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Market Analysis 19-03-2013: Dollar mixed as Cyprus fears recede
19.03.2013
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The Big Picture Market fears over Cyprus appear to be diminishing, with most Asian stock markets rising this morning and the dollar gaining vs the yen and Swiss franc, two major flight-to-safety currencies. But the US unit was still lower against most other currencies as yesterday’s early surge out of euros and into dollars reversed somewhat.
The market today is likely to focus on the vote in the Cyprus Parliament this evening. The Eurozone finance ministers issued a statement reaffirming the importance of fully guaranteeing deposits below EUR 100k. That may help to increase support for the measure among politicians.
The fuss over Cyprus has caused the market to forget that there is an FOMC meeting today and tomorrow. Expectations for Fed funds have come down about 10 bps from their highs, which is making it difficult for the dollar to rally further. The UK budget tomorrow and the possible change in the Bank of England’s remit may also bring the “currency wars” back into focus.
The Market EUR/USD
• EUR/USD stabilized as it became likely that insured depositors under EUR 100k would not be taxed. There is also increased confidence that Cyprus is a unique case in the Eurozone and this idea of taxing insured deposits is not going to be used in other countries. Now we just await the results of the vote.
EURUSD yesterday found support at the noted 1.288 level which concentrates the 200-day MA, lower Bollinger band, and 50% retracement level of the July – February up move. We find trendline support as well today at 1.287. Temporary trendline resistance may come at 1.298. We see prices intraday moving towards the support, eyeing 1.289 as Greece and Spain get into the debt markets to issue short-term paper amidst spiked Eurozone periphery risk. The uncertainty surrounding the Cyprus Parliament vote on the cash-for-equity swap will also add pressures to the common currency. A well-accepted positive outcome may have prices rebounding later in the session with possible resistance thereafter coming at 1.308.
USD/JPY
• The rally in Japanese stocks increased domestic confidence, leading to an outflow of funds and a higher USD/JPY. Bank of Japan Gov. Shirakawa steps down today and Mr. Kuroda takes over. Get ready for the new BoJ monetary policy!
The JPY gains were temporary, as anticipated, with the pair rebounding. A minor target for the day could be 96.1. However, with JPY gaining as a haven currency relative to the USD, we are cautious for yen gains today in light of market uncertainty. Support levels today seem to come at 94.3 with trendline support coming at 93.6.
GBP/USD
• UK data out today are likely to show accelerating inflation owing to rising commodity prices and the falling pound. But with the Bank of England more likely to loosen than to tighten, it looks to us like GBP/USD can move still lower. We expect little movement today though ahead of tomorrow’s budget, which may include a change in the BoE’s remit.
With economic growth becoming more of a priority than inflation for the UK, the Price figures coming out today will unlikely receive the attention they normally command. As noted repeatedly, strong resistance seems to come around 1.52, thus current price levels may actually be good buying levels in anticipation of further pound weakening.
Gold
• Gold has managed to recover the $1,600 level despite the dollar’s surge yesterday as the Cyprus crisis stoked demand for safe-haven assets.
Gold yesterday met our “Intraday View” target of $1608, being one of the few instruments that did not correct its market opening reaction to the Cyprus news. Some resistance at the $1608-$1610 level is likely given the upper Bollinger band and the 38.2% retracement level of the February down move. However, should we experience a run to safer assets today, given the increased Eurozone woes, we may see funds moving to the precious metal with $1620 being a next resistance level, as it concentrates the 50% retracement level and, more importantly, the 20-month trendline that was violated mid-February.
Oil
• WTI was extremely volatile yesterday. It opened sharply lower and was down 1.9% from Friday’s close at one point but rebounded 2.2% to trade above Friday’s close as traders followed the debate in Cyprus. The supply/demand picture hasn’t really changed; on the contrary, the API statistics out today are expected to show the 9th consecutive weekly rise in inventories to the highest level since last June. The mystery to us is why oil doesn’t fall further.
WTI was a major gainer yesterday, finding support at the highlighted $91.8 level before filling its small opening gap. Crude looks like it is progressing strong within its ascending triangle formation, seeming resilient in the Eurozone turmoil. A minor target for the day could be $94.65, just below the 50-day MA and upper Bollinger band. Support may come at $92.65.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
Disclaimer:
This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. IronFX may act as principal (i.e. the counterparty) when executing clients' orders. This material is just the personal opinion of the author(s) and client's investment objective and risks tolerance have not been considered. IronFX is not responsible for any loss arising from any information herein contained. Past performance does not guarantee or predict any future performance. Redistribution of this material is strictly prohibited.
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Market Analysis 20-03-2013: Focus on “Plan B” for Cyprus
20.03.2013
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The Big Picture Cyprus is dominating the markets after Parliament rejected the bank levy plan. With risk aversion rising, EUR/USD has fallen, stocks have fallen and gold is up modestly. But Asian stocks are mixed this morning and EUR/USD hasn’t moved that much since the rejection was announced, suggesting that the market may be rethinking whether the problems of this small island are really systemic.
These negotiations are following the usual pattern for the EU. Reaching an agreement on an adjustment program has always been difficult and taken several attempts. We still believe that some settlement is likely, indeed inevitable, but until it is passed the markets are likely to remain nervous and risk-off.
The Cyprus Parliament is acting with some pressure, as the provision of emergency liquidity assistance (ELA) funds from the ECB to Cyprus would normally expire today. Removing that aid would impair Cyprus’ ability to make transactions with the rest of the world. After the “no” vote, the ECB released a statement saying that it “reaffirms its commitment to provide liquidity as needed within the existing rules.” The statement is ambiguous as the existing rules require banks receiving the funds to remain intrinsically solvent.
According to the local press, there are several “Plan Bs” under discussion in Cyprus. These include:
The rescue ideas involving Russia add an unusual geopolitical dimension to this rescue that other troubled Eurozone borrowers don’t have. It may well be that security concerns trump EU politics and give the Eurozone an added incentive to come to a mutually agreeable solution.
Today there is plenty to move the markets besides Cyprus. The UK budget will be announced and all eyes are on what changes the Chancellor may make to the Bank of England’s mandate. Also the FOMC meeting ends and Fed Chairman Bernanke will hold a press conference. The statement is likely to indicate some improvement in the recent economic data, but a lower forecast for US growth this year due to the government sequester. Fed officials have made it clear that the recent improvement in the labor market isn’t enough to allow them to back off on the extraordinary easing measures, so we do not expect any change in asset purchases or guidance on policy.
The MarketEUR/USD
• All eyes on Cyprus; nothing else matters for EUR/USD at this point.
EUR/USD yesterday found strong support at the highlighted area which concentrates the 200-day MA, lower Bollinger band, and trendline resistance turned support, meeting our targets on the way. Trendline resistance looks to come at 1.2950, which may be hit in the unlikely events of furthering US quantitative easing or an end to Eurozone woes. Support at 1.2780 may be hit with strong US employment data and economic outlook projections, with 1.2825 being a closer support target as uncertainty surrounding Cyprus is preserved.
USD/JPY
• Moved slightly lower on risk aversion, but a relatively small movement given how big the USD movements elsewhere were. Kuroda takes over at the BoJ this evening European time; watch for an announcement about an emergency Policy Board meeting.
Support still lies at 94.30 with trendline support for the day coming at 93.70. Resistance comes at 96.50 with a lower resistance target for bullish positions coming at 95.90. With Kuroda not scheduled to give a speech today, we may see today similar light and sideways movement.
USD/CAD/h4>
• USD/CAD rose after Canadian factory sales in February fell for the fourth time in five months. The unexpected decline, coming on the same day as better-than-expected US housing data, highlights the divergence between the two economies. We expect USD/CAD to rise further as the Bank of Canada continues to backpedal on its tightening bias.
The Loonie’s loss yesterday found trendline resistance at a significant level that also sees the 23.6% retracement level of the massive down move from early 2009 to mid-2011, which saw the exchange rate plunge from around 1.3060 to 0.9400. The rate at the moment may go in either direction, with a breakout from resistance seeming more likely. However, we may want to see a confirmation of the move before proceeding with longer term bullish positions.
Gold
• Gold rose with the heightened Eurozone jitters despite the firmer dollar, but it was noticeable how little it rose, given how big the problems are.
Any negative news concerning Cyprus today may have the metal hitting resistance at the $1620 - $1622 area, with a fall likely should the FOMC signal an end to its asset-buying programme. Support may come at $1593 with stronger trendline and Fibonacci retracement level support coming at $1585.
Oil
• WTI lost all of the gains it had made over the previous three days on Eurozone concerns.
Given the size of the down move, we see a rebound today. However, given the gloomy global economic outlook as turmoil in the Eurozone increases, a rebound may be limited to $93. Strong support comes at $90.8, since it concentrates trendline support, the 200-day MA and the 61.8% retracement level of the December – February up move.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
Disclaimer:
This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. IronFX may act as principal (i.e. the counterparty) when executing clients' orders. This material is just the personal opinion of the author(s) and client's investment objective and risks tolerance have not been considered. IronFX is not responsible for any loss arising from any information herein contained. Past performance does not guarantee or predict any future performance. Redistribution of this material is strictly prohibited.
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Market Analysis 21-03-2013: Does Cyprus matter for the markets?
21.03.2013
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The Big Picture The euro’s rise against most currencies overnight raises a fascinating point: does Cyprus matter to the markets? This may be the gamble that the EU is making. Their brinksmanship depends on investors thinking that this small island is not systemic to the Eurozone. One can only imagine what the market’s reaction would be if Italy, for example, shut its banks for over a week as Cyprus has now decided to do. The stalemate between the two sides continues and the market will watch for any movement towards a “Plan B,” but with no pressure to reopen the banks for five more days, we do not expect a breakthrough today. Talks with the EU and the Russians continue.
The FOMC meeting was largely a non-event as there were no significant changes in either the post-meeting statement or the Fed’s guidance about its intentions. The committee’s unemployment forecasts were revised a bit lower, as expected, and Bernanke reminded his audience that the rate of QE purchases is adjustable from meeting to meeting depending on how the economy is faring. This suggests that if the growth in general and the labor market in particular continue to improve for the next one or two quarters, the Fed could start cutting back on its extraordinary stimulus measures. This contrasts with the picture at other central banks, which in several cases are starting to shift from a neutral to a loosening or from a tightening to a neutral policy, and is one of the main reasons why we expect a stronger USD over coming months.
Yesterday’s UK budget did not make any major change in the Bank of England’s remit, instead largely formalizing the the existing policy framework that has allowed the Bank to pursue the policies that have weakened the pound so much. As Chancellor Osborne is slipping in his attempt to achieve “fiscal responsibility,” he is likely to rely more and more on “monetary activism” to support a weak economy. We expect GBP to weaken further.
The economic focus today will be on the purchasing managers’ indices (PMIs) coming out around the world. China’s manufacturing PMI rose to 51.7 in March from 50.4, above the consensus. The Eurozone PMIs are expected to rise, but the gap between Germany and France is forecast to narrow only slightly, and the gap between the US and Europe is expected to widen further. That should support USD and keep EUR/USD trading within its recent range.
The Spanish auction of 2-, 5- and 10-year bonds will be watched to see if Cyprus is having a spill-over effect onto other peripherals. The yield on Spanish 10yr bonds declined by 7 bps yesterday and their spread over Bunds narrowed by 10 bps, suggesting that the auction may be well received, another indication that the market does not consider Cyprus to be systemic.
The MarketEUR/USD
• The global PMIs may move the market somewhat, but any major moves will depend on Cyprus. Any Plan B would need to obtain approval from Parliament around 1600 GMT.
With forecasted improvements in Eurozone PMIs, we may witness a break of the weak resistance at 1.2950 with the rate possibly finding new resistance at 1.3025 once the US PMI is announced. Support may come at 1.2860, around the 200-day MA.
USD/JPY
• The market is waiting for incoming BoJ Gov. Kuroda to give his first press conference this evening in Tokyo. Japan racked up its eighth consecutive trade deficit in February, demonstrating why Kuroda will have to get to work weakening the yen further and stimulating the economy.
USDJPY found resistance at the bullish target of 95.9. Support seems to lie at the 95.6-95.9 area, with stronger trendline support coming at 94. A possible intraday bullish resistance target is 96.5, with further, trendline, resistance coming at 97.15. A flight to havens though may have the currencies battling again.
NZD/USD
• NZD gained after Q4 GDP was announced to have risen 1.5% qoq, the fastest pace in three years and much higher than the consensus estimate of +0.9%. This has caused some people to wonder whether the RBNZ will be able to keep rates steady until next year. We still expect that the problems in the agricultural sector – which are caused by the weather and hence not amenable to monetary policy – will weigh on the country and prevent a rate rise.
Despite the Kiwi booming, its gain was restricted to the well-tested 23.6% retracement level of the June 2012 – February 2013 rally. We take this as a bearish signal and thus target lower towards 0.8225, eying the strong 4-year old purple trendline in the longer term.
Gold
• Gold fell slightly as the euro recovered, signaling receding Eurozone risk.
The asset lost following the announcement of a possible alternative rescue plan for Cyprus and was considerably volatile during Bernanke’s speech. The only minor decline, however, signals that there is still uncertainty and risk concerning the future of the Eurozone. As noted, strong trendline and Fibonacci resistance may come at $1620. Some support seems to be at $1598 with stronger trendline support coming at $1585. The precious metal is expected to be highly sensitive today, as news and details regarding a Cyprus deal get announced.
Oil
• An unexpected fall in US inventories and a rise in the China PMI sent oil prices higher.
WTI did indeed rebound yesterday recouping a large part of the losses made the previous day, meeting our $93 target on the way. Strong support comes at $90.8, which sees the trendline support, 200-day MA and 61.8% retracement level of the December – February rally concentrate. We will opt for other instruments for the day since they seem to currently better track the intraday fundamentals.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
Disclaimer:
This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. IronFX may act as principal (i.e. the counterparty) when executing clients' orders. This material is just the personal opinion of the author(s) and client's investment objective and risks tolerance have not been considered. IronFX is not responsible for any loss arising from any information herein contained. Past performance does not guarantee or predict any future performance. Redistribution of this material is strictly prohibited.
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Market Analysis 22-03-2013: The final round of Russian roulette?
22.03.2013
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The Big Picture EUR weakness was the theme overnight, answering the question that I asked yesterday in the affirmative: yes, Cyprus does matter for the markets. The ECB set a deadline of next Monday for the supply of funds to the island’s troubled banks; if there’s no settlement by then, they will pull the liquidity plug. Russia PM Medvedev’s threat to review the share of euros in its international currency reserves is emblematic of how this issue has caused the return of a risk premium to the euro.
Sentiment for the euro was also damaged by weaker-than-expected purchasing managers’ indices, which showed industry in the Eurozone contracting at an accelerating pace. This was in contrast with the US, where the manufacturing PMI showed accelerating expansion at a bit slower pace than expected.
The increasing Eurozone jitters have rekindled interest in safe havens: gold and silver gained, JPY rose despite dovish comments by the new BoJ Governor Kuroda, and CHF nearly kept pace with the dollar. Yet the successful auction of Spanish bonds yesterday, with the country managing to sell more bonds than it had aimed for at a lower yield than in February, shows that not every investor has lost faith in the Eurozone.
About the only economic indicator out today will be Germany’s IFO index, but the market is likely to focus on Cyprus. Parliament convenes at 10 AM Cyprus time (0800 GMT) to consider proposals for restructuring the banks, putting on capital restrictions and creating an Investment Solidarity Fund to raise the remaining funds. Any sign that they are having difficulty putting together package that would be acceptable to the EU is likely to cause further demand for the above-mentioned safe haven assets.
The MarketEUR/USD
• The euro will be a slave to events today, watching what goes on in Cyprus. The threat of the EU pulling the plug on the banking system, the odd idea of capital controls in a currency union, and the remote but now non-negligible possibility that Cyprus might have to leave the Eurozone if things get really bad – all this is likely to weigh on the so-called single currency.
EURUSD yesterday found support a number of times at the area that concentrates the 200-day MA, lower Bollinger band, and the 50% retracement level of the July – February rally. The 1.2865 – 1.2885 seems to be the support level for now, which may be tested again depending on the outcome and the perceived success of the Cyprus Parliament vote on the bailout plan. Weak resistance looks to come at the 1.2920 – 1.2940 area.
USD/JPY
• In his inaugural press conference on his first day in office, the new BoJ Gov., H. Kuroda, said he’s confident that the BoJ will be able to achieve the government’s 2% inflation target “at the earliest time possible.” But he didn’t mention any concrete actions he would take to achieve this goal. Japanese 5yr breakeven inflation rates are down about 16 bps over the last week to 1.38%, suggesting the market isn’t entirely convinced.
Any further USDJPY fall is likely to find trendline support at 94.00.
GBP/USD
• Much better-than-expected UK retail sales figures for February contrasted with the problems in Cyprus and weak Eurozone PMIs and encouraged inflows into the pound.
Cable gained considerably yesterday before finding resistance at the noted 1.52 level that sees the 61.8% Fibonacci level of the May 2010 – April 2011 rally. Our bearish tweet at the time of resistance paid off again with an approximate 70 pip retracement within 3 hours of posting and resistance hitting. The same resistance level is again being tested today, though the sustained testing may be a cause of concern. Although we are still overall bearish on sterling, a positive Cyprus outcome may be USD bearish, thus causing a break of the resistance.
Gold
• Eurozone jitters sent gold and silver higher, while platinum and palladium fell on the indications of a weaker Eurozone economy.
Gold is likely to be finding resistance at around $1620- $1622, given the concentration of the 50% retracement level of the February down move, the upper Bollinger Band and former support turned resistance line. Stronger resistance may come around $1628.50, which sees tested trendline resistance as well as the 23.6% retracement level of the massive bull run that took place from the onset of the financial crisis to September 2011.
Oil
• Oil fell on indications of a slowing Eurozone, with the gap between Brent and WTI narrowing further to an 8 month low.
Strong trendline support is likely to come around $91, a price that also sees the 200-day MA and 61.8% retracement level of the December – February up move.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
Disclaimer:
This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. IronFX may act as principal (i.e. the counterparty) when executing clients' orders. This material is just the personal opinion of the author(s) and client's investment objective and risks tolerance have not been considered. IronFX is not responsible for any loss arising from any information herein contained. Past performance does not guarantee or predict any future performance. Redistribution of this material is strictly prohibited.
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Market Analysis 25-03-2013: Cyprus solution or dissolution?
25.03.2013
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The Big Picture A solution for Cyprus! Not necessarily the best solution possible for Cyprus, but it is a solution that prevents a disorderly collapse of the banking system and will keep the country in the Eurozone. The agreement sent EUR/USD higher at the opening today, but not back to the levels a week ago, before the first bailout plan for Cyprus was announced (and later rejected). The failure to recover that previous level suggests confidence in the Eurozone has been shaken somewhat.
The whole affair has highlighted the difficulties of making decisions in the Eurozone and the impediments to a true single market, for example in banking supervision. As usual, the decision came around midnight on a Sunday (0:40 AM Brussels time), a familiar pattern now. Is that anyway to run an economy? Remember that the discussions over aid to Cyprus had gone on for nine months before reaching a crisis last week, and the problems of the banking sector were never much of an issue for the Eurozone before they suddenly became the big issue. The imposition of capital controls in Cyprus goes against the single market concept; why does a Cyprus-based euro have restrictions that a euro from Germany doesn’t? Such issues are likely to bring Euro risks, which had faded after the ECB last year pledged to back trouble countries’ debt, back to the market’s attention and reduce confidence in the single currency. That’s likely to cause it to weaken over time, in our view.
This is the last week of Q1 and should therefore see some position squaring. In the context of the recent market, that probably means selling dollars, as occurred across the board Monday morning.
The week will be shortened by the Good Friday holiday, which is observed in much of Europe, the US and many other countries. Fed Chairman Bernanke and several of his colleagues, plus RBA Gov. Stevens will be making speeches this week (Bernanke, who speaks at a conference today, is not likely to add much to what he said last week after the FOMC meeting). There are no major central bank meetings scheduled for this week, although there is a chance that the Bank of Japan will hold an emergency policy board meeting under the direction of its new Governor.
Data from the US this week includes durable goods orders, several Fed surveys, personal income and spending, the consumer confidence surveys, and several housing indicators. In Europe, the Eurozone sentiment indices, money and credit growth indices and leading economic indicators will be announced, as will German retail sales, labor statistics and consumer confidence. We expect the data to highlight the growth gap between the US and Europe and to keep EUR/USD capped. Japan has its usual end-of-month data dump, including the labor statistics, consumer price index and industrial production. The Bank of England's Financial Policy Committee will report on UK bank capital levels.
The MarketEUR/USD
• The agreement on Cyprus has brought some measure of stability back to the pair, but the euro has once again gotten a risk premium, which is likely to change its center of gravity so that it tends to drift lower over time.
EUR/USD found resistance at the 23.6% retracement of the down move that has taken place the past seven weeks. Resistance for the day is likely to come within the 1.3050 – 1.3080 area, with trendline resistance a lot lower at 1.2980 and possible support at 1.2940.
USD/JPY
• USD/JPY moved down slightly as funds that had moved back into dollars because of the Eurozone risk moved back into risk assets. We await news from the new BoJ Gov. Kuroda, who will be speaking in the Diet tomorrow. It may be hard for him to exceed the market’s already-high expectations.
USD/JPY found trendline support on Friday, before rebounding and thereafter retracing as it seemed that we would head into the weekend without a Cyprus deal. Trendline support for today seems to come at 94.15, but with the Cyprus news revitalizing the “risk-on” sentiment, it is likely we will see the pair gain back towards the 95.8 resistance level.
USD/CHF
• The dollar’s losses this morning extended to CHF, which is somewhat odd as CHF would be considered a safe-haven currency from Eurozone worries and could be expected to weaken after the Cyprus settlement. It did fall somewhat vs EUR but not as much as USD, which resulted in a lower USD/CHF. We think the fall in USD/CHF is not reasonable from a fundamental point of view and expect the pair to recover.
Further declines are likely to find support around 0.934, which concentrates the 200 and 50 day MA, which are on the verge of a “golden cross”. However, with good news coming out from Brussels with regard to Cyprus it seems that the CHF will lose its haven appeal, with a move towards 0.944, the 23.6% retracement level of the up move since February seeming more likely.
Gold
• Gold was down slightly from Friday morning’s levels as the resolution of Cyprus’ dispute with the EU removed a major risk factor from the market. With US Treasury yields increasing as funds are being allocated back into risky assets, and with equities gaining this morning, it seems that gold’s appeal will decline, we would expect gold to decline further today on a fundamental basis.
Gold may find 38.2% Fibonacci support at $1603.50,, with trendline support coming around $1591. Resistance seems to lie at $1618, the 50% retracement level of the February down move. Stochastics sell signals in the H1, H4 and Daily charts, as well as a likely RSI trendline break, further support the view that the haven asset is due to head lower.
Oil
• WTI was up sharply on the resolution of the Cyprus agreement, which took out a major risk factor for the world economy. Brent also gained, but not as much, continuing the relentless close of the Brent/WTI gap.
Support for the day seems to lie at $93.35 with likely to be tested resistance coming around $94.90, near the 61.8% retracement level of the February down move, which also sees the upper Bollinger band and the 50-day MA.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
Disclaimer:
This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. IronFX may act as principal (i.e. the counterparty) when executing clients' orders. This material is just the personal opinion of the author(s) and client's investment objective and risks tolerance have not been considered. IronFX is not responsible for any loss arising from any information herein contained. Past performance does not guarantee or predict any future performance. Redistribution of this material is strictly prohibited.
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Market Analysis: Looming Eurozone gloom on Dijsselbloem explicandum
Market Analysis 26.03.2013
The Big Picture • Jeroen Dijsselbloem, the Dutch finance minister and chairman of the euro-zone finance ministers, dropped a bomb on the market yesterday when he suggested that the Cyprus settlement could be used as a template for resolving banking crises in other countries. He later tried to walk back his statement (he didn’t actually use the word “template”) but the damage was done. Savers in all European countries with weak banking systems had assumed that the European Stability Mechanism (ESM) would rescue their banks if necessary, but now they will worry that their deposits will be the first line of defence if their bank gets into trouble. Given the lack of confidence in bank stress tests for gauging the safety of individual banks, savers are likely not only to move their money into the stronger countries (= Germany) but also outside the Eurozone entirely. The statement raises the risk premium for EUR and is likely to depress EUR/USD for some time, in our view.
• The implications were clear as bank stocks fell 2.1%. It was significant that French banks were among the hardest hit, along with Spanish and Italian. That shows the breadth of the problem in the European banking system and why it’s so important for the authorities to keep confidence in the banks. France is teetering between a core and a troubled peripheral country; if it slips into the latter category, then the troubled Eurozone countries will outweigh the core and the euro will be doomed.
• Today the market may get a break from Cyprus as the leader of Italy’s Democratic Party, Bersani, meets representatives of other political parties in an effort to form a government. Bersani has two days to form a government. Adding Italian political risk on top of banking sector risk is likely to further depress EUR/USD. The main economic data will be US durable goods orders for February, which are expected to rebound to +3.9% from -5.2% in January as aircraft orders should recover from their sharp drop in January. US new home sales and consumer confidence will also be awaited. More good news about the US economy could aid the USD rally.
The Market EUR/USD
• A lot of the bad news is already in EUR/USD so it may not decline further, but we have a hard time envisioning any rally either while the political, financial and economic pictures in Europe are so unstable
EUR/USD had an extremely volatile day yesterday as indicated by the 220 pip wick. It opened with a downside gap, before finding resistance at the 23.6% retracement level of the down move since early February. However, the pair plummeted following Dijsselbloem’s statement, finding support near the recent lows, closing at its downward sloping trendline resistance. The same resistance for the day seems to come at 1.2820, with spike resistance at 1.2970. A further decline may find support around the November level of 1.2735.
USD/JPY
• USD/JPY moved lower after Bank of Japan advisor Takenaka said that the BoJ should announce an orthodox monetary policy in April. But later BoJ Gov. Kuroda repeated his pledge to get inflation back up to 2% within two years and said that next week’s BoJ Policy Board meeting will debate specific policy steps to achieve inflation targets, making full use of the BoJ’s capabilities. USD/JPY recovered about half the losses. With five year break-even inflation in Japan now above the German level, it looks as if people are starting to believe Kuroda. That should help USD/JPY to recover.
USD/JPY found closing trendline support at the noted 94.15. Closing trendline support for the day looks to come at 94.30, with wick support likely coming at 93.57. Gains in anticipation of further yen weakening to achieve the inflation target may find resistance today at 95.00.
USD/CAD
• The Canadian dollar gained as the price of oil, Canada’s largest export, rose further, and Canada’s benchmark crude, Western Canada Select, continued to narrow its discount to WTI. Covering of large short positions, which have been increasing for several weeks, may also have played a part. The loonie seems likely to be one of the beneficiaries of Mr. Dijsselbloem’s statement as the Canadian banking system is generally sound and the country retains its Aaa rating.
The past month USD/CAD has repeatedly tested the resistance of its downward sloping upper trendline in its converging pattern but has failed to have any considerable breakout, retracing and finding support around its 23.6% retracement level of its up move since the start of the year. With the return to a “risk-on” sentiment, the rate is likely to retest resistance around 1.0270. Further loonie strengthening however may have price finding support around 1.0130, near the 38.2% retracement level. With the lower Bollinger band frequently acting as support, it is unlikely that we will see USD/CAD falling much further today.
Gold
• Gold was also very volatile yesterday, finding trendline support around the noted $1591 target level, before rebounding after Mr. Dijsselbloem’s statement. An easing of banking sector concerns today may have price retest trendline support at around the same price level, with furthering of fears causing price to move towards the $1618-$1623 trendline, 50% February retracement and upper Bollinger band resistance zone.
Oil
• WTI had a phenomenal increase before finding resistance at the 23.6% retracement level of the December-February rally. The oil price however declined following the shift to a “risk-off” sentiment, closing at its 50-day MA and around our $94.90 target. Support for the day may come at $93.35 with resistance likely coming around yesterday’s high, as we move towards the upper trendline of the noted triangle formation.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
Disclaimer:
This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. IronFX may act as principal (i.e. the counterparty) when executing clients' orders. This material is just the personal opinion of the author(s) and client's investment objective and risks tolerance have not been considered. IronFX is not responsible for any loss arising from any information herein contained. Past performance does not guarantee or predict any future performance. Redistribution of this material is strictly prohibited.
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Market Analysis 27-03-2013: Risk-on revitalization but no euro relief rally
Market Analysis27.03.2013
The Big Picture Continued worries about the Eurozone and mixed US economic growth kept the dollar well supported yesterday and EUR/USD under pressure, but there were few dramatic moves. That in itself may be significant: the fact that EUR/USD did not see much of a relief rally after several EU leaders tried to walk back Dutch Finance Minister Jeroen Dijsselbloem’s comments about Cyprus shows how the issue remains a concern for the Eurozone. They are clearly moving in the direction of bailing in large depositors regardless of any disclaimers and this is likely to keep investors concerned about the euro, in our view.
The biggest mover among currencies was the yen, which fell on a Nikkei report that the Bank of Japan would adopt a new target for government bond purchases that would combine two existing bond-buying programs, one that simply supplies regular liquidity to the banking system and another that is part of the Bank’s quantitative easing program. The report shows how new BoJ Gov. Kuroda has brought new thinking to the BoJ and is set to shake up the existing system of monetary policy, which is likely to send USD/JPY higher over the medium term as the new measures actually get implemented.
Very little on the schedule for today – Italy will sell five- and 10-year bonds, which should be well received after the IMF put out a positive report on Italy’s banks. Eurozone consumer confidence will be announced and two US Fed officials speak.
The MarketEUR/USD
• EUR/USD had a choppy trading day yesterday , finding resistance around its 200-day MA and 50% retracement level of the July – February rally. Support came at Monday’s low, with the likelihood of that 1.2828 level being broken today as the Euro’s inability to gain yesterday is a bearish sign. The bearish outlook will be reinforced however with a break of the 1-month old mildly upward-sloping RSI trendline. Trendline spike resistance for the day comes at 1.2950, with the likelihood the pair will move towards the 1.2810 closing resistance. Further losses may find support around 1.2735.
USD/JPY
• USD/JPY moved higher, closing above the trendline support of 94.3. The same support today comes at 94.5, with a move away from support being likely as indicated by the H4 and Daily Stochastics. A minor initial target for the day may be 95.08 with a subsequent one at 95.6.
NZD/USD
• NZD/USD gained during the US trading day as the rally that began several days ago continued. The NZD was still enjoying a boost from Friday’s better-than-expected trade data. It came off during New Zealand trading though after the ANZ Business Confidence survey showed a sharp drop in confidence in March.
Kiwi’s gains found resistance at the former upward sloping trendline that acted as support. An inability to breakout from this level is a bearish signal, a view that is validated by the overbought Stochastics levels in the H4 and Daily charts. Should price head lower, 0.8340 is an interesting initial support target, with weak resistance for the day possibly coming at 0.8405.
Gold
• The gold market seems to put more importance on the strong dollar than on the Eurozone jitters, which are one of the reasons for the strong dollar. People may be worried about the European banking system but apparently they aren’t taking their money out of the banks and putting it into gold. The general “risk on” attitude probably helped depress gold as well.
Gold weakened yesterday finding trendline support before retracing. With the shift towards risky assets we may see the pennant continuation pattern completing today with a break of the upward sloping trendline that finds support today around $1592. Support thereafter may come at $1584 with a further price target being $1577. Weak resistance may lie at $1606.
Oil
• Remarkable how every day the headlines for oil read the same: oil prices higher as inventories show further rise. The generally good US economic data yesterday sent oil prices higher once again despite a 3.7mn barrel rise in crude inventories last week and expectations that another report out today would show a gain as well. The market seems to be trading higher on expectations of increased demand that may not materialize.
WTI’s almost 2-dollar gain yesterday brought it ever so near to a 5-year old downward sloping trendline from the record high witnessed in the summer of 2008. It seems likely that crude will find strong closing resistance in the $96.8 - 97.55 area since the former is the 5-year old trendline resistance point for the day and the latter upper trendline resistance level of the triangle formation that has developed the past 9 months. Support may come at $95.6, with a further decline likely being supported around $94.9.
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IronFX comments on the Cyprus bailout
IronFX is pleased to announce that Marshall Gittler, Head of Global FX Strategy at IronFX, was invited to contribute to the Sky News’ business segment with Joel Hills. Mr. Gittler discussed the Cyprus bailout deal and its implications.
Sky News is a 24 hour television news broadcaster with an emphasis on UK and international news stories. The live interview was held on 25th of March 2013 at 9.40 am (GMT).
Market Analysis 28-03-2013: Eurozone woes worry world
Daily Commentary28.03.2013
The Big Picture A perfect storm for Europe – As Cyprus declares aggressive currency controls, in effect creating a second class of euros, the Italian problems come back to the foreground. Hopes that it might be possible to form a government have faded after Democratic Party leader Pier Luigi Bersani failed to get support from the Five-Star Movement that would allow him to form a minority government. Italian 10yr bond yields jumped 20 bps yesterday after weak demand at the country’s auction for five- and 10-year bonds, with Spanish, Portuguese and Greek yields also rising sharply, showing that once again fears are coming back to the periphery.
US stocks managed to recover their early losses to close nearly unchanged, but the recovery in confidence did little for the euro. This suggests that market attention is centering on dollar assets and a shift of euros into Germany – yields on two-year Bunds turned negative yesterday (3- and 6m bill yields were already negative). JPY seems also to retain its safe-haven status (see below).
News out today includes German unemployment, which is expected to be unchanged, and the weekly US initial jobless claims. The OECD will publish its economic outlook for the G7 economies. The US bond market will close early for Good Friday, so liquidity may be poor late in the day. We expect that markets will continue to focus on the politics of Cyprus and Italy. The banks open again in Cyprus at 1000 GMT; what will the scene be like? As for Italy, that story is set to run and run, as it may be August before a new government can be elected. And without a government to agree on an adjustment program, the ECB cannot implement its “outright monetary transactions” to support the Italian bond market if necessary. Europe is walking a tightrope without a net.
The MarketEUR/USD
• EUR/USD fell yet again below its resistance trendline, finding support at 1.2748, slightly higher than the suggested 1.2735. Resistance seems to come at the 1.279 – 1.281 area with further resistance, in the unlikely event that German data today cause a rebound, possibly coming at 1.2880, the 200-day MA and 50% retracement level of the rally that took place in the second half of 2012. The reopening of banks in Cyprus at 10:00 GMT may reinforce Eurozone concerns, pushing the rate lower towards the noted 1.2735, with support levels thereafter coming at 1.27, the 61.8% retracement level of the aforementioned up move, and 1.264.
USD/JPY
• Despite depreciating 20% in the past four months, it looks like the yen has not lost its safe haven status. EUR/USD moved lower yesterday but EUR/JPY moved even lower, resulting in a decline in USD/JPY. The pair may fall further on continued Eurozone concerns, as Japanese investors were big purchasers of Eurozone peripheral debt and may unwind some of those purchases. AUD and CAD would be likely beneficiaries of that trade.
Although there are many comments about how the Bank of Japan won’t be able to meet market expectations for its first policy board meeting next week under the new Governor, the options market is pricing in high volatility for the meeting. One-week implied options volatility for USD/JPY jumped today to 14.36 from 11.06 yesterday, as one-week options now cover the meeting next Thursday, suggesting that some investors are still willing to put money on Mr. Kuroda.
USD/JPY closed in Europe at 94.36, marginally below the noted support of 94.50, however today it seems more than probable it will close further below trendline support, which today lies at 94.70 and may in fact act as resistance. Support may come at 93.57, with further support coming at 93.00.
USD/CAD
• There was an odd decline in USD/CAD ahead of the release of the CPI, which in the event was far above expectations at +1.2% mom vs +0.7% expected, the largest rise since 1991. The high inflation implies that the solid growth in employment over the last six months has created stronger demand than was previously estimated, which recalibrates people’s estimates for Canadian monetary policy. The rising price of oil, Canada’s largest export, is also supporting the loonie. Looks like USD/CAD is going to head lower for some time as the market (and the Bank of Canada) readjusts its outlook.
Loonie strengthening is likely to find support around 1.0140, which sees the lower Bollinger band, the 38.2% retracement level of the up move since the start of the year and the 50-day MA concentrate. However, further CAD strengthening may have the rate finding support at 1.0080. Resistance looks to come around 1.0217 with strong resistance coming at 1.0275.
Gold
• Gold initially weakened yesterday finding support at the noted spike trendline but failed to breakdown from its pennant formation in light of Eurozone concerns. It rebounded from that level, finding resistance around the noted $1606 level, and continuing to do so till this morning. With a long weekend ahead for many markets in light of Good Friday, we may see a spiking of Eurozone concerns and gold could be a beneficiary. Gold is likely to find resistance at the $1618 – 1624 area, with the former being the horizontal line in the pennant and the latter the intersection of two trendlines.
Oil
• WTI was yet again one of the biggest gainers yesterday in spite of data showing that US crude oil stocks increased more than double than what was expected.
WTI initially found support at the noted $95.60 level before rebounding to find resistance at the highlighted 5-year old trendline that extends from the peak witnessed in the summer of 2008. As previously stressed, strong resistance is likely to be experienced in the $96.8 - 97.55 area. A breakout from the 9-month triangle formation will set a longer term target of $108. A possible correction today, especially in light of Eurozone jitters, may have price retrace again to $95.6, the 23.6% retracement level of the winter up move. Stronger support comes in the $94.8 – 95 area that concentrates the 50-day MA and the 23.6% retracement level of the March up move that coincides with the 61.8% retracement level of the February decline.
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Market Analysis 29-03-2013: A good Thursday ahead of Good Friday
Daily Commentary29.03.2013
The Big Picture The euro recovered in subdued trading Thursday as banks in Cyprus reopened in relative calm and nothing surprising happened in Italy. Peripheral bond yields, which jumped on Tuesday and Wednesday, fell back somewhat while Bund yields rose a bit, a reversal of the “risk-off” trade that had dominated the day before. Slightly worse-than-expected US data, particularly a disappointing initial jobless claims figure, did not dampen the “risk on” sentiment as the US S&P 500 closed at a record high. Trading was light ahead of what will be a long weekend in many markets around the world.
Although Cyprus may fade from the market’s view, the aftershock is likely to continue as the market is once again focusing on the problems of the European banking system. It will be important for investors to track European bank stocks to get a sense of where EUR/USD is headed. Also, in Italy the Democratic Party head yesterday failed to form a government and President Napolitano has taken charge of the search for a consensus leader. That problem too is likely to weigh on the euro for some time, thereby providing support for the dollar.
US personal income and personal spending and U of Michigan consumer confidence are the only major economic indicators out today, but with the Good Friday holiday closing markets around the world, we do not expect anyone to be taking large positions on information that in any event would not reshape anyone’s view of the world. French consumer spending will be moderately interesting after the surprising rise in the corresponding German indicator, but this is not market-moving.
The MarketEUR/USD
• The morning euro decline to 1.2755 following the unanticipated increase in the number of unemployed people in Germany was rapidly erased as capital controls in Cyprus averted a run on deposits. The euro gained further versus the dollar on the announcement of worse than expected US jobless claims, finding resistance at the recent lows of 1.2840. We may see some volatility at 1230 GMT when the US personal spending data is released. Further, stronger resistance may come at 1.2880, with trendline closing resistance turned support at 1.2760.
USD/JPY
• BoJ Gov. Kuroda gave testimony in the Diet in which he continued his dovish stance, but that was well known and the yen barely reacted. The usual end-of-month slew of data also had little effect on the market as it was mostly in line with expectations. Expectations are high ahead of next week’s BoJ Policy Board meeting; it may be difficult to surpass them.
USD/JPY had a fairly flat trading day yesterday, finding resistance at 94.40. Support today is likely to come at 93.57. The release of the Tankan survey early Monday morning in Japan is likely to cause some volatility with further support coming at 93.00 and resistance at 94.80.
GBP/USD
• The pound was boosted by a 0.3% mom rise in the service sector index in January. But the data also showed output per worker fell 0.8% in Q4 and output per hour fell 0.5%, while unit wage costs increased 0.5%. It will be difficult for the UK to close its widening trade and current account gap with declining competitiveness. We remain bearish on cable.
The pound stayed within the strong 1.5200 – 1.5270 resistance area yesterday. With the H1, H4 and Daily Stochastics all in overbought territory, it is likely we will see a move below the 1.5220 high, especially if the US consumption data come out strong. With strong resistance coming at 1.5270 it may be an interesting option to place a target close to 1.5100.
Gold
• Gold weakened as it became apparent that there would be no mayhem in Cyprus upon bank opening, very briefly spiking upwards on the worse than expected US jobless claims.
Gold found support at the noted support trendline. Should a breakdown from the pennant occur, we would be placing a longer term target of $1544, with $1584 and $1577 acting as initial support levels.
Oil
• WTI’s seemingly technical rally was not deterred by the somewhat negative US data published yesterday, having a fifth consecutive day of impressive gains. These substantial gains and the divergence in outlook between the European and the US economies have narrowed the spread with Brent at a 9-month low, with the spread remaining unchanged today as the markets are closed. Crude found resistance just below the highlighted green upper trendline of its triangle formation, managing to initially breakout from its 5-year old trendline shown in blue. A breakout from the $97.55 level will pave the way for a longer term target of $108.00
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MARKETS SUMMARY
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