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IronFX Daily Commentary 02/03/15
Language English
China cuts rates again The People’s Bank of China surprised the markets and cut the benchmark one-year lending rate by 25 bps to 5.35% on Saturday night, as well as the one-year benchmark deposit rate by the same amount to 2.5%. The move followed the reduction in banks reserve requirement ratio in February and is the second rate cut in less than four months in an attempt to increase lending and spur growth. In just few days we have the annual meeting of China’s parliament and the interest rate reduction suggests that the 2015 growth target may be lowered to 7% from the current 7.5%. Economic data released after the rate cut, showed that the Chinese manufacturing PMI remained in contractionary territory in February, justifying the Bank’s decision to step up support for the economy. Australia and New Zealand, whose economies are heavily dependent on exports to China, saw their currencies opening with a gap up on the news but gave back all the gains and fell even more in the following hours.
Today’s highlights: In Europe, we get the manufacturing PMI figures for February from several European countries, including the UK, and the final figure for the Eurozone as a whole. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. The UK manufacturing PMI is estimated to slightly increase to 53.4 from 53.0. The 1st estimate of Eurozone CPI for February is also coming out. The moderate German CPI deflation increased the likelihood that Monday’s Eurozone CPI is also likely to show deflation moderating somewhat, which could support EUR. Eurozone’s unemployment rate for January is also due out.
In Switzerland, the Swiss National Bank will release its weekly sight deposits, which could reveal if the Bank intervened in the FX market in the week ended Feb. 27.
From Canada, the RBC Manufacturing PMI for February is expected. The market doesn’t pay that much attention to it and prefers the Ivey manufacturing PMI instead.
In the US, the final Markit manufacturing PMI and the ISM manufacturing index both for February are to be released. Personal income and spending for January are also due out. Personal income is expected to rise on a mom basis at a faster pace than in December, while personal spending is anticipated to fall at a slower pace. The nation’s yoy rate of the PCE deflator is expected to decelerate a bit, while the core PCE rate is forecast to remain unchanged, in line with the 2nd estimate of Q4 core PCE in Friday’s GDP figures.
As for the rest of the week, while Friday’s US employment report will be the focus as usual, there are a several central banks meetings preceding it. On Thursday, the main event will be the ECB policy meeting. The focus will probably be on further details about the QE program and the exact date that it will be launched in March. Another important detail to be clarified is if the Bank will buy bonds that are trading in negative territory when it comes to yields.
On Tuesday, the main event will be the Reserve Bank of Australia monetary policy decision. The market consensus is for another 25 bps rate cut to 2% at its March meeting, the same margin as in February. The further rate cut can be supported by the disappointing Q4 private capital expenditure, even though the first rate cut occurred ahead of this indicator.
On Wednesday, the highlight will be the Bank of Canada policy meeting. In their last rate decision, the Bank surprised the market with a 25 bps cut in rates, the first change since it hiked rates to 1% in Sep. 2010. The market was expecting another 25 bps rate cut to 0.5%. However the comments by BoC Governor Poloz on Wednesday that last month’s rate cut has bought the central bank some time to see how the economy develops, has reduced the odds of a change to only 30%. We too believe that they will most likely remain on hold this time. The final service-sector PMIs for the countries we got the manufacturing figures on Monday are coming out. In the US, we have the ADP employment report as usual two days ahead of the NFP release. The ADP report is expected to show that the number of jobs gained in February increased from January.
On Thursday, besides the ECB meeting, the Bank of England meets to decide on its policy rate. There’s little chance of a change in rates, hence, the impact on the market should be minimal, as usual. The minutes of the meeting however, should make interesting reading when they are released on 18th of March.
Finally on Friday, the major event will be the US non-farm payrolls for February. The market consensus is for an increase in payrolls of 240k, down from 257k in January. At the same time the unemployment rate is forecast to decline to 5.6%, while average hourly earnings are expected to rise at the same pace as in January. Such figures would be consistent with the FOMC’s view about the strong employment market.
Currency Titles:
EUR/USD dips below 1.1180
EUR/GBP hits support slightly above 0.7230
USD/JPY ready to challenge the 120.00 round figure
Gold breaks above a near-term downtrend line
WTI trades in a consolidative manner
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Currencies Text:
EUR/USD hit resistance marginally below the 1.1260 (R2) barrier and slid to trade below the support (now turned into resistance) line of 1.1180 (R1). I still believe that we are likely to see sellers challenging the support area of 1.1100 (S1), defined by the low of the 26th of January. Nevertheless, in today’s economic agenda we get Eurozone’s preliminary CPI rate for February. After the slowdown in Germany’s deflation, there is the possibility that deflation will moderate in the euro-area as well. This could cause a minor bounce before the bears take the reins again. The RSI gives me an extra reason to be careful about such a bounce. There is positive divergence between the oscillator and the price action. The oscillator also appears able to exit its oversold territory in the close future. With regards to the broader trend I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A break below the 1.1100 (S1) line in the future could challenge our next support at 1.1025 (S2), defined by the high of the 1st of September 2003.
• Support: 1.1100 (S1), 1.1025 (S2), 1.1000 (S3).
• Resistance: 1.1180 (R1), 1.1260 (R2), 1.1390 (R3).
EUR/GBP traded somewhat lower and found support marginally above the 0.7230 (S1) line, defined by the high of the 7th of December 2007. On the 4-hour chart, the price structure still suggest a short-term downtrend, thus I would expect a clear break below the 0.7230 (S1) barrier to set the stage for extensions towards the 0.7100 (S2) territory, marked by the lows of the 3rd and 4th of December 2007. In today’s economic agenda, we have the UK manufacturing PMI for February, which is forecast to have improved. This could be the trigger for the aforementioned break. In the bigger picture, the downside exit of the triangle pattern on the 18th of December signaled the continuation of the longer-term downtrend. Since then, the price structure has been lower peaks and lower troughs below both the 50- and the 200-day moving averages, thus I maintain my bearish view.
• Support: 0.7230 (S1), 0.7100 (S2), 0.7025 (S3).
• Resistance: 0.7300 (R1), 0.7350 (R2), 0.7430 (R3).
USD/JPY firmed up on Friday, after hitting support near 119.10 (S2). The rate surged above the key resistance zone (turned into support) of 119.35 (S1), and now appears willing to challenge the round number of 120.00 (R1). The move above 119.35 (S1) turned the near-term picture positive in my view, something that is also reflected on our momentum studies. The RSI, already above 50, raced higher, while the MACD stands above both its zero and signal lines, pointing north. A clear and decisive break above the 120.00 (R1) is likely to set the stage for extensions towards the 120.50 (R2) zone, determined by the high of the 11th of February. On the daily chart the rate is still trading above both the 50- and the 200-day moving averages and above the upper line of the triangle pattern that had been containing the price action since November. This keeps the major upside path intact, but I would like to see a break above the resistance of 120.75 (R3) to be convinced that the longer-term uptrend is back in force.
• Support: 119.35 (S1), 119.10 (S2), 118.65 (S3).
• Resistance: 120.00 (R1), 120.50 (R2), 120.75 (R3).
Gold raced higher on Friday, breaking above the short-term downtrend line taken from the peak of the 10th of February. During the early European morning Monday, the metal is testing the 1222 (R1) obstacle, where an upside violation could pull the trigger for the next resistance area of 1235 (R2). The break above the aforementioned trend line shifts the intraday bias to the upside, something that is also supported by our near-term momentum studies. The RSI rebounded from near its 50 line and edged higher, while the MACD stands above both its zero and trigger lines pointing north. On the daily chart, the possibility for a lower high still exists, therefore, the near-term recovery could be a corrective move of the 22nd of January – 24th of February decline.
• Support: 1210 (S1), 1200 (S2), 1190 (S3).
• Resistance: 1222 (R1), 1235 (R2), 1245 (R3).
WTI moved in a consolidative mode on Friday, staying between the support of 48.65 (S1) and the resistance of 50.00 (R1). Friday’s sideways manner is also confirmed by our momentum studies. The 14-hour RSI lies near its 50 line and points sideways, while the hourly MACD stands near its zero line, pointing east as well. Taking these technical signs into account, I would adopt a “wait and see” stance as far as the short-term picture is concerned. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, keeping the longer-term downtrend intact. I would treat any possible near-term upside extensions as a corrective move before the bears pull the trigger again.
• Support: 48.65 (S1), 47.80 (S2), 46.65 (S3).
• Resistance: 50.00 (R1) 51.30 (R2), 52.50 (R3) .
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IronFX Daily Commentary 03/03/15
Language English
RBA keeps interest rates unchanged The Reserve Bank of Australia surprised the markets and left the official interest rate on hold at 2.25%, despite expectations of a back-to-back rate cut to battle easing inflation and disappointing Q4 private capital expenditure. In the statement following the meeting, Governor Glenn Stevens reiterated that AUD remains above most estimates of its fundamental value, given the significant declines in key commodity prices. A key point of concern for the RBA remains the strong growth of lending in the housing market, which is likely the main reason the Bank left rates steady. Nonetheless, Stevens did say that “further easing of policy may be appropriate over the period ahead,” so the door to further rate cuts is not shut by any means.
Given that the financial markets had priced in the probability of a rate cut, AUD/USD firmed up nearly 0.90% following the decision to touch our resistance line of 0.7840. During the early European hours, the rate remained near that level and a clear break of that hurdle is needed for further extensions, perhaps towards our next resistance zone of 0.7900. However, having in mind that the RBA may ease further over the period ahead, we maintain our medium-term view that the pair is likely to challenge the 0.7500 territory in the future. China is likely to settle this week on a lower growth target for the year as it continues to focus on restructuring the economy. With China alone taking 35% of Australia’s exports, the impact of this change is likely to continue to reverberate throughout the Australian economy during the year and further depress the nation’s terms of trade, leading to a lower AUD.
As for the data, Australia’s current account deficit narrowed a bit in Q4, while building approvals jumped unexpectedly in January, a turnaround from the previous month. The data however had a limited impact on the currency as the focus of investors was on the rate decision.
Japanese wages rise Japan’s regular base pay rose 0.8% yoy in January, the biggest gain since 2000. Total cash earnings were up 1.3% yoy, the 11th straight increase. Good, no? No! After inflation, wages fell 1.5% yoy. This shows that while the Abe administration is making some progress in getting companies to boost wages, it’s nowhere near enough to offset the “success” of their drive to boost inflation. With domestic household purchasing power falling, companies are becoming even more dependent on exports. That’s likely to mean the administration depends even more on a weak yen policy going forward.
US economic data on Thursday showed that personal spending fell 0.2% mom in January after falling 0.3% the previous month, below market expectations of -0.1% mom. This was the first two consecutive months of decline since early 2009. It seems that despite lower energy prices and steady hiring, consumers preferred to increase their savings instead of boosting their spending. Personal income rose 0.3% mom, the same as in December, driving the savings rate up to 5.5% from 5%.
At the same time, the US PCE deflator slowed to +0.2% yoy from +0.7% yoy, but the core PCE deflator rose 1.3% yoy, the same pace as in December. This was in line with the CPI data released last week, and provides further evidence that low energy prices are indeed the main reason behind the slowdown in headline inflation, as Fed Chair Yellen argued in her semi-annual testimony. The ISM manufacturing index declined in February, suggesting a slowdown in the manufacturing sector. Despite the 4th consecutive decline, the index was more or less in line with expectations and still stood above the 50 level threshold. Net net, the mixed data kept USD mixed against its major counterparts, compared to US stocks that finished higher with Nasdaq breaking above the key psychological level of 5000 for the first time since March 2000.
Today’s highlights: German retail sales for January were much stronger than expected, rising 5.3% yoy, up from 4.0% yoy in December, contrary to expectations of a deceleration. Even though this indicator is usually not a major market mover, the euro strengthened slightly on the news.
In the UK, we get the construction PMI for January. As with the manufacturing PMI released on Monday, a positive surprise could keep GBP supported.
From Canada, the monthly GDP for December is expected to rebound from the previous month’s decline. Nonetheless, the forecast for December is not enough to cause GDP for Q4 as a whole to accelerate. Ahead of the Bank of Canada policy meeting on Wednesday, a weak GDP growth rate could put further selling pressure on CAD.
As for the speakers, Riksbank Governor Stefan Ingves and BoE Governor Mark Carney speak.
Currency Titles:
EUR/USD trades virtually unchanged
NZD/USD rebounds from 0.7500
GBP/JPY fails to overcome 185.00
Gold tumbles after finding resistance at 1222
WTI rebounds once again from 48.65
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Currencies Text:
EUR/USD rebounded on Monday, hit resistance slightly below the 1.1260 (R1) barrier and slid back down to trade again near the 1.1180 (S1) area. I still believe that we are likely to see sellers challenging the low of the 26th of January, at 1.1100 (S2), in the near future. However, there is still positive divergence between the RSI and the price action, while the MACD has bottomed and poked its nose above its trigger line. These momentum signs make me cautious that another bounce could be looming before the bears prevail again. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A break below the 1.1100 (S2) line in the future could challenge our next support at 1.1025 (S3), defined by the high of the 1st of September 2003.
• Support: 1.1180 (S1), 1.1100 (S2), 1.1025 (S3).
• Resistance: 1.1260 (R1), 1.1390 (R2), 1.1450 (R3).
NZD/USD hit support at the psychological figure of 0.7500 (S1) and rebounded somewhat. Nevertheless, taking into account that there is negative divergence between both our short-term oscillators and the price action, and that on the 26th of February the rate failed to overcome the 0.7625 (R2) barrier, I would expect the rebound to be short-lived and limited below the 0.7575 (R1) resistance hurdle. A clear move below the 0.7500 (S1) key line would turn the short-term bias to the downside and perhaps challenge the next support at 0.7450 (S2). In the bigger picture, I still believe that the overall trend is negative. Consequently, I would treat the recovery from 0.7175 as a corrective phase, at least for now.
• Support: 0.7500 (S1), 0.7450 (S2), 0.7340 (S3).
• Resistance: 0.7575 (R1), 0.7625 (R2), 0.7700 (R3).
GBP/JPY hit resistance at the psychological figure of 185.00 (R1) and retreated somewhat. The fact that the rate failed to overcome that key line and print another higher high, combined with the negative divergence between our short-term oscillators and the price action, make me believe that the forthcoming wave is likely to be negative. A clear and decisive dip below 183.50 (S1) would confirm that and perhaps set the stage for extensions towards the next support line at 181.60 (S2). However, on the daily chart, the rate is trading above both the 50- and the 200-day moving averages and this keeps the longer-term picture positive. Therefore, I would treat any possible near-term declines as a corrective move of the larger upside path.
• Support: 183.50 (S1), 181.60 (S2), 180.25 (S3).
• Resistance: 185.00 (R1), 187.25 (R2), 188.40 (R3).
Gold tumbled on Monday, after hitting resistance near the 1222 (R1) obstacle. Nevertheless, the decline was halted near the round figure of 1200 (S1). In my view, yesterday’s fall signaled the downside exit of a possible flag formation, but I would prefer to see a clear close below 1200 (S1) before getting more confident that the metal would extend lower. Such a move could challenge again the support line of 1190 (S2). As for the bigger picture, a break below the 1190 (S2) zone is the move that would confirm a forthcoming lower low on the daily chart and perhaps signal the continuation of the fall from 1307.
• Support: 1200 (S1), 1190 (S2), 1185 (S3).
• Resistance: 1222 (R1), 1235 (R2), 1245 (R3).
WTI rebounded again from the support of 48.65 (S2), but hit resistance at 51.00 (R1), which happens to be the 38.2% retracement level of the 17th - 23rd of February decline, and retreated. Despite the pullback I believe that we are likely to see another positive move, perhaps for another test at the 51.00 (R1) zone. Our momentum studies support the notion. Although both of them point sideways, they both stand within their bullish territories. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, keeping the longer-term downtrend intact. I would treat any possible near-term upside extensions as a corrective move before the bears pull the trigger again.
• Support: 49.50 (S1), 48.65 (S2), 47.80 (S3).
• Resistance: 51.00 (R1) 52.50 (R2), 53.40 (R3) .
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IronFX Daily Commentary 04/03/15
Language English
Diverging commodity prices spell diverging paths for currencies continue to rise. The retail price bottomed at USD 2.033 per gallon on Jan. 25th and has since risen 20% to USD 2.441 a gallon. This is still low enough to provide a boost to consumption, but the direction is significant – it makes it less likely that the US will fall into deflation. US inflation expectations are gradually moving up as a result, with the 5yr/5yr inflation swap now at 2.34%, up from the low of 2.10% on 29 January, and the 5yr inflation breakeven rate up to 1.54% vs the low of 1.05% on 13 Jan. Rising inflation expectations make a Fed rate hike more likely and as a result, Fed funds rate expectations are also moving up, which is supporting the dollar. The US currency is opening in Europe today unchanged to higher against all of its G10 counterparts except SEK, as well as most of the EM currencies that we track too (except RUB). Note that the rising price of gasoline is a function of the refining industry, not the price of crude – WTI remains around the USD 50/bbl level.
Copper fell slightly yesterday. The move was not significant except insofar as it shows that the enthusiasm over the weekend’s rate cut in China has faded already. These rate cuts temporarily boost AUD and NZD, but they should be seen as lagging indicators of slowing growth in China, not leading indicators of faster growth. The People’s Bank of China (PBOC) tends to cut rates in order to cushion the decline in growth, not to reverse it. This is one reason why I remain bearish on AUD in particular.
Greece is out of the headlines for now, but still bubbles under the surface. The country is putting together a list of proposals to present to next Monday’s Eurogroup meeting in hopes of securing part of the remaining EUR 7.2bn in bailout instalments. However, the signs are mixed. On the one hand, several unpopular revenue-raising measures may still be included, such as property taxes. On the other hand, some households in “extreme poverty” may receive free electricity for a year, plus there are new rent subsidies and food coupons. State Minister Alekos Flambouraris Tuesday said that the coalition would not consider privatising the country’s water or electricity firms (the latter was a key part of the last Troika review). Also, it was reported that the Greek government has asked for the resignations of “executives of all the country’s main banks” so that they can bring the banks under public control, which will not go down well with the Troika, either. The Greek issue seems only to be on hold temporarily. I think it still has the potential to exert downward pressure on the euro. Indeed, further tension seems likely.
Overnight news: Australia’s GDP for Q4 rose 0.5% qoq, an improvement from 0.3% qoq previously but below expectations of 0.6%. The year-on-year rate of change remained at 2.5%, in line with the RBA’s view that the most recent data are consistent with moderate economic growth. AUD rose slightly on the news but quickly lost the gains to trade unchanged from before the news was announced after an RBA board member was quoted as saying that the unemployment rate was likely to rise as the country needs 3% growth to reduce unemployment. Meanwhile, NZD was supported by stable milk powder prices at the latest auction.
China’s final HSBC services PMI for February was revised up slightly.
India cuts rates India joined the rate-cut movement today, lowering its benchmark repurchase rate by 25 bps to 7.5%. More than a dozen countries have cut rates so far this year.
Today’s highlights: In Europe, we get the final service-sector PMIs for February from the countries we got the manufacturing data for on Monday. As usual, the final forecasts from France, Germany and Eurozone are the same as the initial estimates, while the UK service-sector PMI is expected to have increased slightly. The revisions in the final manufacturing PMIs on Monday increase the likelihood that the service-sector PMIs will be revised as well. Eurozone’s retail sales for January are also coming out.
The Bank of Canada meets today. Canada’s GDP rose at a 2.4% qoq annualized pace in Q4, in line with the 2.5% qoq Bank of Canada estimate in its October monetary policy report. The strong growth figure has further reduced the likelihood of another rate cut by the Bank at today’s meeting. At their previous meeting, the Bank unexpectedly cut rates by 25 bps, the first change since it hiked rates to 1% in Sep. 2010. Until last Wednesday, market participants were expecting another rate cut by the same margin, but that became less likely after BoC Governor Poloz said that the cut has bought the Bank some time to see how the economy develops. The market interpreted that to mean no cut at this meeting. Nonetheless, we believe a dovish statement Wednesday could push the rate back above 1.2500 again.
In the US, the most important indicator we get is the ADP employment report for February two days ahead of the NFP release. The ADP report is expected to show that the number of jobs gained in February increased from January. We also get the revisions of the ADP employment report. The final Markit service-sector PMI and the ISM non-manufacturing index, both for February, are also due to be released. The Fed releases the Beige book two weeks before its March 17-18 policy meeting.
As for the speakers: Chicago Fed President Charles Evans and Kansas City Fed President Esther George speak during the US session.
Currency Titles:
EUR/USD fractionally lower
USD/CAD around 1.2500 ahead of the BoC meeting
GBP/USD slides and challenges the 200-period EMA
Gold declines but pauses above 1200
WTI heading for another test at 51.00
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Currencies Text:
EUR/USD traded somewhat lower on Tuesday to trade near 1.1170. I still believe that the short-term outlook remains negative and that we are likely to see sellers challenging the low of the 26th of January at 1.1100 (S2), in the near future. However, there is still positive divergence between the RSI and the price action, while the MACD has bottomed and poked its nose above its trigger line. These momentum signs make me cautious that another bounce could be looming before the bears prevail again. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A break below the 1.1100 (S2) line in the future could challenge our next support at 1.1025 (S3), defined by the high of the 1st of September 2003.
• Support: 1.1150 (S1), 1.1100 (S2), 1.1025 (S3).
• Resistance: 1.1260 (R1), 1.1390 (R2), 1.1450 (R3).
USD/CAD hit resistance near the 1.2535 (R1) barrier and tumbled after Canada’s GDP for Q4 expanded by more than anticipated. Nevertheless, the rate found support at 1.2430 (S1) and rebounded to cover a large portion of the news-driven slide. Today, the Bank of Canada meets to decide on its policy rate. Expectations of another cut today were scaled back after BoC Governor Poloz said that last meeting’s rate cut has bought the Bank some time to see how the economy develops. Nevertheless, a dovish statement could cause the rate to move above 1.2535 (R1) and hit the upper bound of a triangle that had been containing the price action since the beginnings of February. Switching to the daily chart, the rate is trading above both the 50- and the 200-day moving averages, something that keeps the overall upside path intact. A move above the upper line of the triangle is likely to signal trend continuation, in my opinion.
• Support: 1.2430 (S1), 1.2370 (S2), 1.2275 (S3).
• Resistance: 1.2535 (R1), 1.2665 (R2), 1.2700 (R3).
GBP/USD slid on Tuesday to find support at the 200-period moving average, marginally above the 1.5340 (S1) barrier. The intraday bias is to the downside in my view, and I would expect a dip below 1.5340 (S1), to target the 1.5300 (S2) figure, defined by the inside swing high of the 11th of February. Both of the short-term momentum studies detect bearish momentum and magnify the case that we may see Cable lower in the near future. The RSI stays below its 50 line, while the MACD stands below both its zero and signal lines. In the bigger picture, although we had a daily close above the 80-day EMA, the rate formed a bearish engulfing candle pattern and tumbled to trade again well below the moving average. Therefore, I would prefer to take to the sidelines as far as the overall picture is concerned and wait to see if the bulls are willing to give another try for a move above the moving average and the 1.5500 zone.
• Support: 1.5340 (S1), 1.5300 (S2), 1.5200 (S3).
• Resistance: 1.5400 (R1), 1.5460 (R2), 1.5550 (R3).
Gold hit resistance at the lower bound of the flag formation, at around 1215 (R1), and slid to hit support marginally above the round figure of 1200 (S1). The fact that the yellow metal is trading below the lower line of the flag and below the black downtrend line taken from back the high of the 22nd of January, keeps the near-term outlook negative, in my humble view. Our short-term oscillators support the notion. The RSI hit resistance at its prior upside support line and moved below 50, while the MACD, already below its trigger, obtained a negative sign. Nevertheless, I would prefer to see a clear price close below the key number of 1200 (S1) before getting more confident that the metal would extend lower. Such a move could challenge again the support line of 1190 (S2). As for the bigger picture, a break below the 1190 (S2) zone is the move that would confirm a forthcoming lower low on the daily chart and perhaps signal the continuation of the fall from 1307.
• Support: 1200 (S1), 1190 (S2), 1185 (S3).
• Resistance: 1215 (R1), 1222 (R2), 1235 (R3).
WTI continued to race higher yesterday after finding support at 49.50 (S1). The price is now trading a few cents below the 51.00 (R1) zone, which happens to be the 38.2% retracement level of the 17th - 23rd of February decline, and retreated. I still believe that we are likely to see the bulls challenging that zone, and if the manage to drive the battle above it, I would expect them to target the 50% retracement of the aforementioned decline, at 51.70 (R2). On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, keeping the longer-term downtrend intact. I would treat any possible near-term upside extensions as a corrective phase for now.
• Support: 49.50 (S1), 48.65 (S2), 47.80 (S3).
• Resistance: 51.00 (R1) 51.70 (R2), 52.50 (R3) .
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IronFX Daily Commentary 05/03/15
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EUR weakens ahead of European Central Bank meeting The notable feature of the market yesterday was the euro’s weakness ahead of the ECB meeting today. This suggests to me that the FX market hasn’t yet factored in the full impact of QE, despite the fact that bond yields in the Eurozone have fallen to absurd levels as investors front-run the ECB. Last year, ECB days were the big days for EUR/USD – the average range for the pair on the days the ECB met was 0.97%, almost double the 0.57% average daily range for the year as a whole. Most other currencies saw little if any increased volatility (vs USD) on ECB days (except for CHF of course, as it was effectively pegged to EUR). However, for at least the next few months I don’t expect any change in ECB policy and hence I see no reason for any dramatic moves in the currency on ECB days. The ECB is unlikely to expand its QE program until it’s had a chance to judge the program’s success. Nor are they likely to express second thoughts on the program or reduce it until inflation is back up near their target. Thus yesterday’s move suggests a vote of confidence that the ECB’s QE program will at least succeed through weakening the currency. EUR could weaken further today as the ECB is likely to reiterate its pledge to keep QE in place until it has proved successful in raising inflation back to target. Moreover, there’s also the question of whom they’re going to buy the bonds from: probably foreigners, who will then repatriate their money (see below).
CAD strengthens on Bank of Canada statement The Bank of Canada kept interest rates on hold, as expected, but the tone of the statement was less dovish than anticipated. The Bank said that the risks around the inflation profile are now more balanced and that the current degree of monetary policy stimulus is still appropriate, hinting that they could avoid cutting interest rates at the next meeting as well. USD/CAD collapsed at the release but recovered to trade around the support line of 1.2430. The rate is still within a triangle formation and above the key support barrier of 1.2370. In our view, a strong NFP print on Friday is likely to erase Wednesday’s losses and perhaps drive the pair again above 1.2500.
A mixed market in oil WTI rose yesterday, the third consecutive day of gains, on news that inventories rose only 536,000 barrels in the latest reporting week, vs growth of more than 1mn barrels so far each week this year. The slowdown indicates that US supply is starting to respond to the lower oil prices. In contrast, Brent was down slightly as Saudi Arabia reiterated its pledge not to cut production. Given the difference in the response between profit-driven US producers and less profit-sensitive Middle Eastern producers, we could see the gap between WTI and Brent narrow further.
What will be the main questions for the ECB today? There will be two main issues today. First, the market will be looking for clarification about the ECB’s quantitative easing program, which is to start this month. Secondly, there will be some interest in the revised economic forecasts, particularly the first forecasts for 2017. Some of the issues we hope to have clarified are:
The Bank of England also meets to decide on its policy rate. There’s little chance of a change, hence the impact on the market should be minimal, as usual. The minutes of the meeting however should make interesting reading when they are released on 18th of March.
Today’s indicators: Germany’s factory orders fell by more than expected, -3.9% mom vs expectations of -1.0%. There was no impact on EUR/USD.
In Sweden, industrial production for January is expected to have slowed from the previous month. This could weaken SEK and drive USD/SEK up for a test at the 8.4000 resistance zone.
From the US, factory orders for January are expected to have risen 0.2% mom, a turnaround from -3.4% mom the previous month. After five consecutive month of drops, even a modest rise in factory orders could be an indication that the US growth has started regaining momentum in Q1 after cooling a bit in Q4, and consequently support the dollar.
Canada’s Ivey PMI for February is forecast to have risen, but still to stay below the 50 critical level.
Besides ECB President Draghi, we have speeches from Riksbank Governor Stefan Ingves and Norges Bank Governor Oeystein Olsen.
Currency Titles:
EUR/USD breaks below 1.1100 ahead of the ECB meeting
NZD/USD hits again resistance near the 0.7625 key line
GBP/JPY falls below 183.50
Gold pauses around 1200 again
WTI shoots up and hits 51.75
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EUR/USD plunged yesterday, breaking below the key support (now turned into resistance) line of 1.1100 (R1). Today, the ECB meets and we are likely to get further details on the QE program, as well as the Bank’s new growth and inflation projections. The inflation projections will be important in giving guidance to the extent of the QE program, thus a downside revision could weigh on euro. The intraday bias remains negative and thus I would expect the dip below 1.1100 (R1) to set the stage for extensions towards our next support hurdle at 1.1025 (S1), defined by the high of the 1st of September 2003, or the psychological number of 1.1000 (S2). Our short-term technical oscillators detect accelerating downside speed and amplify the case for a lower EUR/USD. The RSI entered its oversold territory and is pointing down, while the MACD, already negative, fell below its trigger, and points south as well. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A clear close below the 1.1000 (S2) zone could signal larger bearish extensions and initially aim for the 1.0915 obstacle, marked by the low of the 5th of September 2003.
• Support: 1.1025 (S1), 1.1000 (S2), 1.0915 (S3).
• Resistance: 1.1100 (R1), 1.1150 (R2), 1.1260 (R3).
NZD/USD hit resistance again near the 0.7625 (R1) barrier and retreated thereafter. Taking into account that there is still negative divergence between both our short-term oscillators and the price action, and that the rate failed to overcome the 0.7625 (R1) barrier twice, I would expect the decline to extend towards the key barrier of 0.7500 (S1). A clear move below the key 0.7500 (S1) line would signal the completion of a short-term double top formation and perhaps turn the short-term bias to the downside. Such a break is likely to challenge the next significant support area, at 0.7450 (S2). In the bigger picture, I still believe that the overall trend is negative. Consequently, I would treat the recovery from 0.7175 as a corrective phase, at least for now.
• Support: 0.7500 (S1), 0.7450 (S2), 0.7340 (S3).
• Resistance: 0.7625 (R1), 0.7700 (R2), 0.7800 (R3).
GBP/JPY continued its tumble after failing to overcome the psychological figure of 185.00 (R2). The rate dipped below the support (turned into resistance) hurdle, confirming the negative divergence between our short-term oscillators and the price action, and also signaling a forthcoming lower low on the 4-hour chart. That shifts the near-term picture negative in my view, and magnifies the case that the rate could extend lower and perhaps challenge the support line of 181.60 (S1). I would stay careful for now though as a bounce could be looming, perhaps for a lower high around the 183.50 (R1) barrier. My worries are derived from the RSI, which hit support at its 30 line and is currently pointing somewhat up. On the daily chart, the rate is trading above both the 50- and the 200-day moving averages and this keeps the longer-term picture positive. Therefore, I would treat any possible near-term declines as a corrective move of the larger upside path.
• Support: 181.60 (S1), 180.25 (S2), 179.50 (S3).
• Resistance: 183.50 (R1), 185.00 (R2), 187.25 (R3).
Gold slid on Wednesday, but the decline was halted once again near the round figure of 1200 (S1) before rebounding somewhat. The fact that the yellow metal is trading below the lower line of the flag and below the black downtrend line taken from back the high of the 22nd of January keeps the near-term outlook negative, IMHO. Nevertheless, I would prefer to see a clear price close below the key number of 1200 (S1) before getting more confident that the metal would extend lower. Such a move could challenge again the support line of 1190 (S2). As for the bigger picture, a break below the 1190 (S2) zone is the move that would confirm a forthcoming lower low on the daily chart and perhaps signal the continuation of the fall from 1307.
• Support: 1200 (S1), 1190 (S2), 1185 (S3).
• Resistance: 1215 (R1), 1222 (R2), 1235 (R3).
WTI pulled back after hitting resistance again near the (now turned into support) 51.00 (S1) line, which happens to be the 38.2% retracement level of the 17th - 23rd of February decline. However, the pullback was halted marginally above 49.50 (S2) and WTI shot up to break above 51.00 (S1) and to reach the resistance hurdle of 51.75(R1), the 50% retracement level of the aforementioned decline. Taking a look at our momentum studies, I believe that we are likely to see another pullback, perhaps to test the 51.00 (S1) area as a support this time. The RSI found resistance near its 70 line and turned down, while the MACD shows signs of topping and could move below its trigger line soon. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, it managed to print a higher low on the 26th of February. A break above the 55.00 psychological zone is the move that would signal a forthcoming higher high and perhaps bring a trend reversal. For now, I would prefer to sit on the side lines as far as the overall picture is concerned.
• Support: 51.00 (S1), 49.50 (S2), 48.65 (S3).
• Resistance: 51.75 (R1) 52.50 (R2), 53.40 (R3) .
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IronFX Daily Commentary 06/03/15
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Monetary policy divergence, not economics, powering USD higher The dollar was generally higher against most G10 currencies despite disappointing data. The key reason is probably the monetary divergence between the US and Europe in the first place but most other countries as well, which was emphasized yesterday by ECB President Draghi’s explanation of the details of Europe’s QE program.
Draghi initially sent EUR higher with upward revisions to the ECB’s growth forecast and an optimistic inflation forecast for 2017 of 1.8%, conveniently just hitting their target of “close to but below 2%” and therefore precluding extending QE past the Sep. 2016 cut-off date. But the rally quickly ended after he said that the ECB would not buy bonds below the deposit rate of -0.20%. Since German two-year yields were trading below that level before the announcement, it implied that they will have to buy bonds further out the German yield curve, meaning more curve flattening and further reduction of the risk premium on long-dated euro assets. This makes European bonds less competitive with Treasuries or Gilts and therefore this could weigh on the common currency. Draghi also said that the Bank would have no problem in finding enough bonds to buy and noted that half the Euro-area debt is held outside the Euro area. This implies that a lot of the sellers will be foreigners, who are likely to take profits on their EUR bonds and reinvest the money in higher-yielding Treasuries or Gilts.
The dollar’s strong performance came in the face of more negative surprises as initial jobless claims edged higher and US factory orders fell for the sixth consecutive month (contrary to expectations of a rise). US economic news continues to disappoint -- perhaps due to the snowstorms or the port strike -- while European news continues to surprise on the upside. It doesn’t matter though; it’s the divergence in monetary policy that matters, and the US seems headed towards tightening while Europe is clearly committed to QE. San Francisco Fed President John Williams, a voting member of the FOMC, yesterday said that mid-year may be time for a “serious discussion” about raising interest rates as the labor market nears full employment and inflation rebounds. The behavior of the FX markets though is in contrast to that of the equity markets; the S & P 500 is up 2.1% year-to-date in local currency terms, while the Eurostoxx 50 is up 15%.
USD/JPY is opening in Europe today back above 120, the third break of that level this year. The rise is significant, given that all we’ve heard recently from Tokyo are comments about the negative impact of the weak yen. For example, BoJ Board Member Takahide Kiuchi yesterday said small companies he met with had expressed the view that the weak yen is pushing up costs for them. The previous two times USD/JPY went above 120 it wasn’t able to maintain it for very long. If USD/JPY can stay above 120.00 for today, it may signal a new trading range for the pair.
Today’s highlights: Today is NFP day! The market consensus is for an increase in payrolls of 235k in February (one standard deviation range: 210k-260k). That’s down from 257k in January, but would only be a return to normal after the astonishing increases in recent months. On Wednesday, the ADP report showed that the private sector gained more than 200k jobs last month, suggested that nonfarm payroll figure may come in over 200k again for the 12th straight month, consistent with a firming labor market (although there is a lot of variation between the ADP and the NFP reports). In such a case, it will show that the US economy has added at least 200k jobs for 13 consecutive months. At the same time, the unemployment rate is forecast to have tick down one notch to 5.6% from 5.7%.
While much of the US economic data has been disappointing recently, as mentioned, jobless claims plunged the week that the payroll data was assembled, suggesting that today’s figure may avoid the worst of the weather-related disruptions. (New England saw a series of snow storms and Chicago recorded the coldest February since 1875.) Tax receipts have been trending steadily higher, implying that the pace of labor market growth remains steady as well.
On a less positive note, the rise in average hourly earnings is expected to have slowed a bit on a mom basis but remained stable at 2.2% yoy, still well below the 3% or more that was usual in previous recoveries. However, the slight deflation in the headline CPI released last week boosted real average earnings, confirming the Fed’s case that the labor market continues to improve. Even if the market gets worried about stagnant wage growth and sells the dollar, the setback should be limited as the currency will likely remain supported by the much more active easing taking place by other central banks internationally.
As usual, the dollar’s trend going into the employment report is almost more important than the report itself. Given the strong underlying demand for USD, any disappointment on a weak report is not likely to last long as buyers are likely to take advantage of any dips, in my view.
As for the rest of the indicators, Eurozone’s final GDP for Q4 is forecast to confirm the preliminary print and show a rise of 0.3% qoq.
From Norway, we get industrial production for January, but no forecast is available.
Canada’s building permits for January are also coming out.
Today we have speeches from Riksbank Governor Stefan Ingves and Dallas Fed President Richard Fisher speaks. Both spoke on Thursday as well.
Currency Titles:
EUR/USD takes 1.1000 after Draghi’s comments
USD/CAD rebounds form the lower bound of the triangle
WTI pulls back to hit support at 50.60
EUR/JPY stays supported by the 132.30 area
Gold continues to gyrate around 1200
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EUR/USD continued its tumble after Draghi’s comments that the ECB is willing to buy bonds trading at a negative yield down to the ECB’s deposit rate. EUR/USD briefly managed to take out the 1.1000 (S1) psychological support line. A sustained break of that line would signal larger bearish extensions and initially aim for the 1.0915 (S2) obstacle, marked by the low of the 5th of September 2003. A strong US employment report today could be the catalyst for such a move. Our daily technical oscillators detect accelerating downside speed and amplify the case for a lower EUR/USD. The 14-day RSI entered its oversold territory and is pointing down, while the daily MACD, already negative, fell below its trigger, and points south as well. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.1000 (S1), 1.0915 (S2), 1.0800 (S3).
• Resistance: 1.1100 (R1), 1.1150 (R2), 1.1260 (R3).
USD/CAD rebounded from the lower line of the triangle that had been containing the price action since the beginnings of February, but the advance was halted slightly below the key resistance line of 1.2535 (R1). A strong NFP print today could encourage the bulls to overcome that hurdle and perhaps hit the upper bound of a triangle. Switching to the daily chart, the rate is trading above both the 50- and the 200-day moving averages, something that keeps the overall upside path intact. A move above the upper line of the triangle is likely to pull the trigger for the 1.2800 (R3) zone, and perhaps signal trend continuation, in my opinion.
• Support: 1.2370 (S1), 1.2275 (S2), 1.2115 (S3).
• Resistance: 1.2535 (R1), 1.2665 (R2), 1.2800 (R3).
WTI traded lower on Thursday, but hit support at 50.60 (S1), slightly above the 200-hour moving average and rebounded somewhat. Given that WTI is still printing higher peaks and higher toughs within the short-term upside channel, I would expect the forthcoming wave to be positive and aim for the resistance barrier of 51.75 (R1), which happens to be the 50% retracement level of the 17th - 23rd of February decline. A clear break above that hurdle is likely to trigger extensions towards the next resistance at 52.50 (R2), the 61.8% retracement level of the aforementioned decline. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, it managed to print a higher low on the 26th of February. A break above the 55.00 psychological zone is the move that would signal a forthcoming higher high and perhaps bring a trend reversal. For now, I would prefer to sit on the side lines as far as the overall picture is concerned.
• Support: 50.60 (S1), 49.50 (S2), 48.65 (S3).
• Resistance: 51.75 (R1) 52.50 (R2), 53.40 (R3) .
EUR/JPY hit resistance marginally below the 133.80 (R1) barrier and slid to trade near the 132.30 (S1) support and the lower bound of the black downside channel. As long as the pair is trading within that channel I would consider the short-term outlook to stay negative. A clear move below the 132.30 (S1) zone could prompt extensions towards the psychological figure of 130.00 (S2). Nevertheless, bearing in mind that the RSI tries to move away from its below-30 zone, and that the MACD shows signs of bottoming, I would stay careful that a minor bounce could be in the works before sellers take the reins again. On the daily chart, we see that the strong recovery from 130.00 (S2) remained limited near the 38.2% retracement level of the 29th of December – 26th of January plunge. The recent decline supports my view to treat the aforementioned recovery as a corrective phase of the larger downtrend.
• Support: 132.30 (S1), 130.00 (S2), 129.25 (S3).
• Resistance: 133.80 (R1), 135.30 (R2), 136.20 (R3).
Gold continued to trade around the psychological barrier of 1200. The fact that the yellow metal is trading below the lower line of the flag and below the black downtrend line taken from back the high of the 22nd of January keeps the near-term outlook negative, in my view. The somewhat negative momentum is indicated by our short-term oscillators as well. The RSI stays below its 50 line, while the MACD stands below both its zero and signal lines. As for the bigger picture, a break below the 1190 (S2) zone is the move that would confirm a forthcoming lower low on the daily chart and perhaps signal the continuation of the fall from 1307.
• Support: 1197 (S1), 1190 (S2), 1185 (S3).
• Resistance: 1205 (R1), 1215 (R2), 1222 (R3).
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IronFX Daily Commentary 09/03/15
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Better-than-expected US employment data to support USD Friday’s better-than-expected US employment data brought forward expectations of Fed tightening and kept the dollar rally going. Given the heavy snow in the US (again!), the market thought if anything the figure would be at the low end of expectations, instead it was outside the normal range on the upside. The weather would’ve made it easy to explain away a weak number, but there was no getting around such a strong one. The labor data seems to be a standout among US indicators – many of them are falling below expectations, but the labor data has fairly consistently beaten expectations. Given the importance of the labor data for the Fed, that’s what is moving the market. European indicators are consistently beating expectations while US indicators (aside from employment) are consistently missing expectations, but the dollar continues to rise and the euro continues to fall, because expectations about central bank policy are what’s moving markets.
The report virtually sealed the case for a Fed rate hike this year, unless there’s a big change in circumstances. Longer-dated Fed funds futures rate expectations jumped 15 bps. San Francisco Fed President John Williams said “The time is coming when we’ll be making our first steps down the road to normalization” and that mid-year may be time for a “serious discussion” on the topic, while Richmond Fed President Jeffrey Lacker said June was “the leading candidate for liftoff.” Dallas Fed President Richard Fisher (a non-voter) was even more aggressive – he said he favors raising rates this month! Contrast that with the 21 central banks globally that have loosened policy so far this year and you can easily understand why the dollar gained against virtually all the currencies we track (except RUB) and, in my opinion, could rally further – and US stocks perhaps decline further?
Commodities were hit by the combination of a stronger dollar and higher US interest rates. Gold and silver were down, while oil collapsed. Copper fell too as China’s copper imports plunged. Taking January and February together (to eliminate the effect of the Chinese New Year), imports are down 24% yoy. It’s no surprise then that NOK and NZD were the worst-performing G10 currencies from Friday morning, with AUD not far behind (lagging only behind EUR).
Japan’s growth revised down sharply The final estimate of the nation’s Q4 GDP was revised down sharply to +1.5% qoq SAAR from +2.2%. The slow growth is particularly disappointing in that Q4 was when Japan emerged from the recession following the rise in the consumption tax in April last year. Private consumption was revised up a bit, but business spending actually fell for the third quarter in a row – not good when hoping for an export-led recovery. Apparently businesses cut investment and drew down their inventories. If companies are so hesitant to invest even when they have record holdings of cash, one wonders when they will be willing to pay higher wages.
Separately, the nation’s current account surplus was about as expected in January on a seasonally adjusted basis. The trade deficit was narrower than expected so I assume the income surplus was also a bit smaller. The weaker yen is increasing the yen-denominated value of the income that Japan gets from its overseas investments, but over time as high-yielding bonds mature and are replaced by lower-yielding bonds, the income surplus seems destined to fall.
Today’s highlights: In Switzerland, the Swiss National Bank will release its weekly sight deposits, which could reveal if the Bank intervened in the FX market in the week ended in March 6th. Deposits rose only slightly in the previous week as EUR/CHF kept fairly stable.
From Canada, we get housing starts for February. After Friday’s sharp decline in Canada’s building permits for January, housing starts are likely to have been hurt in February. This could push USD/CAD further up, and perhaps be the catalyst for the upside exit of the triangle formation that has been containing the price action since the beginnings of February. I still expect the rate to challenge 1.2800 in the not-too-distant future.
The US releases the labor market conditions index for February. This is a monthly index that draws on a range of data to produce a single measure to gauge whether the labor market is on the whole improving. In January, the index came 4.9, so a reading above that, following the solid employment report on Friday, should add to signs of an improving labor market.
During the European day, Minneapolis Fed President Narayana Kocherlakota and Cleveland Fed President Loretta Mester speak. Kocherlakota’s speech will be particularly important, as he is a well-known dove. In a speech in February, he argued that the Fed should not raise rates this year. If even he is now arguing in favor of tightening, then it’s pretty much a done deal. Mester on the other hand is on the hawkish end, so it will be no surprise if she argues in favor of tightening.
As for the rest of the week, on Tuesday, during the Asian morning we get China’s CPI and PPI data for February. The forecast is for the CPI to have accelerated slightly, but the PPI rate to remain unchanged in deep deflationary territory. That could increase the pressure on PBOC to act again. On Wednesday, the spotlight will be on the Reserve Bank of New Zealand policy meeting. The Bank is expected to leave its policy rate unchanged at 3.5%. UK industrial production for January is forecast to have risen 0.3% mom after falling 0.2% mom in December. This would be the first rise after three consecutive months of declines and so could prove GBP-positive. On Thursday, Australia’s unemployment rate is forecast to have remained unchanged in February, while net employment is expected to rise. This could support the Aussie somewhat. In the US, headline retail sales for February are forecast to have rebounded after falling in January, while the core figure is forecast to have accelerated. The focus is usually on the core retail sales, which excludes auto and gasoline, thus the report could add to the greenback’s strength. Finally on Friday, the main event will be Canada’s employment report for February.
Currency Titles:
EUR/USD collapses after the strong NFP print
GBP/JPY hits support at 181.60
AUD/USD falls below 0.7750
Gold leaves the 1200 area after the US jobs report
WTI falls once again below 50
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EUR/USD plunged after nonfarm payrolls rose by more than anticipated in February. The pair dipped below the support (now turned into resistance) barrier of 1.0915 (R1), marked by the low of the 5th of September 2003. During the early European morning Monday, it’s trading slightly above the support line of 1.0800 (S1), where a decisive break could set the stage for extensions towards the next obstacle at 1.0700 (S2), marked by the low of the 11th of April 2003. Our technical oscillators detect accelerating downside speed and amplify the case for a lower EUR/USD. The RSI stands within its oversold territory and is pointing down, while the MACD lies below both its zero and signal lines, and points south as well. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.0800 (S1), 1.0700 (S2), 1.0565 (S3).
• Resistance: 1.0915 (R1), 1.1000 (R2), 1.1100 (R3).
GBP/JPY hit resistance slightly above the 183.50 (R2) line and slid to find support at our 181.60 (S1) obstacle, before rebounding somewhat. As long as the rate is printing lower highs and lower lows on the 4-hour chart, the near-term picture remains negative in my view. Therefore, I would expect a clear move below 181.60 (S1) to pull the trigger for our next support obstacle at 180.25 (S2). I would stay cautious for now though as we may experience the continuation of the bounce before the next shoot down. The reason is because the RSI exited its below-30 zone and is pointing up, while the MACD appears ready to move above its trigger line. On the daily chart, the rate is trading near the 50-day moving average and well above the 200-day one, and this keeps the longer-term picture cautiously positive in my view. Therefore, I would treat any possible near-term declines as a corrective move of the larger upside path.
• Support: 181.60 (S1), 180.25 (S2), 179.50 (S3).
• Resistance: 182.60 (R1), 183.50 (R2), 185.00 (R3).
AUD/USD found resistance near the 0.7840 (R2) barrier and tumbled to break below the key support (now turned into resistance) hurdle of 0.7750 (R1). I would now expect the rate to continue lower and challenge the 0.7640 (S1) territory, defined by the lows of the 3rd and 12th of February. Our short-term momentum studies reveal accelerating downside speed and support my view. The RSI hit resistance at its 50 line, slid, and now looks willing to cross below 30, while the MACD stands below both its zero and signal lines, pointing down. Switching to the daily chart, I see that the overall trend of the pair is still to the downside. Therefore, I would treat the recovery from 0.7640 (S1) as a corrective move. I still believe that we are going to see AUD/USD challenging the 0.7500 (S2) territory in the future.
• Support: 0.7640 (S1), 0.7500 (S2), 0.7330 (S3).
• Resistance: 0.7750 (R1), 0.7840 (R2), 0.7900 (R3).
Gold collapsed on Friday after the solid US employment report, leaving the 1200 territory, but the dive was stopped around 1165 (S1). Bearing in mind that the yellow metal is trading below both the 50- and the 200-period moving averages, and below the downtrend line taken from back the high of the 22nd of January, I still consider the near-term outlook to be negative. A clear break below 1165 (S1) is likely to have more bearish implications and perhaps target our next support hurdle at 1150 (S2). However, given Friday’s steep collapse, a corrective bounce could be in the works before sellers take control again. This is also supported by the RSI, which appears able to exit its below-30 zone in the near future. As for the bigger picture, the break below the 1190 (R3) (support turned into resistance) zone is the move that confirmed a forthcoming lower low on the daily chart and signaled the continuation of the fall from 1307.
• Support: 1165 (S1), 1150 (S2), 1140 (S3).
• Resistance: 1172 (R1), 1178 (R2), 1190 (R3).
WTI tumbled on Friday to trade once again below 50.00. The price fell below the lower bound of a near-term upside channel and is currently trading below the resistance line of 49.75 (R1). The short-term bias is to the downside in my view and hence, I would expect sellers to aim for the key support barrier of 48.65 (S1). Nevertheless, a minor upside corrective wave could be looming before that happens. My concerns are derived from our short-term oscillators. The RSI seems ready to exit its oversold territory, while the MACD has bottomed and looks ready to cross above its trigger any time soon. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, it managed to print a higher low on the 26th of February. For now, I would prefer to sit on the side lines as far as the overall picture is concerned.
• Support: 48.65 (S1), 47.80 (S2), 45.00 (S3).
• Resistance: 49.75 (R1) 50.60 (R2), 51.15 (R3).
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IronFX Daily Commentary 10/03/15
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Plunge in Bund yields suggests EUR can fall further Yesterday was the first day for the ECB’s quantitative easing program. While one might have thought it was fully priced in by now, in fact German 10-year yields collapsed 8 bps to 0.31%, a huge move considering how low they are already (the record low was 0.30% on Feb. 26th). By comparison, Italian 10-year yields were down only 4 bps and Portuguese 10-year yields were virtually unchanged. The big move in Bunds suggests that the move was not totally priced into the bond markets, which means it may not have been totally priced into the FX market, either. That suggests EUR can still fall further.
Greek situation still critical Apparently the recent “solution” to Greece’s problems was no solution at all. They have not even started negotiations. “Little has been done,” according to Eurogroup Chairman Dijsselbloem. “Technical level” talks between Athens and its creditors will start in Brussels on Wednesday. “What I know is that we can only release further loans from the European funds if there is full agreement on the total package and if they start implementing the program. So far two weeks have gone by and neither of the two have happened,” said Dijsselbloem. Apparently the creditor group wasn’t impressed with Greece’s reform proposals; two representatives of the group called them “amateurish” and said they don’t signal substantial progress to meeting the country’s commitments. Greece is apparently still short some EUR 1bn for March, when about EUR 2bn of debt-servicing payments come due. Note that while yields elsewhere in the Eurozone were unchanged to lower thanks to QE, Greek three-year yields were up almost 200 bps yesterday! The yield spread between Treasuries and Bunds is now at a record wide level. So QE further compresses the risk premium in European bond yields even while the risk in EUR remains acute; not a good combination for the currency!
Two more Fed speakers back mid-year hike Cleveland Fed President Loretta Mester said the US economy had built up “sustainable momentum” and repeated that she’s “comfortable” with an interest rate rise in the first half of the year. This is no surprise as she has previously said that “we want to bring the policy rate up.” Mester does not vote this year. Richard Fisher, who is stepping down soon as President of the Dallas Fed, warned against waiting too long to raise rates and said policy makers should raise rates before the economy reaches full employment. Fisher is a known super-hawk who is no longer on the FOMC so he will not have any say in making policy. On the other hand, we have yet to hear any voices urging the Fed to wait. (Note: yesterday’s schedule was incorrect. Minneapolis Fed President Kocherlakota did not speak yesterday.) Nonetheless, Fed funds rate expectations were down 4 bps in the long end as the market unwound some of the post-NFP move,
Kiwi crying over spoiled milk? NZD fell sharply as trading in dairy futures and options and shares in dairy companies were halted. The police are investigating a criminal threat to poison infant formula unless the country stops using a certain pesticide. This would cause huge damage to the world’s biggest dairy exporter. New Zealand exported NZD 1.2bn of dairy products last year, accounting for 29% of total exports. No trace of the poison was found. Nonetheless, the threat could weigh on NZD until it’s resolved. Meanwhile, AUD was down even more than NZD compared to yesterday’s European opening, after the National Australia Bank Business confidence index for February fell.
China’s inflation rises as food prices jump China’s CPI rose faster than expected at 1.4% yoy (expected: +1.0%, previous: 0.8%) but the PPI fell more than expected at -4.8% yoy (expected and previous: -4.3%). Inflation is focused in food, which may have had something to do with the timing of the Chinese New Year: food inflation jumped to +2.4% yoy from +1.1%, while non-food inflation rose only from +0.6% to +0.9%. It’s China’s non-food inflation that’s important for the rest of the world, not its food inflation. In any event, the overall inflation rate remains very low, and with the money supply target for this year lower than the actual result for last year, I don’t expect the inflation rate to rise particularly. Given China’s prominence as a trading nation, this disinflationary impulse is likely to keep downward pressure on prices globally and continue the “currency wars” that the financial world has fallen into as a result of central banks’ anti-deflation stance.
Today’s highlights: We have a relatively light day today as regards indicators. During the European session, French industrial production for January is expected to fall, a turnaround from the previous month.
In Norway, the CPI is forecast to have accelerated in February, probably due to the fact that the effect of lower oil prices is gradually fading. This could support the Krone temporarily as the market tries to anticipate the result of the Norges Bank monetary policy meeting on the 19th of March.
In the US, only data of secondary importance are coming out. The NFIB small business optimism for February is expected to have increased a bit, staying fractionally below its December 7-year high. While this indicator is not particularly market-affecting, it’s well worth watching because of the Fed’s emphasis on employment. Small businesses employ the majority of people in the US. The Job Opening and Labor Turnover Survey (JOLTS) report for January is forecast to show that the number of job openings has increased marginally. The market will also be watching for the “quit rate,” which Fed Chair Janet Yellen recently singled out as “a barometer of worker confidence in labor market opportunities.” Following last week’s strong employment data, this is likely to keep the USD supported. Wholesale inventories for January are also coming out.
As for the speakers, ECB Governing council member Ewald Nowotny, BoE Governor Mark Carney and BoE MPC member Ian McCafferty speak.
Currency Titles:
EUR/USD finds support below 1.0800
USD/JPY rallies and hits resistance near 122.00
EUR/GBP continues its tumble
Gold dips below 1165
WTI shoots up and trades around 50 again
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EUR/USD moved somewhat higher, hit resistance fractionally below the 1.0915 (R1) line, and tumbled again to find support below 1.0800, at 1.0785 (S1). The short-term bias remains to the downside and I would expect the rate to continue lower and challenge the next support obstacle at 1.0700 (S2), defined by the low of the 11th of April 2003. Our technical oscillators detect accelerating downside speed and amplify the case for a lower EUR/USD. The RSI, already within its oversold territory, hit resistance near its 30 line and turned down again, while the MACD lies below both its zero and signal lines. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.0785 (S1), 1.0700 (S2), 1.0565 (S3).
• Resistance: 1.0915 (R1), 1.1000 (R2), 1.1100 (R3).
USD/JPY accelerated higher yesterday and managed to hit the 122.00 (R1) line, a resistance barrier that stands near the level of the highest point of the triangle that had been containing the price action since November (identified on the daily chart). As long as the rate is printing higher highs and higher lows above both the 50- and the 200-period moving averages, the near-term bias remains to the upside. This is also supported by our short-term oscillators. The RSI moved higher and entered its above-70 zone, while the MACD stands above both its zero and signal lines pointing north. A move above 122.00 (R1) is likely to challenge the 122.50 (R2) line, marked by the high of the 20th of July 2007. As for the broader trend, the rate is still trading above both the 50- and the 200-day moving averages, and above the upper bound of the aforementioned triangle. This keeps the overall picture of USD/JPY positive.
• Support: 121.30 (S1), 120.55 (S2), 120.00 (S3).
• Resistance: 122.00 (R1), 122.50 (R2), 124.00 (R3).
EUR/GBP continued its slide to hit a 7-year low after falling below the support (turned into resistance) of 0.7235 (R1). The rate is trading below the downtrend line taken from the high of the 3rd of February and below both the 50- and the 200-period moving averages. This keeps the bias negative and amplifies the case for extensions towards the 0.7100 (S1) territory, marked by the lows of the 3rd and 4th of December 2007. Taking a look at our oscillators, I see that the RSI is back below 30, while the MACD, already negative, stands below its signal line and points down. As for the broader trend, the downside exit of the triangle pattern on the 18th of December signaled the continuation of the longer-term downtrend. Since then, the price structure has been lower peaks and lower troughs below both the 50- and the 200-day moving averages, thus I would stay bearish on the overall path of this exchange rate.
• Support: 0.7100 (S1), 0.7025 (S2), 0.7000 (S3).
• Resistance: 0.7235 (R1), 0.7300 (R2), 0.7350 (R3).
Gold slid after hitting resistance at 1175 (R2) and dipped below the support (now turned into resistance) of 1165 (R1). Bearing in mind that the yellow metal is trading below both the 50- and the 200-period moving averages, and below the downtrend line taken from back the high of the 22nd of January, I still consider the near-term outlook to be negative. I would expect the move below 1165 (R1) to have more bearish implications and perhaps target our next support hurdle at 1150 (S1). Our near-term momentum studies corroborate my view. The RSI hit resistance at its 30 line and turned down, while the MACD stays below both its zero and trigger lines, indicating strong downside momentum. As for the bigger picture, the break below the 1190 (R3) (support turned into resistance) zone is the move that confirmed a forthcoming lower low on the daily chart and signaled the continuation of the fall from 1307.
• Support: 1150 (S1), 1140 (S2), 1130 (S3).
• Resistance: 1165 (R1), 1175 (R2), 1190 (R3).
WTI surged on Monday, hit resistance slightly above our 50.60 (R1) line and slid to find support at 49.90 (S1). Both the 50- and the 200-hour moving averages point sideways, while both our short-term momentum indicators oscillate around their equilibrium lines. Taking these technical signs into account and also having in mind that I don’t see a clear trending structure on the 1-hour chart, I would prefer to stay neutral for now. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, it managed to print a higher low on the 26th of February. For now, I would prefer to sit on the side lines as far as the overall picture is concerned as well.
• Support: 49.90 (S1), 49.30 (S2), 48.65 (S3).
• Resistance: 50.60 (R1) 51.15 (R2), 51.80 (R3).
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IronFX Daily Commentary 11/03/15
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Dollar continues soaring, euro continues collapsing Nothing new here – the dollar just keeps on soaring and the euro just keeps on collapsing. EUR/USD and the DXY index are back at levels last seen in 2003. The dollar’s strength is particularly remarkable given that the action in the US rates markets hasn’t been USD-supportive. Fed funds futures rate expectations have lost about half the gains made on payroll Friday, while the 10-year Treasury is back almost to where it was before the payroll data came out. So the effects of the higher payroll figure have faded in the rates market, but not in FX. Nor in US stocks either, which are down 2.7% from where they were at the close last Thursday and have lost all the gains made this year.
ECB policy, currency hedging may be behind the dollar’s rally. The immediate cause of the dollar rally, in my view, is the ECB’s decision to institute quantitative easing (QE). That’s the only thing that can explain the timing of the incredibly rapid decline in EUR/USD. From May 2008 when it hit 1.50 to 1.20 in June 2010 and back to 1.39 in March 2014, the entire range was 30 cents. (In fact, with the exception of a six-month period in 2008, the 1.20-1.50 range largely held for the 10 years from 2004 to 2014.) From March 2014 to now, the range has been 32 cents. So in one year we’ve had a bigger range than in the previous six years. Almost half of that move has been just this year as EUR/USD has fallen 14 cents. Nor has the decline been just against USD; the euro’s real effective exchange rate (REER), as calculated by the Bank for International Settlements, is also back to its 2002 level.
What changed to cause such a rapid move? While the start of the dollar’s strength may be associated with the beginning of the Fed’s “tapering” off of its QE program in January 2014, the big change this year has been ECB policy. I believe that foreign investors, who were big buyers of euro-denominated bonds in past years, have been taking profits as the Eurozone bond market rallied ahead of QE and have been repatriating their money. In fact, net outflows from European assets have recently been running at a record high. While foreigners apparently have been buying European stocks, the flows in exchange-traded funds (ETFs) show that they’ve been doing so on a currency-hedged basis, so there has been no impact on the currency market.
The activity in European stocks brings up another possibility. For several years, foreigners were net buyers of European assets. Given the stability in EUR/USD over that time, they probably did not hedge their currency exposure. It’s likely that they are now rushing to do so, exacerbating the currency impact of the record outflow from European assets. My conclusion: the exodus from European bonds and the hedging activity of investors is likely to continue for some time, meaning these trends are likely to remain in place for the long term.
China data: China released some data this morning, which was generally below estimates, justifying the PBoC’s decision to cut interest rates further in order to boost the economy. Retail sales were up 10.7% yoy, below estimates of 11.6%. Industrial production was up 6.8% yoy, below estimates of 7.7%. And fixed asset investment was up 13.9% yoy, below estimates of 15.0%. The news is likely to weigh on AUD and NZD today.
Today’s highlights: During the European day, in Sweden, we get the CPI for February. Swedish CPI is forecast to be unchanged yoy, exiting deflationary territory, while the CPIF – the Bank’s favorite inflation measure - is expected to accelerate. We could see a short-lived strengthening of the currency, as this would confirm Riksbank board’s belief that the underlying inflation has bottomed out. However, while a CPI rate of 0% yoy is no longer deflation, it’s still far below +2% target. On top of that, last Thursday’s attempt by the Governor Ingves’ to talk down the currency and the Board’s stated readiness to take further action if necessary to lift the prices only reinforces our view that USD/SEK has plenty room to the upside.
In the UK, industrial production for January is forecast to have risen 0.3% mom after falling 0.2% mom in December. This would be the first rise after three consecutive months of declines and so could prove GBP-positive.
We have several ECB speakers on Wednesday’s agenda: ECB President Mario Draghi, ECB Executive Board member Peter Praet, ECB Governing Council member Erkki Liikanen and ECB Governing Council member Ewald Nowotny speak. Bank of England MPC member Martin Weale also speaks. RBNZ Governor Graeme Wheeler will hold a press conference after the rate decision (see below) and will subsequently appear at a Parliament Select Committee.
Then on Thursday, the highlight will be the Reserve Bank of New Zealand policy meeting. The Bank is expected to leave its policy rate unchanged at 3.5%. At its January meeting, the Bank said that they expect to keep the OCR on hold for some time, but they also added that future interest rate adjustments, either up or down will depend on the data. Since then, NZD strengthened instead and economic data have not been that supportive. This adds to the possibility that the Bank will maintain its neutral bias or even cut rates, in our view. The market view is that the RBNZ will hold rates steady; the overnight index swap market is assigning a 92% probability to that outcome, while 11 out of 13 analysts surveyed on Bloomberg also thought there was likely to be no change. On the contrary, we believe that a 25 bps rate cut seems likely, instead of Governor just trying to talk down the currency again. Given the market positioning, this would be quite a shock to the market and we would expect NZD to depreciate substantially if it happens.
Currency Titles:
EUR/USD finds support at 1.0665
EUR/JPY falls below 130.00
NZD/USD falls below 0.7340
Gold finds support at 1155
WTI falls and hits support at 48.18
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EUR/USD continued sliding on Tuesday and during the early European morning it is trading near 1.0665 (S1). The short-term bias remains to the downside and I would expect the rate to continue lower and challenge the next support obstacle at 1.0565 (S2) defined by the 7th of April 2003 low. However, bearing in mind that there is positive divergence between the RSI and the price action, I would be careful that a minor corrective bounce may occur before the next leg down. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.0665 (S1), 1.0565 (S2), 1.0500 (S3).
• Resistance: 1.0800 (R1), 1.0915 (R2), 1.1000 (R3).
EUR/JPY tumbled after hitting resistance at the lower line of the near-term downside channel, and managed to breach the psychological round number of 130.00 (R1). The rate is now trading between that hurdle and the support line of 129.25 (S1), defined by the low of the 30th of August 2013. The bias stays to the downside, thus I would expect a clear move below 129.25 (S1) to pull the trigger for the 128.00 (S2) area, marked by the low of 12th of August 2013. Nevertheless, given that there is positive divergence between the RSI and the price action, I would be mindful that a minor bounce back above 130.00 could be in the works before the next leg down. On the daily chart, the dip below the round figure of 130.00 (R1) confirmed a forthcoming lower low and signaled the continuation of the longer-term downtrend.
• Support: 129.25 (S1), 128.00 (S2), 126.65 (S3).
• Resistance: 130.00 (R1), 130.75 (R2), 132.30 (R3).
NZD/USD continued lower and fell below the key support (now turned into resistance) area of 0.7340 (R1). During the early European morning, the rate is heading towards the support line of 0.7215 (S1), where a dip could challenge the low of the 3rd of February, at 0.7175 (S2). Our momentum studies detect strong downside momentum and amplify the case for the continuation of the fall. The RSI hit resistance at its 30 line and turned down, while the MACD stays below both its zero and signal lines. In the bigger picture, the plunge from near 0.7625 confirmed my view that the recovery from 0.7175 (S2) was just a corrective move and that the overall downtrend is back in force.
• Support: 0.7215 (S1), 0.7175 (S2), 0.7000 (S3).
• Resistance: 0.7340 (R1), 0.7450 (R2), 0.7500 (R3).
Gold traded lower yesterday but hit support at 1155 (S1) and rebounded. The precious metal is still trading below both the 50- and the 200-period moving averages, and below the downtrend line taken from back at the high of the 22nd of January. Therefore I still consider the short-term outlook to be negative and I still expect a test of 1150 (S2) in the near future. A break below that barrier could trigger extensions towards the 1140 (S3) zone. However, taking a look at our short-term oscillators I would stay cautious that an upside corrective move could be in the works before sellers take control again. The RSI exited its oversold territory while the MACD has bottomed and poked its nose above its trigger line. Moreover, there is positive divergence between the RSI and the price action.
• Support: 1155 (S1), 1150 (S2), 1140 (S3).
• Resistance: 1175 (R1), 1190 (R2), 1200 (R3).
WTI plunged on Tuesday, but hit support at 48.20 (S1) and then rebounded. Although the rebound may continue for a while, the short-term outlook is back to the downside in my view and I would expect to see another test at the 48.20 (S1) line soon. The reason I believe the rebound may continue a bit more is because the RSI edged higher after exiting its oversold territory, while the MACD, although negative, went over its trigger line. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, it managed to print a higher low on the 26th of February. Also, both the daily momentum indicators gyrate around their neutral lines. For now, I would prefer to sit on the side lines as far as the overall picture is concerned.
• Support: 48.20 (S1), 47.80 (S2), 47.40 (S3).
• Resistance: 49.30 (R1) 49.90 (R2), 50.60 (R3).
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IronFX Daily Commentary 12/03/15
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EUR continues to collapse as USD broad currency index breaks out of 30-year downtrend.The euro continued its collapse yesterday as more and more market participants jumped on the trend. People were waiting to hear some comments from ECB officials about how enough is enough, the pace of decline is too much, or something like that, but ECB President Draghi, and ECB Governing Council Member Ewald Nowotny made no such comments. On the contrary, Nowotny said recent developments are not “totally unusual” and exchange rates “are not a major dominant factor” for the global economy. He said it would be wrong to frame the euro’s decline as a currency war. Italian Finance Minister Pier Carlo Padoan said the dollar’s appreciation vs the euro was in line with the economic fundamentals, so no complaints there. Meanwhile, St. Louis Fed President James Bullard said the Fed was already late in hiking rates. Monetary policy divergence lives!
USD broad currency index breaks out of downtrend I highlighted in the past how the DXY index has broken out of its 30-year downtrend. Over the last several days, the same thing has happened to a much broader, more representative index of the dollar’s value, the Fed’s major currency trade-weighted index. This index includes Australia, Canada, Japan, Sweden, Switzerland, the UK and the Eurozone countries and is much more rationally weighted than the bizarre DXY index. The breakout here confirms to me that we are still at the start of a broad USD rally.
RBNZ remains on hold The Reserve Bank of New Zealand kept interest rates unchanged and signalled an extended period of steady interest rates. Their emphasis was on growth, not inflation, which they indicated would not be a concern even if (when?) it falls to zero unless there started to be second-round effects on wages and prices. They were more optimistic than they were back in January about the New Zealand economy, which they said “remains strong,” a new addition to the statement. “Our situation is quite different from some of those countries that have changed monetary policy or cut interest rates,” Gov. Wheeler said at the press conference following the meeting. He noted that the New Zealand economy was growing at 3.25%-3.5% and is expected to continue to grow at those rates for the next two years. While they lowered their forecast for market rates, they signaled that they would keep the Official Cash Rate (OCR) steady for some time. “Our central projection is consistent with a period of stability in the OCR” they said, a slight change from January’s formula, “we expect to keep the OCR on hold for some time,” but the next part of the statement was identical: “However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.”
NZD strengthened after the report on the idea that rates would be on hold for some time and then eventually start to rise. Nonetheless, I think they could be signalling intervention in the FX market to weaken the currency. Their comment on the exchange rate was even stronger than it was in January: they added a sentence saying “A substantial downward correction in the real exchange rate is needed to put New Zealand’s external accounts on a more sustainable footing.” I see NZD depreciating vs USD but appreciating against AUD, which is more heavily leveraged to Chinese investment.
RBA lowers AUD target RBA assistant governor Christopher Kent yesterday repeated the RBA’s mantra that AUD is still too high. “While the depreciation seen to date will be helpful, our assessment is that our exchange rate remains relatively high given the state of our overall economy,” he said. The comment was particularly significant because AUD/USD yesterday hit 0.7561, meaning it had reached the 0.75 level that RBA Gov. Stevens identified back in December as “an appropriate valuation” for the currency. I think Kent’s comments signal a change in view at the RBA, because the state of the economy and the outlook for the Australian economy have worsened since December. His comments tie in with a speech, Deputy Gov. Philip Lowe made last week in which he noted that monetary policy is less effective than it used to be, because of the high level of existing debt – a fall in rates does not elicit the same increase in borrowing that it used to and therefore does not boost growth as much as it did in the past. Reading between the lines of the two speeches, it appears to me that the Australian authorities expect that they will have to rely more on exchange rate depreciation in order to boost growth. This is why I remain particularly bearish on AUD.
Today’s highlights: German final CPI for February came at -0.1% yoy, unchanged from the preliminary estimate, as expected. Eurozone’s industrial production for January is also coming out.
In Sweden, the official unemployment rate for February is expected to decline, in line with the PES unemployment rate released on Wednesday. Following the encouraging CPI data, decline in the unemployment rate could suggest an improving economy and support SEK temporarily.
In the UK, trade deficit for January is expected to narrow a bit. The BoE also publishes its quarterly bulletin.
In the US, headline retail sales for February are forecast to have rebounded after falling in January, while the core retail sales are expected to accelerate. The focus is usually on the core retail sales, which excludes auto and gasoline, thus the report could add to the greenback’s strength. Initial jobless claims for the week ended March 7 is also coming out.
As for the speakers, RBNZ Governor Graeme Wheeler speaks at the Finance and Expenditure Select Committee on monetary policy statement. ECB Executive Board member Benoit Coeure, ECB Governing Council member Jens Weidmann speak, while Bank of England Governor Mark Carney speaks for the second time this week.
Currency Titles:
EUR/USD reaches 1.0500
GBP/USD breaks below the lows of January
USD/JPY pulls back and hits support at 120.85
Gold hits 1150
WTI triggers some buy orders near 47.40
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EUR/USD continued its tumble on Wednesday and today. During the Asian morning it hit support near the psychological barrier on 1.0500 (S1). The short-term bias stays negative and I would expect a clear move below 1.0500 (S1) to set the stage for extensions towards 1.0360 (S2), defined by the low of the 8th of January 2003. The RSI, already below 30, turned again south, while the MACD continued deeper into its negative territory, also below its trigger line. These momentum signs show strong downside speed and amplify the case for further declines. However, zooming on the 1-hour chart, there is positive divergence between both our hourly momentum studies and the price action, thus I would be careful that a minor bounce could be looming before the next leg down. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.0500 (S1), 1.0360 (S2), 1.0185 (S3).
• Resistance: 1.0565 (R1), 1.0665 (R2), 1.0800 (R3).
GBP/USD kept falling to trade back below 1.5000 (R2) and below the support (now turned into resistance) obstacle of 1.4950 (R1), marked by the low of the 23rd of January 2013. The price structure has been lower peaks and lower troughs since the 26th of January, thus the near-term bias is negative and I would expect the bears to continue pushing the price lower and to challenge the 1.4900 (S1) zone once more. Nonetheless, taking into account that the RSI tries to exit again its oversold field, we could see a minor corrective bounce above 1.4950 (R1) before sellers take control again. In the bigger picture, the break below 1.4950 (R1) confirmed a forthcoming lower low on the daily chart and turned the overall outlook of Cable back to the downside.
• Support: 1.4900 (S1), 1.4820 (S2), 1.4680 (S3)
• Resistance: 1.4950 (R1), 1.5000 (R2), 1.5035 (R3)
USD/JPY pulled back after hitting the 122.00 (R1) line, pulled back, hit support near 120.85 (S2) and rebounded. The rate is still printing higher highs and higher lows above both the 50- and the 200-period moving averages, thus the near-term bias remains to the upside. I still believe that we are likely to see the rate challenging the 122.50 (R2) line, marked by the high of the 20th of July 2007. Our daily oscillators detect positive upside speed and magnify the case for a higher rate. The 14-day RSI moved higher and is now approaching its 70 line, while the MACD stands above both its zero and signal lines and points up. As for the broader trend, the rate is still trading above both the 50- and the 200-day moving averages, and above the upper bound of the triangle that had been containing the price action since November. This keeps the overall picture of USD/JPY positive.
• Support: 121.20 (S1), 120.85 (S2), 120.55 (S3).
• Resistance: 122.00 (R1), 122.50 (R2), 124.00 (R3).
Gold traded lower on Thursday and managed to reach our support obstacle of 1150 (S1). The precious metal is still trading below both the 50- and the 200-period moving averages, and below the downtrend line taken from back at the high of the 22nd of January. Therefore I still consider the short-term outlook to be negative and would expect a break below 1150 (S1) to have more bearish extensions and perhaps trigger extensions towards the 1140 (S2) zone. However, there is still positive divergence between the RSI and the price action, thus I would stay cautious that an upside corrective move could be in the works before sellers take control again.
• Support: 1150 (S1), 1140 (S2), 1130 (S3).
• Resistance: 1155 (R1), 1175 (R2), 1190 (R3).
WTI plunged on Wednesday, but triggered some buy orders near our support hurdle of 47.40 (S2) and rebounded to hit resistance at 48.40 (R1). Given that the price is trading below the downtrend line taken from the peak of the 5th of March, I still consider the short-term outlook to be to the downside. I would expect a move below the 48.00 (S1) obstacle to pull the trigger for another test at the 47.40 (S2) area. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. It also managed to move below the low of the 26th of February. Meanwhile, the 14-day RSI left its 50 line and moved lower, while the MACD slid below both its zero and signal lines. This shifts the longer-term bias cautiously back to the negative, in my opinion.
• Support: 48.00 (S1), 47.40 (S2), 46.65 (S3).
• Resistance: 48.40 (R1) 48.90 (R2), 49.30 (R3).
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IronFX Daily Commentary 13/03/15
Language English
Dollar takes a breather after DXY hits 100 After several frantic days of astonishing moves, the dollar took a breather yesterday. It fell against all the other G10 currencies except the pound and most of the EM currencies that we track as well. The DXY index just poked its nose over 100 for a moment and then that was it (it’s now 99.42 as I write this morning). I doubt if the rally is over, however. A bout of profit-taking after such a rapid move was natural. But there was no fundamental news to cause a reversal in the trend, nor do the technical indicate a reversal (see below), so I don’t think this move is over yet by any means. Rather, the market may just consolidate until next Wednesday’s FOMC meeting, which is likely to provide the next signpost for where the dollar goes. Note though that recently, any consolidations have proved short-lived and ended with EUR/USD breaking out on the downside. So long as German seven-year bond yields are still negative and Portuguese yields are below US yields, the flood of money out of Europe is likely to continue, in my view.
US retail sales weak, but maybe due to weather Yesterday’s US retail sales figure for February was weak, but that may be due to the bad weather. Also, retail sales are reported in nominal terms, not real terms, and so low inflation will naturally depress the rise in sales.
GBP hits new low vs USD The pound was the only currency to make a new (recent) low against the dollar. Bank of England Gov. Mark Carney yesterday expressed concern about the strength of the pound, saying that its strength was one factor affecting the pace and degree of interest rate increases. Sterling interest rate eased as a result and the pound fell. Nonetheless I feel fairly optimistic about sterling, against EUR if not vs USD, as there is only a limited number of currencies that the outflow of money from Europe seeking higher yields can go into.
Oil falls further; watch for NOK, CAD Oil prices fell further, with Brent down about 1% and WTI collapsing 2.1% as US inventories rose to the highest level since weekly data started in 1982. Genscape, a company that monitors US oil inventories, said stocks at the main US oil center of Cushing, Oklahoma rose by 2.2mn barrels in the latest week. Also the Houston Ship Channel, a key conduit for US crude imports, was fully reopened Thursday morning. NOK was the best performing G10 currency over the last 24 hours but the weaker oil prices may weigh on it today. CAD also gained on the day but not so much; weaker US oil prices are bound to pressure it today, along with anticipation of a weak employment report (see below).
Today’s highlights: A relatively light day today. During the European day, the only indicator worth mentioning is the German wholesale price index for February. Although it is not a major market mover, it could add to the recent encouraging German data.
In the absence of any major European indicators, Greek concerns may come to the fore again today. Technical teams representing Greece’s international creditors are meeting with government officials today to discuss the budget ahead of next week’s negotiations on the troubled country’s fiscal targets. PM Tsipras Thursday signed an agreement with the OECD that pledges to pursue reforms in line with the country’s previous commitments, but there still seems to be some disagreement between Greece and the IMF on the tax and spending reforms to be instituted. Tsipras will hold talks with EC President Juncker and European Parliament President Schulz today.
In Canada, the main event will be the employment report for February. The forecast is for the unemployment rate to increase, while the net employment change is expected to show a decline of 5k after a rise of 35.4k in the previous month. Given the negative sentiment towards CAD, this could push USD/CAD higher.
In the US, the preliminary U of M consumer sentiment index for March is expected to increase a bit from the previous month. The surveys of 1-year and 5-to-10 year inflation expectation outlook are also coming out.
As for the speakers, Bank of England Deputy Governor of Markets and Banking Minouche Shafik speaks.
Currency Titles:
EUR/USD rebounds from 1.0500
GBP/JPY finds support at 180.25
USD/CAD waits for Canada’s employment data
Gold stays above 1150
WTI hits the downtrend line and plummets
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EUR/USD raced higher yesterday after triggering some buy orders near the psychological barrier of 1.0500 (S1). Nevertheless the advance was halted near our resistance line of 1.0665 (R1). The short-term outlook stays negative in my view, thus I would expect the bears to eventually take control again and perhaps aim for another test at the 1.0500 (S1) key area. A clear move below 1.0500 (S1) is likely to set the stage for extensions towards 1.0360 (S2), defined by the low of the 8th of January 2003. I would stay cautious though that the rebound may continue a bit more before the next leg down. My worries are derived from our momentum indicators. The RSI exited its oversold territory, while the MACD stands above its trigger pointing up. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.0500 (S1), 1.0360 (S2), 1.0185 (S3).
• Resistance: 1.0665 (R1), 1.0800 (R2), 1.0900 (R3).
GBP/JPY tumbled on Thursday, after finding resistance near the 181.60 (R1) hurdle. The pair found support at our 180.25 (S1) line. A break of that is likely to challenge the key barrier of 179.50 (S2). As long as the rate is printing lower highs and lower lows on the 4-hour chart, the near-term picture remains negative in my view. Our short-term momentum studies corroborate my view. The RSI moved lower and hit its 30 line, while the MACD stands below both its zero and signal lines, pointing down. On the daily chart, the rate is trading below the 50-day moving average, but still above the 200-day one. Therefore I would consider the overall picture of this pair to stay cautiously positive and I would see the near-term downtrend as a corrective move of the larger upside path.
• Support: 180.25 (S1), 179.50 (S2), 177.70 (S3).
• Resistance: 181.60 (R1), 183.15 (R2), 183.90 (R3).
USD/CAD hit the 1.2800 (R1) resistance line on Wednesday and pulled back to find support at 1.2620 (S1), marginally above the 50-period moving average. Today we get Canada’s unemployment rate for February, which is expected to have risen. This could encourage the bulls to drive the rate above the 1.2800 (R1) hurdle. Such a break is likely to see scope for extensions towards our next resistance at 1.2900 (R2). Switching to the daily chart, the rate is still trading above the 50- and 200-day moving average. Moreover the upside exit of the triangle that had been containing the price action since the beginnings of February signaled a trend continuation. Therefore, the overall trend of this pair stays to the upside.
• Support: 1.2620 (S1), 1.2535 (S2), 1.2370 (S3).
• Resistance: 1.2800 (R1), 1.2900 (R2), 1.3000 (R3).
Gold rebounded from 1150 (S1) on Thursday, hit resistance near 1165 (R1), and subsequently retreated to find again support at the former line. The precious metal is still trading below both the 50- and the 200-period moving averages, and below the downtrend line taken from back at the high of the 22nd of January. Therefore I still consider the short-term outlook to be negative and would expect a break below 1150 (S1) to have more bearish extensions and perhaps trigger extensions towards the 1140 (S2) zone. However, there is still positive divergence between both our short-term oscillators and the price action, thus I would stay cautious that another upside corrective move could be in the works before sellers take control again.
• Support: 1150 (S1), 1140 (S2), 1130 (S3).
• Resistance: 1165 (R1), 1175 (R2), 1190 (R3).
WTI rebounded somewhat during the European morning Thursday, but after hitting the downtrend line taken from the peak of the 5th of March, it plunge to break below 47.30 (R1), a support-turned-into resistance marked by Wednesday’s lows. Given that the price stays below the aforementioned trend line, I still see a negative short-term outlook. I would expect sellers to continue driving the battle lower and to challenge the support barrier of 46.65 (S1). A dip below that line could probably pull the trigger for the next support at 45.70 (S2). On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. It also managed to move below the low of the 26th of February. Meanwhile, the 14-day RSI left its 50 line and moved lower, while the MACD slid below both its zero and signal lines. This shifts the longer-term bias cautiously back to the downside, in my opinion.
• Support: 46.65 (S1), 45.70 (S2), 45.00 (S3).
• Resistance: 47.30 (R1) 48.00 (R2), 48.40 (R3).
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