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May 14-18: Events to watch
Beginning from Tuesday. To learn about Monday’s events, go here.
Tuesday, May 15
• Australia: Monetary Policy Meeting Minutes. After the positive jobs report released this week, the central’s bank rate cut in June is no longer that evident, although with disappointing Chinese data (remember: main trading partner) Australian authorities may feel the need for stimulus all the same.
• Euro zone: there’s a number of Q1 preliminary GDP releases: French (0.2% previous, 0.0% forecast), German (-0.2% previous, 0.1% forecast), Italian (-0.7% previous, -0.6% forecast). The region is expected to enter an official recession contracting by 0.2% in the first 3 months of the year (second quarter in a row), while Spain and Italy are already there. German figures are especially important: if the leading euro area’s economy disappoints, this will hit an already feeble sentiment sending US dollar and Japanese yen up versus their peers as safe havens. In addition, watch German May ZEW Economic Sentiment and follow the news about ECOFIN Meetings. Newly elected French President Francois Hollande meets German Chancellor Angela Merkel in Berlin. According to German government, Hollande's visit is a "strong signal" regarding the determination of both countries to continue their strong relationship. Euro zone’s leaders are expected to discuss the development of the region's monetary and fiscal policy. As is known, they have contradictory views on austerity.
• US: data for April. Economists look forward to a decline in American retail sales (both core and headline), while the CPI growth may slow down from 0.3% to 0.1%, though the core reading is seen unchanged. We will also get info on the demand for US debt: TIC Long-Term Purchases are expected to increase from 19.4B in February to 10.1B in March.
Wednesday, May 16
• Great Britain: A lot of important news for pound will be released. Claimant count in April may rise by 4.9K compared with 3.6K rise in March. The Governor of the Bank of England Mervyn King in his speech is expected to signal that interest rates will not rise from their record low until late 2013 at the earliest, as the UK's growth disappoints. Inflation report may leave the door open to the possibility of more QE, either explicitly or by forecasting that inflation will probably fall below the 2% target within 2-3 years without a change in policy. According to analysts at Citi, such a forecast could prepare the ground for the MPC to resume QE (bond purchases) in coming months if activity data and the European monetary union crisis worsen, or if the inflation worries diminish.
• U.S.: The release of the important housing market data is scheduled on Wednesday. According to forecasts, annualized number of building permits in April may to grow by 0.73M after a 0.75M growth in March. Number of housing starts in April is expected to increase by 0.69M against 0.65M in March. Industrial production in April may grow by 0.6% after remaining unchanged in March. FOMC Meeting Minutes are not expected to give any hints on policy easing - during the last meeting in April Bernanke stated in his press conference that "all the options are on the table", but the chances seem to fade away.
• Euro zone: The speech of ECB President Draghi will be scrutinized by the investors, aiming to forecast the euro zone’s future. Germany holds a 10-year bond auction.
Thursday, May 17
• Euro zone: Banks in France, Germany and Switzerland will be closed because of the national holidays. Spain holds a 10-year bond auction.
• New Zealand: Producer price index in Q1 may remain unchanged after a 0.5% growth in Q4.
• Australia: Inflation expectations data will be published.
• Japan: Preliminary GDP growth in Q1 may reach 0.9% after a 0.2% contraction in Q4.
• US: The number of unemployment claims fixed last week may grow by 370K vs. the previous print 367K. Later on Thursday Philly Fed Manufacturing Index will be released: in May is forecasted to grow to 10.6. Philadelphia region manufacturers' index declined more than expected in April reaching 8.5 from 12.5 in March, demonstrating the biggest drop in six months. However, most analysts believe improved consumer spending will provide further growth to the manufacturing sector.
Friday, May 18
• Great Britain: 10-year bond auction will be held.
• Canada: Core CPI growth in April is expected to remain unchanged at 0.3%. CPI may grow by 0.3% after a 0.4% growth in March.
• All: US President Barack Obama will host a two-day G8 Meetings at Camp David. The Group of Eight (G8) is a forum, where the eight of the world's most industrialized nations meet to discuss key topics and provide solutions for global issues. The G8 includes Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States.
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CFTC traders positioning data
The latest Commitments of Traders (COT) report for the week to May 8, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:
• The net long US dollar position rose by 62% to $20.5 billion.
• The net short euro position increased by 32% to 143.9K contracts ($23.4 billion, the most since February).
• The net short yen position decreased by 18% to 41K contracts ($6.4 billion).
• The net short pound position rose by 50% to $6 billion.
• The net short Swiss franc position was increased by 13% to 16K contracts ($2.2 billion).
In addition, speculators continue to think the Canadian, Australian, and New Zealand dollars will appreciate against the greenback, though the bets were slashed. Investors lost confidence mostly in Aussie: longs fell by 53% from the previous week to $2.5 billion.
It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound. Although the CME speculators represent a small fraction of trading in the currency markets, their trades are widely seen as typical of hedge fund investors' currency movements.
Image from etftrends.com
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Danske, Westpac, UBS: bearish on EUR
Danske Bank: sell EUR/USD at $1.3024 targeting $1.2802 and stopping at $1.3014.
Westpac: sell EUR/USD in the $1.3000 area targeting $1.2700.
UBS: EUR/USD will be trade around $1.3000 in June and then decline to $1.2500 during the next 3 month.
Spain: auction results
Spanish government sold 2.9 billion euro of 12/18-month bills out of targeted 2-3 billions. The yields and the cover ratio were slightly worse. See the detail below:
- 2.19 billion euro of May 17 2013 letra, yield 2.985% (last 2.623%), cover 1.8 (from 2.9);
- 0.71 billion euro of October 18 2013 letra, yield 3.302% (last 3.11%), cover 3.2 (from 3.77).
Photo by Pedro Armestre / AFP / Getty Images
When to return to AUD longs?
Australian dollar has been rapidly falling against the greenback since the beginning of the month. Today AUD/USD hit 0.9963, the minimal level since December 2011.
Analysts at ANZ claim that the attempts of the bulls to push Aussie up versus its US counterpart will be limited by resistance in the $1.0080/1.0110 zone. In their view, the downside risks for the pair will subside only if it overcomes $1.0225. If it happens, one may try returning to AUD longs.
The specialists think that on a broad scale we see consolidation of AUD/USD and recommend closely watching momentum and price action during the pair’s retracements up in order to find ideal entry levels and timings.
Chart. Daily AUD/USD
Ichimoku. Weekly forecast. GBP/USD
Weekly GBP/USD
British currency opened the week on the upside versus the greenback after 2-week decline from 2012 maximum in the $1.6300 area.
Pound was supported by the Turning line (1) which is still going up on the weekly chart and the upper border of the descending Ichimoku Cloud (3). The Standard line (2) is moving sideways and pointing at potential consolidation. Among the positive things one should note that the bearish Cloud has narrowed and may switch upwards in the near term reflecting stronger positions of the bulls.
Now everything depends on the ability of the prices to hold above the Cloud. If they manage to do it, the consolidation between the current levels and this year’s highs will likely continue. If they don’t, sterling will ease down to Senkou Span A (4).
Chart. Weekly GBP/USD
Daily GBP/USD
Pound’s currently testing support provided by Kijun-sen (1) ($1.6050). A bit lower, in the $1.6000 area, British currency will be able to count on the support line connecting the minimums of January 13, March 12 and April 16. In addition, the level mentioned above is very important from the psychological point of view.
If this support is breached and the prices head towards Ichimoku Cloud, the downside risks will increase as Kumo is rather thin in that zone. At the same time, there’s a 38.2% Fibonacci retracement level of the advance made by pound this year ($1.5890), which will increase the chances of the prices’ recoiling up (making us expect the “head and shoulders” pattern to form). Although bullish Kumo has started narrowing, it’s too early to speak about the potential reversal of the trend downwards – watch 3 support levels mentioned above.
The main resistance for sterling is provided by Tenkan-sen (2) which has recently turned down and was capping sterling during the whole last week.
Chart. Daily GBP/USD
RBS: bearish on EUR/GBP
Analysts at RBS recommend selling the single currency versus British pound targeting 0.7695 (2010 minimum) in the longer term and stopping at 0.8110 (May 3-4 minimums).
The specialists claim that support levels for EUR/GBP lie at 0.7999 (May 10-11 minimum) and 0.7695, while the resistance ones – at 0.8069, 0.8077 (lower border of the gap), 0.8096 (upper border of the gap), 0.8192 (April 19 maximum), 0.8222 (previous significant support) and 0.8500 (61.8% retracement from the pair’s advance after 2008 credit crunch).
Chart. Daily EUR/GBP
May 15: economic background
Asian session was surprisingly quite. The RBA released its last meeting minutes showing that last month 50 b.p. rate cut was caused by the easing growth and inflation.
The stalemate in Greece persists: Alexis Tsipras, the head of Syriza party which opposes the bailout and austerity, wouldn’t attend a meeting called by President Karolos Papoulias today – no doubt, bad news for risk sentiment.
Moody’s Investors Service downgraded 26 Italian banks including Unicredit SpA and Intesa Sanpaolo SpA citing weakened earnings and the country’s economic prospects.
Yesterday euro area’s industrial production came in even worse than expected contracting by 0.3% in March. Now the markets prepare to hear about the region’s falling into official recession. The forecast is for the currency union’s GDP to contract by 0.2% in the first 3 months of the year (second quarter in a row). Spain and Italy are already suffering from recession. The release is at 9:00 a.m. GMT. France has already reported 0.0% (q/q) change in line with sonsensus forecast. German economy, however, exceeded expectation adding 0.5% (q/q) versus 0.1% estimate. Italian Q1 data (-0.7% previous, -0.6% forecast) is due in 2 hours. In the medium term, the majority of forecasts for euro are bearish.
Also to watch today:
In addition, watch German May ZEW Economic Sentiment and follow the news about ECOFIN Meetings. Newly elected French President Francois Hollande meets German Chancellor Angela Merkel in Berlin. According to German government, Hollande's visit is a "strong signal" regarding the determination of both countries to continue their strong relationship. Euro zone’s leaders are expected to discuss the development of the region's monetary and fiscal policy. As is known, they have contradictory views on austerity.
US will release data for April. Economists look forward to a decline in American retail sales (both core and headline), while the CPI growth may slow down from 0.3% to 0.1%, though the core reading is seen unchanged. We will also get info on the demand for US debt: TIC Long-Term Purchases are expected to increase from 19.4B in February to 10.1B in March.
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If you have any questions to our analysts, you’re welcome to ask or comments for this article!
AUD/USD: not quite encouraging prospects
The Australian dollar fell below parity with the greenback for the first time this year on Monday. The uncertainty in Europe doesn’t influence the Aussie directly, but saps the global risk appetite.
According to the RBA meeting minutes, released on Tuesday, last month 50 b.p. rate cut was caused by the easing growth and inflation. Policymakers are still concerned by the weakness in the housing sector; the mining sector, however, performs strongly.
The Aussie is trading on a downside since April 30 after the RBA cut rates to 3.75%. The still-reasonable Chinese FDI data (0.7% annualized drop in April vs. 6.1% drop in March) helped lift the AUD/USD towards session highs.
However, without any positive news from Europe (and who believes in that nowadays?) AUD/USD may fall below the $0.9850, $0.9600 and $0.9400 support levels. Strong resistance lies at $1.0000. These days the pair is trading far below the daily Ichimoku Cloud.
National Australia Bank: AUD/USD may trade at $0.9800 by September instead of at a previously expected $1.0200. By the year's end the pair may trade at $0.9700 instead of at $1.0100.
Commonwealth Bank of Australia: The outlook declined to $0.9800 by June from an originally forecast $1.0800, and to $1.0500 by December instead of $1.0900.
Westpac: The pair may trade at $0.9800 by the end of the September instead of $1.0200, but is retaining $1.0400 as a year-end target. In the near term a test of $0.9900 is likely.
Chart. Daily AUD/USD
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Key options expiring today
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).
Here are the key options expiring today:
EUR/USD: $1.2750, $1.2800, $1.2850, 41.2925, $1.2950;
GBP/USD: $1.6100;
USD/JPY: 79.50, 79.55, 79.75, 80.00;
AUD/USD: $1.0000 (large), $1.0150.
Amage from yourmoneydictionary.com
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