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Market Analysis 18-04-2013: The risk-on switch turned back on
Daily Commentary18.04.2013
The Big Picture Dovish ECB?While the market has focused recently on the debate about the Fed “tapering” QE, the opposite debate at the ECB broke into view yesterday. First, former ECB board member Bini Smaghi said that the ECB should find ways to depreciate the EUR. Then Jens Weidmann, President of the Bundesbank, was quoted in the WSJ as saying that “overcoming the crisis and the crisis effects will remain a challenge over the next decade,” a sharp contrast with optimistic comments from various EU officials that the worst of the European crisis is over. He also hinted that the ECB could ease further if warranted by the data. German shares fell sharply on a rumor, which turned out to be true, that the country would be downgraded (Egan Jones: to A from A+). This is all EUR-negative.
Yesterday’s central bank reports were more informative than expected. Both Sweden and Canada reduced their inflation expectations, although only Sweden pushed out the time when it expects to start tightening; the SEK was hammered as a result. The Bank of England minutes contained no major revelations.
With the decline in European equities and disappointing US earnings (nine out of 14 S&P 500 companies reporting yesterday missed revenue expectations), US stocks fell and the weakness continued in Asia overnight. Commodities slumped further, depressed by the weak outlook and weak European auto sales. In such a “risk off” atmosphere, USD gained while the commodity currencies lost. We will probably need to see more confidence in the strength of the US economy before that trend changes. The relatively upbeat view from yesterday’s US Beige Book, particularly concerning housing, does indeed suggest that the economy has been improving in April and I would expect to see sentiment change gradually as the new data emerges. Hence I don’t expect the slump in the commodity currencies to be that long-lasting.
Today’s weekly US jobless claims will be scrutinized to see if last week’s improvement in the labor market continues. The figure is particularly important as it covers the survey period for the April payroll data. The Philadelphia Fed index is expected to show a small rise and US leading indicators for March are expected to be up +0.1%, a more modest rise than the +0.5% increase in February but a rise nonetheless. Expectations for today’s UK retail sales are pretty dismal, adding to the grim picture for sterling. G20 finance ministers and central bankers start their two-day meeting in Washington today. Japan’s monetary policy is likely to be a topic of conversation as its neighbors complain that the country is trying to weaken its currency at their expense, but we don’t expect any formal complaint in the communique as the weakness is “a logical consequence of appropriate monetary policy,” according to the IMF’s chief economist. That should allow Japan to resume talking its currency down after the meeting.
The MarketEUR/USD
• EUR/USD yesterday reversed the previous day’s down move following the plethora of euro bearish news. The pair nonetheless found trendline support around 1.3010, with support for the day coming at that level as well. Some resistance may come at 1.3075, given the 50-day MA and the 38.2% retracement level of the July – February up move, with further resistance coming at 1.3130 and 1.3220.
USD/JPY
• USD/JPY wasn’t much changed following the narrower-than-expected Japanese trade deficit, which was aided by the weakening yen. The pair spent yesterday between support in the 97.00 – 97.20 area and strong resistance at 98.30. Should Japan avoid being criticized for its unprecedented stimulus at the G-20 meeting, as we expect, we may see a break of the strong resistance with a rally towards 100. On the other hand, if they do get called out, we may see support below 97.20 to 96.40, the 50% retracement level of the up move following the BoJ monetary policy decision.
USD/CAD
• USD/CAD’s up move yesterday found strong resistance around 1.0275, which concentrates a 40-month old well tested downward sloping trendline resistance level, the upper Bollinger band, and the 23.6% retracement level of the 2009 – 2011 primary down move. A breakout from that level may see prices move substantially higher, especially once the recent high of 1.0340 gets cleared. Fibonacci support comes at 1.0217, with stronger support around 1.0181 , which sees the 50-day MA.
Gold
• Gold broke down from a pennant continuation formation as seen in the shorter timeframes, on speculation that investors who are “long and wrong” in gold ETFs may sell further. The asset found support near the recent lows before rebounding and climbing within the Bollinger bands. $1380 – 1400 remains a key resistance area, which is now also the 61.8% retracement level of the down move that followed yesterday’s highs. Support comes around $1330 with key support at $1285 – 1300. A break of that level sees key support around $1185.
Oil
• WTI was a major loser yesterday following the IMF’s trimmed global growth outlook, retracing from $89.00 resistance. Oil declined despite an unexpected fall in inventories published by the US Energy Information Agency, because the reduction was less than that published a day earlier by the American Petroleum Institute. The decline took crude down to strong support at $85.60, the 100% reversal level of the December – February rally, forming a bullish hammer candlestick that marked a reversal of the down move. Some resistance may come around $87.00 – 87.30 with stronger resistance at $88.30 and $89.00. Unless we see an RSI trendline break, we do not see much upside potential.
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MARKETS SUMMARY
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Market Analysis 19-04-2013:A tipping point in the TIPS market
Daily Commentary 19.04.2013
The Big Picture A tipping point in the TIPS market:A mixed day for the dollar yesterday, as shown by the fact that the DXY index is almost unchanged from when we wrote on Thursday morning. The dollar is higher vs JPY and the Scandis but lower vs EUR and GBP. The trendless pattern was shown in the dollar’s mixed performance against the commodity currencies, gaining against NZD but falling vs CAD and AUD. It’s notable that the dollar failed to gain vs EUR despite yesterday’s “risk off” environment, with US data generally disappointing (an unexpected fall in the US leading indicators and the Phili Fed index and a small rise in jobless claims, as expected) and equity markets lower. We can assume the small movements were largely technical then, rather than thematic.
US inflation-linked bonds (TIPS) fell sharply yesterday after a record USD 18bn auction attracted the lowest demand in more than four years. This shows the lack of concern about inflation. It bodes ill for the gold market, as investors clearly are growing less concerned that the global quantitative easing is going to result in the debasement of the world’s currencies.
German producer prices, released this morning, were down 0.2% mom, below than February’s -0.1% decline, with the yoy rate of change falling sharply to 0.4% from 1.2%. The figure is in line with the recent string of data showing EU inflation coming in below the ECB’s target and increasing the likelihood of further ECB easing. It had little impact on the market. The Eurozone current account data for February is of particular interest in light of the IMF’s recent prediction that the Eurozone would have a larger current account surplus this year than China, but the number is rarely market-affecting. Canadian CPI is also not likely to move the market in that expectations for the Bank of Canada were just reset on Wednesday, after the BoC MPC meeting.
The Market EUR/USD
• EUR/USD gained yesterday spiking to 1.3095, rebounding from trendline support, as Spain managed to auction notes at considerably reduced yields and US jobless claims rose. However, the bulk of those gains were short-lived with the pair retracing to 1.3050, before rebounding to find resistance yet again at 1.3075, which is seen as an initial trench. Trendline support comes at 1.3010, with Fibonacci support at 1.2980, with resistance beyond 1.3075 likely coming at 1.3120. Given the lack of any major indicators, it is unlikely we will see a major move today, unless the G-20 meeting ends with some surprise statements.
USD/JPY
• USD/JPY continued with its uptrend after both Japan’s finance minister and central bank governor said that the G20 understand the country’s monetary policy and would refrain from criticizing it. Strong support from an older and newer trendline comes at 97.20, which is also the 38.20 retracement level of the April rally. It seems likely that 98.30 will now act as a support, having broken out in the early trading hours. Should the steep closing trendline from the April low hold, we are likely to see a close above 98.80, with a possible RSI-MA crossover acting as a bullish signal for a further rally towards 100.
GBP/USD
• Cable is likely to continue with its up move, especially if it breaks the apparent resistance it has on its former support line at around 1.5300. Support looks to come at the neckline of an inverted head-and-shoulders at 1.5220, with very solid support at 1.5200. The rally however is likely to find resistance at 1.5480, the 50% retracement level of the primary bull market from May 2010 to May 2011. Initial resistance however may come at the recent highs of 1.5410.
Gold
• Gold’s consolidation period continues, trading between $1380 and $1400, as seen on this 4-hour chart. Pennant spike support comes at $1350. A breakdown below $1300 seems more likely, though should the coiling lead to breakout we may see strong resistance at $1450 and weaker at the 38.2% retracement level of the recent up move.
Oil
• WTI rebounded from its 4-month lows and the $85.60 strong support it hit early yesterday, confirming the bullish reversal hammer candlestick that formed on the low. However, resistance came at the strong $88.30 level with declines finding support at $87.20. As noted yesterday, unless we see an RSI trendline break that will coincide with an RSI-MA crossover we do not see much upside potential. Some support again is likely to come at $87.20 with strong support around $85.80 that sees the reversal of the December-February rally as well as the lower Bollinger band.
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Market Analysis 22-04-2013: The currency wars are over
Daily Commentary22.04.2013
The Big Picture The currency wars are over:At the G20 meeting, FX was not the contentious topic it had been at the previous meeting in February. The section in the communique about FX policy was basically the same except for two new sentences: “Monetary policy should be directed toward domestic price stability and continuing to support economic recovery…We will be mindful of unintended negative side effects stemming from extended periods of monetary easing.” This statement, which calls the negative side effects of QE “unintended,” means the QE countries have won the argument over their policies. Loose monetary policy is no longer viewed suspiciously as part of a “currency war;” rather, it is considered to be necessary and appropriate for the goal of fostering recovery, which was the main topic at the G20 meeting.
As a result, Japan not only escaped criticism, but on the contrary won praise as a country that was fulfilling its global obligations, as the communique said that “(i)n particular, Japan's recent policy actions are intended to stop deflation and support domestic demand.” That is in effect the green light for the BoJ’s easing, which we expect will push USD/JPY through the magic 100 number in the not-too-distant future – perhaps as early as today. If anything, Europe – more specifically, Germany -- came under pressure as the general view was that Germany, with its large trade surplus, could do more to promote growth.
This week’s schedule: The weeks’ schedule includes central bank policy meetings for New Zealand and Japan. Having presented a raft of radical easing measures at the Policy Board meeting just a few weeks ago, it’s unlikely that the BoJ will unveil any more innovations at this meeting.
The major event this week globally will be the purchasing managers’ indices on Tuesday. As usual, Europe releases the preliminary for both the manufacturing and service sector, while China and the US announce only their manufacturing indices this week. The UK releases its index next week. We would expect that the figures will show continued divergence: the US growing faster than Europe and within Europe, the core far outpacing the periphery. Perhaps the key will be whether France diverges further from Germany.
In the US, Q1 GDP and the core personal consumption price deflator, the Fed’s favourite inflation index, will be released. The market is looking for a robust 3.1% qoq annualized growth figure, which should be USD-bullish. There will be four housing-related indicators out this week: existing and new home sales, the Case-Shiller house price index and the Federal Home Financing Agency house price index. Other releases include durable goods orders and the Kansas City and Richmond Fed manufacturing indices. Eurozone data includes consumer confidence and the German Ifo business climate index. Japan will see the Shoko Chukin small business sentiment index, consumer prices, and corporate service prices. The UK will release 1Q GDP, service sector activity for March, and the CBI surveys of distributive trades and industrial trends. The market expects Britain to eke out a marginal 0.1% qoq growth figure; if it is negative, that would be five out of the last six quarters showing shrinking output, which would be negative for sterling.
The MarketEUR/USD
• EUR/USD formed a gravestone doji on Friday as the intraday rally was not sustained. However, this came following an inverted hammer at support with the pair opening on an upside gap today above the 50-day MA. An RSI-MA crossover and a bullish signal from the Stochastics may see the pair moving higher, with initial resistance at 1.3120 and further resistance at 1.3220. Trendline support comes at 1.3010 with further support at 1.2980. However, with the lack of any major news today besides the Eurozone consumer confidence and the US existing home sales, it seems likely the pair will fluctuate again around 1.3075.
USD/JPY
• USD/JPY rose following G-20 remarks that Japan’s stimulus is appropriate and welcomed, climbing near its 4-year highs, as it looks to break the 100-mark following the minor runaway gap it formed today. A break of the 100-mark today may see a furthering of bullish positions, with likely resistance coming at 101.65, which sees trendline resistance and the upper Bollinger band, as well as the 101.44 high achieved four years ago, albeit during a downtrend. Support comes at 99.35 and 98.80.
GBP/USD
• Cable’s technical rally on Friday found resistance at 1.5370, shedding the morning gains, closing below its support trendline, albeit above the 1.5200 crucial support level, which sees the 23.6% retracement level of the plunge from January to March as well as the 61.8% retracement level of the May 2010 – May 2011 bull market. Gains may find some resistance at 1.5250, and trendline resistance at 1.5310, with a decline below 1.5200 likely halting at 1.5100.
Gold
• Gold is continuing with its rebound on increased physical demand and bullish bets by hedge funds, but is finding difficulty closing on its highs. The break of the $1400 level caused a minor rally to $1425, the 38.2% retracement level of its recent plunge, with the next, stronger, resistance level coming at $1450, which sees the 38.2% retracement level of the rally following the outset of the 2008 financial crisis and the 50% Fibonacci level of its plummet from April 10th. The $1400 resistance may act as support, with further support coming at $1380.
Oil
• WTI looks set for a rebound to around $89.90 today, near the 38.2% retracement level of its March – June 2012 down move and the reversal level of its March – April rally to $97.70. The move is supported by a bullish Stochastics crossover at oversold levels, and a likely RSI trendline break and RSI-MA crossover, that may see crude breakout from the $88.30 resistance level, completing a minor, inverse head-and-shoulders. Some weak support may come at $87.70 and $87.20 with strong support around $85.80 that sees the 100% retracement of the December-February rally and the lower Bollinger band.
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Market Analysis 23-04-2013: Euro wariness dominates
Daily Commentary23.04.2013
The Big Picture Euro wariness dominates: The divergence in Europe yesterday was striking. Italian politicians finally decided on a President and re-elected Giorgio Napolitano, who set about trying to forge a new coalition government. The fact that Italy finally has a President caused Italian bond yields to fall 16 bps and European equities to rise by 0.33% (Italy up 1.7%). The reaction in the FX market was much more muted however with EUR/USD declining, despite the additional incentive of disappointing US existing home sales. That suggests to me that investors are still wary of the single currency. (The Commitment of Traders report shows that speculative accounts are net short about 30k contracts, which is not a particularly extreme position.)
Today’s announcement of the preliminary PMIs for the Eurozone may be one reason for the reluctance to buy EUR/USD. The market consensus is for a 0.1-point fall in the manufacturing PMI to be offset by an equal rise in the services PMI, leaving the composite unchanged. However, a larger-than-expected decline in either could bring to mind Bundesbank President Weidmann’s recent comment that the ECB stands ready to cut rates further if the data warrants and would be decisively EUR-negative.
China started off today’s announcement of PMIs with a disappointing 50.5 for April, down from 51.6 in March. The commodity currencies (AUD, NZD and CAD) were the main losers on the news. The yen gained, adding to support from news that Nippon Life Insurance expects the currency to end the current FY (next March 31st) about where it is today and that it would raise its unhedged foreign bond holdings when the timing was appropriate, ie there’s no reason to rush. Investors have been expecting QE to generate massive outflows of funds from Japan, but so far they have been notable only by their absence, which has caused the currency to pause. We still think that it is only a matter of time before these flows begin in earnest and we break 100.
Aside from the PMIs, US new single-family home sales are forecast to continue with the good news about the housing market, although forecasts were made before Monday’s disappointing existing home sales data came out.
The MarketEUR/USD
• EUR/USD rebounded from 1.3010 support following the unexpected improvement in Eurozone consumer confidence and the disappointing US existing home sales. The move however, failed to break above 1.3075 resistance and the weak China PMI sent the pair lower. Trendline support seems to come at 1.3005, with the 23.6% retracement level of the February – March decline and the lower Bollinger band coming at 1.2980. Weak Eurozone PMI figures and strong U.S. PMI and new home sales may have the pair finding support at the 200-day MA at 1.2950.Resistance above 1.3075 looks to come at 1.3120, the 38.2% retracement level of the aforementioned decline, and 1.3220, the 50% Fibonacci level.
USD/JPY
• USDJPY failed yet again to break the 100-mark, edging ever so close. The weak U.S. housing data caused a considerable retracement with the pair thereafter finding resistance at 99.35, before losing further following the Chinese flash PMI which had the pair testing 98.80. A further retracement sees strong support at 98.30, the 23.6% retracement level of the post BoJ stimulus revamp rally, with trendline support at 96.80. Friday now seems the most likely day for a break of the 100-mark, since it sees the BoJ policy meeting and the announcement of Q1 2013 U.S. GDP.
AUD/USD
• The Aussie depreciated versus most of its major peers following the only marginally expansionary China PMI figure, losing considerably versus the USD, hitting the lower Bollinger band for yet another day. The break of the 38.2% Fibonacci level of the June – January uptrend at 1.0255, will probably see the pair head towards 1.0200 support, which has been tested four times the past nine months, with further spike support coming at 1.0150. A rebound is likely to find resistance at 1.030, with further resistance coming at 1.0350, which sees the 50-day MA, and strong Fibonacci resistance coming at 1.040, which also sees the 200-day MA.
Gold
• Gold continued with its technical rebound from severely oversold levels but, yet again, failed to close on the highs. Some support comes at $1419 with further support at $1400. A continuation of the post-crash rally may find the asset spiking to $1450, the 38.2% retracement level of the credit-crunch bull run, with $1430 being closing trendline support.
Oil
• WTI validated the technicals yesterday having a rally early in the session, but spiked lower to $87.70 following the unexpected decline in U.S. home sales. Nonetheless, those losses were short-lived as crude rebounded, finding yet again resistance at $89.40. The weak HSBC China PMI reading, however, added to the rollercoaster ride, as WTI pulled back, looking to find support at $88.30, before likely rebounding based on the bullish RSI and Stochastics crossovers.
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Market Analysis 24-04-2013: Bitter Twitter flitter jitter
Daily Commentary24.04.2013
The Big Picture Bitter Twitter flitter jitter: The dollar gained during European trading as the surprisingly weak German PMI increased the possibility of an ECB easing next week. Comments by the Bundesbank that sluggish industrial production and cold weather may have delayed Germany’s economic recovery didn’t help sentiment any, either. The US Markit PMI was also disappointing, but that failed to have the same impact on the currency market, perhaps because it is a fairly new series (the Institute for Supply Managers’ PMI, which comes out next week, has a longer history), perhaps because it is still in expansionary territory, and perhaps because US new home sales slightly exceeded expectations (or not, depending on whose survey you use). In any event, there seems to be a negative bias towards the euro; the improvement in Italian politics and continued fall in peripheral bond yields, for example, is not helping the single currency at all. EUR/USD looks likely to move lower, in my view.
The big surprise during the US day was a tweet from the Associated Press that the White House had been bombed. It turns out that the AP’s Twitter account had been hacked and it was a false alarm. The reaction in the markets was instructive: stocks fell about 0.9% in the four minutes before the hack was clarified, but the movement in the currency market was basically confined to USD/JPY, which was down 0.7%. The supposedly safe-haven USD/CHF was down 0.1% and there was no distinct movement at all in EUR/USD. (Gold ticked up about 0.3%). This shows clearly what the markets consider to be a safe haven nowadays.
The Reserve Bank of New Zealand (RBNZ) kept its cash rate unchanged at 2.5%, as expected, with an optimistic statement that growth has picked up due to higher consumer spending and rebuilding of Canterbury, which was damaged in an earthquake. Kiwi appreciated modestly even though the RBNZ warned that the currency is overvalued (the OECD agrees, calculating it’s 19.3% overvalued vs USD, although this is still well below the 30%+ overvaluation of CHF, NOK and AUD.) We believe that NZD/USD is the most trending of the commodity currencies and still has more room to appreciate. It’s been in a clear uptrend for over four years now, with its support trendline tested three times, and has been trading within an upward-sloping trading channel for the last seven months. We see more gains for NZD/USD as the RBNZ has said it is likely to keep rates steady at least through the end of the year.
Today’s indicators: The Ifo index is expected to be down all around for the second month in a row. Added to yesterday’s disappointing German PMI, that would probably cement the idea of a cut in ECB rates next week and a lower EUR/USD. On the other hand, Belgian business confidence is expected to rise slightly. That isn’t as widely watched as the Ifo but in fact tracks Eurozone growth better than the Ifo does, because Belgium is a small open economy that reflects Europe-wide trends. In the US, durable goods orders are expected to be down 3.0% mom after February’s sharp 5.7% rise. However, excluding transportation orders or looking only at nondefense capital goods orders excluding aircraft, the numbers are expected to rebound, which could help to boost confidence in the US economy further and support USD.
The MarketEUR/USD
• EUR/USD initially hit 1.3080 resistance following the much better than anticipated French PMI data, but the common currency plunged more than 100 pips to 1.2980 support following the dismal German PMI figures and the marginally worse Eurozone data. The pair rebounded however following the announcement of an increase in new home sales in the US. The US PMI figure also came out a lot worse than expected but it once again was expansionary indicating the divergence in the recovery between the Eurozone and the US. Minor resistance comes at 1.3000, which is also trendline support, with 1.3075 and 1.3120 being notable Fibonacci levels. Further support may come at the 200-day MA at 1.2925, with further support at 1.2875.
USD/JPY
• USD/JPY gained yesterday, finding resistance at its previously support trendline. That same upward-sloping support line comes today at the recent highs of 99.95. Support came at 98.50, both in the early hours of trading as well as following the fake AP tweet. Some support seems to come yet again at 99.35, with another notable price level being 98.80.
USD/SEK
• USD/SEK had an impressive breakout yesterday after the nation’s unemployment rate unexpectedly rose in March to 8.4% from 8.2%. The pair has found spike trendline resistance for three consecutive trading days at the downward sloping trendline which extends from the June 2012 high. The breakout found resistance at the 50% retracement level of the May 2011 – June 2012 up move, closing marginally above the 200-day MA. Strong resistance is likely to come in the 6.6400 – 6.6800 area that also sees the 38.2% retracement level of the down move following the 2012 high. Resistance thereafter comes at 6.7150, with some support at 6.5900 and spike trendline support at 6.5340, which also sees the 23.6% retracement level of the June 2012 – February 2013 down move.
Gold
• Gold fell yesterday as the dollar generally gained and the stock indices globally continued to rally, finding support near the $1400 level. Some resistance comes at $1423, the 38.2% retracement level of the recent plunge, with the recent highs being $1439, which are likely to be tested as the asset continues to rebound. Trendline and Fibonacci support comes at $1385, with likely future resistance at $1450.
Oil
• WTI hit $87.80 support following the appalling German PMI data, before rebounding to $88.75 only to fall again following the missed U.S. PMI and new home sales figures. A boom to $89.30, the 100% reversal level of the March rally, marked a one-week high for crude as the three main U.S. stock indices had solid 1% gains, while the American Petroleum Institute showed a decrease in U.S. stockpiles. With firm bullish crossovers in the technical, crude is set to hit $89.90 resistance in the early hours, with its performance thereafter being dictated by the durable goods data and the EIA crude storage figures, with the former set for a decline (on a headline basis) and the latter for an increase, both of which have bearish implications for crude. Further resistance comes at $90.70, the 61.8% retracement level of the December – February bull run, and $92, the 200-day MA, which is likely to soon be death crossed by the 50-day MA. Notable support levels are $88.40 and $87.80.
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Market Analysis 25-04-2013: U.K. triple-dip recession, ECB base rate degression?
Daily Commentary 25.04.2013
The Big Picture U.K. triple-dip recession, ECB base rate degression? The main indicators yesterday from the U.S. and Germany both came out worse than expected, showing a slowdown in recovery. German Ifo business sentiment worsened, severely missing forecasts as was also the case with the U.S. durable goods, both including and excluding defense orders. The biggest fundamental shift though was that the proportion of economists that predict a 25 bp decrease in the ECB’s benchmark rate became a majority, since this morning close to 60% of economists forecast a decrease, an increase from about 45% yesterday morning. This change in forecasts followed the weak German Ifo figures and a statement by ECB Vice President Vitor Constancio that the Central Bank stands “ready to act if economic conditions continue to provide bad news, as unfortunately has been the case in recent data that became available”.
The big news today is out of the UK, where Q1 GDP will be announced. Although Q1 is now history, the GDP figures will be closely watched to see if Britain has stumbled into a “triple dip” recession. GDP growth was negative qoq for four out of the last five quarters and the average forecast for Q1 is only +0.1%, barely positive, meaning it wouldn’t take much of a miss for the figure to fall into below zero. It’s possible that the unusually cold weather in March caused enough of a slowdown in construction and manufacturing to tip the scales. Given the government’s refusal to rethink its fiscal policy, a result like that would increase the pressure on the Bank of England to do more to support the flagging economy through monetary policy. It would be distinctly GBP-negative.
Spanish unemployment, while not market-affecting, is a pitiful indicator of the misery spreading over the Eurozone by the austerity programs. It’s forecast to rise to a record 26.5% from 26.02% in Q4, thus putting further pressure on the ECB to cut its benchmark rate on May 2nd. Irish property prices, also not market moving, were down 1.5% mom in February; no consensus for the March figure.
The weekly US jobless claims number are again expected to be fairly steady at 350k vs 352k the previous week.
Overnight there will be a Bank of Japan Monetary Policy Committee (MPC) meeting and the release of the Bank’s “Outlook for Economic Activity and Prices.” There had been speculation that the BoJ would change its way of operating in the markets in two steps in April, making some changes at each of the two meetings during the month, but given the tremendous and unprecedented moves that were announced at the first meeting, further action at this meeting is unlikely. Instead, the talk in Tokyo is that the MPC may raise its forecast for core inflation (excluding fresh food) to 1.5% from 0.9% for FY2014 in its Outlook report. The move would signal the MPC’s confidence that it will be able to meet its 2% target for inflation within two years. This is part of its attempt to use all levers at its command, psychological as well as monetary, in order to change the market’s expectations. So far, the attempt seems to be working; the breakeven inflation rate is rising even while the CPI has fallen back into deflation.
The Market EUR/USD
• EUR/USD generally found support yesterday at 1.2980 but spiked to 1.2960 following the dismal German Ifo business sentiment and outlook, which deteriorated more than had been anticipated. However, the pair was quick to recover as Italy auctioned, on increased demand, 2-year notes at a record-low yield of 1.17 percent, considerably lower than the 1.75 percent yield on the 25th March auction. This was aided by the increased speculation the ECB will lower its benchmark rate and the country will finally have a government, with the latter turning out to be wishful thinking as the coalition negotiations were led to a deadlock yesterday. The euro however furthered its gains with the release of the much worse than expected U.S. durable goods orders and continued to gain in the early hours today as investors seem to abandon the dollar to opt for higher yielding currencies. Spike trendline support comes at 1.2950 with 1.3000 having acted both as support and resistance the past few sessions. Initial resistance may come at 1.3075 and further resistance at 1.3120.
USD/JPY
• USD/JPY traded within a very narrow trading range and essentially formed a doji closing where it opened. Support yet again came at 99.35, which is a valid support for today as well, with further support at 98.80. Nonetheless, movements are likely to be minimal today ahead of the BoJ MPC meeting. An increase in the core inflation forecast early tomorrow however may give the pair the required oomph to break the 100-mark we have been flirting with the past couple of weeks. Initial resistance thereafter comes at 101.50, which is the 5-year high that had also acted as an ultimate support twice in a 12 year period (1995 – 2007).
GBP/USD
• GBP/USD has gained 100 pips the past 24 hours as it is expected that it will narrowly avoid the triple-dip recession. The pound started gaining from early yesterday morning following the Bank of England’s decision to extend by a year, until January 2015, its stimulus programme that provides cheaper loans to companies and consumers in an attempt to foster investment and growth. The pair, though, was also boosted by an improvement in U.K. and a deterioration in U.S. mortgage applications. A pullback following the worse-than-expected CBI retail sales index was soon erased following the appalling U.S. durable goods orders. Closing trendline resistance comes at 1.5350 with the recent highs being 1.5410, which also sees the upper Bollinger band and the 38.2% retracement level of this year’s plunge that maintains the pound, despite the rebound, the worst performing major currency behind the yen. Should the preliminary GDP figure exceed expectations we will likely find strong resistance in the 1.5480 area that sees the 38.2% retracement level of the massive one-year long rally which started in May 2010. A confirmation of a recession however may have the pair break the 1.5200 significant support, which sees two important retracement levels, likely halting its decline at 1.5100
Gold
• Gold gained yesterday following the weak U.S. durables and is continuing to rebound along with most of the other precious metals, on anticipation the ECB will lower its base rate. This mini-rally however may be put to a brief halt today as $1450 is a rather strong resistance seeing the 38.2% retracement level of the bull run that followed the 2008 financial crisis, as well as the 50% retracement level of the recent plunge. Some support may come at $1431 with stronger support at $1423, the 38.2% retracement level of the massive down move we saw the past couple of weeks.
Oil
• WTI was a huge gainer yesterday despite the poor U.S. durable goods orders as the EIA stockpiles for the week saw a less than forecasted increase. The bullish technicals helped amplify the gains, with strong resistance coming in the $92 – $92.50 area that sees former trendline support, two notable Fibonacci levels as well as the 50 and 200 day MAs that are heading for a “death cross”. A retracement from this area seems likely given also the severe overbought 5-day Stochastics. Initial support may come at $90.70, the 61.8% retracement level of the December – February bull run, with better tested support at $89.90, the 38.2% retracement level of the March – June 2012 decline.
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Market Analysis 26-04-2013: A risk-on rise on positive surprise
Daily Commentary26.04.2013
The Big Picture A risk-on rise on positive surprise: The past day has been a day of beaten estimates with the U.K. yoy GDP growth rate coming in at 0.6%, double what was expected, with the qoq preliminary figure showing that the country narrowly avoided a triple-dip recession as there was 0.3% growth, despite a 2.5% fall in construction generally attributed to the poor weather. The U.S. jobless claims were surprisingly market-moving yesterday as the continuous claims showed the lowest figure since April 2008, a post-financial crisis low, with initial claims being the fourth lowest since January 2008. In the early hours New Zealand also beat estimates with a surprisingly strong trade surplus.
Japan’s CPI excluding fresh food was the exception to the rule of better than anticipated data since a 2½-year deflationary high was reported, with the BoJ MPC unanimously agreeing to maintain its unprecedented stimulus programme in order to achieve the 2% inflation target in two years. The worsened deflation, however, did not deter the BoJ to raise its CPI (excluding fresh food) outlook for FY2014. In its attempt to signal confidence that the inflation target would be met, the MPC revised upwards its January 2013 2.5% – 3% range for CPI (excluding fresh food), raising it to to 2.7% – 3.6%, with the median forecast increasing from 2.9% to 3.4%, based on the majority of Policy Board Members.
Today, Eurozone M3 growth is forecast to decline to 3.0% yoy from 3.1% in March, with the more closely watched three-month average falling to 3.2% from 3.3%. Does the ECB still care about the monetary aggregates? One doesn’t hear so much about them anymore. The data will also be examined for the pace of decline in private sector loans (-0.9% yoy in February), while the bank deposit data may reveal outflows from Cyprus. ECB officials have noted that they can’t really do much about lending to the private sector in the periphery, as there are credit and other issues that prevent monetary policy from being effectively transmitted to all corners of the empire.
The advance estimate of US Q1 GDP is the main show for the day. It’s expected to show a sharp 3.1% qoq annualized rise, a solid acceleration from +0.4% in Q4 last year. The core personal consumption expenditure index, the Fed’s preferred estimate of inflation, is forecast to remain well below the 2% target at +1.2% vs +1.0% in Q4, meaning it should not impede the Fed continuing with its QE program.
Although the GDP figure is backward-looking by now, what with the April PMIs out already, nonetheless it is closely watched and market affecting. Nowadays a strong US economy usually tends to mean “risk on,” which sometimes is interpreted as “sell USD,” so it’s not certain what impact an improved GDP figure would have. Insofar as it might make it more likely that the Fed will begin to taper off QE, it should support the dollar. Indeed, the pattern in recent days seems to be that better-than-expected indicators are USD-bullish so we retain that assumption going into this indicator.
The MarketEUR/USD
• EUR/USD shed some of the Asian gains yesterday morning following the release of a worse-than-expected Spanish unemployment rate that equaled Greece’s Eurozone record high of 27.2%. The pair hit resistance at 1.3075, spiking to 1.3090 prior to the U.S. jobless claims reports but found trendline support at 1.3000 following the lower than estimated U.S. jobless claims. Spike trendline support and the 200-day MA come at 1.2935, with a strong U.S. GDP figure driving the pair towards 1.2875, the 50% retracement level of the July 2012 – February 2013 up move. A disappointing figure on the other hand is likely to lead to 1.3190 resistance, near the recent highs and the upper Bollinger band.
USD/JPY
• The yen strengthened as Japan reported its worst YoY deflationary figure since August of 2010, with the CPI excluding fresh food surprising economists as it came in at -0.5%, the worst since November of 2010, missing the -0.4% consensus figure. The persistent deflation, however, is something the BoJ expects to continue for a relative amount of time until the revamped stimulus package has a tangible effect on the economy. Support for the pair came once again at 98.80, with a spike to 98.60. 99.35 is also a key support/resistance level, with 98.30 being the 23.6% retracement level of up move following the policy revamp, and 100 being the crucial resistance point.
NZD/USD
• Kiwi gained yesterday on the shift to riskier, higher yielding currencies, but failed to sustain its gains versus the dollar following the lower-than-expected U.S. jobless claims. Kiwi, however, rebounded during the early hours with the release of its trade surplus that came in almost twice as much as initially forecasted. This was boosted by a 32 percent increase of sales to China, with New Zealand’s exports to China exceeding those of Australia for the first time. Some resistance looks to come at 0.8565, which sees the intersection of two formerly support trendlines and the 23.6% retracement level of the March – April rally, with further trendline resistance level coming at 0.8625. Some support may come at 0.8480, the 38.2% retracement level and a tested resistance level, with strong support at the 50% Fibonacci level at 0.8425.
Gold
• Gold furthered its rebound, despite the risk-on sentiment, breaking out from the notable $1448 – 1555 area that concentrated two notable retracement levels, following strong momentum and bullish crossovers in the RSI and Stochastics charts. The boost was propelled by the increase in physical demand and speculation that the ECB will make a rate cut next week. Resistance this morning came at $1485, the 61.8% retracement level of the recent plunge, with a breakout from that level paving the way for a return to the $1530 – 1535, formerly significant support area that is also the 23.6% retracement level of the primary bull market from 2001 to 2011. $1463 sees some support, with stronger support around $1450.
Oil
• WTI was yet again a huge gainer yesterday, capitalizing on the overall better than expected fundamentals. The breakout from $92 initially and thereafter $92.50 triggered a major up move, with resistance coming at the 50% retracement level of the March – July 2012 steep decline. Solid trendline and Fibonacci resistance now comes at 95.60, with support in the $92 – 92.50 area, which sees trendline, Fibonacci and 200-MA support.
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Market Analysis 29-04-2013: Euro gained weakly on U.S. GDP, but lost weekly on ECB
Daily Commentary 29.04.2013
The Big Picture EUR/USD found support at 1.2990 prior to the report of the U.S. GDP figure, gaining a mere 25 pips on the announcement of a worse-than-expected 2.5% output growth, when forecasts had it estimated at 3%. The euro’s inability to gain substantially, as it failed to even hit the 1.3045 intraday highs, shows a weakness in the common currency as traders and investors weigh the likelihood of an ECB rate cut this Thursday. With data from the Eurozone, particularly Germany, being predominantly negative last week, and with this week’s data not forecasted to be any brighter, the euro may experience downward pressures, especially if we have fundamentals push price below 1.2950 key support, as it is evident that the also weak U.S. data outperform those of the contracting Eurozone.
There are only second-tier indicators out for the Eurozone today. Several of the German Lander release their CPIs for April, as does Spain. Spanish retail sales are also due out. The final reading for Eurozone consumer confidence for April, along with industrial and service-sector confidence, will be released.
In the US, personal income and expenditure for March are forecast to have risen much more slowly than in February (+0.4% vs +1.1% and +0.1% vs +0.7%, respectively), which is negative for growth. Pending home sales on the other hand are forecast to show a 1.1% mom rise in March, vs a 0.4% decline in February.
Overnight, we expect the announcement of an increase in Japanese industrial production, retail sales, and housing starts, with the unemployment rate, household spending and vehicle production also being reported. China’s HSBC final Manufacturing PMI figure for April will also be closely watched, likely affecting the AUD and NZD, with the former also being impacted by Australian private sector credit figures and the latter by the announcement of domestic business confidence.
The following days however will see the publication of a lot more significant data, which is capable of shaping monetary policy decisions in meetings held by central banks this week. Tomorrow sees the announcement of the Eurozone and German unemployment rates, both of which are forecasted to remain stable, albeit the former at a record level. U.S. Consumer Confidence is also announced, a day before the ISM Manufacturing PMI and the FOMC meeting. Thursday sees the reporting of the final Eurozone Manufacturing PMI, ahead of the highly anticipated ECB interest rate decision, where a 25bp rate cut is looking probable. The week will conclude with the Eurozone Producer Price Index, which is set to show the lowest yoy price increase since February 2010, with the U.S. employment report, particularly the increase in nonfarm payrolls being closely monitored as always.
The Market EUR/USD
• EUR/USD opened this week’s session with a 20-pip upward gap, as Italy’s political deadlock came to an end and Greece passed a bill to fire 15,000 civil servants, thus paving the way to receive another bailout tranche. Trendline support looks to come at 1.2985, with stronger 200-day and spike trendline support coming at 1.2930. An initial resistance hurdle comes at 1.3075, which is likely to act yet again as some support if cleared, with strong Fibonacci resistance at 1.3120. The 5-day Stochastics have given a bullish signal and the 14-day does lie close to oversold levels, however, some partial confirmation by a bullish RSI-MA crossover would be preferred before going into short-term long trades.
USD/JPY
• The yen gained substantially, despite the BoJ MPC raising its CPI forecasts, as the Committee failed to announce further monetary policy measures in its attempt to combat deflation. The pair then moved further lower following the disappointing U.S. GDP figure. Trendline and Fibonacci support comes at 97.25, with initial tested Fibonacci resistance at 98.30, and thereafter at 98.80. Should the bearish technicals confirm the continuation of the likely temporary downtrend, we may find further support at 96.40, the 50% retracement level of the up move following the unprecedented BoJ policy change.
NZD/USD
• Kiwi is likely to gain this week on the back of weak Eurozone and U.S. data. An ECB rate cut will see funds flowing to higher yielding currencies with the up-trending NZD being a strong candidate. Similar will be the case should the U.S. not show signs of a recovering labour market, with the Fed likely delaying the tapering of its QE. Overnight, a forecasted increase in building permits from 1.9% to 2%, and a strong HSBC China Manufacturing PMI are also likely to give the NZD an upward push, with initial resistance coming at 0.855, and spike trendline resistance at 0.8590. Fibonacci support comes at 0.8480, with further support at 0.8425.
Gold
• Gold’s phenomenal week of gains closed on a low, as the precious metal failed to breakout from $1485 resistance following the lower than expected GDP figure. Support at $1450 was then tested with the release of the Michigan consumer sentiment reading, which beat 95% of economist estimates. The spinning top candlestick that formed is a cause for some concern for the bullish traders, as it seems that the waning physical demand is enticing the bears. A breakout from $1485 is likely to find strong resistance in the $1530 - $1535 area, with firmer support at $1431.
Oil
• WTI found support in the $92 – $92.50 area following the less-than-expected U.S. GDP figure, but swiftly rebounded on the strong Michigan consumer sentiment figure. Support still lies in that band, with $92.50, being the 61.8% retracement level of the March rally. Initial resistance comes at $93.50, with $94.50 seeing the 38.2% retracement level of the aforementioned rally.
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Market Analysis 30-04-2013: Focus on Fed before ECB
Daily Commentary30.04.2013
The Big PictureFocus on Fed before ECB: Changes in expectation on Fed policy are weighing on the dollar. Yesterday’s lower-than-expected core personal consumption expenditure deflator has increased the likelihood that the Fed holds pat at this week’s meeting and indeed is less likely to taper off its QE as quickly as the market had expected. A Wall Street Journal article yesterday said that “Fed officials after their March policy meeting talked about tapering off the bond purchases later this year if the economy continued to gain strength. But inflation readings have since slipped, and employment numbers have been disappointing.” Even FOMC member James Bullard, one of the hawks, said recently that he was getting concerned about low inflation and that he would “be willing to increase the pace of purchases” of bonds if inflation falls further. While a rate cut at this week’s ECB meeting is widely expected, the Fed announces its decision first, and that now seems likely to disappoint the USD bulls.
Italian stocks were up 2.2% yesterday and 10-year bond yields down 15 bps to 3.91%, with the spread over Germany back to levels prevailing before the disastrous February election. This has bolstered confidence in the Eurozone even though the Bank of Italy noted that bad loans to companies will continue to rise while lending to the private sector continues to contract. Apparently the financial markets watch other financial markets more than they watch the real economy. Meanwhile, the regional German inflation figures showed lower inflation rates in every region reporting and indeed deflation on a month-on-month basis. That should mean further loosening by the ECB; but right now, that possibility seems largely priced in, while the market is adjusting to a change in the outlook for the Fed.
Today’s news will focus on the Eurozone CPI. The rate of inflation is expected to fall to 1.6% yoy from 1.7%, giving the ECB further reason to ease. And while the ECB does not have a dual mandate like the Fed, they are bound to notice today’s Eurozone unemployment data, which is expected to show a rise in unemployment to 12.1% from 12.0%. Should unemployment rise further, breaking the 12.0% record unemployment level seen in January and February, it will be the seventeenth monthly increase the past twenty-one months. In the US, the S&P/Case Shiller home price index and Chicago PMI are out. The latter is expected to show a slight rise (52.5 from 52.4), which might offset some of the gloom from the recent weak US indicators. But the market will be waiting for tomorrow’s FOMC decision.
The MarketEUR/USD
• The strongly-bid Italian 5- and 10- year bond auction yesterday morning, following the swearing in of the new Enrico Letta government, was a key driver for the euro to break 1.3075 resistance, despite a series of Eurozone leading indicators, such as economic sentiment, business climate, services sentiment and consumer and industrial confidence, deteriorating more than had been anticipated. The dollar regained some of its losses however, causing a pullback from 1.3120 resistance, following the release of better-than-forecasted personal spending and pending home sales, despite consumption expenditure missing expectations. The technicals remain bullish, albeit close to overbought levels, with 1.3120 being a resistance hurdle that needs to be cleared before moving higher to the 1.3155 – 1.3175 area.
USD/JPY
• USD/JPY rebounded from trendline support and the 50% retracement level of the steep up move following the unprecedented BoJ policy revamp, but failed to break 98.20 resistance on the better-than-estimated U.S. pending home sales. The pair overnight retraced as the yen gained due to an improvement in the manufacturing PMI and a three times higher-than-expected increase in household spending. Industrial production for March was disappointing, but manufacturers forecast an improvement in April. Strong support lies around 97.35, with resistance above 98.30 coming at 98.80 and 99.35.
GBP/USD
• Sterling experienced a massive gain last week following the release of the U.K. non-recessionary GDP figure, with the 220-pip up move causing a breakout from the significant former support turned resistance at 1.5410. This paves the way for further pound gains, especially since 1.5480 got cleared as well. The 14-week Stochastics and the RSI-MA have both given bullish signals, though it is likely we will experience RSI trendline resistance at 60.5. The move from the lower Bollinger band to the 20-week MA points to a 2 – 4 week-period of consolidation, with the next major price hurdle for continuation of the rally being 1.5600. Given that on the daily chart shown we are at extreme and overbought price levels, it is likely that the upside potential will be limited with 1.5550 – 1.5560 being a clear resistance. A continuation of the trading channel pattern is likely to see price move lower to support around 1.5310 over the next few sessions, with data from the UK today expected to show an increase in the M4 money supply and mortgage approvals.
Gold
• Gold gained yesterday on anticipation that central banks will maintain, if not further, their loose monetary policies, with economists who forecast an ECB rate cut becoming a 2-to-1 majority. The precious metal, however, failed to test the $1485 high again, finding resistance at $1476, with support coming at $1463 following the generally strong U.S. data. Stronger support lies at $1450, the 38.2% retracement level of the bull market from 2008 to 2011. Unless we have a breakout from the $1485 resistance that would set a target around $1530, bullish bets should ideally be contained. The narrow trading range we saw yesterday and the spinning top the day before point to a struggle between bears and bulls with a change in the prevailing trend being possible.
Oil
• WTI was a major gainer yesterday as it rebounded from $92.50 strong support as equities in Asia and Europe were generally gaining. The breakout from $93.50 resistance came following the strong pending U.S. home sales that are seen as a leading indicator for the economy. Resistance thereafter came at $94.50, the 38.2% retracement level of the March rally, as we lie in overbought Stochastics levels. A breakout from this price, due to strong U.S. consumer confidence for instance, will set a target of $95.60, with strong resistance coming at that point since it sees the downward sloping trendline from the 2008 high, as well as two Fibonacci levels.
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Market Analysis 01-05-2013: Fed finalizes as economy devitalizes
Daily Commentary01.05.2013
The Big PictureFed finalizes as economy devitalizes: Weaker-than-expected US data yesterday sent the dollar lower against most currencies. Both the Milwaukee NAPM index and the Chicago PMI were not only lower than expected but below the 50 “boom or bust” line that signifies the difference between expansion and contraction. It’s significant that the move started with the Milwaukee index, which is not normally market moving (and came out at the same time as the better-than-expected S&P/Case Shiller home price index). The market’s willingness to sell dollars on such marginal bad news indicates general USD-bearish sentiment, probably related to thoughts about today’s FOMC meeting. As we pointed out yesterday, with inflation running below the Fed’s 2% objective and employment growth slowing, many FOMC members have been backpedalling on their comments about “tapering off” quantitative easing (QE). No one expects a change in the amount of QE bond purchases today; the focus will be on any change in language in the statement that would indicate the debate among FOMC members has turned from whether to “taper off” to whether to increase QE. Even a neutral statement could weaken the dollar further.
Overnight, China announced that its official manufacturing PMI for April fell to 50.6 from 50.9 in March. This was below market estimates of 50.7 and corroborated the picture of slowing growth painted by the HSBC/Markit PMI. The report sent commodity prices, such as oil and copper, lower, plus Australian stocks fell. Yet the AUD and NZD held their gains vs USD. We presume this is on expectations of continued Fed easing, combined with hopes of a rate cut by the ECB on Thursday. Yesterday’s much weaker than expected Eurozone inflation numbers confirmed that the ECB has both reason and room to ease further. Moreover, with the S&P 500 moving further into record territory yesterday, it’s clear that risk-taking sentiment is alive and well outside of the commodities sector. That tends to benefit the commodity currencies.
Today’s US ISM manufacturing index, which normally would be a major market-mover, will probably be ignored this month as few investors are likely to take a big position four hours ahead of the FOMC announcement. In any event, the market is looking for a small decline in April to 50.7 from 51.3, which would in fact be an improvement from the message given by the Chicago PMI (note that the market forecasts were made before the Chicago figure was released). The corresponding indicator out of the UK this morning is likely to garner more attention. The manufacturing PMI is forecast to rise slightly to 48.5 in April from 48.3, while the service sector PMI is seen remaining at 52.4. Given the market sentiment towards GBP right now, which seems to be to give the currency the benefit of the doubt, a result that showed even such modest improvement might well be taken favorably – at least it’s moving in the right direction! – and be a cause for further buying of cable and selling of EUR/GBP.
The MarketEUR/USD
• EUR/USD moved from 1.3120 resistance to 1.3075 support, spiking lower to 1.3055, following the lower-than-expected Eurozone CPI and the record unemployment rate for the bloc. The pair broke out from 1.3120, however, following the much worse-than-expected Chicago PMI. A spike to the upper Bollinger band at 1.3185 was the outcome with prices thereafter consolidating in the trading range 1.3160 – 1.3175. The recent highs are at 1.3200 with some notable resistance coming at 1.3255 and very strong resistance at 1.3300. 1.3120 is likely to act as support now with 1.3075 having been well-tested.
USD/JPY
• USD/JPY spiked lower to 97 following the weak Chicago PMI, with the pair thereafter consolidating at the previous support found at 97.35. An overnight move though below this support level has likely turned 97.35 to resistance with the next significant support coming at 96.40, the 50% retracement level of the up move following the BoJ unprecedented change in monetary stimulus. Further support comes at 95.30, the 23.6% retracement level of the USD/JPY rally we saw from late last year, with stronger resistance coming at 98.30 and 98.80.
AUD/USD
• The AUD/USD up move yesterday was constrained as resistance came at 1.0400, the 200-day MA, with support coming at 1.0350, the 50-day MA. Early today, the slowing, marginally expansionary Chinese PMI hardly affected the pair as the high-yielding Aussie looks to gain further in the future from the loose monetary policies employed by major central banks. Downward sloping trendline resistance comes at 1.0470 with further horizontal trendline resistance at 1.0550. The RSI has crossed above its 9-day MA and the Stochastics have given clear bullish signals, though the 5-day one does lay in overbought territory. Further support comes at 1.0300 with strong support at 1.0255, the 38.2% retracement level of the June – January up move.
Gold
• Gold spiked to $1480 yesterday morning following the lower-than-expected Eurozone CPI figure, which further boosted the view that the ECB will loosen further to halt the deflationary trend in the Eurozone. The precious metal then retraced, finding support again at $1463 with prices thereafter rebounding following the unexpected contractionary Chicago PMI. Initial resistance still lies at $1476, with a breakout from $1485 being ideally a confirmation before targeting $1525, with strong resistance in the $1530 – 1535 area. Stronger support below $1463 comes at $1450.
Oil
• WTI shed almost all of the gains it saw on Monday as it failed to breakout from $94.50 resistance, experiencing a minor spike to resistance following the better-than-expected S&P/Case-Schiller Home Price Indices. These gains however were short-lived as crude moved to support at $92.85 following the Chicago PMI, which created a negative outlook for recovery. Strong trendline and 50-day MA support comes at $92.85 with the 200-day MA at $92.15. A breakdown from this level, should a larger than expected increase in inventories be announced for instance, may see price find initial support at $91.30 with stronger support at $89.90, as the Stochastics lay in overbought territory with a confirmed bearish crossover on 5-day Stochastic and a likely one on the 14-day.
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