bearish extensions and target the support level of 1235 (S1), slightly above the 161.8% extension level of the triangle’s width. The RSI, already in its oversold zone, is approaching its 30 level, while we can identify positive divergence between that momentum study and the price action. As a result I cannot rule out a corrective move above the 1250 (R1) barrier before the bears prevail again.
• Support: 1235 (S1), 1218 (S2), 1200 (S3).
• Resistance: 1250 (R1), 1268 (R2), 1280 (R3).
WTI moved lower after finding resistance at 103.90 (R1). Then, it touched our support barrier of 102.40 (S1), near the 38.2% retracement level of the prevailing short-term uptrend, and moved slightly higher. Both our momentum studies continued their downward paths, while the MACD lies below both its signal and zero lines, keeping the momentum to the downside. Nonetheless, I can see positive divergence between the RSI and the price action, thus I would expect the rebound to continue, maybe for another test near the 103.90 (R1) zone.
• Support: 102.40 (S1), 101.70 (S2), 100.95 (S3).
• Resistance: 103.90 (R1), 104.48 (R2), 105.00 (R3).
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Market Analysis 03/06/2014
Language English
What’s the ISM?The US market suffered a bout of confusion yesterday as the ISM manufacturing index was initially announced at 53.2, a decline from the previous month’s 54.9 and far below the expected 55.5. The ISM then corrected the figure to a surprisingly robust 56.0 but later said it was actually 55.4, in line with expectations. The problem was apparently that they used the wrong month’s seasonal adjustment factors. It’s nice to know other people make those kinds of mistakes, too.
Overall, the global manufacturing PMIs released yesterday were not particularly encouraging. Taking 24 of the more important countries, only nine reported an improvement while 15, or two-thirds, showed a decline and several countries – including France, South Korea and Norway – moved from expansion (above 50) to contraction (below 50). This suggests that the recent upswing in the global manufacturing cycle may be drawing to a close. On the other hand, there were only seven countries in contractionary territory, so apparently the upswing hasn’t stopped yet.
Nonetheless it remains to be seen whether the expansion can continue. The rise in Saturday’s official Chinese PMI for May was encouraging, in that it suggests the measures the Chinese government has taken to support growth may be having an impact, but this was somewhat countered by this morning’s downward revision to the May HSBC/Markit manufacturing PMI for China, which remains below 50. If the recovery in China turns out to be a false dawn – for example, if the slowdown in the Chinese real estate market swamps the government’s efforts to boost growth – then I would worry about sentiment towards EM in general and how EM carry trades might perform. The famous “fragile five” – Brazil, Turkey, South Africa, India and Indonesia – would probably come to the fore once again as a slowdown in global activity would make investors more selective and more cautious about selecting carry currencies simply on the basis of yield. Indeed, this concern may explain why the dollar rose against almost all the EM currencies that we track, with four of the aforementioned five currencies doing particularly poorly (INR being the exception as investors await today’s RBI rate decision).
With the US PMI rising to one of the highest in the world (below only UK and Czech Republic), sentiment towards the US economy improved and the implied interest rate on the long-dated Fed Funds futures rose as much as 10 bps yesterday. Implied rates on the Fed Funds futures fell as much as 37 bps following the disappointing Q1 GDP figures, but just in the last few days they have recovered 14 bps or one-third of the decline. That may go a good way towards explaining the recent strength of the dollar, especially in light of questions about other countries’ commitment to raising rates. In addition to the ECB, which is expected to cut rates this week, it’s possible that the Reserve Bank of New Zealand may back off from its hawkish rhetoric at next week’s meeting. This divergence in monetary policy is one reason why I am expecting the dollar (and the pound) to rally broadly over the next several months.
The Reserve Bank of Australia (RBA) held its monetary policy meeting overnight and left rates unchanged, as expected. The RBA once again said that it expected “a period of stability in interest rates.” The tone of the statement was somewhat more optimistic about the domestic economy, which may be why AUD recovered somewhat following the announcement. On the other hand, it repeated its comment about the exchange rate being “high by historical standards” and added “particularly given the further decline in commodity prices.” I agree. This decline in commodity prices and the further decline in the country’s terms of trade implied by the slowdown in the Chinese economy is one of the major reasons why I expect the AUD to weaken going forward.
During the European day, the main event will be Eurozone’s preliminary CPI for May. The bloc’s headline CPI is forecast to have slowed to +0.6% yoy from +0.7% yoy, while the core CPI rate is expected to have declined to +0.8% yoy from +1.0% yoy. Yesterday’s lower-than-expected German CPI has made a slowdown in Eurozone inflation all the more likely. Yet yesterday’s German figure had only a fleeting impact on EUR, which suggests that the ECB’s response is already factored into the price, thus I do not expect much of a reaction to the Eurozone CPI data today. Also today, Eurozone’s unemployment rate for April is expected to have remained unchanged at 11.8%.
In the UK, the Nationwide house price index rose +0.7% mom in May, a slowdown from +1.2% mom the previous month but better than the market forecast of +0.6%. On the other hand, the UK construction PMI for May is forecast to have risen slightly to 61.0 from 60.8.
In the US, factory orders are forecast to have risen 0.5% mom in April, a slowdown from a revised +0.9% mom in March.
We have only one speaker scheduled on Tuesday. Kansas City Fed President Charles Evans will speak on the economy and monetary policy.
Currency Titles:
EUR/USD finds support at 1.3587 again
USD/JPY breaks above 102.00
EUR/GBP consolidates below the downtrend line
Gold remains below 1250
WTI within a downtrend channel
Currencies Image Url:
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Currencies Text:
EUR/USD declined after finding resistance at 1.3650 (R1), near the 50-period moving average, but the decline was halted by the support bar of 1.3587 (S1). As long as the rate is printing lower highs and lower lows within the channel and below both the moving averages, the outlook remains to the downside. A dip below 1.3587 (S1) could signal the continuation of the downtrend and have larger bearish implications, targeting the lows of February at 1.3475 (S2). Nonetheless, the positive divergence between our momentum studies and the price action remains in effect, indicating that the downside momentum is decelerating.
• Support: 1.3587 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3650 (R1), 1.3685 (R2), 1.3745 (R3).
USD/JPY rebounded from the support bar of 101.45 (S2) and surged to violate the 102.00 hurdle and the 200-period moving average. The violation of the 102.00 area also signaled the completion of a possible inverted head and shoulders pattern. However, the advance was halted at 102.40 (R1) and considering that the RSI found resistance at its 70 level, I cannot rule out a forthcoming bearish wave, maybe to test the neckline (light blue line) and the 102.00 (S1) zone as a support this time. The pair started a structure of higher highs and higher lows and as a result I would consider any declines within the channel as corrective waves.
• Support: 102.00 (S1), 101.45 (S2), 101.10 (S3).
• Resistance: 102.40 (R1), 102.70 (R2), 103.00 (R3).
EUR/GBP moved in a consolidative mode, remaining below the blue short-term downtrend line. Although the downtrend remains intact, only a dip below the 0.8080 (S1) support could trigger its continuation and signal a forthcoming lower low. Both our momentum studies follow downward paths while the MACD, already below its trigger line, seems ready to enter its negative territory. As a result another decline towards the lows of 0.8080 (S1) is possible in the near future. Only a move above the downtrend line and the resistance of 0.8140 (R1) could be a reason to reconsider our analysis.
• Support: 0.8080 (S1), 0.8035 (S2), 0.8000 (S3).
• Resistance: 0.8140 (R1), 0.8200 (R2), 0.8246 (R3).
Gold moved in a consolidative mode, remaining below the 1250 barrier. I still expect the bears to push the precious metal lower and target the support level of 1235 (S1), slightly above the 161.8% extension level of the triangle’s width. The RSI, already in its oversold zone, is testing its 30 level, while the MACD, in its negative territory, crossed above its trigger line. Moreover, we can identify positive divergence between both our momentum studies and the price action. As a result, I cannot rule out further consolidation or a move above the 1250 (R1) barrier before the bears prevail again.
• Support: 1235 (S1), 1218 (S2), 1200 (S3) .
• Resistance: 1250 (R1), 1268 (R2), 1280 (R3).
WTI moved lower and tried to overcome the 102.40 (S1) support, near the 38.2% retracement level of the prevailing short-term advance, but failed to do so. However, the price remains within the blue downward sloping channel and this keeps the outlook to the downside. A successful move below the aforementioned support zone could target the hurdle of 101.70 (S2) near the 50% retracement of the prevailing uptrend. Both our momentum studies remain below their blue resistance lines, keeping the momentum negative.
• Support: 102.40 (S1), 101.70 (S2), 100.95 (S3).
• Resistance: 103.25 (R1), 103.90 (R2), 104.48 (R3).
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Market Analysis 04/06/2014
Language English
The dollar was unchanged or higher against the other G10 currencies, with the only exception being AUD. The greenback was higher against NZD, JPY, CAD, NOK and GBP, while it was virtually unchanged against SEK, EUR and CHF.
The dollar should be getting some support from higher interest rates. As we mentioned yesterday, Fed Funds rate expectations have been moving up recently. They got another boost overnight from a story in the Wall Street Journal warning that Fed officials are becoming nervous about market complacency, a theme that Fed officials have been warning about. The article pointed out that the futures market is forecasting Fed Funds at 1.6% in December 2016, below the FOMC's own forecast of 2.25%. I expect the market's expectations for US rates to continue to move higher and for that to support the dollar going forward.
The loonie was among the losers, as investors probably positioned ahead of today’s BoC policy meeting. A pick up in April’s CPI has stoked speculation that the Bank could sound less dovish today, but last week’s disappointing growth data erased those expectations. Personally, I would not expect the acceleration in the nation’s inflation to affect the Bank’s stance since last month, Bank of Canada Gov. Poloz said he will dismiss faster inflation this year as temporary, because of slack in the economy. Last month, the Bank also said that a weakening local currency could support the nation’s exports and that company investment will rise gradually in response to growth fed by increased US demand and a weaker Canadian dollar. Since then, the loonie has been the best-performing G10 currency and as a result, the Bank of Canada may try to talk down the currency at this meeting, in my view.
The Australian dollar was the only gainer, after Australia’s GDP accelerated to +1.1% qoq in Q1 from +0.8% qoq, exceeding market expectations of +0.9% qoq.
Today, besides the BoC meeting, we get the final service-sector PMIs for May from the countries we got the manufacturing data for on Monday. The final forecasts from France, Germany and Eurozone, as usual, are the same as the initial estimates, while the UK service-sector PMI is expected to have declined to 58.2 from 58.7. In the US, the final Markit service-sector PMI for May is expected to show a modest decline, while the ISM non-manufacturing index for the month is expected to have risen to 55.5 from 55.2.
In the Eurozone, we also have the 2nd estimate of the bloc’s GDP for Q1. I don’t expect the figure to have an impact, as we have already entered the last month of Q2.
In the US, we have the ADP employment report, two days ahead of the NFP release. The ADP report is expected to show that the private sector gained 210k jobs in May from 220k the previous month, close to the 215k NFP forecast. Remember though that the ADP report is an imperfect predictor of the NFP figure; last month, the ADP was at 220k while the NFP was 288k. The US trade balance for April and the MBA mortgage approvals for the week ended on May 30 are also coming out. Moreover, the Fed releases the Beige book report.
We have only one speaker scheduled on Wednesday. BoE Financial Policy Committee member Richard Sharp speaks at the London School of Economics.
Currency Titles:
EUR/USD finds resistance at 1.3650
EUR/JPY completes a double bottom
GBP/USD ready to challenge 1.6700
Gold consolidates below 1250
WTI meets resistance at the upper bound of the channel
Currencies Image Url:
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http://shared.ironfx.co.uk/morning_pictures_2014/4june2014/EURJPY_04June2014.PNG
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Currencies Text:
EUR/USD moved higher after finding support at the 1.3587 (S1) barrier, but the advance was halted by the resistance of 1.3650 (R1) and the upper boundary of the purple downward sloping channel. The rate remains within the channel, but since the 28th of May it oscillates between the aforementioned barriers. Also, considering that the positive divergence between our momentum studies and the price action remains in effect, I would adopt a neutral stance for now. A dip below 1.3587 (S1) is needed to signal the continuation of the downtrend, and this could have larger bearish implications, targeting the lows of February at 1.3475 (S2).
• Support: 1.3587 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3650 (R1), 1.3685 (R2), 1.3745 (R3).
EUR/JPY moved significantly higher, breaking above the 139.30 barrier and completing a short-term double bottom formation. The pair is now heading towards the psychological barrier of 140.00 (R1), slightly above the 200-period moving average. A decisive move above that resistance zone could pave the way towards the next hurdle at 141.00 (R2). The MACD lies above both its trigger and zero lines, confirming the recent bullish momentum, but the RSI is testing its 70 level. As a result, I cannot rule out a pullback after the rate meets the 140.00 (R1) resistance zone.
• Support: 139.30 (S1), 138.15 (S2), 137.55 (S3).
• Resistance: 140.00 (R1), 141.00 (R2), 142.40 (R3).
GBP/USD found resistance at the 1.6780 (R1) hurdle and moved lower. The rate remains below the lower boundary of the long-term uptrend channel and below both the moving averages, thus the picture remains negative in my view. If the bears are strong enough to overcome the support of 1.6700 (S1), I would expect them to trigger extensions towards the 1.6600 (S2) zone. The MACD, already in its negative zone, seems ready to cross its trigger line. This would confirm the downside momentum of the price action.
• Support: 1.6700 (S1), 1.6600 (S2), 1.6550 (S3).
• Resistance: 1.6780 (R1), 1.6815 (R2), 1.6900 (R3).
Gold continued moving in a consolidative mode, remaining below the 1250 barrier. I still expect the bears to push the precious metal lower and target the support level of 1235 (S1), slightly above the 161.8% extension level of the triangle’s width. However, the RSI exited overbought conditions, while the MACD, in its negative territory, lies above its trigger line. Moreover, we can identify positive divergence between both our momentum studies and the price action. As a result, I cannot rule out further consolidation or a corrective move above the 1250 (R1) barrier before the bears prevail again.
• Support: 1235 (S1), 1218 (S2), 1200 (S3) .
• Resistance: 1250 (R1), 1268 (R2), 1280 (R3).
WTI failed once again to overcome the 102.40 (S1) support, near the 38.2% retracement level of the prevailing short-term advance. The price then found resistance at the upper boundary of the blue downward sloping channel. The MACD, although in its bearish territory, crossed above its trigger line, but the RSI hit its blue resistance line and moved slightly lower. Considering the mixed signals provided by our momentum studies and the reluctance of the bears to overcome the 102.40 zone, I would keep a neutral stance for now.
• Support: 102.40 (S1), 101.70 (S2), 100.95 (S3).
• Resistance: 103.25 (R1), 103.90 (R2), 104.48 (R3).
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Market Analysis 05/06/2014
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And here it comes! The main event of the week, the month, or maybe even the year: The ECB Council meeting. Today, at the press conference following the meeting, ECB President Mario Draghi will announce the Bank's new inflation forecasts, which are expected to be revised down, forcing the ECB to loosen policy further. Out of 58 respondents to a Bloomberg poll, all but 2 said the refinancing rate would be reduced, while 44 expect the ECB to cut its deposit rate as well, driving it into negative territory. However, if such a move is not accompanied by additional measures, I would not expect it to hurt the euro, as those widely-expected cuts are probably already discounted. In fact, market may partly erase the moves of the last four weeks. The speculation centers on what the Bank will do on top of reducing rates, which looks like a done deal.
One of the additional measures the Bank may propose is a conditional VLTRO (very long-term refinancing operation) in order to spur liquidity to the banking system and incentivize bank lending. The VLTRO may be targeted to make sure that liquidity is used for the real economy and not for the banks to buy government bonds, acting like hedge funds at the ECB's expense. Other possible actions, but less likely, include extending the full-allotment operations beyond the current limit of mid-2015, the end to SMP sterilization and reducing the minimum reserve requirement.
The measure that could weaken the euro substantially is for the ECB to announce a large-scale quantitative easing (QE). However, the chance of such a move at this meeting is negligible, as the Bank officials said that they will embark on QE if things develop "significantly worse" than they expect. The Bundesbank is also against it and seems willing to accept a number of other instruments to avoid QE.
We also have a BoE policy meeting today and once again is likely to be a non-event. We won’t learn anything interesting from the meeting until the minutes are announced on June 18th.
The loonie declined yesterday, falling to a four-week low after the Bank of Canada maintained its benchmark interest rate unchanged at 1.0% and repeated that a weakening local currency will help the nation’s exports. The Bank also repeated that future policy depends on data flow and said that the downside risks to the inflation outlook remain as important as before. Although Canada’s CPI rose 2% yoy in April, exactly reaching the Bank’s official 2% target, the BoC said that it is focused on the core rate which is at +1.4% yoy, significantly below target.
In the US, the ADP employment report showed that the private sector gained 179k jobs in May, missing market expectations of 210k. The report is an imperfect predictor of the NFP figure, coming out on Friday, but a print below 200k is possible. Either way, the fluctuations are within the normal range in a recovery, especially after the very strong 288k NFP reading in April.
As for today’s economic indicators, Germany’s factory orders are already out. The figure showed a rise of +3.1% mom in April, beating estimates of +1.4% mom. Eurozone’s retail sales for April are forecast to have seen no changes after rising 0.3% mom the previous month.
In the US, initial jobless claims for the week ended on May 31 are expected to have risen to 310k from 300k, while in Canada, building permits are expected to have been up 4.2% mom in April from -3.0% mom in March.
Besides President Draghi, there are two more speakers on Thursday’s schedule: ECB Supervisory Board Chair Daniele Nouy and Minneapolis Fed President Narayana Kocheralkota.
Currency Titles:
EUR/USD still above 1.3587
Is USD/JPY ready for a pullback?
EUR/GBP finds resistance at 0.8140
Gold remains in a consolidative mode
WTI meets again the 102.40 zone
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Currencies Text:
EUR/USD met resistance once again at the upper boundary of the purple downward sloping channel and moved lower. The rate remains within the channel, but since the 28th of May it oscillates between the support of 1.3587 (S1) and the resistance of 1.3650 (R1). Also, considering that the positive divergence between our momentum studies and the price action remains in effect, I would adopt a neutral stance for now. A dip below 1.3587 (S1) is needed to signal the continuation of the downtrend, and this could have larger bearish implications, targeting the lows of February at 1.3475 (S2).
• Support: 1.3587 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3650 (R1), 1.3685 (R2), 1.3745 (R3).
USD/JPY continued moving higher and managed to violate the 102.40 hurdle. The advance was halted by the upper boundary of the uptrend channel, near the 102.70 (R1) zone. Considering that the RSI exited overbought conditions and that the MACD seems ready to cross below its trigger line, I cannot rule out a forthcoming decline, maybe below the 102.40 (S1) barrier again. However, since the pair is printing higher highs and higher lows within the aforementioned channel, I see a positive picture and I would consider any declines within the channel as corrective waves.
• Support: 102.40 (S1), 102.00 (S2), 101.45 (S3).
• Resistance: 102.70 (R1), 103.00 (R2), 103.40 (R3).
EUR/GBP tried to emerge above the blue downtrend line, but met resistance at 0.8140 (R1) and returned back below the trend line. Both our momentum studies follow downward paths while the MACD, already below its trigger line, seems ready to enter its negative territory. As a result, a decline towards the lows of 0.8080 (S1) is possible in the near future. Nonetheless, only a dip below that barrier would confirm forthcoming lower low and signal the continuation of the downtrend.
• Support: 0.8080 (S1), 0.8035 (S2), 0.8000 (S3).
• Resistance: 0.8140 (R1), 0.8200 (R2), 0.8246 (R3).
Gold continued moving in a consolidative mode, remaining below the 1250 barrier. I still expect the bears to push the precious metal lower and target the support level of 1235 (S1), slightly above the 161.8% extension level of the triangle’s width. However, the RSI exited overbought conditions, while the MACD, in its negative territory, lies above its trigger line. Moreover, we can identify positive divergence between both our momentum studies and the price action. As a result, I cannot rule out further consolidation or a corrective move above the 1250 (R1) barrier before the bears prevail again.
• Support: 1235 (S1), 1218 (S2), 1200 (S3) .
• Resistance: 1250 (R1), 1268 (R2), 1280 (R3).
WTI tried to move higher yesterday, but after finding resistance at 103.65 (R1), it fell sharply to meet once again the 102.40(S1) support zone, near the 38.2% retracement level of the prevailing short-term advance. The MACD seems ready to cross below its trigger line, but the RSI started pointing up. Considering the mixed signals provided by our momentum studies and the reluctance of the bears to overcome the 102.40 zone, I would maintain my neutral stance.
• Support: 102.40 (S1), 101.70 (S2), 100.95 (S3).
• Resistance: 103.65 (R1), 104.48 (R2), 105.00 (R3).
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