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Market Analysis 06/06/2014
Language English
Little surprise…. Yesterday, the ECB unveiled an array of policies to boost bank lending and avoid deflationary risks as inflation forecasts were revised down through the end of 2016. The ECB cut its deposit rate to -0.10% becoming the first major Central Bank driving one of its rates into negative territory. The main refinancing rate was also cut by 10bps to 0.15%, while the marginal lending rate was reduced by 35bps to 0.40%. No surprise at all. At the press conference following the rate decision, President Draghi presented the additional measures designed to support bank lending. The Bank will start conducting a series of TLTROs (Targeted long-term refinancing operations), which will mature in September 2018. Two successive TLTROs are scheduled to start in September and December 2014. Conditional LTROs will ensure that the 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. This is exactly as I wrote yesterday, only yesterday we didn't have the exact numbers. So, neither the rate cuts nor the LTROs were a surprise.
The Bank made a couple of other announcements that were also partly expected. It will extend its fixed rate full allotment from mid-2015 to the end of 2016 and suspend the sterilization of its SMP purchases, a move that looks like a mini QE. But as long as the banks can get as much money they want, the impact of this will likely be modest. Finally the Governing Council decided to intensify preparatory work on outright purchases in the ABS market. This does not suggest that a large scale QE is imminent.
The ECB’s actions contrast with those of Japan last April, when it embarked a full program of asset purchases and as a result weakened the yen significantly. The announcement and Draghi's speech caused the common currency to fall towards the 1.3500 zone against its US counterpart, but within the following hours the euro recovered the lost ground and gained even more, confirming my view that its actions were already discounted. Accordingly, it will probably have to take further actions later in the year if it wishes to weaken the euro, the essential step in reviving the Eurozone economy.
Today, another major event takes its turn. The US non-farm payrolls for May. The increase in payrolls is unlikely to be as large as the 288k surge in April, which was partly an offset of the previous month's below-trend increase, caused by the bad weather. The market expects payrolls to have risen 215k in May. The unemployment rate for the month is expected to have risen to 6.4% from 6.3%, but after the unexpected fall from 6.7% last month, this seems normal, in my view. With the initial jobless claims remaining near their seven-year low of 300k (yesterday’s release was at 312k), I consider the US recovery to be on track and a possible slowdown in the employment growth as unlikely to cause a change to the Fed’s policy. Average weekly hours are forecast to remain at 34.5, while the average weekly earnings are expected to have risen 0.2% mom after seeing no changes in April. Fed Chair Yellen has identified wages as a good indicator of the health of the labor market.
As for the rest of the indicators, Germany’s industrial production is expected to have risen 0.4% mom in April after declining 0.5% mom in March, while both the country’s trade and current account surpluses are forecast to have declined.
In the UK, the nation’s trade deficit is forecast to have widened to GBP 1.5bn from GBP 1.3bn, while in Canada, the unemployment rate is estimated to have remained unchanged at 6.9% in May. The number of employed people in Canada is expected to have risen by 25.0k after declining 28.9k in April.
Only one speaker is scheduled on Friday: ECB Vice President Vitor Constancio. It will be interesting to see if he makes any comments on the ECB’s decisions.
Currency Titles:
EUR/USD rebounds strongly from the 1.3500 zone
USD/JPY pulls back
EUR/GBP near the trend line again
Gold moves above 1250
WTI rebounds from the 101.70 zone
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/6june2014/EURUSD_06June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/6june2014/USDJPY_06June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/6june2014/EURGBP_06June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/6june2014/XAUUSD_06June%202014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/6june2014/CLN_06June2014.PNG
Currencies Text:
EUR/USD declined yesterday after the ECB decided to cut all its three rates and President Draghi unveiled additional measures to support bank lending. Nonetheless, the rate met support at the 1.3500 (S3) zone and rallied to trade above the 1.3650 barrier. The move above that hurdle favors a forthcoming higher high and shifts the outlook mildly to the upside. A decisive break above the 1.3685 (R1) resistance level could trigger further bullish extensions and target the 1.3745 (R2) resistance. The MACD crossed above both its trigger and zero lines, indicating positive momentum for the first time since the 8th of May.
• Support: 1.3650 (S1), 1.3587 (S2), 1.3500 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY moved lower, breaking below the 102.40 barrier. The RSI continued moving lower after exiting overbought conditions, while the MACD, although in its bullish territory, fell below its trigger line. As a result, I would expect the decline to continue, maybe to challenge the support of 102.00 (S1) and the neckline (light-blue line) of the inverted head and shoulders formation. However, since the pair is printing higher highs and higher lows within the blue uptrend channel, I still see a positive picture and I would consider the recent decline as a corrective wave before the bulls prevail again.
• Support: 102.00 (S1), 101.45 (S2), 101.10 (S3).
• Resistance: 102.40 (R1), 102.70 (R2), 103.00 (R3).
EUR/GBP fell sharply yesterday. However, after finding support below the 0.8080 (S1) zone, it rallied to find resistance at the blue downtrend line. The RSI remains below its blue resistance line, while the MACD, seems ready to cross above its trigger line. Since the rate failed to extend further declines below 0.8080 (S1), and since our momentum studies provide mixed signals, I would change my view to neutral, for now. In my view, a move above the 0.8140 (R1) is needed to confirm a forthcoming higher high and change the outlook to positive.
• Support: 0.8080 (S1), 0.8035 (S2), 0.8000 (S3).
• Resistance: 0.8140 (R1), 0.8200 (R2), 0.8246 (R3).
Gold moved higher on Thursday, confirming the positive divergence between our momentum studies and the price action. The advance was halted by the 50-period moving average. Considering that the MACD lies above its trigger line and seems ready to obtain a positive sigh, I cannot rule out the continuation of the advance, maybe for a test near the 1268 (R1) zone. Nonetheless, since the possibility for a lower high still exist, I would consider the upside wave as a retracement before the bears prevail again.
• Support: 1240 (S1), 1218 (S2), 1200 (S3).
• Resistance: 1268 (R1), 1280 (R2), 1305 (R3).
WTI fell sharply yesterday, breaking below the 102.40 barrier and reaching the 101.70 (S1) support zone, near the 50% retracement level of the prevailing short-term uptrend. However, WTI rebounded strongly from that zone to trade once again above 102.40 (S1). On the daily chart yesterday’s candle seems like a hammer formation and if the price closes above 102.40 (S1) today, I would expect further upside moves, maybe for another test at the 103.65 (R1) area.
• Support: 102.40 (S1), 101.70 (S2), 100.95 (S3).
• Resistance: 103.65 (R1), 104.48 (R2), 105.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/6june2014/benchmark.PNG
Market Summary Url:
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Market Analysis 09/06/2014
Language English
The Fed remains on course….. The US job report was very close to consensus, with the non-farm payrolls increasing 217k in May, almost exactly on the 215k forecast. April's strong number saw a modest downward revision to from 288k to 282k. Still a strong figure, although I believe it was boosted a little by the unwinding of the earlier weather distortion. The unemployment rate remained unchanged at 6.3% contrary to expectations of a small rise to 6.4%. It mirrored a rise in household employment of 145k and an increase in the labor force by 192k. Average weekly hours worked also remained unchanged at 34.5 and average hourly earnings increased by 0.2% mom pushing the yoy rate up to 2.1%. Overall, the employment report points to a fairly robust job growth supporting private consumption, but at the same time, it points to still moderate inflationary pressures from wages. It was mostly in line with market estimates and this increases the likelihood that the Fed will stick to its course of removing monetary accommodation from a strengthening economy.
The reaction in the market was modest, with the 10-year US Treasury yield remaining just below 2.6%. EUR/USD rose approximately 50 pips after the report was published, probably due to the lack of a positive surprise, but gave back the gains and depreciated even more as investors evaluated the report as encouraging, which I agree it was.
The loonie depreciated after Canada’s unemployment rate unexpectedly rose to 7.0% in May from 6.9% in April. The forecast was for the rate to see no change. The number of employed people rose by 25.8k after declining 28.9k in April, but the gains were due to a surge in part-time jobs. On the other hand, full-time employment declined, bolstering the BoC’s wary outlook on the economy.
Asian stocks gained as on Sunday, a report showed that China’s trade surplus rose more than estimated in May, driven by a surge in the nation’s exports, while on Monday, Asian time, Japan’s final GDP for Q1 was revised up to +1.6% qoq from the initial estimate of +1.5% qoq, the fastest pace since 2011. At the time of writing, the Nikkei is 0.40% up and the Shanghai Composite is trading +0.45% higher. Nikkei’s advance pushed USD/JPY higher, in other words, it caused the yen to decline.
Today, during the European day, the only indicator we have is Canada’s housing starts for May, which are forecast to have declined to 185.0k from 195.3k in April.
We also have three speakers on schedule: St. Luis Fed President James Bullard, Boston Fed President Eric Rosengren and Federal Reserve Governor Daniel Tarullo.
As for the rest of the week, on Tuesday, we get China’s PPI and CPI data for May, while from Australia, home loans are coming out. In Switzerland we have the unemployment rate for May, while from the UK, industrial production is coming out. We also get US wholesale inventories for April. On Wednesday, we have Australia’s Westpac consumer confidence index for June and the UK unemployment rate for April. On Thursday, the Reserve Bank of New Zealand is forecast to raise its official cash rate by another 25bps to 3.25%. RBNZ Governor Wheeler will hold a news conference after the rate decision. As for indicators, we get the Australia’s unemployment rate for May, Eurozone’s industrial production for April and US retail sales for May. Finally on Friday, during the Asian morning the Bank of Japan ends its two-day meeting, with once again no change of policy expected. During the European day, we get Sweden’s unemployment rate for May and the University of Michigan preliminary US consumer sentiment for May.
Currency Titles:
EUR/USD below the 38.2% retracement level
USD/JPY rebounds from the lower bound of the channel
EUR/GBP remains neutral
Gold still on a retracing mode
WTI confirms a hammer on the daily chart
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/9june2014/EURUSD_09June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/9june2014/USDJPY_09June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/9june2014/EURGBP_09June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/9june2014/XAUUSD_09June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/9june2014/CLN4_09June2014.PNG
Currencies Text:
EUR/USD moved slightly lower but managed to maintain its rate above the upper boundary of the prevailing purple downtrend channel. The pair remains below 1.3685 (R1), the 38.2% retracement level of the 8th May-5th June decline, where a break could trigger extensions towards the next hurdle at 1.3745 (R2), which coincides with the 50% retracement level of the aforementioned advance. In the bigger picture, the daily MACD, although in its bearish territory, crossed above its trigger line, increasing the possibilities for the continuation of the retracement.
• Support: 1.3587(S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY rebounded from the lower boundary of the upward sloping channel, slightly above the support zone of 102.00 (S1). The pair is now trading below the resistance zone of 102.70 (R1) where a decisive violation would confirm a higher high and have larger bullish implications. The MACD, already in its bullish territory, seems ready to cross above its trigger line. A cross in the near future would be an additional positive sign, favoring the continuation of the uptrend. As long as the rate is printing higher highs and higher lows within the channel, the short-term outlook remains to the upside.
• Support: 102.00 (S1), 101.45 (S2), 101.10 (S3).
• Resistance: 102.70 (R1), 103.00 (R2), 103.40 (R3).
EUR/GBP moved in a consolidative mode, remaining below the blue downtrend line and below both the moving averages. The rate oscillates between the support of 0.8080 (S1) and the resistance of 0.8140 (R1) since the 20th of May, thus I would maintain my neutral view for now. Only a decisive dip below the 0.8080 (S1) barrier would confirm a forthcoming lower low and signal the reinforcement of the downtrend. On the other hand, a move above the 0.8140 (R1) zone could confirm a higher high and change the outlook to positive.
• 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 on Friday, remaining below the 50-period moving average. Considering that the MACD, already above its signal line, managed to obtain a positive sign, I cannot rule out further advance, maybe for a test near the 1268 (R1) zone. Nonetheless, since the possibility for a lower high still exists, I would consider the upside wave as a retracement before the bears prevail again.
• Support: 1240 (S1), 1218 (S2), 1200 (S3) .
• Resistance: 1268 (R1), 1280 (R2), 1305 (R3).
WTI moved higher after breaking above the 102.40 zone. Considering that the MACD lies above its signal line and seems ready to enter its positive territory, I would expect the advance to continue, maybe for another test at the 103.65 (R1) hurdle. On the daily chart, Friday’s bullish candle, confirmed the hammer formed by Thursday’s candle, favoring further bullish extensions.
• Support: 102.40 (S1), 101.70 (S2), 100.95 (S3).
• Resistance: 103.65 (R1), 104.48 (R2), 105.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/9june2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/9june2014/table.PNG
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Market Analysis 10/06/2014
Language English
Euro becomes a funding currency….The shared currency fell against its US counterpart and most of the other major currencies as Eurozone's low interest rates combined with low foreign exchange volatility boosted demand for higher yielding assets. The VIX index is near its historically lowest levels, while the CVIX (the VIX index for currencies) fell to an all-time low of 5.51. Low volatility favors the strategy of borrowing in currencies with low interest rates and investing the proceeds in higher-yielding currencies, known as carry trades. In my view, it seems that the common currency has started becoming a funding currency for use in such trades. That would imply a sustained depreciation is likely.
Meanwhile, Eurozone’s Sentix investor confidence index fell to 8.5 in June from 12.8 in May, confounding expectations for a jump to 13.2, while the greenback continued to see support on solid US employment data. The ECB's recent decision to loosen policy alongside expectations for the Federal Reserve to continue scaling back its monthly purchases this year was reflected in the markets on Monday, weakening the euro and strengthening the dollar.
The Canadian dollar was the main winner after Canada's housing starts for May came at 198k, exceeding market estimates of 185k. This suggest that housing will contribute to the nation's economic growth in the second quarter after a harsh winter halted construction.
WTI climbed near the 105.00 zone ahead of the API and EIA reports. While no forecast is available for the American Petroleum Institute report that is published today, on Wednesday, the EIA is expected to report that crude stockpiles have declined for a second week in the US. Moreover, Chinese exports have grown and US employment is back at its pre-recession peak, and this is likely to lead to higher oil demand from the world’s two biggest oil consumers.
Overnight, the Aussie strengthened after both the Chinese CPI and PPI rates accelerated in May, reducing the signs that China is sliding into the deflation. This should reduce expectations for the PBOC to roll out more aggressive monetary easing.
As for today, we get industrial production data from France, Italy and the UK, all for April. All three IPs are estimated to have risen on a mom basis, after declining the previous month. The UK industrial output is expected to be the most important one. Continued strength in manufacturing production could have contributed to a healthy pick-up in the overall industrial output. Manufacturing production has risen for four consecutive quarters, and expectations point to further growth ahead. From Italy, we also get the final GDP for Q1. The final forecast is the same as the initial estimate. Switzerland’s unemployment rate is estimated to have declined to 3.1% from 3.2%, while in Norway, both the headline and the underlying CPI rates are forecast to have declined in May.
In the US, the JOLTS (job openings and labor turnover survey) jobs openings are forecast to have risen in April, while wholesale inventories for the same month are expected to have slowed. However, neither release is a major market affecting event.
We have four speakers scheduled on Tuesday. ECB Executive Board member Yves Mersch speaks at a panel discussion, ECB Governing Council member Erkii Liikanen speaks at a Bank of Finland quarterly press briefing, while ECB Governing Council member and head of Slovak Central Bank Jozef Makuch holds a press conference on economic forecasts. RBA Governor Glenn Stevens speaks at the Federal Reserve Bank of San Francisco’s symposium.
Currency Titles:
EUR/USD falls to find support at 1.3587
USD/JPY turns neutral
EUR/GBP finds support at 0.8080
Gold remains near the 50-period MA
WTI climbs near the 105.00 zone
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/10june2014/EURUSD_10June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/10june2014/USDJPY_10June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/10june2014/EURGBP_10June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/10june2014/XAUUSD_10June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/10june2014/CLN4_10June2014.PNG
Currencies Text:
EUR/USD fell sharply on Monday after finding resistance slightly below 1.3685 (R1), the 38.2% retracement level of the 8th May-5th June decline. However, the decline was halted by the support barrier of 1.3587 (S1). A clear dip below that hurdle may signal that Thursday’s advance was just a 38.2% retracement of the aforementioned decline and could target again the key support of 1.3500 (S2). The MACD fell below both its signal and zero lines, confirming yesterday’s bearish momentum.
• Support: 1.3587(S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY failed to continue its Friday’s advance and moved lower forming a lower high. However, the rate remains within the blue uptrend channel and above both the moving averages, thus I would change my view from positive to neutral for now. A clear move below the 102.00 (S1) zone would signal the completion of a failure swing top formation and turn the picture negative. On the other hand, we need a decisive violation of the 102.70 (R1) resistance zone to have the reinforcement of the uptrend.
• Support: 102.00 (S1), 101.45 (S2), 101.10 (S3).
• Resistance: 102.70 (R1), 103.00 (R2), 103.40 (R3).
EUR/GBP met resistance at the blue downtrend line and declined to find support at the 0.8080 (S1) zone. Although both our momentum studies continue their downward paths, remaining below their blue resistance lines, I would maintain my neutral view for now as the rate oscillates between the support of 0.8080 (S1) and the resistance of 0.8140 (R1) since the 20th of May. Only a decisive dip below the 0.8080 (S1) barrier would confirm a forthcoming lower low and signal the reinforcement 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 consolidating on Monday, remaining below the 50-period moving average. Considering that the MACD lies above both its signal and zero lines and that the RSI continues its upside path, I cannot rule out further advance, maybe for a test near the 1268 (R1) zone. Nonetheless, since the possibility for a lower high still exists, I would consider the recent upside wave as a retracement before the bears prevail again.
• Support: 1240 (S1), 1218 (S2), 1200 (S3) .
• Resistance: 1268 (R1), 1280 (R2), 1305 (R3).
WTI surged on Monday, violating two resistance hurdles in a row. The price managed to overcome the highs of May at 104.48 and is now heading towards the psychological zone of 105.00 (R1). The MACD lies above both its signal and zero lines, confirming yesterday’s strong positive momentum, but the RSI lies within its overbought territory, showing signs of topping. As a result, I cannot rule out some consolidation or a forthcoming pullback in the near future. However, the overall short-term picture is to the upside and a clear move above 105.00 (R1) could pave the way towards the zone of 108.00 (R2).
• Support: 104.48 (S1), 103.65 (S2), 102.35 (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 11/06/2014
Language English
The UK takes center stage… On Tuesday, it was announced that UK manufacturing production rose by more than anticipated in April on a yoy basis, driving the overall industrial output up 3.0% yoy from 2.8% yoy, the strongest rate since January 2011. The data added to the evidence that the economic recovery in the UK has gathered pace in the second quarter. Unless IP stagnates or falls back during the remainder of the second quarter, the industrial sector could make its biggest contribution to the nation's quarterly GDP in four years.
Today, the UK labor market data are expected to show that the unemployment rate fell to 6.7% in April from 6.8% in March, indicating that unemployment is still falling rapidly. Last month, although the rate declined to 6.8% from 6.9%, the focus was on the average weekly earnings, which rose less than the market anticipated, pushing the pound lower. At the press conference where he presented the BoE's quarterly inflation report, Governor Carney noted that there is still significant slack in the labor market. This time, the growth rate of average earning is expected to have fallen to +1.2% yoy in April from +1.7% yoy, well below the inflation rate of +1.8% yoy. This suggest that, although the labor market is tightening, the remaining slack is keeping a lid on wages. Given last month's reaction, a decline in the rate of growth of average earnings could be GBP-negative.
Elsewhere, the dollar was higher against most of its G10 counterparts as US Treasury yields rose on Tuesday, a sign that the market is probably pricing in the possibility that the Fed may hike rates earlier than anticipated. Meanwhile, the Labor Department reported that the number of positions waiting to be filled in the US rose to 4.46mn in April, the highest since September 2007. JOLTS job openings is among the nine employment measures monitored by Fed Chair Janet Yellen and alongside last Friday’s employment report and it points to further improvement in the job market.
The South African Rand was among the EM losers after the South African government's attempts to end the strike at platinum mines proved once again unsuccessful. More than 70k workers have been on strike in South Africa, the world's biggest producer of platinum and the second-largest for palladium. The strike remains unresolved and could escalate further, reducing the supply of platinum significantly. Platinum and Palladium surged on Tuesday. SARB Governor Gill Marcus said that there is concern about South Africa's growth for the second quarter amid the strike. On the 27th of May the nation announced weaker-than-expected GDP data for Q1. The long-running platinum strike hit mining output and GDP shrank 0.6% qoq in Q1. We remain bearish on ZAR and we do not think that it is a suitable option for carry trades.
Besides the UK employment data, we only get the US MBA mortgage applications for the week ended on the 6th of June. As usual, no forecast is available.
We have five speakers on Wednesday’s agenda. ECB President Mario Draghi and Germany’s Chancellor Angela Merkel hold talks in Berlin, while ECB Governing Council member Ewald Nowotny speaks at a conference in Vienna and ECB Executive Board Member Yves Mersch speaks at the Global ABS conference. BoE’s MPC member Ben Broadbent appears at the Treasury Select Committee about his appointment as Deputy Governor for monetary policy at the Bank of England.
Currency Titles:
EUR/USD ready to challenge the 1.3500 zone
EUR/JPY heading towards the 138.00 area
GBP/USD remains within the downtrend channel
Gold continues higher
WTI finds resistance at 105.00
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/11june2014/EURUSD_11June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/11june2014/EURJPY_11June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/11june2014/GBPUSD_11June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/11june2014/XAUUSD_11June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/11june2014/CLN4_11June2014.PNG
Currencies Text:
EUR/USD continued declining on Tuesday and managed to break below the 1.3587 (R1) resistance barrier. This confirms that Thursday’s advance was just a 38.2% retracement of the 8th May-5th June decline. At the time of writing, the pair is heading towards the support barrier of 1.3500 (S1). The next support level is marked by the lows of February, at 1.3475 (S2). A decisive dip below that level could pave the way towards the 1.3400 (S3) zone. The RSI continues its downward path, while the MACD remains below both its signal and zero lines, confirming the recent negative momentum.
• Support: 1.3500 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3587 (R1), 1.3685 (R2), 1.3745 (R3).
EUR/JPY fell sharply yesterday, breaking below the 138.65 barrier. I would expect such a dip to trigger extensions towards the support hurdle of 138.00 (S1). A dip below the 138.00 (S1) level may target the next support at 137.55 (S2), near the 200-day moving average. The MACD lies below both its trigger and zero lines and points down, confirming the recent bearish momentum of the price action.
• Support: 138.00 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 138.65 (R1), 139.35 (R2), 140.00 (R3).
GBP/USD moved lower after finding resistance near the upper boundary of the blue downward sloping channel. The pair fell below the 1.6785 barrier and I would expect it to continue declining and challenge the support hurdle of 1.6700 (S1). A clear dip below the 1.6700 (S1) area could trigger further bullish extensions targeting the next support at 1.6600 (S2). The MACD crossed below both its signal and zero lines, indicating negative momentum for the price action.
• Support: 1.6700 (S1), 1.6600 (S2), 1.6550 (S3).
• Resistance: 1.6785 (R1), 1.6845 (R2), 1.6900 (R3).
Gold continued moving higher, overcoming the 50-period moving average. Considering that the MACD remains above both its signal and zero lines and that the RSI continues its upside path, I still expect the precious metal to challenge the resistance zone of 1268 (R1). Nonetheless, since the possibility for a lower high still exists, I would consider the recent advance as a correcting phase, for now.
• Support: 1240 (S1), 1218 (S2), 1200 (S3) .
• Resistance: 1268 (R1), 1280 (R2), 1305 (R3).
WTI met strong resistance at the 105.00 psychological barrier and moved lower to find support at 104.10 (S1). The RSI exited its overbought conditions and moved lower, while the MACD shows signs of topping and seems ready to cross below its signal line in the near future. As a result, I cannot rule out the continuation of the pullback or some consolidation. However, the overall short-term picture is to the upside, and a clear move above 105.00 (R1) could pave the way towards the zone of 108.00 (R2).
• Support: 104.10 (S1), 103.65 (S2), 102.30 (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 12/06/2014
Language English
Third consecutive rate hike by the RBNZ. The Reserve Bank of New Zealand (RBNZ) raised its Official Cash Rate (OCR) to 3.25% from 3.00%, a move that was broadly expected. Once again, the focus was on the statement accompanying the decision. In its statement, the Bank repeated that “New Zealand’s economic expansion has considerable momentum”. “Headline inflation remains moderate but inflationary pressures are expected to increase” the Bank said, which means that they will have to raise rates further. In April, the statement said that “The speed and extent to which the OCR will need to rise will depend on future economic and financial data, and our continuing assessment of emerging inflationary pressures, including the extent to which the high exchange rate leads to lower inflationary pressure.” This time, the second part of that sentence was not included in the statement, which shows that the Bank is less worried now about the exchange rate, although it did reiterate that “The Bank does not believe the exchange rate is sustainable at current levels”. NZD was the main gainer among the G10 currencies and I would expect it to continue to rally as the only currency of the group whose central bank has adopted such a hawkish stance.
The pound was also among gainers after the UK unemployment rate for April fell to 6.6% from 6.8% in March, the lowest since 2009. The market forecast was for the rate to decline to 6.7%. However, the growth rate of average weekly earnings, which are crucial for the BoE's assessment of the slack in the economy, fell from +1.9% yoy in March to +0.7% yoy, falling short of inflation. The Bank's officials have pledge to keep the benchmark interest rate at a record low of 0.50% until slack in the labor market is used up. Policy makers are divided on the remaining amount of spare capacity in the economy, with some suggesting that the first rate hike may be approaching. However, in my view, with no signs that the labor market is a source of inflationary pressure, I think that the Bank will keep rates on hold until well into next year.
In Australia the unemployment rate remained unchanged at 5.8% in May, but the number of people employed unexpectedly fell by 4.8k, while the number for April was revised down. The Australian dollar declined at the release, but recovered immediately to trade near its pre-announcement levels. We still see AUD as likely to underperform NZD, although recent Japanese interest in AUD-denominated bonds may support AUD for now.
Today, Eurozone’s industrial production is forecast to have risen 0.5% mom in April after declining 0.3% mom in March, driving the yoy rate up to +0.9% from -0.1%. France’s CPI rate is forecast to have remained unchanged at +0.8% yoy in May, while Sweden’s inflation rate for the same month is expected to decline to -0.2% yoy from 0.0% yoy in April. ECB will also publish its monthly bulletin.
In the US, we get retail sales for April. The headline figure is forecast to have accelerated to +0.6% mom from +0.1% mom, while retail sales excluding the volatile items of autos and gasoline is expected to have been up 0.4% mom, a turnaround from -0.1% mom of the previous month. Initial jobless claims for the week ended on June 7 are expected to have declined to 310k from 312k the previous week, driving the 4wk moving average down to 309k from 311.5k. This will be additional confirmation that the US labor market is improving and alongside positive retail sales data could prove USD-positive.
From Canada, the new housing price index for April is expected to have risen 0.1% mom, the same as in March.
We have three speakers scheduled on Thursday. Bank of England’s Governor Mark Carney and Chancellor of the Exchequer George Osborne will speak at an event, while BoC Governor Poloz holds a press conference after the publication of the Bank’s Financial System Review.
Currency Titles:
EUR/USD remains above the 1.3500 zone
EUR/JPY rebounds from 138.00
GBP/USD turns neutral
Are Gold bulls running out of momentum?
WTI rebounds from 104.10 again
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Currencies Text:
EUR/USD moved in a consolidative mode, remaining above the support barrier of 1.3500 (S1). I still expect the pair to move lower and challenge that hurdle in the near future. The next support level is marked by the lows of February, at 1.3475 (S2), where a decisive dip could pave the way towards the 1.3400 (S3) zone. Nonetheless, since the RSI found support at its 30 level and moved higher while the MACD, although in its bearish territory, seems ready to cross above its signal line, I cannot rule out further consolidation or an upside corrective wave, before the bears take control again.
• Support: 1.3500 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3587 (R1), 1.3685 (R2), 1.3745 (R3).
EUR/JPY moved lower and managed to reach the support zone of 138.00 (S1). The pair found strong support at the 138.00 (S1) and moved slightly higher. The RSI hit its 30 level and moved higher, while the MACD shows signs of bottoming and seems ready to cross above its signal line in the near future. As a result, I would expect the upside movement to continue. Nonetheless, as long as the possibility for a lower high still exists, I would consider any further advances as a corrective phase for now.
• Support: 138.00 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 138.65 (R1), 139.35 (R2), 140.00 (R3).
GBP/USD moved higher on Wednesday after finding support at 1.6735 (S1). Nonetheless, the advance was halted at 1.6810 (R1). I would change my view to neutral since the pair formed a short-term higher low, but it still remains within the blue downward sloping channel. A move above the 1.6845 (R2) resistance is needed to signal the exit of the channel and confirm a forthcoming higher high. Both the moving averages point sideways, adding to my neutral stance.
• Support: 1.6735 (S1), 1.6700 (S2), 1.6600 (S3).
• Resistance: 1.6810 (R1), 1.6845 (R2), 1.6900 (R3).
Gold moved in a consolidative mode, remaining above the 50-period moving average, but below the resistance hurdle of 1268 (R1). The RSI remains supported by is blue support line, but the MACD, although in its bullish territory, seems ready to cross below its trigger line. Such a cross in the near future, followed by a price dip below 1257 (S1), may confirm my view that the recent advance was a correcting phase and could target once again the lows of 1240 (S2).
• Support: 1257 (S1), 1240 (S2), 1218 (S3) .
• Resistance: 1268 (R1), 1280 (R2), 1305 (R3).
WTI rebounded from the 104.10 (S1) support level for a second consecutive day. The price is trading between that barrier and the psychological resistance of 105.00 (R1) since Monday. Considering that the MACD formed a top and fell below its trigger line I cannot rule out some consolidation or another pullback in the near future. However, the overall short-term picture of WTI remains to the upside, and a clear move above 105.00 (R1) could pave the way towards the zone of 108.00 (R2).
• Support: 104.10 (S1), 103.65 (S2), 102.30 (S3).
• Resistance: 105.00 (R1), 108.00 (R2), 110.00 (R3).
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Market Analysis 13/06/2014
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BoE Governor Carney becomes a hawk. Yesterday, the BoE Governor surprised the markets saying that an increase in interest rates is getting closer and could happen sooner than the market anticipated. The warning came as Chancellor George Osborne said that the Bank’s Financial Policy Committee will get new powers to limit mortgage lending as a surging housing market raises concerns about a potential bubble. After the growth rate of average weekly earnings for April fell short of inflation, I was among those who believed that the Bank was likely to keep rates on hold until well into next year, since there were no signs that the labor market is a source of inflationary pressure. Nonetheless, Governor Carney apparently had other plans yesterday. GBP/USD surged on his comments and is now pointing to the 1.7000 zone again. From a technical standpoint, the picture is back to the upside and a clear break above 1.7000, could pave the way towards the 1.7100 area. However, I would expect some consolidation or a pullback after the price reaches the 1.7000 barrier.
The Bank of Japan ended its two-day policy meeting today with no change in policy, as expected. In its statement, the Bank said that Japan’s economy has continued to recover moderately and that inflation expectations appear to be rising on the whole. Signs of recovery in the economy after the consumption tax increase and confident comments by Governor Kuroda have led a large number of economist to postpone, or abandon, calls for additional stimulus. According to a Bloomberg survey, 42% of economists are now forecasting that the BoJ will boost stimulus in October, displacing July as the post popular month for action, and just 58% expect the BoJ to move by the end of this year, down from 75% previously. Nonetheless we still expect the yen to weaken as the pace of base money growth in Japan is now substantially exceeding that of the US. Moreover, aside from monetary policy, Japan's current account surplus continues to fall while investors are showing renewed interest in overseas assets.
Elsewhere, the greenback was unchanged or lower against its G10 counterparts after US retail sales disappointed in May, increasing by only half of the expected pace. With two of the three months in Q2 already known, the data suggest that consumer spending probably slowed during the quarter. After a very disappointing first quarter, growth might therefore remain below estimates in Q2 too. This is a bit odd when employment is rising rapidly and I believe it will not take long before sales start accelerating again. Initial jobless claims for the week ended on June 7 rose to 317k from 313k the previous week, but since they are not far from their pre-recession lows, job growth continues at a steady clip, in my view.
WTI rallied, breaking above the 105.00 psychological barrier as violence escalated across northern and central Iraq. The price reached levels slightly below our resistance zone of 108.00. Iraqi militants linked to al-Qaeda took control of the northern oil city of Kirkuk on Thursday and advanced closer to the capital, Baghdad. US President Obama said that Iraq would need assistance from the US to push the insurgents back. The oil price is likely to follow events in Iraq, which we can’t forecast, but from a technical prospective, oil seems likely to continue trending higher. (see technical section below for more details)
Platinum and palladium plunged after a South African labor union accepted a wage offer from platinum companies, increasing expectations of an end to the mining strike that started in January. In the medium term, the outlook of the metals remains to the upside since even if miners return to work soon, we will still see many months passing before returning near normal production. The South African Rand gained for the first time in four days, getting the first place among the EM currencies we track.
During the European day, we get the final CPI data for May from Germany and Italy. As usual, the forecast is the same as the initial estimate. We also get Eurozone’s trade balance for April. The bloc’s trade surplus is forecast to have fallen to EUR 16.6bn NSA from EUR 17.1bn NSA. None of these indicators is market affecting and I would expect them to pass largely unnoticed. Sweden’s unemployment rate is forecast to have declined to 8.4% from 8.7%.
In the US, the PPI excluding food and energy is forecast to have slowed to +0.1% mom in May from +0.5% mom in April. Nonetheless, this would bring the yoy rate up to +2.3% from +1.9%. We also get the University of Michigan preliminary consumer sentiment for June which is expected to have risen to 83.0 from 81.9.
We have only one speaker on Friday’s agenda. ECB Governing Council member and Bank of Spain Governor Luis Maria Linde speaks in Madrid.
Currency Titles:
EUR/USD in a retracing mode
USD/JPY back below 102.00
EUR/GBP reaches 0.8000
Gold breaks above 1268
WTI heading towards the 108.00 zone
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Currencies Text:
EUR/USD moved higher after finding support slightly above the support barrier of 1.3500 (S1). Considering that the MACD, although in its bearish territory, crossed above its trigger line, while the RSI continued moving higher after finding support at its 30 level, I would expect the upside wave to continue, maybe for a test near the 1.3587 (R1) level. Nonetheless, it’s too early to argue for a trend reversal, thus I would consider the recent upside wave as an upside corrective wave.
• Support: 1.3500 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3587 (R1), 1.3685 (R2), 1.3745 (R3).
USD/JPY moved lower and managed to break the 102.00 barrier. This signals the completion of a failure swing top and turns the picture negative, in my view. I would expect the bears to extend the decline and challenge the support of 101.45 (S1). Both our momentum studies follow a downward path with the MACD remaining below both its trigger and zero lines. In the bigger picture, the longer-term path remains a trading range since we cannot identify a clear trending structure.
• Support: 101.45 (S1), 101.10 (S2), 100.80 (S3).
• Resistance: 102.00 (R1), 102.70 (R2), 103.00 (R3).
EUR/GBP turned the picture negative after breaking below the 0.8080 zone. The plunge was halted by the key zone of 0.8000 (S1), where a clear dip could pave the way towards the next support barrier at 0.7880 (S2). The MACD remains below both its trigger and zero lines, confirming the accelerating bearish momentum, but the RSI seems ready to exit oversold conditions. As a result, I cannot rule out some consolidation or a bounce before the bears prevail again. As long as the rate is trading below the blue downtrend line and below both the moving averages, I see a negative picture.
• Support: 0.8000 (S1), 0.7880 (S2), 0.7755 (S3).
• Resistance: 0.8035 (R1), 0.8080 (R2), 0.8140 (R3).
Gold moved significantly higher on Thursday, breaking above the 1268 barrier but the advance was halted by the 200-period moving average. The MACD managed to remain above both its trigger and zero lines, pointing up, but the RSI lies within its overbought territory, showing signs of topping. Considering the mixed signals provided by our momentum studies, I would adopt a neutral stance for now. A move above the resistance of 1280 (R1), which coincides with the 50-day moving average, could turn the picture positive and pave the way towards the 1305 zone, slightly below the 200-day moving average.
• Support: 1268 (S1), 1257 (S2), 1240 (S3) .
• Resistance: 1280 (R1), 1305 (R2), 1315 (R3).
WTI surged on Thursday, breaking above the psychological barrier of 105.00. The price is now trading slightly below our resistance zone of 108.00 (R1). I would expect the price to challenge that zone, and if the bulls are strong enough to overcome it, they may trigger extensions towards the 110.00 (R2) area. The MACD, already in its bullish territory, crossed above its signal line, confirming the accelerating bullish momentum. Nonetheless, the RSI lies within its overbought territory and is pointing down, thus I cannot rule out a pullback in the near future, before the bulls prevail again.
• Support: 105.00(S1), 104.10 (S2), 103.65 (S3).
• Resistance: 108.00 (R1), 110.00 (R2), 112.00 (R3).
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Market Analysis 16/06/2014
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BoE Gov. Carney backed by BoE Deputy Gov. Charlie Bean. In an interview on Sunday Times, BoE Dep. Gov. said that the first rate increase “will be an indication that we are on the road back to normality”. “I would welcome us getting on to the path of normalization, as a demonstration that the economy is healing,” he added. He also supported the Governor in tackling a potential housing bubble. In a Bloomberg survey, 85% of economists said that the BoE’s FPC should take steps to cool demand for real estate. Comments by the two leading officials of the Bank are clear words. The Central Bank seems to have abandoned trying to restrain expectations for the first rate hike. The focus now turns to the minutes of June’s MPC meeting, due to be released on Wednesday. The minutes may echo the hawkish tone of Governor Carney’s speech and suggest that a vote for an interest rate hike by some members may be imminent.
In my view, the BoE may raise rates earlier than the Fed, something that could prove supportive for the pound in the medium term, but I still expect the pace of monetary tightening to be much faster in the US. As a result, I would be more cautious on the long-term path of GBP/USD. Investors may prefer EUR/GBP as the divergence in policy between the ECB and the BoE is much more distinct.
Elsewhere, the Swedish Krona was the main gainer among the G10 currencies, after Sweden’s unemployment rate for May fell to 8.0% from 8.7%, beating market expectations for a decline to 8.4%. USD/SEK fell sharply, after hitting our resistance of 6.7030, and broke below the 6.7000 zone. The next support is at 6.6240. A dip below that might signal the completion of a double top formation on the 4-hour chart and give a trend reversal signal.
Gold and WTI gained during the Asian morning Monday as the escalation of violence in Iraq boosted the appeal of safe havens and increased concerns that crude oil supplies will be disrupted.
Today, Eurozone’s final CPI for May is coming out. The figure will most likely confirm the initial estimate of +0.5% yoy.
In the US, the Empire State manufacturing survey for June is forecast to decline to 15.00 from 19.01, while industrial production for May is forecast to have risen 0.5% mom, a turnaround from -0.6% mom in April. The National Association of Home Builders (NAHB) housing market index for June is expected to rise to 47 from 45.
The rest of the week seems busier. The main event is on Wednesday, when the FOMC ends its two-day policy meeting. The statement will be released along with economic projections and forecasts for the benchmark rate. Fed Chair Janet Yellen will hold a press conference following the policy decision. On Tuesday, during the Asian morning, the RBA releases the minutes of its latest monetary policy meeting. The main event during the European day will be the German ZEW survey for June. The current situation index is forecast to remain unchanged, while the expectations index is expected to rise. In the UK, we get CPI and PPI data for May. We also get CPI data from the US. On Wednesday, besides the FOMC decision, we get the minutes of BoE’s latest meeting. As for Japan, we get the nation’s trade balance for May. On Thursday, during the Asian morning we get New Zealand’s GDP for Q1. During the European day, the Swiss National Bank and the Norges Bank decide on their interest rates. In the UK we get retail sales data for May and from the US, we have the Philadelphia Fed business activity index for June. Finally on Friday, we get Canada’s retail sales for April and CPI data for May.
Currency Titles:
EUR/USD finds resistance at the 50-period MA
USD/JPY remains within the downtrend channel
EUR/GBP breaks below 0.8000
Gold continues higher
WTI heading towards the 108.00 zone
Currencies Image Url:
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Currencies Text:
EUR/USD moved slightly lower after finding resistance at the 50-period moving average, slightly below the resistance barrier of 1.3587 (R1). The rate remains between the support of 1.3500 (S1) and the aforementioned resistance. The next support level is marked by the lows of February at 1.3475 (S2). Only a clear dip below that hurdle could signal the continuation of the short-term downtrend and may trigger extensions towards the 1.3400 (S3) zone. In the bigger picture, the rate remains below the 200-day moving average, keeping the outlook negative.
• Support: 1.3500 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3587 (R1), 1.3685 (R2), 1.3745 (R3).
USD/JPY moved higher on Friday, but met resistance at 102.10 (R1), near the 200-period moving average and the upper boundary of the purple downward sloping channel. If the bears are strong enough to maintain the rate below that resistance zone, I would expect them to challenge the support of 101.45. As long as the rate is printing lower highs and lower lows within the downtrend channel, I see a negative short-term picture. In the bigger picture, the longer-term path remains a trading range since we cannot identify a clear trending structure.
• Support: 101.45 (S1), 101.10 (S2), 100.80 (S3).
• Resistance: 102.10 (R1), 102.70 (R2), 103.00 (R3).
EUR/GBP continued declining, breaking below the key zone of 0.8000. I would expect such a break to have larger bearish implications and pave the way towards the next support barrier at 0.7880 (S1). The MACD remains below both its trigger and zero lines, confirming the recent bearish momentum. I would ignore the oversold reading of RSI for now, since the oscillator is pointing down and I would expect an upside corrective wave upon its exit from the extreme zone. As long as the rate is trading below the blue downtrend line and below both the moving averages, I see a negative picture.
• Support: 0.7880 (S1), 0.7755 (S2), 0.7700 (S3).
• Resistance: 0.8000 (R1), 0.8035 (R2), 0.8080 (R3).
Gold continued moving higher, breaking above the 200-period moving average and above the 1280 barrier, which coincides with the 61.8% retracement level of the 22nd May – 3rd June decline. In my view, such a break could have larger bullish implications and could pave the way towards the resistance zone of 1305 (R2). The MACD remains above both its trigger and zero lines, while the RSI remains above its blue support line and does not seem willing to exit overbought conditions, at least for now. As long as the precious metal is forming higher highs and higher lows above the short-term blue uptrend line, I consider the short-term outlook to be positive.
• Support: 1268 (S1), 1257 (S2), 1240 (S3) .
• Resistance: 1280 (R1), 1305 (R2), 1315 (R3).
WTI moved higher after finding support at 106.50 (S1). The price is now heading towards the resistance zone of 108.00 (R1). I would expect WTI to challenge that zone, and if the bulls are strong enough to overcome it, they may trigger extensions towards the 110.00 (R2) area. The MACD remains above both its trigger and signal lines, while the RSI, already in its overbought zone, met support at its 70 level and moved slightly higher, confirming the recent strong bullish momentum of the price action.
• Support: 106.50(S1), 105.00 (S2), 104.10 (S3).
• Resistance: 108.00 (R1), 110.00 (R2), 112.00 (R3).
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Market Analysis 17/06/2014
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ECB is likely to refrain from any additional easing in the coming months. On Monday, Bloomberg News reported that the ECB will probably refrain from any new stimulus measures in coming months whilst the Central Bank reviews lenders’ balance sheets, according to two unidentified ECB officials. Policy makers could act again before the bank review if a shock to the economy causes the inflation outlook to worsen, one of the two officials added. Officials also said that the effect of any ECB measures could be reduced by the reluctance of the banks to increase lending during the assessment. EUR/USD moved higher to find our resistance bar at 1.3587. However, I believe is a matter of time before we see the pair below 1.3500 mainly due to the divergence in policy between the ECB and the Fed, and due to the new role of euro as a funding currency.
Overnight the Reserve Bank of Australia published the minutes of its latest policy meeting. Australian policy makers expressed concern that low interest rates may not offset a drop in mining investment. They also repeated that the current accommodative stance of policy is likely to be appropriate for some time and that GDP growth is expected to be below trend over the next year or so. Policy makers also maintained their view that AUD remains high by historical standards, given the further decline in commodity prices over the past month. The minutes revealed a more dovish tone from the RBA, and if another interest rate move is possible in the next six months, it is more likely to be a cut rather than a raise, in my view.
Positive data out from the US were offset on Monday, after the International Monetary Fund (IMF) cut its growth forecast for the US economy this year. The move from IMF came less than a week after the World Bank reduced its US growth forecasts for 2014. Lagarde said that the cut was linked to the economy’s contraction in Q1, attributed mainly to the harsh winter. However the announcement did not had a major impact on USD.
The Russian ruble depreciated and the MICEX index fell as OAO Gazprom slumped on concerns that the gas producer won’t be paid for supplies to Ukraine after talks on energy prices failed. Russia cut gas supplies to Ukraine’s pipeline network after the talks broke down and said that the country will only receive gas when it is paid in advance due to “chronic non-payment” of its bills.
During the European day, the main event will be the German ZEW survey for June. The current situation index is forecast to have remain unchanged at 62.1, while the expectations index is expected to have risen to 35.0 from 33.1 the previous month. Last month, EUR/USD weakened approximately 20 pips after the expectations index declined. It would be interesting to see if a rise in the index could cause a similar move in the opposite direction.
In the UK, the CPI is forecast to have slowed to +1.7% yoy in May from +1.8% yoy in April, while the nation’s PPI for the same period is forecast to have accelerated to +0.7% yoy from +0.6% yoy. I don’t believe that a slowdown in UK’s CPI could boost expectations that the BoE will hold rates low for longer, especially after Governor’s Carney comments on Thursday.
From the US, we get the headline CPI as well as the core inflation rate (excluding food and energy). Both rates are expected to have remained unchanged in May at 2.0% yoy and 1.8% yoy respectively. Both the housing starts and building permits are forecast to have declined in May. Tuesday also marks the beginning of the two day FOMC meeting which ends on Wednesday.
We have two speakers on Tuesday’s schedule. ECB Governing Council Member Ewald Nowotny takes part in a panel discussion in Vienna and Norway’s central bank Governor Oeystein Olsen speaks in Oslo.
Currency Titles:
EUR/USD finds resistance at 1.3587
EUR/JPY rebounds from 137.70
GBP/USD hits 1.7000
Gold meets the uptrend line
WTI pulls back again
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Currencies Text:
EUR/USD moved higher on Monday, but the advance was halted by the 1.3587 (R1) barrier. The rate oscillates between the support of 1.3500 (S1) and the aforementioned resistance since the 10th of June, thus I would keep a neutral stance for now. Relying on our short-term momentum studies, does not seem a solid strategy since the RSI is now pointing down, while the MACD, already above its signal line, seems ready to obtain a positive sign. The next support level is marked by the lows of February at 1.3475 (S2). Only a clear dip below that hurdle could signal the continuation of the prevailing short-term downtrend and may trigger extensions towards the 1.3400 (R3) zone. In the bigger picture, the rate remains below the 200-day moving average, keeping the outlook negative.
• Support: 1.3500 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3587 (R1), 1.3685 (R2), 1.3745 (R3).
EUR/JPY moved higher after finding support at 137.70 (S1), which lies near the 200-day moving average. At the time of writing, the pair is heading towards the 138.65 (R1) barrier, which coincides with the 38.2% retracement level of the prior bearish wave. Considering the positive divergence between our momentum studies and the price action, I cannot rule out a move above that barrier. On the daily chart, I still consider the long-term path to be to the sideways, since we cannot identify a clear trending structure.
• Support: 137.70 (S1), 136.20 (S2), 134.10 (S3).
• Resistance: 138.65 (R1), 139.35 (R2), 140.00 (R3).
GBP/USD hit the 1.7000 (R1) psychological zone and moved lower. Considering that the RSI exited overbought conditions, while the MACD, although in its bullish territory, fell below its signal line, I would expect the pullback to continue, maybe towards the 1.6900 (S1) zone, which coincides with the 38.2% retracement level of the prevailing rally. In the bigger picture, the 80-day moving average provides strong support to the lows of the price action, but we need a clear move above the 1.7000 (R1) zone to have the reinforcement of the long-term uptrend.
• Support: 1.6900 (S1), 1.6845 (S2), 1.6735 (S3).
• Resistance: 1.7000 (R1), 1.7100 (R2), 1.7200 (R3).
Gold fell sharply yesterday to meet the short-term blue uptrend line. If the bulls are strong enough to take advantage of the pullback, I would expect them to target once again the 1285 (R1) obstacle, where a clear violation would signal the continuation of the short-term uptrend and could pave the way towards 1305 (R1). Despite the fact that the uptrend remains intact for now, I would adopt a neutral stance, since the RSI exited its overbought territory and fell below its blue support line, while the MACD fell below its trigger line, favoring the continuation of the decline. However, only a dip below the trend line and the support of 1268 (S1) could turn the picture negative again.
• Support: 1268 (S1), 1257 (S2), 1240 (S3) .
• Resistance: 1285 (R1), 1305 (R2), 1315 (R3).
WTI moved lower to find support at the 106.50 (S1) barrier once again. A dip below that hurdle may signal the completion of a possible double top formation on the 1-hour chart and trigger further retracement. On the 4-hour chart, the RSI fell below its 70 level, while the MACD crossed below its signal line, favoring the aforementioned scenario. However, as long as WTI remains above both the moving averages, I consider the upside path to remain intact and I would see any further possible declines as corrective waves for now.
• Support: 106.50(S1), 105.00 (S2), 104.10 (S3).
• Resistance: 108.00 (R1), 110.00 (R2), 112.00 (R3).
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Market Analysis 18/06/2014
Language English
Today is FOMC day! Today, the Federal Open Market Committee ends its two-day meeting and while I would guess that nobody expects any change in the tapering process, the focus will fall on the press conference held by Fed Chair Yellen and the "dots", the chart that shows where each FOMC member sees the federal fund rate at the end of each year, for the next two years.
The economic statistics have been slightly stronger than the FOMC expected, particularly with regards to unemployment, a key factor in determining when the Fed will start normalizing policy. On the other hand, there will be several new members in the Committee: Vice Chair Stanley Fischer, Loretta Mester (replacing Pianalto at the Cleveland Fed) and perhaps Lael Brainard, a new Governor. There doesn't seem to be any consensus on whether these people will make the Committee more or less dovish. The market will be looking to see how these two factors balance out.
While US inflation remains low, it is creeping up, but at the same time growth has undershot the Fed's expectations. For some time now there has been no contradiction between the Fed's mandate to control inflation and its pro-growth mandate, but that contradiction seems to be coming back. How will the Committee, with its new members, view this trade-off?
In short, I expect the Fed's statement to be little changed. The official forecasts for growth and unemployment are likely to be revised down. I expect the market to focus on the "dots” that give the FOMC members' forecasts, despite the fact that Yellen has warned investors not to pay attention to these. The fact that the unemployment will be forecast to reach the FOMC's definition of full employment much sooner than previously expected means that they could indicate an earlier initial rate hike. Given that the market already is forecasting a later rate hike than the FOMC is, I think this could have a big impact on the markets. I would expect USD to strengthen generally and the US yield curve to bear flatten as short rates rise. Carry trades though are likely to be relatively unaffected as USD is probably no longer being used as a funding currency - EUR, JPY and CHF have taken over that role.
Elsewhere today, the Bank of England releases the minutes from its latest meeting. The minutes may echo the hawkish tone of Governor Carney's speech last Thursday and suggest that a vote for a rate hike by some policy members may be looming. In Canada, wholesale trade sales are expected to have risen 0.5% mom in April, a turnaround from -0.4% mom the previous month.
Besides Chair Yellen, we have four more speakers on Wednesday's agenda: Former Fed Chairman Ben Bernanke, BoE's MPC member Kristin Forbes, BoE's MPC member Martin Weale and BoE Chief Economist Andy Haldane.
Currency Titles:
EUR/USD remains neutral
EUR/JPY remains below 138.65
GBP/USD in a consolidative mode
Gold breaks the uptrend line
WTI finds support at 106.00
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Currencies Text:
EUR/USD moved slightly lower after finding resistance at the 1.3587 (R1) barrier. The rate oscillates between the support of 1.3500 (S1) and the aforementioned resistance since the 10th of June, thus I would keep a neutral stance for now. Considering that the MACD, already in its negative territory, seems ready to cross below its trigger line, I would expect the decline to continue and challenge the support of 1.3500 (S1). The next support level is marked by the lows of February at 1.3475 (S2). Only a clear dip below that hurdle could signal the continuation of the prevailing short-term downtrend and may trigger extensions towards the 1.3400 (S3) zone. In the bigger picture, the rate remains below the 200-day moving average, keeping the outlook negative.
• Support: 1.3500 (S1), 1.3475 (S2), 1.3400 (S3).
• Resistance: 1.3587 (R1), 1.3685 (R2), 1.3745 (R3).
EUR/JPY moved in a consolidative mode, remaining below the 50-period moving average and the 138.65 (R1) barrier, which coincides with the 38.2% retracement level of the prior bearish wave. Considering the positive divergence between our momentum studies and the price action, I cannot rule out a move above that barrier. On the daily chart, I still consider the long-term path to be to the sideways, since we cannot identify a clear trending structure.
• Support: 137.70 (S1), 136.20 (S2), 134.10 (S3).
• Resistance: 138.65 (R1), 139.35 (R2), 140.00 (R3).
GBP/USD moved in a consolidative mode, remaining below the 1.7000 (R1) key resistance zone. Considering that the RSI moved lower after exiting overbought conditions, while the MACD, although in its bullish territory, remains below its signal line, I would expect further retracement, maybe towards the 1.6900 (S1) zone, which coincides with the 38.2% retracement level of the prevailing rally. In the bigger picture, the 80-day moving average provides strong support to the lows of the price action, but we need a clear move above the 1.7000 (R1) zone to reinforce the long-term uptrend.
• Support: 1.6900 (S1), 1.6845 (S2), 1.6735 (S3).
• Resistance: 1.7000 (R1), 1.7100 (R2), 1.7200 (R3).
Gold fell below the blue uptrend line and almost reached our support barrier of 1257 (S1). The precious metal rebounded after the decline, to find resistance at 1272 (R1), near the blue uptrend line. Considering that the RSI moved lower after breaking below its support line, while the MACD remains below its trigger line, I would expect another leg down towards the 1257 (S1) zone. A dip below that support area may target the next hurdle at 1240 (S2).
• Support: 1257 (S1), 1240 (S2), 1220 (S3) .
• Resistance: 1272 (R1), 1285 (R2), 1305 (R3).
WTI continued lower to find support at 106.00 (S1). Considering that both our momentum studies follow downward paths, while the MACD remains below its signal line, I cannot rule out the continuation of the decline. A dip below 106.00 (S1) may challenge the psychological barrier of 105.00 (S2) as a support this time. However, as long as WTI remains above both the moving averages, I consider the upside path to remain intact and I would see any further possible declines as corrective waves for now.
• Support: 106.00 (S1), 105.00 (S2), 104.10 (S3).
• Resistance: 108.00 (R1), 110.00 (R2), 112.00 (R3).
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Market Analysis 19/06/2014
Language English
FOMC slightly more optimisticThe statement following the FOMC meeting was slightly more optimistic on the US economy’s near-term prospects, but for the third consecutive meeting had only minor changes. Overall the Committee said that growth is rebounding, the labor market is improving, household spending rising moderately and business investment advancing (as opposed to “edged down” in April). The comments about inflation were unchanged despite the jump in the CPI in May. There were some small changes to the economic and financial projections, with expectations for both unemployment and growth revised down, as expected. The “central tendency” range for the unemployment rate this year was lowered a bit to 6.0%-6.1% from 6.1%-6.3%, while 2015 and 2016 were also lowered slightly. The GDP forecasts for this year were also lowered, to 2.1%-2.3% from 2.8%-3.0% previously (the market consensus for this year is 2.2%); both 2015 and 2016 were unchanged. The inflation forecasts were not changed significantly. The closely watched “dot plot” showing Committee members’ expectations for the Fed Funds rate showed a slight drift toward higher rates. There were no changes in 2014, but the median expectation for the Fed Funds rate in 2015 rose 13 bps to 113 bps, and the 2016 median rose 25 bps to 250 bps. The longer run expectations for fed funds edged lower, however. These forecasts show that the Committee’s view is moving towards a shorter tightening schedule, although with the final rate expected to be lower than in the past due to reduced expectations for long-term growth.
The press conference dominated the market’s reaction to the meeting. In particular, there was little concern expressed about the higher inflation readings. On the contrary, FOMC Chair Janet Yellen’s statement assumed that inflation would continue to run below target for some time, consistent with the Committee’s “central tendency” forecasts (which are for core PCE inflation to remain below 2.0% this year and not go above that level in 2015 or 2016). Nor did she give much insight into when they might start raising rates, although she did note that they might begin tightening sooner than expected if employment improves more quickly than they think. Fed Funds futures were unchanged, but US Treasury 2-yr yields fell 4 bps and 10-year yields fell 7 bps. The USD weakened across the board; this morning it’s only higher against the NOK of all the currencies we track, both DM and especially EM. Of particular note was the collapse in volatility; the VIX index, a measure of expectations of volatility in the US stock market, fell to 10.6 from 12.1. It’s now the lowest it’s been since February 2007. Stocks hit yet another record high.
It appears that the Fed is strongly committed to its current path and, unlike the Bank of England, is going to hold to its “forward guidance” for the time being. That means that real interest rates in the US may move lower as CPI inflation increases while nominal yields actually move lower. This reversal in US real interest rates could temporarily undo some of the dollar’s gains against the euro in the short term. At the same time, lower US rates are likely to be supportive for EM currencies. The most powerful effect however may come from lower expected volatility, as low volatility is usually supportive of carry trades.
On Thursday, two more central banks hold their monetary policy meetings. The Norges Bank and the Swiss National Bank. Last month, the Norges Bank maintained its key interest rate unchanged at +1.50%, while Governor Oeystein said that he still sees rates increasing in summer 2015. While no change in policy is expected at this meeting as well, it will be interesting to see if the Governor will maintain his view. There’s virtually no question that the Swiss National Bank will leave rates alone and maintain the EUR/CHF floor at 1.20. Both Governors will hold press conferences after each Bank’s decision.
As for the indicators, we start with the UK retail sales for May. They’re expected to have fallen 0.6% mom, a turnaround from +1.8% mom the previous month, driving the yoy rate down to +4.8% from +7.7%.
In the US, the Philadelphia Fed business activity index for June is forecast to have declined to 14.0 from 15.4 in May. Initial jobless claims for the week ended on June 14 are expected to fall to 313k from 317k the previous week, driving the 4wk moving average down to 312k from 315.25k. This will keep the moving average near its pre-recession lows and confirm that job growth continues at a steady clip.
Besides the two Central Bank Governors, two more speakers are scheduled on Thursday. ECB Vice President Vitor Constancio speaks in Athens and BoE MPC member Ian McCafferty speaks in London.
Currency Titles:
EUR/USD in a retracing mode
USD/JPY finds resistance at 102.30
EUR/GBP rebounds from 0.7960
Gold meets again the prior uptrend line
WTI retests the 106.00 zone
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Currencies Text:
EUR/USD edged higher on Wednesday, moving slightly above the 1.3587 barrier. Both our momentum indicators follow upside paths, while the MACD entered its positive territory. As a result, I cannot rule out the continuation of the advance, maybe towards the 1.3685 (R1) zone, which coincides with the 38.2% retracement level of the 8th May- 5th June decline. In the bigger picture, we can identify positive divergence between the 14-day RSI and the price action, favoring further upside moves. However, the overall long-term picture remains to the downside and I would consider any further advance as a retracement for now.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3745 (R3).
USD/JPY moved lower after hitting the resistance of 102.30 (R1) and the blue short-term downtrend line. Considering that the RSI is moving lower, while the MACD fell below its zero line and seems ready to cross below its signal line, I would expect the rate to challenge the support of 101.65 (S1). Nonetheless, we need a clear dip below that support zone to have a forthcoming low and the continuation of the short-term downtrend. Such a dip could pave the way towards the 101.10 (S2) hurdle. On the daily chart, I still consider the long-term path to be to sideways, since we cannot identify a clear trending structure. Moreover, the daily MACD and the 14-day RSI lie near their neutral levels, confirming the non-trending phase of the pair.
• Support: 101.65 (S1), 101.10 (S2), 100.80 (S3).
• Resistance: 102.30 (R1), 102.70 (R2), 103.00 (R3).
EUR/GBP found resistance at 0.8015 (R1) after rebounding from the support of 0.7960 (S1). Considering that both our momentum studies are moving higher, a price move above 0.8015 (R1) is possible, maybe towards the next hurdle of 0.8080 (R2). Nonetheless, the pair is trading below the blue downtrend line, thus I would consider any further upsides as corrective waves before the bears prevail again. On the daily chart, the 14-day RSI seems ready to exit oversold conditions, increasing the likelihood for the continuation of the corrective wave.
• Support: 0.79600 (S1), 0.7900 (S2), 0.7815 (S3).
• Resistance: 0.8015 (R1), 0.8080 (R2), 0.8140 (R3).
Gold moved higher to find once again resistance at the prior short-term uptrend line. I would adopt a neutral stance for now, since a move above the 1285 (S1) could signal the reinforcement of the prevailing uptrend and confirm that the recent decline was just a correcting phase. On the other hand, if the bears manage to take control below the trend line and drive the precious metal below 1268 (S1), we may experience another test near the 1257 (S2) zone.
• Support: 1268 (S1), 1257 (S2), 1240 (S3).
• Resistance: 1285 (R1), 1305 (R2), 1315 (R3).
WTI found support for a second consecutive day at the 106.00 (S1) zone and moved slightly higher. Both our momentum studies continue their declines, thus I cannot rule out a price move below that support barrier. On the daily chart, we can identify two shooting stars at the recent peak, increasing the possibilities for a decline. A dip below 106.00 (S1) may challenge the psychological barrier of 105.00 (S2) as a support this time. Nonetheless, as long as we see a structure of higher highs and higher lows, I consider the upside path to remain intact and I would see any further possible declines as corrective waves for now.
• Support: 106.00 (S1), 105.00 (S2), 104.10 (S3).
• Resistance: 108.00 (R1), 110.00 (R2), 112.00 (R3).
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