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IronFX - Market Analysis
Daily Commentary01.04.2013
The Big PictureThe lull before the storm:An uneventful weekend, for a change, ahead of an event-filled week. The week opened with Asian stocks trading lower as China’s manufacturing PMI, released by the China Federation of Logistics and Purchasing, and Japan’s large manufacturing confidence index both improved at a slower rate than expected. Although China’s 50.9 PMI reading shows expansion and is in fact an 11-month high and a significant improvement from last month’s anaemic 50.1, it missed economists’ 51.2 estimate.
The week ahead sees a flurry of economic data, with four major central banks (RBA, BoJ, BoE, ECB) announcing their interest rate decision and with the US and the Eurozone publishing their employment reports. The ECB, BoE and BoJ decisions will all be made public on Thursday, with the BoJ meeting attracting most attention since it will be the first one under the helm of newly positioned Governor Kuroda.
The data that will be published this week will likely indicate whether we have a seemingly breakdown of business cycle synchronisation between the Eurozone and the US as the former is due to signal further increases in unemployment and contractionary PMI data whereas the latter is expected to show job gains and an expansion in PMI. This will likely add to the downward pressures the common currency has been experiencing the past couple of months due to the on-going crises that seem to surface in the peripheries.
The MarketEUR/USD
• The euro gapped lower today following the announcement of a possibly larger than expected haircut for Bank of Cyprus uninsured depositors with over EUR 100,000, causing renewed Eurozone jitters in the markets. With the Eurozone set to publish a record unemployment level tomorrow and with US Treasuries falling on expectations that the US will show strong manufacturing expansion today and an improvement in the labour market on Friday, it is likely that we will see a continuation of the two-month downtrend for EUR/USD. Resistance for the day likely comes at 1.2840 with a strong US PMI figure likely driving price below the closing trendline at 1.2745, with 1.2680 possibly being met by tomorrow morning should the Eurozone continue to evidence a much weaker economic recovery relative to the US.
USD/JPY
• Although the dollar is gaining against most of its major peers, it is weaker relative to the yen as the Tankan index of confidence amongst large manufacturers rose to -8 in Q1, from -12 in Q4 last year, but marginally missed the -7 estimates. The pair traded sideways the past week, despite marking 6 consecutive months of gains, with trading taking place within a narrow band. Resistance for the day seems to come at 94.40 with further resistance at 94.80, whilst support comes at 93.57 with further support at 93.00.
GBP/USD
• With cable in the 1.5200 – 1.5270 resistance territory, and with the US set to announce strong manufacturing data today that will set it apart from the sluggish European economies, including that of the U.K., it is likely that we will see pound weakening versus the dollar today, with support coming close to 1.51.
Gold
• Gold spiked in the early session on reignited Eurozone concerns with regard to uninsured deposits following the finalisation of a haircut decision in Cyprus, but the asset quickly shed those gains on account of a stronger dollar and data showing a continuation of US recovery. The precious metal seems to have found yet again support on its upward sloping trendline, at $1594. We are eyeing a breakdown from that trendline and a consequent end to the pennant formation to set longer term bearish targets towards $1544. A continuation of the formation however may have price increase towards the resistance level of $1616.
Oil
• WTI hit its ascending triangle’s upper trendline resistance, shown in green, before retracing as Exxon Mobil decided following an oil spill to shut a pipeline that carries crude to the US Gulf Coast, increasing its spread with Brent which had narrowed to a 9-month low. WTI seems to be finding support nonetheless on its downward sloping 5-year old trendline shown in blue at around $96.7. As previously stated, a breakout from the $97.55 level is likely to pave the way for a continuation of the rally we have seen the past month. Price may retest the resistance level should the US PMI data shows a strong expansion in manufacturing. Further support may come at $95.75 since it concentrates the 23.6% retracement levels of the two rallies that have taken place the past four months.
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Market Analysis 05-04-2013: BoJ bang, Draghi boom, US labour gloom
Daily Commentary05.04.2013
The Big Picture BoJ bang, Draghi boom, US labour gloom: Yesterday’s tsunami caused by the BoJ’s decision to revamp its stimulus programme, doubling its bond purchases, has yet to subside with the Nikkei this morning surging to pre-financial crisis levels, in anticipation of the money that will be pumped in the economy, as the Japanese bond yields and the yen plunge. The BoJ’s monthly stimulus will now be of a similar size to that of the Fed’s, with the key difference being that a similar amount of money will be supplied in an economy of about a third the size of the U.S. The challenge for Kuroda however will be to see the benefits of this stimulus trickling down to the labour force through higher wages that will increase the marginal propensity to consume, thus enabling the achievement of the 2% inflation target within 2 years.
The day yesterday however was not shy of news from the west, with the BoE and ECB keeping their benchmark rates unchanged. ECB President Mario Draghi managed to shake the markets again, as he made slightly dovish comments stating that the 31-month low HICP inflation rate published a couple of days ago gives room to the ECB for further loosening of its monetary policy to combat the risk of a possibly “weaker than expected domestic demand” since inflation risks “continue to be broadly balanced”. The initial euro depreciation however was short-lived as he signalled Eurozone unity, stressing that Eurozone “entails many risk, big risks”, whilst reassuring that the Cyprus solution “is no template”. The euro, however also managed to rebound thanks to the increase in U.S. initial jobless claims which missed estimates, causing the dollar to fall.
News today includes the U.S. Jobs Report, with unemployment set to remain stable at 7.7% and Nonfarm Payrolls are forecasted to mark the second highest increase in more than a year in the number of people on non-agricultural related payrolls. In the Eurozone, the retail sales figures for February and the Q1 2013 seasonally-adjusted GDP figure will be closely monitored to see whether there are any signs of Eurozone recovery, highlighting a possible future ECB base rate cut should the figures disappoint. The Canadian jobs report is also expected to cause Loonie volatility, especially in light of a forecasted 0.1% increase in the unemployment rate.
The MarketEUR/USD
• The euro declined initially following the worse-than-expected Eurozone Markit Services PMI and the Producer Price Index, and furthered its losses during Draghi’s press conference, finding support at the lows of last week. The disappointing U.S. job data however, caused the dollar to depreciate substantially due to speculation that the NFP figures today may show a slowing recovery and thus the possibility of the Fed extending its quantitative easing. Resistance came at 1.2940, with resistance for the day, should the U.S. job report disappoint coming around 1.3095, in light of two retracement levels and the upper Bollinger band, with two significant support levels being 1.2800 and 1.2750. An extension of the euro rally over the next days is likely to find strong resistance at 1.3320.
USD/JPY
• The phenomenal yen weakening against all counterparts yesterday looks to be continuing today, although USD/JPY seems to have found resistance on its upper Bollinger band and a former resistance level, at 97.15. An extension of the rally may find some resistance around 98.40 since it sees a well-tested historic trendline resistance level, though it is worth noting that there was a 5 yen breakout from this trendline in the past. Trendline support comes at 95.65 with further support should we have a pullback coming at 94.80.
USD/CAD
• The Loonie will be closely followed today with the announcement of the Canadian trade balance, which is due to show a further improvement for February. The employment report, however, is likely to show an increase in the unemployment rate despite the increase in the number of people employed. USD/CAD has been trading between its 9-day MA and the lower Bollinger band for the past couple of weeks, continuing its decline following its inability to breakout from the strong resistance found at 1.0340. Support may come at 1.0080, the 50% retracement level of the rally from the start of the year, with resistance at 1.0155 and 1.0181.
Gold
• Gold continued its decline edging close to starting a primary bear market as it found support at $1540, with $1535 being a crucial support level. However, the precious metal rebounded on the weak U.S. labour market prospects that may hinder the rate of recovery. A rebound following weak NFP results is further supported by the oversold levels we have reached in RSI and Stochastics and in light of price trading below the lower Bollinger band. Resistance may come at $1564 and $1577.
Oil
• WTI plunged yet again yesterday following the initial jobless claims miss, finding support at the 50% retracement level of the rally which took place from November to February, before rebounding. A further decline on account of missed NFP figures may find support in the $91.4 – 91.80 area. Resistance is likely to come at $94.7, which sees the 38.2% retracement level of the March rally and the 50-day MA.
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Market Analysis 08-04-2013: U.S. labour hit and miss
Daily Commentary08.04.2013
The Big Picture U.S. labour hit and miss:The nine month low nonfarm payroll figure missed even the most pessimistic of estimates adding to the recent spell of disappointing U.S. data, which increasingly show that the Fed will likely extend its monetary stimulus into 2014. The unexpected decrease in the unemployment rate did not appease downward pressures on the dollar as the decrease was largely attributed to the further decrease in the participation rate which hit a 34-year low. The resulting effect of the report was for the dollar to lose against most of its major counterparts with the exception of the Canadian dollar, which got hit by a worse than expected increase in the unemployment rate and a decrease in the number of people employed in Canada.
The yen is continuing with its plunge opening with a gap against its major counterparts as the Japanese current account for February ended three consecutive months of deficit, reporting the largest surplus in a year, while the Nikkei’s rally holds strong following the unprecedented BoJ stimulus announced on Thursday.
Although the week ahead is not expected to match last week’s volatility, a number of major economies will be reporting price and sentiment indices as well as trade balances. What will arguably garner most attention however are the U.S. retail sales released on Friday that are due to add to the concerns of a slowdown in the U.S. recovery. This morning the Eurozone is set to see a fourth consecutive month of deteriorating investor confidence, ahead of data that will likely indicate an expansion in German Industrial Production for February. Later today, the release of the Bank of Canada’s Business Outlook Survey and the RICS housing costs data for the U.K. are likely to have some impact on the Loonie and Sterling respectively.
The MarketEUR/USD
• The euro currently sees spike trendline and upper Bollinger band resistance at 1.3075, which is also the 38.2% retracement level of the rally that took place in the second half of 2012. Some support lies at 1.2940 with stronger support at 1.2880, which sees the 200-day MA- and the 50% retracement level. These levels may be tested following the release of the Eurozone Sentix Investor Confidence and the German Industrial Production today and the German and French trade balances early tomorrow morning that are due to show weakening figures for February compared to January.
USD/JPY
• The pair is currently lying at trendline resistance at 98.40 following its gap. Further resistance may come at 99.60, which sees the former support of the trendline channel it was following during its November – February rally. This resistance may be tested should we see an improvement in Japanese consumer confidence early tomorrow. Support currently comes at 97.50 with further support at 96.50.
GBP/USD
• The pound was one of the biggest gainers from the missed U.S. NFP figures, managing to break the strong 1.5270 resistance level. Its ability to now make that level a support will be dependent on the strength of the U.K. economy as signalled by the RICS housing market price balance today, where most surveyors are expected to cite falling house prices, and the trade balance and production data tomorrow morning. Some support is likely to come at 1.5300, which sees trendline support and the 50-day MA, with stronger support coming at 1.5270. Some resistance is likely to be found at the upper Bollinger band at 1.5360.
Gold
• Gold saw a substantial rebound from the 10-month low it hit following the breakdown from its pennant formation, as the disappointing U.S. employment report points to a furthering of Fed stimulus that is likely to have downward pressures on the dollar and consequently be bullish for the inversely-related gold. The precious metal is likely to trade within a narrow trading range today, with possible resistance coming at the 23.6% retracement level of the February down move and support at $1572, the 50% retracement level of the recent down move. Any future gains will likely find strong resistance at the pennant’s support trendline that currently lies at $1600.
Oil
• Last week saw WTI experience its biggest weekly decline since the week ending 21st October, as it retraced from strong trendline resistance following the release of weak U.S. labour market data. A reigniting of violence in Nigeria, OPEC’s eighth largest producer, may see a future fall in the country’s oil output thus likely having some upward effect on global crude prices. WTI will likely see a few days of consolidation following the steep decline it had last week and given the lack of any major U.S. data announcements over the coming days. Resistance for the day is likely to come at $93.5 with weak support coming at $92.30 and strong support at around $91.70.
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Market Analysis 09-04-2013: Newton’s 1st law of motion and USD/JPY
Daily Commentary 09.04.2013
The Big Picture With no major market-affecting news or economic indicators out yesterday to change the market’s direction, Newton’s first law of motion* ruled and USD/JPY continued its march towards the 100 level. The last time USD/JPY approached the magic number was in March of 2009 and it took almost a month of consolidation to break through. This time however it seems likely that the momentum caused by the Bank of Japan’s radical new measures (plus the rising tensions on the Korean Peninsula) will push it over the mark faster. The major risk to a long USD/JPY position would seem to be verbal intervention from the Japanese authorities, in our view, but even that would probably be only a temporary pause.
EUR/USD has risen somewhat as German industrial production was slightly better than expected yesterday, European equities rallied, and inflows from Japan pushed down bond yields across the Eurozone, including both core and periphery. Yet EUR/USD could not break through Friday’s highs. This was perhaps because of the new tensions in Portugal, where the Constitutional Court blocked some austerity measures that the Troika was demanding.
The astonishing comments of the EU commission -- that it is happy that the Portuguese government chose to ignore the ruling of its court, threatens to cut funding if the Portuguese government does not follow its prescriptions, recommends that democratic discussion about the measures does not take place, and talks about “growing investor confidence” in the country with the 2nd widest spread over Germany in the Eurozone (and the spread has been widening since late January!) -- shows the huge chasm in thinking between the Eurozone elites and what is happening on the ground in the peripheral countries. This gap in thinking and core Europe’s insistence on failed austerity measures is likely to keep the tensions in the Eurozone and cap any potential EUR/USD rallies.
Mr. Bernanke speaks at an Atlanta Fed conference today along with the Bank of England’s Mr. Haldane. US wholesale inventories and the JOLTS job openings are the only US indicators out and they are usually not market-movers. Most of the market-affecting indicators out today will concern the UK, where industrial production, trade, and several housing indicators are due. Signs of a recovery in output, as the market expects, could boost sterling, although the trade balance is expected to deteriorate yet again.
*A body in motion tends to stay in motion unless acted upon by some external force
The Market EUR/USD
• The euro advanced yesterday despite further deterioration in investor confidence, being ushered by the better than expected German industrial production. EUR/USD is continuing with its advance finding resistance early today at the 38.2% retracement level of the July – February rally and the upper Bollinger band. Further resistance may come at 1.3120 which sees spike trendline resistance as well as the 50-day MA, with support likely coming at 1.2960, and strong trendline and 200-day MA support at 1.2880.
USD/JPY
• USD/JPY looks to be hitting a 15-year old trendline resistance level as seen in the hourly, weekly and monthly charts, with 99.90 being the former channel support trendline that may have turned resistance. Any retracement may find support at 98.15 which sees the 23.6% retracement level of the recent unprecedented yen weakening, which has seen the Stochastics and the RSI swiftly move into overbought levels.
GBP/USD
• GBP/USD’s breakout from the strong 1.5270 resistance level was short-lived, raising suspicions that it was a whipsaw. Resistance still seems to hold at that level, which now coincides with the 50-day MA, with further resistance likely coming at the upper Bollinger band around 1.5340. Trendline and Fibonacci support comes at 1.5200, the former resistance level.
Gold
• Gold moved lower yesterday as U.S. equities generally advanced, recovering from the NFP surprise. The precious metal however looks likely to rebound from yesterday’s downmove as noted by the bullish signals in the H1, H4 and Daily Stochastics with RSI-MA9 crossovers being in the making. Resistance may come at $1585 with support at $1567.
Oil
• The bullish hammer candlestick that formed on Friday was followed yesterday by a strong bullish rebound move from the low following the disappointing U.S. employment report, thus confirming a possible reversal that would set an initial target of $96 and a subsequent one at the previous trendline resistance which now lies around $97. Support looks to come at $91.90, which sees trendline support as well as the 200-day MA.
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Market Analysis 10-04-2013: Risk-seeking now USD-negative as EM assets beckon
Daily Commentary10.04.2013
The Big Picture The jolt caused by last week’s disappointing non-farm payrolls is but a distant memory now as investors rush into risk assets worldwide. Most stock markets were up yesterday after a lower-than-expected China CPI helped to dampen fears of a sudden tightening in China. Bond markets were generally the losers, with the notable exceptions of Spain and Greece, where yields declined – another instance of risk-seeking investments.
Such risk appetite is now USD-bearish as investors pile into emerging market stocks and bonds, which have been outperforming US markets recently. The dollar is also being hurt by the increasing view that the Fed is not likely to begin the tightening process anytime soon. For example, the option-implied probability of no hike in rates by the December meeting is now 45%, up from 43% a month ago. Carry trades in high-yielding EM currencies tend to perform well in such an environment, with USD as a funding currency.
Overnight markets were surprised by weaker-than-expected Chinese exports and much stronger-than-expected imports, which resulted in an unusual trade deficit for the country in March. However, the surprising figures are to some extent just a reversal of the anomalous data of the past two months. For Q1 as a whole, exports were up a healthy 18.4% yoy and imports too a strong 8.3%, a big improvement from +9.3% and +2.7%, respectively, in Q4 2012. The strong imports were good news for the Australian dollar, as China is Australia’s main export market.
Today there are industrial production figures due out from France, Spain and Italy. The first two are expected to show some improvement but not Italy. In the US, the release of the minutes from the March FOMC meeting may clarify the outlook for a change in Fed policy and either counter or, more likely, confirm the market’s current dovish assumptions. That could be USD-bearish.
The MarketEUR/USD
• The EUR/USD rally found spike trendline resistance yesterday and is likely to be finding strong resistance today in the 1.3120 – 1.3135 area. This area holds the previous highs before the 1.3320 neckline of the head and shoulders pattern that formed late January – beginning of February and which seems like it may get tested, especially if U.S. retail sales disappoint on Friday. Moreover the upper Bollinger band, 50-day MA and 38.2% retracement level of the February – March downtrend concentrate in the area. The French industrial production data in particular may help push the euro towards resistance, with Japanese funds flowing into Europe also contributing to the bullish move. Some support is at 1.3075, the 38.2% retracement level of the July – February rally, weak support also comes at 1.3010, with further support at 1.2980, the 23.6% retracement level of the February – March down move.
USD/JPY
• USD/JPY retraced yesterday, moving below its upper Bollinger band. Trendline resistance came around 99.50, as can be seen in the H4 chart. Further USD weakening may have the pair finding resistance at 98.15, the 23.6% retracement level of the 3-day stupendous rally, as the pair looks to form a continuation pattern before breaking the 100-mark and thereafter likely finding strong resistance in the 106 – 108 area.
AUD/USD
• AUD/USD broke out from 1.0490 resistance following the much larger than expected increase in Chinese imports, and looks to head towards the 1.0550 horizontal trendline resistance that has proven resilient four times the past 9 months. 1.0490 may act as support now, with further support at 1.0460. A breakout from 1.0550 will call for further bullish positions with resistance thereafter around 1.0700.
Gold
• Gold confirmed yesterday’s bullish signals as the dollar weakened, testing $1585 support a number of times on the hourly chart following a bearish hanging man candlestick on the same timeframe chart. Signals seem mixed with some indicating overbought levels. A breakdown from $1585 may find some support at $1579, with $1572 acting as a stronger support. Weak resistance comes at $1592 with strong support likely turned resistance trendline lying at $1603.
Oil
• WTI confirmed the bullish outlook, gaining substantially before finding resistance at the 50-day MA and the 38.2% retracement level of the March up move. With strong support in the $93.50 – 93.90 area, which concentrates three retracement levels, we see a move again towards $94.50 resistance with notable resistance thereafter likely coming at $95.6, which concentrates the 23.6% retracement levels of the two rallies to around $98 we had seen the past four months. However, it is worth noting that a larger than expected increase in crude oil stockpiles may see WTI tumbling, with stronger support coming at $92.5.
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Market Analysis 11-04-2013: Fed minutes mute doves
Daily Commentary 11.04.2013
The Big Picture Fed minutes mute doves: The minutes of the Mach FOMC meeting confirmed the Committee’s growing interest in tapering off quantitative easing (QE) when the data allow. The key section was “Many participants... expressed the view that continued solid improvement in the outlook for the labor market could prompt the Committee to slow the pace of purchases beginning at some point over the next several meetings.” This statement is much more specific and shows greater consensus than at the previous meeting, when “Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases.” The FOMC is clearly building a consensus towards tapering off QE if and when the data allow. That should help to support the dollar as other countries remain committed to QE, notably Japan and the UK.
In Japan, BoJ Gov. Kuroda told reporters that the BoJ had taken all necessary and possible measures and he wasn’t planning further adjustments for now. The comments may be an attempt to prevent any criticism of Japan’s actions at next week’s Group of 20 meeting in Washington. USD/JPY fell sharply on the news but buyers quickly emerged, confirming the strong underlying demand for the pair and pushing it up even higher before the rally once again stalled ahead of the magic 100 level.
The main data today from Europe are the March CPI reports from France and Germany (initial from France, final from Germany). The worry will be too low a rate of inflation, which might force the ECB to loosen further and hence would be EUR/USD bearish. In the US, the weekly initial jobless claims will be closely scrutinized in the light of the FOMC’s view that “continued solid improvement in the outlook for the labor market” is a necessary precondition to tapering off QE. The market is expecting that last week’s jump in initial jobless claims to 385k was a fluke and that they will fall back to 365k this week, only a bit higher than the 357k of two weeks ago. If on the other hand today’s jobless claims corroborate the picture of a weak employment market that last week’s nonfarm payrolls painted, then it would make an early end to QE less likely and the dollar would probably weaken as a result.
Italy will auction off EUR 7.5bn of three- and 15-year bonds as well as floating-rate notes. But with EUR 16.7bn in bonds maturing on April 15th, the new issues should meet sufficient demand.
The Market EUR/USD
• EUR/USD traded between resistance and support yesterday, closing lower following the FOMC minutes, with support at 1.3075 now seemingly acting as resistance. Support now looks to come at 1.3010, with stronger Fibonacci support at 1.2980. Fibonacci and 50-day MA resistance may come at 1.3110, with spike trendline resistance coming at 1.3160. We expect some volatility early in the morning as the Eurozone CPI data are due to show mixed pictures between countries.
USD/JPY
• USD/JPY looks to have found support at 99.35, with November – February channel support-turned-resistance coming today above the 100-mark at 100.25. The current 4-year high of 99.90 resistance may be broken today should the U.S. show a decrease in initial jobless claims.
NZD/USD
• House sales jumped 11% yoy with prices up 8.6% yoy, eliciting a warning by the Finance Minister that interest rates might have to rise to dampen the housing market. The Kiwi rose as a result.
Yesterday the NZD/USD broke out from its spike trendline resistance level of its one month old rally, despite the USD-bullish FOMC minutes. The move led to a break of the high last seen on 31st August 2011, when we had a bearish deliberation candlestick formation with a spinning top that led a subsequent reversal. This breakout from the 0.8572 high sees the next notable resistance level at around the August 1st 2011 peak of 0.8752, which is the highest exchange rate the past 32 years. The deterioration of the Business PMI, led to a short-lived retracement to 0.8572, which makes the past resistance now a support.
Gold
• Gold had a bad day from the start with gold ETFs even seeing outflows into Tuesday’s rally. The Wall Street Journal noted a rush among retail investors in Japan to sell gold as the yen-denominated price soars, and the headlines about Cyprus having to sell some EUR 400mn of gold to finance part of its bailout didn’t help, either. The release of the hawkish FOMC minutes, which prompted investors to reduce their safe-haven holdings, was the last straw.
Gold found support at the low of its recent pennant formation, which coincides with the 23.6% retracement level of the pennant break down. Goldman Sachs’ reduced price targets also contributed to the plunge with the 3-month target being lowered to $1,530 from $1,615. Strong support seems to come in the $1535 – 1540 area, with a breakdown from $1535 signaling a possible primary bear trend. Currently support looks to come at $1549.50 – 1554.50, with minor resistance at $1564 and further resistance at $1572.
Oil
• WTI found strong support yesterday in the $93.50 – 93.90 area, which still holds as a noteworthy support, and moved to $94.50 resistance with the much lower than anticipated increase in crude oil stocks. A breakout from $94.50 resistance would set a target of $95.60, with trendline resistance coming a little over $96.00. We would like to see an RSI-9MA crossover before going with the daily bullish stochastics.
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Market Analysis 12-04-2013: U.S. retail may detail derail
Daily Commentary 12.04.2013
The Big Picture U.S. retail may detail derail:US jobless claims dropped more than expected, giving the market confidence that last week’s disappointing US nonfarm payrolls was an anomaly and that the US labor market is on the mend. That should allow the Fed to start tapering off from its quantitative easing in a few months, as we read in the FOMC minutes earlier this week. Yet economic data did not determine the day’s movements and the dollar wound up generally weaker over the day as risk seeking behavior once again means sell USD, perhaps to buy EM currencies (MXN, HUF and CZK were big gainers vs USD overnight). USD/JPY still could not break through the 100 level.
Is this due to outflows from Japan? Italy easily sold the EUR 7.2bn of bonds it had on offer, with decent foreign demand. Even Britain sold a 10-year inflation-linked bond at a record-low real yield, which perhaps reflects investors’ desire to protect their assets from future rises in inflation. This could be due to Japanese money seeking a new home, but it’s not really clear. Nowadays Japan is growing above trend, while the rest of the world looks notably weak; Japanese investors have been running down their allocation to domestic stocks for the last 24 years or so; and even after the recent run-up, J-REITS offer a 3.3% yield, which compares favorably to many overseas assets. Why should they take the risk of buying Italian bonds?
Dublin will be the focus of attention in the Euromarkets today and tomorrow as the 27 EU finance ministers meet to discuss the Cyprus bailout, Eurozone banking regulation and other matters. No decisions are expected. Eurozone industrial production probably rebounded modestly in February, but with the Eurozone manufacturing PMI having fallen further in March, the February IP number is of largely historical interest. In the US, the advance retail sales for March is expected to be unchanged mom, a slowdown from February, as sluggish growth in jobs and wages probably made it hard for consumers to increase their spending. With three consecutive months of better-than-expected retail sales, and given that retail sales have beaten forecasts four times in a row only once in the last six years, a beat is unlikely today. But the U of Michigan consumer confidence index is expected to stay pretty much unchanged, meaning there should be no reason to expect a big drop in spending, either.
The Market EUR/USD
• EUR/USD overall gained yesterday, with the pair breaking above its 50-day MA and upper Bollinger band. Strong support for the day looks to come at 1.3075, with further support coming at 1.3010. Spike trendline resistance comes substantially above the upper Bollinger band, at 1.3199, which may be challenged should the US retail sales show a greater-than-expected decrease from March.
USD/JPY
• 99.90 acted yet again as resistance yesterday as we edge ever so close to the 100-mark. With price around 99.35 support it seems unlikely that we will break the 100-mark today even if we have an upside surprise in the US retail sales. However, with USD/JPY closer to 99.70 it seems that we may be able to at least spike above 100. Should US retail sales disappoint, further support comes at 98.90 with strong support at 98.30. Resistance above 99.90 may come at 100.50.
AUD/USD
• AUD shrugged off a weaker-than-expected employment report overnight as investors focused on the generally good news coming out of China, including this week’s higher-than-expected import figures and next weeks’ Q1 GDP data.
AUD/USD formed at long-legged doji yesterday, failing to close or breakout above the 1.0550 closing resistance level, spiking intraday close to the 1.0600 spike resistance level. With strong support at 1.0490, and further support at 1.0400, it is likely that resistance will be tested again today, with a breakout setting an initial target of around 1.0670.
Gold
• The precious metals gained yesterday, recovering some of the major losses they had seen the previous day. Gold rebounded from $1549.50 – 1554.50 support as the dollar fell. However, it soon shed those gains despite the IMF trimming both the U.S. and the global growth outlook. $1564 seems like weak resistance with slightly stronger resistance coming at $1572.
Oil
• Both WTI and Brent tumbled yesterday following the International Energy Agency’s slashed global oil demand forecast for 2013, which drove WTI well below the resistance level at $94.50 that it was trying to break out from during the early hours. The oil price closed below the strong support at $93.50, hinting to a reversal to around $92.40 as signaled by the H1, H4 and Daily 14-period Stochastics. The $93.50 – 93.80 area is yet again resistance, with trendline support coming close to the 200-day MA and around 2 Fibonacci retracement levels.
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Market Analysis 15-04-2013: Crude gold plunge, retail recovery expunge
Daily Commentary15.04.2013
The Big Picture The markets started the week in a “risk off” mood after China’s GDP growth unexpectedly slowed in Q1 and industrial production dropped in March. The news sent the dollar and the yen higher, while commodities and the commodity currencies fell particularly sharply.
Following the recent string of disappointing US indicators, including non-farm payrolls, retail sales and consumer confidence, the economic indicators out this week will be watched closely to see if the US recovery is losing steam. The data calendar in the US is rather light though, with consumer prices, housing starts, industrial production, leading indicators and the Empire State and Philly Fed regional manufacturing surveys being the main ones. Data coming out of the Eurozone includes trade and current accounts, the ZEW investor surveys, construction output, car sales, and consumer prices.
Canada and Sweden are the only major central banks holding meetings this week, although a large number of central bank officials from all over the world will be speaking, including ECB President Draghi and BoJ Gov. Kuroda. At the end of the week, the spring IMF and World Bank meetings will be the occasion for the G20 central bankers and finance ministers to meet and probably criticise Japan for its foreign exchange policy. Even the US, in its biannual currency report to Congress, said that it will press Japan “to refrain from competitive devaluation and targeting its exchange rate for competitive purposes.” Some temporary retracement in USD/JPY would not be surprising under such circumstances, but after the meeting we would expect USD/JPY to gradually resume its assault on 100.
The MarketEUR/USD
• EUR/USD was oscillating between support and resistance at the 1.3075 level on Friday, and may continue to do so today, although it looks more likely we may have a break from the two-week old upward trading channel. Support below 1.3075 may come at 1.3010 with upper Bollinger band resistance coming at 1.3150.
USD/JPY
• The yen was one of the few and biggest gainers on the worse-than-expected US retail sales and consumer confidence, with USD/JPY finding initial support on Friday at 98.30, the 23.6% retracement level of the April rally. This adds to the belief that it will take some time before we break the 100 mark, as the daily, weekly and monthly RSI and Stochastics were well into overbought levels last week. With USD/JPY falling further today on the China GDP figures, ahead of the G20 meeting it looks like we are set for a continuation pattern before a breakout from 100, similar to the one-month consolidation period we had back in March 2009 before temporarily making 100. Some support looks to come at 97.20, with 98.30 and 98.90 acting as resistance levels.
AUD/USD
• The AUD, often traded as a proxy for China, collapsed along with the other commodity currencies after China’s GDP and industrial production came in below expectations.
The indecision of traders evidenced in the long-legged doji that formed on Thursday looks to have come to an end, with the pullback from the 1.0550 – 1.0600 resistance area. Support looks to come at 1.0400, which sees the 23.6% retracement level of the June – January bull run, and the 200-day MA. Further support may come at 1.0350, with weak resistance at 1.0490.
Gold
• Having come close to testing the technically significant $1535 support level on April 4th, gold broke down from that level on Friday, despite the US retail sales and consumer confidence missing forecasts. The breakdown marked a probable primary bear market for the precious metal, which has lost 25% since its October 2011 high. Although the missed US forecasts and the generally weaker dollar the past couple of week should have supported gold, the sale of gold by Cyprus as part of its bailout plan may be seen as a precedent, with central banks and governments opting for the sale of gold rather than further austerity. Gold looks rather supportless at the moment, with price nearing 4 standard deviation extremes on the Bollinger bands. $1448 is the 38.2% retracement level of the October 2008 – October 2011 bull rally that may serve as a price reference, with $1419 being a past resistance level.
Oil
• WTI plummeted on Friday following the decline in U.S. retail sales, breaking down from its triangle formation, which commenced in June 2012. The breakdown from the triangle sets a longer term target of around $80. Both WTI and Brent furthered their slump today on weaker than expected China Q1 GDP growth and March Industrial Production, which decreased the demand outlook for crude. Having completed the reversal from the March rally, the only possible temporary support at the moment comes around $88.30, which has acted as a past support and resistance. Possible 3 standard deviation lower Bollinger band support comes lower, with $85.50 likely acting as a strong support, which sees the reversal of the December – February rally, and the 23.6% retracement level of the March – June 2012 plunge.
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Market Analysis 16-04-2013: Risk-off across the board following Boston bombings
Daily Commentary 16.04.2013
The Big Picture Risk-off across the board following Boston bombings:The collapse in the gold market – the biggest fall in some 30 years -- has taken the shine off risky assets, plus weaker-than-expected US data coming on top of weaker-than-expected Chinese data has called into question the global economic recovery. Yesterday’s Empire State manufacturing index and National Association of Home Builders’ (NAHB) housing market index were both below the previous months’ figures and below market estimates. The housing market has been one of the bright spots of the US economy recently and so a decline there is disappointing. Adding to that the apparent terrorist bombing of the Boston Marathon, and the markets have entered a serious “risk off” mode. Commodities collapsed, stock markets were off sharply, and bond markets generally rallied as investors sought safety.
With the market moving to risk-off, the dollar gained against virtually every currency except the yen, which apparently retains its safe-haven characteristics. The commodity currencies were particularly weak and most EM currencies lost ground as well, except for the KRW, which was dragged higher with the yen.
As for today, the ZEW survey of economic sentiment for April is due out in Europe and expected to show mixed indications for Germany. In Britain, CPI is forecast to have risen less in March than in February. A slowdown in inflation could be negative for the pound, since one of the main things holding the Bank of England back from implementing further QE is the fear that inflation expectations could start to rise. ECB President Draghi will present the ECB's annual report to the European Parliament later today.
In the US, industrial production is forecast to have slowed its rise in March as companies tried to keep inventories under control and consumers pulled back. Nonetheless, it’s still better than in other major countries. US CPI is forecast to be unchanged mom in March. Low inflation is one of the factors that allows the Fed to keep quantitative easing going and hence a low number here should be seen as risk-positive, although exactly what that means for the FX market seems to vary day-to-day. Housing starts are forecast to be up sharply, while building permits are expected to rise even more (indicating even faster housing starts in the future). With mortgage rates close to a record low (helped by the low inflation, which allows the Fed to keep pumping money into the mortgage market), the US housing market appears to be recovering despite the (somewhat misleading) NAHB index out yesterday.
The Market EUR/USD
• EUR/USD continued to oscillate around 1.3075 yesterday, but closed the day with a bearish belt hold line, signaling a possible reversal, which is backed by the break from the upward sloping trading channel. On the one hour chart shown, it seems that prices are following a downward sloping trading channel, with support around 1.3025 and resistance at 1.3085. This channel may be broken today with the release of the Eurozone and U.S. CPI data, but more likely during the ECB’s President speech during mid-session.
USD/JPY
• The yen was one of the very few currencies that gained versus the dollar in this risk-off environment, finding support around the 50% retracement level of its post BoJ policy revamp rally, spiking close to the 61.8% level following the Boston bombings before rebounding from the November – February trendline. The pair nonetheless on the one hour chart looks to be within a widening, downward trading range. With price around 97.70 it seems like a good sell opportunity to 96.70.
GBP/USD
• Cable rebounded from 1.5270 former resistance turned support, which happened to coincide with the recent upward trendline support, and looks to be heading towards 1.5340 resistance, with further resistance at 1.5410, close to the upper Bollinger band and the 38.2% retracement of the January – March plunge.
Gold
• Gold’s range in 2012 was $250. Its range over the last week was $267. Margin calls exacerbated the astounding decline yesterday, leading to panic selling, with the price closing at the four standard deviation lower Bollinger band. Some support comes at $1330 with likely resistance at $1380, with strong support in the $1285 – 1302 area, which concentrates the 38.2% retracement level of the 2001 – 2011 bull market, and the 50% retracement level of the bull run that followed the onset of the 2008 financial crisis. A short-lived rally may be witnessed today given the extreme down move we have had and the apparent terrorist bombing in Boston, given that we had short-lived gold gains of around 10% and 2% following the 9/11 and London bombings, respectively.
Oil
• WTI’s marabuzo candlestick, which opened at the session high and essentially closed at the low on the three standard deviation lower Bollinger band, hints at a continuation of the downtrend. Strong support for the day comes at the $85.10 – 85.80 area which sees the lows of December before the rally until February and the 23.6% retracement of the March – June 2012 bear market. $88.30 may serve as weak resistance with a stronger one around $89.90.
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Market Analysis 17-04-2013: The risk-on switch turned back on
Daily Commentary17.04.2013
The Big Picture The risk-on switch turned back on:Calm returned to the markets overnight as gold found a bottom (for now) and stocks recovered much of their losses. The headline US CPI was well below expectations, suggesting that the Fed is not going to be in any rush to taper off QE, while housing starts far exceeded expectations, which quelled a lot of the doubts about the US economy. Analysts are pointing the finger at March’s unusually cold weather as the possible reason for the recent string of weak economic data and are looking for the data to improve and boost the “animal spirits” as spring arrives.
As risk-seeking came back, the dollar once again fell against most currencies, the exception being the yen – in other words, the mirror image of Monday’s market. There was some EUR-positive news as well to dampen the dollar: although the ZEW index came in substantially below expectations, the new tranche of Italy's retail bond raised EUR17bn in just two days of sales (vs the Treasury’s expectations of less than EUR 10bn); the IMF forecast that the Eurozone’s current account surplus could hit USD 295bn or 2.3% of GDP this year; and ECB President Draghi said he continues to expect a gradual recovery in the second half, which might limit the scope for further easing in Europe.
The Eurozone current account forecast is worth noting: it’s not only a rise from last year (USD 221bn or 1.8% of GDP) but also far above Japan’s (USD 64bn) and even more than China’s (USD 238bn) forecast surplus for this year. The IMF also forecasts current account surpluses for most of the peripheral countries, with only Greece expected to show a small (-0.3% of GDP) current account deficit. This suggests that trade is likely to be a support for EUR/USD going forward, assuming no further crises (a big assumption!) and may provide some offset to the domestic austerity in the peripheral countries.
By comparison, the US is forecast to show a c/a deficit of USD 473bn or 2.9% of GDP, about the same as last year, and is expected to remain around 3% of GDP for the next several years. The forecast of a US recovery with a stable c/a deficit is good news for the dollar, as strong US growth historically has come at the cost of a wider deficit. That means the usual relationship of US outperformance = a weaker dollar may not hold this time around. How that balances out vs a rising Eurozone c/a surplus is likely to be one of the main tensions in the FX market this year, with monetary policy probably holding the balance of power.
The spotlight today will be on central bank policy. No one is expecting any change in rates or in overall policy; rather, the emphasis will be on the nuance of policy and what further clarity the central banks involved can bring to their stance. That is why I would not expect any major moves in the currencies involved. First off, Sweden’s Riksbank announces the results of its Monetary Policy Committee meeting. Then the Bank of England releases the minutes of its April 3rd and 4th Monetary Policy Committee (MPC) meeting, the first under the MPC's new, improved remit. The point to watch will be whether the MPC members interpret their new remit as giving them more leeway to ease. Finally, the Bank of Canada is expected to keep rates unchanged, so the key will be whether they shed any more light on their previous statement that rates “will likely remain appropriate for a period of time.” As for economic indicators, the only major one today is the Fed’s Beige Book, which has no quantitative indicators. The UK ILO unemployment rate is expected to stay at 7.8%, which would not change anyone’s view on sterling.
The MarketEUR/USD
• EUR/USD was volatile yesterday, trading within a downward sloping trading range in the early hours before hitting support and breaking resistance in quick succession on the announcement of worse-than-expected German and deteriorating Eurozone institutional investor sentiment but better-than-expected core Eurozone CPI, which improved the bloc’s recovery outlook. The EUR/USD gains were furthered with the release of the US CPI figure for March.
• The breakout from the 1.3130 resistance level sets a clear path to 1.3300 resistance, the 23.6% retracement level of the July – February up move and the neckline of the head and shoulders peak we had at 1.3710, however this may take place following a few days of consolidation at around 1.3200. Resistance for the day may come at 1.3220, which sees the upper Bollinger band and the 50% retracement level of the down move following the 1.3710 peak, with support at 1.3130, and stronger support at 1.3080, which sees the 38.2% retracement level of the aforementioned rally and the 50-day MA.
USD/JPY
• USD/JPY rebound from the November trendline has found temporary resistance at 98.30, the 23.6% retracement level of the up move following BoJ’s policy revamp. A break of that level will likely see price test the highs near 100 again. Support for the day likely comes in the 97.00 – 97.20 area, with weak resistance following a 98.30 breakout coming at 98.90 and 99.35.
GBP/USD
• Cable rebounded yesterday from the 1.5270 strong support level it hit following the weaker-than-expected PPI and MoM CPI, breaking out from 1.5340 as the dollar weakened. With a clear support at 1.5340, we see resistance at 1.5410, near the upper Bollinger band, with very strong support at 1.5270, which also sees trendline support.
Gold
• Gold had a big up move yesterday, however the gains are dwarfed in comparison to the 17% loss incurred the previous four days. There seems to be some strong resistance at $1380, the 23.6% retracement level of the recent plummeting, with a short-lived breakout of that level failing to even reach the 38.2% level at $1419, finding resistance around the round $1400 mark. It is likely that we will see some continuation pattern before the downtrend ensues, given the extreme down move and oversold levels, which sees the 2 standard deviation lower Bollinger at $1380. Any substantial gains are likely to find strong resistance at $1450, even though this level failed to act as support during the decline.
Oil
• WTI tested resistance at $88.30 for a number of hours yesterday before continuing recouping losses finding resistance at $89, with $89.90 being an important reference point, with around $92 being the strongest resistance, given the presence of the past trendline and the 200-day MA. Some support for the day comes at $88.30, which sees the lower Bollinger band, with further support below the recent low coming around $85.50. The recent low may be tested today should we see a large increase in crude stockpiles.
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