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Market Analysis 27-06-2013: Recovered risk-taking
Daily Commentary27.06.2013
The Big Picture Recovered risk-taking:Risk sentiment around the world recovered yesterday, with most stock and bond markets around the world ending higher, including EM markets. The dollar gained against most of the majors, although several of the more battered ones – the commodity currencies and some EM currencies (seven of the 15 we track) – retraced a bit of their recent losses, such as BRL, MXN and KRW. Not all, though; several of the currencies that have been big losers recently, like PLN and INR, continued to weaken. Gold continued its steady decline as confidence returned. More comforting words from Mr. Draghi yesterday added to the recent reassurance from Fed officials that they are nowhere near ending their support for markets, and Chinese interest rates fell for the fifth day in a row, calming some of the fears about what’s going on there. The downward revision to US GDP was a shock – normally the third print is a non-event -- but that’s Q1 data and we are nearly at the end of Q2 now, not to mention that the figures will be revised again when the benchmark revisions come out next month.
If risk sentiment improves, will that be good for the dollar or bad? Recently USD has had a mixed reaction to “risk off” sentiment, gaining vs EM currencies but losing vs some of the G10. The major factor seems to be how much carry trade unwind there was in the currency; currencies with higher interest rates tended to perform worse. As we settle down, we can expect money to flow back into those currencies again (especially now that their rates have moved even higher) and USD may well lose some of its gains vs EM. However it should rally vs its G10 counterparts as US rate rises are more likely to be sustained than those elsewhere.
Today in Europe, the yoy pace of growth in Eurozone M3 is forecast to have slowed in May, although it’s not clear whether the ECB still refers to M3. Eurozone industrial and service sector confidence is expected to improve. The ECB’s Nowotny, and Mersch are talking, while German Finance Minister Schaeuble and Bundesbank President Weidmann speak at convention for securities exchanges. Recent comments by ECB officials have tended to emphasize that the ECB will keep rates low, so these speakers may be EUR/USD-negative. In the US, personal income is expected to rise in May, while personal spending is projected to have risen even faster. The PCE deflator, the Fed’s favourite inflation indicator, is expected to be up 1.1% yoy, an acceleration from 0.7% in April, which may dispel concerns that inflation is too low to begin “tapering off” QE. That could help to support the dollar. A rise in pending home sales may help to dispel some of the disappointment from yesterday’s poor MBA mortgage applications. Finally, the weekly jobless claims are expected to drop to 345k from 354k, which would also be USD-positive. Fed Gov. Powell speaks on non-conventional monetary policy and Atlanta Fed President Lockhart speaks on the economic outlook.
The MarketEUR/USD
• Draghi yesterday reiterated that the ECB monetary policy will remain “accommodative”, adding that the central bank has an “open mind” about the use of other instruments in its attempt to support the economy in the common currency bloc, which has experienced six consecutive quarters of negative growth. His statements that the policy will stay loose “for the foreseeable future” weakened the euro, with the major downward revision on US GDP growth from 2.4% to 1.8% merely testing 1.3055 resistance. Support came at the 1.2980 Fibonacci level with an overnight rebound likely to find resistance at 1.3030.
• Resistance above 1.3030 may come marginally below 1.3055 with further resistance at 1.3075. Weak support below 1.2980 comes at 1.2955 with possible trendline resistance turn support coming at the tested 1.2920 level. Notable Fibonacci and trendline support is seen in the 1.2875 – 1.2885 area.
USD/JPY
• USD/JPY remained flat since yesterday forming a doji candlestick as the Stochastic oscillator formed a bearish crossover in overbought territory. The lower than expected U.S. GDP for Q1 triggered a 65 pip breakdown from 97.90 resistance, with a rebound materialising in the later hours.
• Fibonacci and trendline resistance is found in the 97.90 – 98.10 area with a breakout seeing next resistance at 98.80. Tested support comes at the 97.05 level and thereafter at 96.40.
AUD/USD
• AUD/USD furthered its rebound from oversold RSI and Stochastic levels, forming bullish crossovers on both momentum indicators, as PM Julia Gillard was ousted from the helm of the governing Labour party, with her predecessor Kevin Rudd taking over ahead of the September 14th Federal elections. The change was greeted positively by the markets with the yield on the Australian 10-year note dropping 4bps.
• Resistance yesterday and today came at 0.9350, with resistance following a breakout possibly coming at 0.9430. Key support comes at 0.9210, the 38.2% retracement level of the major up move from 2009 to 2011, with further support at 0.9140.
Gold
• Gold rebounded from $1224 support, a 3-year low, as holdings in the SPDR Gold Trust, the largest gold-backed ETF remained unchanged yesterday. Despite the rebound, gold is still 0.77% lower this morning compared to yesterday’s level.
• Initial resistance came at the $1244 level, with further resistance at the $1269 level. Key support below $1224 comes at $1165, the 61.8% retracement level of the rally following the onset of the financial crisis.
Oil
• WTI was driven to $93.65 support following the unexpected increase in DOE crude inventories, but a rebound materialised thereafter with WTI closing higher, finding initial resistance today at $96.05, as Chinese industrial profits for May increased 15.5% YoY.
• Resistance above $96.05 comes much higher at $96.95 and thereafter at $97.75. Weak support is found at $95.00 with 50-day MA support at $94.50.
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Market Analysis 28-06-2013: Dovish hawks
Daily Commentary 28.06.2013
The Big Picture Fed clarifications: Officials are still trying to clarify for the markets what exactly the Fed’s intentions are with regards to “tapering off.” NY Fed President William Dudley’s speech on the labor market for recent graduates turned into the event of the day as he emphasized the difference between “tapering off” and “stopping” and also the difference between “tapering asset purchases” and “raising interest rates,” which he made clear is not going to happen for a long time. While he expressed confidence in the economy, he also reiterated that the Fed’s plans are based on reaching its economic targets, not a calendar, and if the economy does not behave as expected they could prolong QE. His comments were echoed by Atlanta Fed President Lockhart, who said markets may have misread Bernanke’s comments and that low rates “will remain in place for a considerable time after the end of asset purchases”. As a result, Fed Funds expectations for 2015 fell by around 6 bps and 10-year bond yields were down around 2 bps. They’re now down 15 bps from their peak on Tuesday.
It’s notable that USD gained against most currencies despite what was apparently a less hawkish view on interest rates. This suggests to us that while the currency is gaining support from interest rate differentials and the difference in policy expectations, it is also gaining strength from the relative strength of the US economy. For example, while Dudley said he saw “persuasive evidence of improved underlying fundamentals for much of the private sector of the US economy,” yesterday’s revisions of the UK GDP data showed that UK disposable income plunged 1.7% qoq in Q1, the worst drop since 1987. The weakness in the Eurozone needs no discussion. Japanese data released overnight showed some recovery there (industrial production and retail sales up) but good Japanese data tends to go with a weaker yen.
There is a lot of data to be released today, including producer prices from France and Italy, French consumer spending, German and Italian consumer prices, Italian business confidence, the Chicago PMI, U of Michigan consumer confidence (final for June), and Canadian GDP for April. The market expects a slight rise in German inflation to 1.7%, near the ECB’s 2% target. That could prove EUR-positive as it lessens the pressure on the ECB to ease policy, if indeed the ECB is still aiming its policy at inflation rather than growth.
The Market EUR/USD
• The accurate economist estimates for initial jobless claims, personal spending and the PCE deflator did not trigger a major move on the pair, however the largest increase in pending home sales in 1 ½ years, which added to data that show a housing rebound, drove EUR/USD to 1.3000 round number support. A rebound to 1.3055 materialised thereafter following Lockhart’s dovish comments. A retracement thereafter found support at 1.3030 with the pair rebounding overnight, finding significant resistance at 1.3075.
• Strong, well-tested resistance comes at 1.3075 which sees the 38.2% retracement level of the July 2012 – February 2013 up move, the 50-day MA as well as the 200-day MA. Initial support comes at 1.3055 and thereafter at 1.3030 and 1.3005, with Fibonacci support at 1.2980. Resistance above 1.3075 is found at 1.3115 and 1.3160.
USD/JPY
• USD/JPY experienced a technical breakout during the European morning, as the pair penetrated its tested downward sloping trendline that coincided with the 23.6% retracement level of the November 2012 – May 2013 rally, with a 35 pip spike testing that level during the minute the US released initial jobless claims, personal spending and the PCE deflator figures. The overreaction, however only lasted a few seconds with the pair rebounding, furthering its gains as Japanese equities gained following the release of better than expected May industrial production and retail trade, with the Nomura/JMMA manufacturing PMI for June showing the greatest expansion since February 2011. On the Japanese CPI front, although the national CPI showed lessening deflationary pressures (mostly due to higher energy prices), both the national CPI and the Tokyo CPI excluding the volatile food and energy prices showed greater deflation than expected.
• The breakout from 98.80 may initially test 99.15 resistance, which also sees the 50-day MA. Thereafter weak resistance is found at 99.35, with the next resistance level being significantly higher, just below the 100-mark, with 99.90 seeming likely. The 97.90 – 98.10 level is likely to act as a notable support should we see a breakdown from current 98.80 support.
GBP/USD
• GBP/USD continued to trade between technical levels on the announcement of fundamentals. The revised Q1 GDP data for the UK showed a significant drop in real household disposable incomes, driving the pair to 1.5270 support. A break down from that level occurred on the release of US data, which hinted at a possible future divergence in monetary policies between the BoE and the Fed. A rebound thereafter failed to break resistance with the strong U.S. pending home sales testing very significant 1.5200 support that sees two notable overlapping Fibonacci levels. A rebound that occurred following Lockhart’s dovish speech has the pair testing 1.5270 resistance.
• Resistance above 1.5270 comes at 1.5315 and thereafter at 1.5345, with significant support at 1.5200 and thereafter much lower at 1.5125.
Gold
• Gold continued to do what it does best this quarter, crashing yet again following a break of technical support, losing 2.8% relative to yesterday morning. The U.S. data employment and price data released yesterday did not change the view that the Fed may start tapering off QE in September, with the pending home sales indicating a strengthening housing market.
• Support, shown on this 4-hour chart, came at the weak $1180 which was last tested in August 2010. A better tested level that happens to be the 61.8% retracement level of the post-Lehman rally for gold is found at $1165, with support thereafter at $1128. A rebound may find initial resistance at $1224, with a breakout likely testing $1244.
Oil
• WTI had a predominantly technical day, retracing from $96.05 resistance to $95.65 support as the dollar generally gained following the announcement of 9K fewer initial jobless claims relative to the previous week. Crude thereafter broke resistance as Lockhart made remarks about continuing with an accommodative monetary policy, with the next resistance level being significantly higher at the weak $96.95.
• Notable resistance is now seen at $97.75, with resistance thereafter at $98.10 and $98.50. Support below $96.95 may come at the weak $96.50 level, with better-tested levels found at $96.05 and $95.65.
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Market Analysis 01-07-2013: QE-qualifying quarter
Daily Commentary 01.07.2013
The Big Picture QE-qualifying quarter: The dollar generally gained against the majors over the last week, but lost ground against some of the EM currencies. It seems that this was largely a reversal of previous overdone moves, as the biggest gainers – ZAR, MXN and KRW – were ones that had been hit the hardest in the EM currency sell-off. Nor was this just people buying regions as CZK weakened but HUF gained vs both USD and EUR. The picture for commodities was also mixed; oil was the biggest gainer among the assets we track despite the stronger dollar, but gold was the biggest loser, with the other precious metals not far behind. All in all, it looks to us as if the market was reversing some of the abrupt movements that occurred as investors digested the reports of “tapering off” and considered what that would mean for the investment picture. If the “tapering off” effect is now largely discounted, then in the future currencies may well be more responsive to individual country stories rather than to general “risk on/risk off” moves, at least on a day-to-day basis, unless there is something major affecting the outlook for USD.
Today marks the start of the new quarter. For Britain, it’s the start of the Carny Era at the Bank of England. That makes Thursday, with a Bank of England and an ECB meeting, an important day for the markets. Volatility will probably increase because the US will be out on their Independence Day holiday that day. On Friday we get the US labor reports, which are the crucial bit of data nowadays with the Fed’s “tapering off” plans depending on improvement in the labor market. Again, expect greater-than-usual volatility as many US market participants will be making a long weekend of it. Finally, Lithuania takes over the EU presidency.
China started off today’s series of June manufacturing PMIs with some disappointing figures. The final manufacturing PMIs for the EU are due out later; the forecast are simply the preliminary figures. UK manufacturing PMI for June is expected to be up slightly. In the US, the Institute for Supply Management (ISM) PMI is expected to rise to 50.5 from 49.0, just nudging back over the 50 line again (it fell below in May for the first time in six months). That may help to reinforce the bullish USD sentiment. Eurozone CPI for June is expected to rise to 1.6% from 1.4%, which could take some pressure off the ECB to ease, except that Eurozone unemployment is coming out at the same time and is forecast to rise further into record territory. ECB President Draghi recently (25 June) said that “in terms of monetary policy, price stability is assured, and the overall economic outlook still warrants an accommodative stance.” Apparently they have dropped inflation as a concern and are focusing on “the overall economic outlook,” which although technically not in their mandate has fallen to them by default. That suggests the worsening unemployment picture, not the improving inflation picture, will be their main focus and the pressure to ease policy further will remain.
The Market EUR/USD
• The EUR/USD breakout from 1.3075 on the overall higher-than-forecasted German CPI was short-lived as the Fed Governor Jeremy Stein stated that September could be an opportune time for the Fed to taper QE3, with the pair finding effective support at the 1.3000 round number following the upbeat Reuters/Michigan consumer confidence final reading for June, which was above 80 for a second consecutive month.
• The pair’s current rebound may test resistance at 1.3030, with further resistance at 1.3055 and strong resistance at 1.3075, which sees the 38.2% retracement level of the July 2012 – February 2013 bull run as well as the converged 50- and 200-day MAs. Support is currently seen just above 1.3000, with Fibonacci support at 1.2980 and further support at 1.2955.
USD/JPY
• USD/JPY has been consolidating for a number of hours at the 99.35 resistance level, having broken the 98.80 resistance level early on Friday, breaking the 99.15 resistance level on the strong US consumer confidence reading. The overall better than expected Q2 Tankan survey, with the large manufacturing index going into positive territory for the first time since Q3 2011 on Abenomics, did not have any lasting effect on the pair as Japanese equities fluctuate between gains and losses.
• A breakout from 99.35 resistance sees further resistance just below the 100-mark with resistance thereafter at 100.35. Support is concentrated at 99.15 and 98.80, with strong Fibonacci support at 98.10.
AUD/USD
• AUD/USD was a major loser on Friday, finding support at 0.9115. Today’s weak Chinese PMI did not trigger further losses, with the pair in fact rebounding as new PM Kevin Rudd, who reshuffled the cabinet, is leading in polls.
• With the RBA interest rate decision early tomorrow morning, the pair is likely to receive further trader attention. Fibonacci resistance is found at 0.9210 with further resistance at 0.9320. Support comes at 0.9140 and 0.91150.
Gold
• Gold gained on Friday after the higher-than-expected Reuters/Michigan consumer sentiment failed to push it through the $1180 low, with an ensuing rebound causing a breakout from the asset’s downward-sloping trading channel shown in this 4-hour chart. The technical break of the $1224 resistance level led to a rally to $1244 with a retracement from resistance coinciding with the upbeat Tankan survey. Gold nonetheless found support at the $1224 technical level rebounding towards $1244 resistance.
• A break of $1244 may see initial resistance at $1269 and thereafter at $1285, the 38.2% Fibonacci level of the post-Lehman gold rally. Weak support below $1224 comes at $1204 and thereafter at the low of $1180.
Oil
• WTI declined to $96.05 support as the marginally expansionary Chinese NBS manufacturing PMI for June was the lowest since February. The HSBC final reading came in even lower, showing the greatest contraction since August 2012, with the final figure being revised downwards for the fourth consecutive month relative to the preliminary figure.
• Having rebounded from $96.05, the 23.6% retracement level of the April – June rally, and with bullish RSI and Stochastic crossovers in the daily and H1 chart, with the H4 Stochastic lying in oversold territory, it seems like crude may rebound towards $96.95 resistance, with further resistance at $97.75, the 61.8% retracement level of the March – June 2012 plunge. Support below $96.05 comes at $95.65 and thereafter $95.00.
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Market Analysis 02-07-2013
Daily Commentary 02.07.2013
The Big Picture The world is getting better! Well, most of it at least. Purchasing managers’ indices from China showed the economy stalling or worse, but in Europe and the US they generally beat expectations. Of particular note were the good readings from some of the troubled peripheral countries, with Spain for example hitting the magic 50.0 level (forecast: 48.5) for the first time in two years. Germany was slightly disappointing, but the UK and US were solidly in expansive territory. The good economic news brought risk-taking sentiment back into the markets; European and US stock markets were higher, as were most Asian markets this morning. Commodity prices also gained, particularly the base metals that would be in demand in case of a recovery in manufacturing, followed by those precious metals with industrial uses (palladium and platinum). It’s notable that the markets can respond like this even while China lags behind; it gives hope of a more broad-based recovery. The gains in commodity prices helped the commodity currencies, with NZD and AUD being the best performing major currencies we track overnight. The increased risk appetite also lessened the need for safe havens and CHF and JPY lagged. EM currencies were mixed.
Does growth matter for a currency? Not in a consistent fashion. There are cases where a rapidly growing country attracts capital for the investment opportunities, or a country is growing because of strong exports, or a strong economy has higher interest rates, and the currency appreciates because of that. But there are also cases where a strong economy imports more and the balance of payments deteriorates, or where a weak economy stops importing and sees its trade surplus balloon and its currency rise. Looking at the DXY index of the dollar, for example, there is no clear pattern of it rising or falling in relation to the relative strength of the US economy compared with those of its counterparts. In the current environment, the strength of an economy is directly related to the likely course of its monetary policy, including any further QE or other extraordinary measures. A return to economic normality would bring a return to monetary normality as well, and that would change existing FX relationships. For now the greater surprise would be strength in the European economies rather than strength in the US, so those signs dominated activity yesterday, but in the longer run it will be the US that normalizes monetary policy first as growth solidifies and hence the USD that gains, in my view.
The only major economic indicator due out today is US factory orders for May, which are expected to be up 2.0% mom vs a 1.0% rise in April, adding to the bullish USD sentiment. New York Fed President Dudley will speak on economic conditions. His speech last week caused quite a flurry in the market, but it’s hard to see how he will say anything different than he did just a few days ago.
The Market EUR/USD
• EUR/USD gained yesterday following, essentially, two-year high manufacturing PMIs for Italy, Spain, and even Greece, with the French PMI for June also beating expectations, coming in at the highest level since February 2012. The euro gains were also supported by the Eurozone unemployment figure, which showed a slower than forecasted increase in the unemployment rate. The overall gains, however, were restrained by the German PMI figure, which deteriorated more than had been initially forecasted. The higher-than-anticipated expansionary US ISM manufacturing PMI triggered a break down from 1.3030 support but the effect was short-lived as the ISM survey showed a weak employment component that may impact the non-farm payroll figure on Friday.
• Overnight resistance came at 1.3071, which sees the 200-day MA, with the area until 1.3077 also seeing the 50-day MA and the 38.2% retracement level of the July 2012 – February 2013 rally. Further resistance levels are seen at 1.3110 and 1.3160. Support comes at the well-tested 1.3055, 1.3030 and 1.3005.
USD/JPY
• USD/JPY managed to breakout yesterday from 99.35 resistance as the Nikkei was gaining, spiking later to 99.90 on the announcement of the US ISM manufacturing reading. The weak employment data reported through the ISM survey, which may be of some concern with regard to the timing of future tapering, and the failure to break the 100-mark initiated a retracement that may find initial support at 99.35.
• A break of 100 sees the next resistance levels at 100.35 and 100.80 and 101.35. Support below 99.35 is found at 99.15, the 50-day MA, and thereafter at 98.80.
NZD/USD
• NZD/USD is continuing consolidating in the 0.7710 – 0.7850 area, looking to gradually recover from oversold levels as the daily RSI and Stochastic oscillator trigger bullish crossovers. However, the breakout from 0.7790, following the gain of more than 70 pips on the ISM manufacturing index, and the subsequent failure to retest resistance at 0.7850 point to a further test of support at 0.7790 as the 1-hour momentum indicators look bearish with the 4-hour Stochastic in overbought territory.
• Resistance above 0.7850 comes at 0.7930, the 61.8% retracement level of the rally from June 2012 to April 2013. Key support comes around the one-year lows of 0.7710.
Gold
• Gold was lying around $1244 resistance for the greater part of the morning yesterday, falling to $1234 as the data reported from the Eurozone were showing a recovery. A breakout from the $1244 – $1247 area was triggered on the possibility that the Fed may scale down its asset-purchases later than initially thought, with effective resistance coming at $1259.
• Resistance above $1259 is seen at the tested lows around $1269 - $1273 with further resistance in the $1285 - $1289 area, which sees the 38.2% retracement level of the major gold rally following the onset of the financial crisis. Tested support comes in the $1244 – $1247 area and thereafter at $1234.
Oil
• WTI was a major gainer yesterday, rebounding from $96.05 Fibonacci support, amassing 2% in gains relative to yesterday morning. The technical momentum which initiated the rebound from the low following the weak Chinese PMI was thereafter fuelled by the generally strong PMI data in Europe and the U.S., with equities also reporting gains.
• Strong resistance came at $98.10 with support currently seen at $97.75. Further resistance is seen at $98.50 and $98.85. Support below the $97.75 61.8% Fibonacci level of the down move from March to June 2012 is seen at $96.95 and then again at $96.05.
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Market Analysis 03-07-2013: Dollar's Day
Daily Commentary 03.07.2013
The Big Picture Dollar’s day:The dollar gained against 23 of the 24 currencies we track, the sole exception being the IDR (where expectations of a rise in interest rates next week boosted the currency). There was no specific trigger for the US currency’s advance; although the US data was largely dollar-supportive, it wasn’t necessarily the trigger for the buying. Rather, it seems that the dollar simply has momentum ahead of this week’s nonfarm payroll (NFP) figures. The weakness in AUD and the break through ¥100 may also have played a part in encouraging a more general “buy USD” sentiment.
In such a case, traders might want to apply Newton’s first law of motion: a body in motion tends to stay in motion unless acted upon by some external force. That “external force” could be any indicator that comes out. So long as the indicators don’t derail the “tapering off” scenario, the dollar is likely to continue to go up, in my view. The big hurdle of course will be Friday’s NFP announcement for June. Tomorrow’s ECB meeting could also be a surprise, but as the urgency for easing further has diminished slightly (owing to higher PMIs, higher inflation and downward-revised unemployment) while a wide variety of ECB Council officials have stressed that the exit isn’t anywhere in sight, it’s hard to think of why they would choose now to surprise in either direction. Tomorrow’s Bank of England meeting may hold the largest potential for surprise, if Mr. Carney can use his much-vaunted persuasiveness to convince the other MPC members to change their long-held views. But I wouldn’t bet on it. In any case, that would be a dollar-positive surprise.
After Monday’s manufacturing PMIs surprised on the upside, today it’s the turn of the service-sector PMIs. The service sector is much larger than the manufacturing sector in most developed countries, but it isn’t as cyclical and therefore the service-sector PMIs don’t attract as much attention from the markets. The French, German and EU-wide PMIs will once again be revisions to the preliminary ones, while Italy and the peripheral countries (as well as the UK) will be releasing theirs for the first time. The UK index is expected to decline, while in the US, the ISM non-manufacturing index is expected to be up slightly. In the US, the ADP employment figures will as always be closely watched for a hint about Friday’s nonfarm payrolls figure. A rise to 160k from 135k is forecast. Over the last 12 months, the ADP figures have missed the NFP figure by an average of 38k or 25% of the ADP figure itself. That’s not a very good predictor, especially as the standard deviation of the market’s forecasts for NFP is only 18k. The weekly jobless claims, which usually get released on Thursday, will be released Wednesday instead because of the 4th of July holiday. They are expected to be unchanged from the previous week at 345k.
The Market EUR/USD
• EUR/USD weakened yesterday morning as European equities were trading lower, breaking down from technical levels. The breakdown from 1.3055 and 1.3030 support, had EUR/USD test resistance at 1.3030 for a few hours before plunging to 1.3000 as USD/JPY was breaking out from the 100-mark. A rebound to 1.3030 materialised despite the better-than-expected US factory orders for May, which showed the biggest MoM increase since September 2012, as the rather insignificant IBD/TIPP consumer sentiment index for July deteriorated, grossly missing expectations. The dollar continued to strengthen as the US equity indices were shedding early gains with EUR/USD moving below 1.2980 support, currently finding resistance at the 23.6% retracement level of the February – March plunge.
• Resistance above 1.2980 comes at 1.3000 and 1.3030. Some support is seen at 1.2955 and 1.2920, with 1.2900 concentrating some coinciding trendline support.
USD/JPY
• USD/JPY had a technical breakout from 100 after testing resistance at 99.90, at a time when the 15- and 30-min charts as well as the 1- and 4- hour chart and the daily chart had positive momentum indicated by the RSI and the Stochastic oscillator. A breakout from 100.40 drove the pair towards 100.80 resistance before retesting 100.40 support with Japanese equities shedding gains. Traders may want to note that the Nikkei seems to continue to track USD/JPY with a lag of a few minutes.
• A breakout from 100.80 sees next resistance level at 101.35 and thereafter at 101.65 with 101.95 being a key level. Support below 100.40 comes just above 100, with buying pressure likely to mount at 100.10.
GBP/USD
• GBP/USD broke down from 1.5200 significant support that sees two overlapping Fibonacci levels, following the UK Construction PMI for June, which was marginally weaker than expected (albeit improved and in expansionary territory). The miss in combination with the dollar’s overall strengthening drove the pair towards 1.5140 support.
• A breakdown from the 1.5125 – 1.5140 area sees support at the significant 1.5040 level and thereafter at 1.4920. Significant Fibonacci as well as trendline resistance comes at 1.5200 and thereafter 1.5270.
Gold
• Gold retraced from $1267.30 spike resistance finding effective support in the $1242 – 1244 area, as the USD was gaining, particularly versus the yen.
• A breakdown from support sees weak support at $1234 and better tested support at $1224. Resistance is likely to come at $1259 and around $1269.
Oil
• Oil gained on Egyptian turmoil, as the risk of trade disruption through the Suez Canal increased, boosting demand to shore up stockpiles. As a consequence, WTI gained 4% since yesterday morning and more than 6% since the start of the week. Initial resistance and support came at $98.85, this contract’s downward sloping trendline from the 2008 peak, with further trendline resistance at $99.15. A breakout thereafter triggered a move to $99.95 with a steep up move materialising this morning following a break of weak resistance at 100.65.
• Resistance is currently seen at 102.00, further resistance likely comes at 102.95, with the 61.8% Fibonacci level of the 2008 - 2009 oil crash found at 103.80. Support is seen at the previous resistance levels of $100.65 and $99.95.
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Market Analysis 04-07-2013: Waiting for the central bankers
Daily Commentary04.07.2013
The Big Picture Waiting for the central bankers: Both the dollar and the euro weakened yesterday. The euro is being undermined by political tensions in Portugal, where the government is struggling to survive after two ministers resigned. But investors are unwilling to hold large short EUR positions ahead of today’s European Central Bank (ECB) meeting, hence the euro gained against the dollar. The dollar’s movements were harder to explain, given that both the ADP employment report and the employment component of the ISM were stronger than expected (although the ISM index itself was weaker than expected). Seeing as most of the moves occurred early in the US day and currencies were fairly steady after that, probably it comes down to no more than position-trimming ahead of the Independence Day holiday today in the US and what is likely to be a long (and volatile) weekend for many traders.
Today’s ECB meeting will be the focus of attention. The data out of the Eurozone has been improving recently, but that only means “less bad.” There is less urgency for the ECB Council to take any new extraordinary measures to resuscitate the Eurozone economy, yet there is nowhere near the kind of improvement that would let them start to unwind the measures that they have in place, either. Given the current political problems in Portugal and the sharp rise in interest rates there, plus the refusal of the politicians to agree on a banking union, the ECB will probably want to take some action to calm the markets. ECB officials have been leaning more towards “forward guidance” than before; when Jean-Paul Trichet was ECB President, he frequently said that the ECB never “pre-commits,” but recently, ECB officials have been making more and more promises about how long interest rates will remain low. One tool that they could employ would be more formal “forward guidance” to encourage rates to remain low at the long end as well.
“Formal guidance” was a tool that Mark Carney instituted when he was Bank of Canada Governor, and today may see something along those lines after his first Monetary Policy Committee (MPC) meeting as Bank of England Governor. Given that the six MPC members who have consistently voted against outgoing Gov. King are unlikely to change their mind just because someone new is chairing the meeting, an outright change in policy is unlikely. But Carney could make a statement following the meeting, which would be a break with tradition as usually they do not make any statement when they leave monetary conditions unchanged. With gilt yields rising, he may want to take some step to ensure that the market does not tighten policy before the Bank is ready to do so. Improving the Bank’s communication with the market might help to achieve the MPC’s goals without changing the policy settings.
The likely impact of forward guidance from the ECB and BoE would probably be to push EUR and GBP lower, given that the expected medium-term real interest rate gap between the currencies is one of the main determinants of the exchange rate, as the graphs below show.
The MarketEUR/USD
• EUR/USD had a volatile day yesterday plunging to 1.2920 support as Portuguese bond yields rocketed on a reigniting of political risk with the generally weak Eurozone services PMIs adding insult to injury. A rebound materialised thereafter as the US dollar was plummeting versus the yen in a risk-off environment. The best ADP employment change since February, combined with the marginally better-than-anticipated weekly jobless claims and the widest U.S. trade deficit in a year triggered substantial volatility as the markets were trying to absorb the data. A subsequent rebound tested resistance at 1.3030 with the overnight dollar strengthening driving the pair towards 1.2980 support.
• Today sees the release of no US data but volatility is likely during the European trading session from the BoE and ECB meetings. Support and resistance levels are essentially the levels tested the past couple of days as EUR/USD consolidates around 1.3000, waiting for the ECB policies and the non-farm payrolls to provide direction.
• Support below 1.2980 comes at 1.2955 and 1.2920, with resistance at 1.3030, 1.3055 and 1.3075. The announcement of further accommodative policies by the ECB today may drive the pair towards 1.2900 and 1.2875 trendline support, though the markets may be restrained from overreacting in light of the U.S. employment report tomorrow
USD/JPY
• USD/JPY broke down from 100.80 resistance on the rejuvenation of a risk-off sentiment, plunging to support in the 99.15 – 99.35 area that sees the 50-day MA as well as trendline support for yesterday. A fakeout from 100.00 found resistance at 100.10, before moving overnight to support at 99.70, with resistance thereafter coming at 100.
• Key levels to note for support are 99.70 and the 99.15 – 99.35 well-tested area with resistance seen at 100, 100.40 and more importantly 100.80.
GBP/USD
• GBP/USD was a major gainer yesterday, rebounding from the 1.5125 – 1.5140 support area following the best U.K. service PMI since March 2011, breaking out from significant resistance at 1.5200, finding initial resistance at 1.5270 before spiking to 1.5305, the 38.2% retracement level of the March – May rally.
• With Carney’s first BoE meeting today, the pair is likely to see substantial movement. Resistance above 1.5270 and 1.5305 comes at 1.5345 and 1.5370, the 50-day MA. Strong tested support comes at 1.5200 and in the 1.5125 – 1.5140 area with further support at 1.5040.
Gold
• Gold bulls should note the rather pathetic gains the commodity had amidst the political crises in Portugal and Egypt that triggered a risk-off environment and flight to safety. Resistance was struck twice at $1259 following the yet another weak MBA mortgage applications reading and the weak US services PMI. A breakdown from $1242 - $1244 support was short-lived as it occurred as the Portuguese yields were soaring.
• Support is seen yet again in the $1242 - $1244 area with weak support at $1234 and stronger support at $1224. Resistance above $1259 comes around $1269 and thereafter at $1285.
Oil
• Oil tested resistance at $102 following the strong ADP figure as well as following the greatest decrease in stockpiles in 2013, finding support slightly above $100.50.
• A breakout from $102.00 sees resistance at $102.95 and 103.80, a very significant Fibonacci retracement level. Support below the $100.50 - $100.65 area comes at the $100 mark.
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Market Analysis 05-07-2013: BoE and ECB move forward
Daily Commentary05.07.2013
The Big Picture BoE and ECB move forward: Yesterday’s Bank of England (BoE) and European Central Bank (ECB) meetings came to similar conclusions: they left policy unchanged while introducing “forward guidance.”
Forward guidance means giving the markets clear guidance about what the future course of interest rates is likely to be. Central banks usually control the economy by raising and lowering interest rates on short-term funds. But when short-term rates hit zero, as they have in many major economies recently, then they can’t lower rates any further.
Moreover, there are problems in getting short rates to percolate through the economy. First, officials may want investors to borrow money and buy stocks, bonds or other risky assets, but investors will always worry about getting trapped if there’s a sudden change in monetary policy. If they borrow short-term funds to invest and then rates go up, they may have to sell their stocks to repay their loans. But if everyone tries to sell their stocks at the same time, the price will collapse and they’ll lose money. Secondly, even if the central bank brings short-term rates down to zero, a lot of financial products are priced off of long-term rates, and they can still be higher than what the central bank wants. In particular, mortgage rates are tied to long-term rates, and housing is crucial for the economy.
Forward guidance allows the central bank to overcome both these problems. By making it clear to the market that it will keep interest rates low for a certain period of time, officials are more or less guaranteeing investors that they can borrow short-term funds and invest them in stocks, bonds, real estate or other less liquid investments without having to worry that short-term rates will suddenly rise, forcing them to sell their investments at a loss. As for the second problem, a long-term interest rate is just a series of short-term interest rates rolled over. That means that if the central bank promises that short rates will remain at zero for the next two years, then two-year rates should fall to zero, too. Forward guidance therefore helps the central bank to extend its influence further out the yield curve and thereby to extend its influence over the economy.
Both central banks also came out with dovish statements. The BoE, which issued an unusual statement after its meeting (normally it does not issue a statement if it leaves policy unchanged) said that “in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.” In other words, it’s telling the market that short-term rates will not rise as quickly as investors think. As for the ECB, President Draghi said at his press conference that the governing council had an extensive discussion about a possible rate cut, that both the refi rate and the deposit rate (currently at zero) can go lower still, and that rates would remain “at present or lower levels for an extended period of time,” which he later implied was longer than a year. This is a substantial change for a central bank that previously had said it “never pre-commits.”
As a result, both GBP and EUR weakened, with GBP weakening more than EUR. We believe both currencies are likely to weaken further vs USD on a fundamental view as their central banks are now just starting to launch a new round of easing measures, whereas the Fed is starting to exit from its easing measures.
Today the market will focus on the US non-farm payrolls for June. The consensus forecast is for +165k, a bit less of a rise than +175k in May, although some people have revised up their forecasts following yesterday’s better-than-expected ADP report. The standard deviation on the market consensus is 18k so anything between150k-180k should be within the range of expectations. A number below that will probably diminish expectations of “tapering” and be USD-negative, while above that is likely to accelerate expectations and boost the dollar further.
Looking at the market’s reaction to the data over the last year, EUR/USD has tended to fall more when the NFP misses expectations than when it beats expectations, which is exactly the reverse of what one would expect. In fact EUR/USD has tended to rise in the first couple of days following a beat. It may be because these data come from a time when “risk on = sell USD” and therefore the market reaction was the opposite of what textbooks say would be likely to happen. I’m not sure it proves anything about today’s data or the reaction in today’s frame of reference, given how a) the Fed has made clear its determination to begin “tapering off” in the next few months if the data allow, and b) the ECB has made clear that it will not be tightening for at least the next year.
The MarketEUR/USD
• EUR/USD was finding resistance at 1.3005 for most of yesterday morning, moving 10 pips higher following the release of the surprise BoE monetary policy statement. Thereafter the euro plunged 130 pips on Draghi’s statement and press conference, which sent the euro crashing versus the USD.
• The day to day sees the much awaited non-farm payrolls, which may indicate how close the Fed is to initiate tapering off of QE. The short-lived rebound from the plunge yesterday found resistance at 1.2920, with trendline resistance being seen today at 1.2920. Key support levels are seen until 1.2855 with a break of this level likely triggering a breakdown to 1.2800. A close below 1.2800 would complete the symmetrical, in terms of shoulder width, head-and-shoulders formation and signal a steeper down move for EUR/USD. A reversal level is found at 1.2750 and key Fibonacci support at 1.2680. Should the US employment report prove disappointing, key resistance comes at 1.3000, with the tested 1.3030 level seeing downward-sloping trendline resistance for the day.
EUR/GBP
• There is no doubt that sterling was the biggest loser yesterday as indicated by the EUR/GBP gains, reversing the sterling gains witnessed on Wednesday following the very strong UK services PMI. The break of key resistance at 0.8590 was short-lived as the ECB issued shortly after the BoE a dovish policy statement of its own triggering a retracement.
• The coiling that has been taking place the past couple of months has strong resistance at 0.8590 with notable resistance thereafter at 0.8660 and 0.8715. Trendline support comes at 0.8490.
USD/JPY
• USD/JPY is continuing to rebound unabated as seen in the 4-hour chart, having tested trendline support with the Parabolic SAR signalling an uptrend again. The strong gain in equities in Europe, with the FTSE 100 up more than 3% and DAX more than 2% on the accommodative policies by the BoE and the ECB triggering a risk-on environment that is also boosting Asian stocks today, weakening the yen.
• A breakout from current resistance at 100.40 sees tested resistance at 100.80, with further resistance at 101.35 and 101.65. Support comes at 100, with weak support at 99.7 and better tested support in the 99.15 – 99.35 area, which sees the 50-day MA.
Gold
• Gold hardly felt the sell-off of pounds and euros, indicated by the tiny $5 trading range it had on the announcement of the BoE and ECB dovish statements. The support rendered to equities by these statements, the generally improved economic outlook in the U.S., Eurozone and the UK and the increases in US Treasury yields on tapering speculation give no substantial backing for gold to strengthen as things stand, and even more so since inflationary pressures in the Eurozone and the US are subdued.
• The overnight break of $1244 on speculation that the US employment report will be substantial evidence for imminent tapering have the gold test support in the $1242 – $1244 area, with a breakdown seeing weak support at $1234 and better-tested support at $1224. Resistance will likely come in the $1256 – $1259 area. Further resistance comes around $1269.
Oil
• Oil had a quiet day for a change with Brent unchanged since yesterday morning and WTI losing 0.25%. Support got tested a number of times at 100.69 with an overnight rebound failing to breakout from weak resistance at 101.45.
• Strong US job gains, however, may be the catalyst for a breakout from $101.45 and $102 resistance, with key levels then seen at $102.95 and $103.80. Support below $100.65 comes at $100 and then $99.15.
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Market Analysis 08-07-2013: Friday’s US employment data was better than anyone had ho
Daily Commentary08.07.2013
The Big Picture Friday’s US employment data was better than anyone had hoped for: The 195,000 gain in nonfarm payrolls and strong upward revisions to prior months put the average monthly payroll gain just above 200,000 in 1H. This was the level that various Fed officials had said would show that the labor market had improved enough to begin tapering off QE. The figures therefore cemented expectations that QE tapering is likely to start in September, sending both stocks and US Treasury yields higher. However the markets ignored all the recent guidance by Fed speakers that QE and interest rate policy were separate issues and repriced the Fed rate outlook to assume that the Fed starts hiking rates by the end of 2014, well before the mid-2015 or later timeframe that Chairman Bernanke had indicated. The result was general strength in the dollar all around.
I would expect this strength to be maintained. Look at the other central banks: the ECB and Bank of England just started experimenting with “forward guidance,” a new form of extraordinary monetary policy, while the Bank of Japan is only four months into the biggest QE program yet. The Reserve Bank of Australia is likely to cut rates further. The Swiss National Bank is intervening massively to keep its currency from appreciating. Only in some of the EM countries, where inflation is starting to be a problem, might the central banks consider tightening. But as US interest rates rise, their yield advantage dissipates and they have to worry about tightening so much that they choke off growth. The dollar seems likely to continue its gains, in my view.
As usual in the second week of the month, there are not so many major indicators coming out. The Bank of Japan is the only major central bank meeting (Thursday), although ECB President Draghi will be testifying the EU Parliament today and Fed Chairman Bernanke gives a speech on Wednesday. Otherwise, the major indicators for the week will be the industrial production data (Germany today, UK on Tuesday, France and Italy on Wednesday, Japan and EU on Friday). No major US data during the week, just consumer credit (today), small business optimism tomorrow and PPI and Michigan consumer confidence on Friday. China’s bank lending figures, due out during the week, will also be significant. Today the Bank of France business sentiment may also be of interest, although not that market-moving. Already today it was announced that the German trade surplus fell to EUR 13.8bn from 18.1bn, with the current account surplus to EUR 11.2bn from EUR 17.6bn. Both were well below expectations. The good news is that Germany is importing more (+1.7% mom) and exporting less (-2.4% yoy). This can help the rebalancing of the Eurozone economy; Germany’s trade with the rest of the EU is still in surplus by around EUR 44bn a year (calculated not including today’s data), although this is down sharply from the peak of EUR 127bn only five years ago.
The MarketEUR/USD
• EUR/USD was a major loser following the beat by the non-farm payrolls and the upward revision of the previous month’s figure. The euro in fact was, since Friday morning, the fifth biggest loser out of the 24 currencies we track versus the dollar, adding to the losses following the ECB’s forward guidance. The pair was seeing significant bearish momentum half an hour before the release of the U.S. employment report with bearish crossovers in the 1-hour, 4-hour and daily RSI and Stochastic Oscillator (5- and 14- period) charts ,with the beat furthering the already bearish momentum.
• Support came at the head-and-shoulders neckline at 1.2805. A rebound is likely to be met with strong tested and trendline resistance in the 1.2855 – 1.2860 area. A breakdown of the neckline sees some support in the 1.2750 – 1.2765 area with further support at 1.2705. Traders may want to note that 1.2680 is the 61.8% retracement level of the July 2012 – February 2013 rally, with 1.2660 being a one-year low, which was tested in November 2012.
USD/JPY
• USD/JPY was able to rebound from its trendline support at 100.00 before the US employment figures, breaking out from the resistance initially seen at 100.40 following the release of the NFP data. 100.80 resistance was also broken in the process, acting as a support during the correction period we saw shortly after the huge market swings on the announcement of the non-farm payrolls. USD/JPY, unlike other pairs, was able to further its gains in the hours following the US employment report, with spike resistance coming at 101.50 and better tested resistance at 101.35.
• Resistance above 101.35 is currently seen in the 101.75 – 101.95 area, with resistance thereafter at 102.50. Support comes at the well-tested 100.80 level.
USD/NOK
• The Scandinavian currencies took a beating on Friday, with the Swedish krona losing 2.3% the past 24 hours of trading, and the Norwegian krone 2.5%, being the biggest loser versus the dollar out of the 24 pairs we track.
• USD/NOK looks like it is furthering its gains from the breakout of the triangle formation it was trading in the past 5 years. Having broken out from 6.1995 resistance, the pair is currently at levels last seen 2 ½ years ago, with key resistance next seen at 6.3150 and 6.5300. Support below 6.1995 comes at 6.0090.
Gold
• Gold, together with silver, were the biggest commodity losers on Friday, with downward pressures applied on the price of gold well before the release of the NFP figure. Resistance was found a number of times during the morning at $1244 with a breakdown occurring to $1234 before a rebound to $1244 resistance materialised again. The strong NFP figures for June as well as May reinforced the view that Fed tapering is around the corner, furthering the bearish outlook for the metal. The breakdown which occurred found support at $1209, with a rebound to $1224 taking place thereafter.
• The $1200 – 1209 area concentrates significant support, with $1180 being the lowest tested level since August 2010. Resistance above $1224 is seen again at $1234.
Oil
• Oil has been a huge gainer since Friday morning with both WTI and Brent gaining 2.4%. WTI saw a rollercoaster ride on Friday, having a fake breakout from $102.00 resistance, being driven to support at $101.45 as the US equities were shedding the upward opening gap they saw an hour after the release of the NFP figures. The rebound and consequent strong gains in equities, however, supported oil triggering a breakout from $102.00 and $102.95, with resistance coming at $103.80, the 61.8% retracement level of the huge plunge in oil price following the onset of the financial crisis.
• A breakout sees further resistance at $104.50 and $105.45, with support coming in the $102.95 - $103.25 area, and support below that slightly above $102.00.
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Market Analysis 09-07-2013: Short-lived rebounds ahead of Fed minutes?
Daily Commentary09.07.2013, Time of writing: 03:30 GMT
The Big Picture Short-lived rebounds ahead of Fed minutes? US is mostly lower this morning on what seems to be just profit-taking or position-squaring on recent moves. The biggest gainers overnight were the biggest losers yesterday, namely NOK and SEK. The across-the-board rally in European stocks yesterday gave rise to some optimism that the recent sharp drop in some currencies has been overdone, and few of the majors have dropped as much as NOK. But Norwegian stocks were up nearly 3% yesterday, double the rise in European stocks as a whole, leading to outperformance of the currency. SEK dropped vs EUR and NOK after Sweden reported a 2.6% mom decline in industrial production in May, but still managed to gain against the dollar. I would not put too much emphasis on sharp movements in such thinly traded currencies, though. By contrast, AUD and NZD were the only major currencies to lose ground vs USD, because of the fall in the National Australia Bank (NAB) business confidence to -8 in June from -4 and a rise in Chinese inflation to 2.7% yoy from 2.1%, which could encourage the Chinese government to take further steps to cool the economy. AUD and NZD were the currencies that benefitted most from the Fed’s QE program and we think they are the ones where the dollar has the most room to rebound. We remain negative on both of them.
The positive action in European stocks yesterday only underscores how central banks are calling the tune. Actually, the main news out of Europe was negative yesterday: German exports collapsed and industrial production was sharply lower, calling into question the ECB’s forecast of a Eurozone recovery in 2H. The 9.6% plunge in German exports to the Eurozone shows that Germany cannot isolate itself from the problems in the rest of the region. Yet the DAX was up 2.1% as investors listened to ECB President Draghi reaffirm his commitment to keep rates low. What this suggests to me is that investors in Europe, like the US, are putting their faith in the central banks. With growth prospects in Germany fading, the ECB is likely to have to push even harder on its monetary policy to keep these hopes alive. That means moving further and further down the road of forward guidance, probably moving into conditional guidance that sets specific conditions for exiting monetary policy (as the Fed has done). This means to me further EUR depreciation to come. Ditto for GBP.
After yesterday’s disappointing German industrial production figure for May, expectations cannot be that high for today’s UK IP figure, which rarely outperforms Germany. It’s expected to show a small rise of +0.2% mom vs +0.1% in April, while manufacturing production is expected to rise 0.4% mom, a turnaround from -0.2% mom in May. But even that would bring the yoy figure only to -1.6%, down from -0.6% yoy in April. That would not really encourage anyone to think that the UK economy is turning up convincingly and so I would consider it probably GBP-negative. The UK visible trade balance for May continues deeper into disaster territory,; including services, the total trade deficit is expected to be approximately unchanged from April at GBP -2.6bn. That should be GBP-neutral. In the US, the National Federation of Independent Businesses (NFIB) small business optimism survey is expected to show a small increase, following rises in consumer confidence. That could help the dollar further, although an early release of part of the survey showed no increase in jobs, which may be disappointing.
The MarketEUR/USD
• EUR/USD had a solid rebound in the 1.2855 – 1.2860 area before breaking out to find significant resistance at 1.2875, the 50% retracement level of the rally from July 2012 to February 2013, despite the smaller-than-expected German trade surplus, the surprise deterioration in Eurozone investor confidence and the below-consensus German industrial production for May. The pair retraced from resistance, however, as the US consumer credit change came in at a 6-month high, beating expectations by more than 50%.
• The pair may struggle to move higher given the noteworthy resistance in the 1.2900 – 1.2920 area, above the current resistance level of 1.2875. Having already violated 1.2855 support, there does not seem to be any difficulty to move towards 1.2800 again, unless the euro rebound continues in the absence of any significant data from the Eurozone and the US today.
USD/JPY
• USD/JPY had a pretty technical day yesterday, retracing from 101.35 resistance, finding support at the well-tested 100.80 level, as the dollar was weakening across the board yesterday.
• The rebound today, as the Nikkei managed to extend its upward opening gap, is moving the pair yet again towards 101.35 resistance with notable resistance thereafter in the 101.75 – 101.95 area. A breakout may rocket the pair towards 102.50 resistance. Support is found at 100.80, which today may also act as trendline support. Further support comes at 100.40.
GBP/USD
• GBP/USD managed to rebound from 1.4850 support, breaking out from 1.4920 resistance, turning it into support, with a retracement from 1.4950 materialising despite the beat by the RICS housing price balance indicator. With a plethora of UK data to be released today, including industrial and manufacturing production and the trade deficit, as well as the NIESER GDP estimate for Q2, traders are bound to follow sterling, particularly since most of the data forecast a deterioration.
• Resistance above 1.4950 is seen in the 1.5015 – 1.5040 area, which sees the May lows as well as trendline resistance. Support below 1.4920 comes at the 4-month lows of 1.4850, with a breakdown seeing key support then at 1.4700.
Gold
• Gold’s rebound from the plunge following Friday’s NFP figure was furthered overnight on account of a larger than expected increase in Chinese consumer prices.
• The strong momentum on the RSI and the Stochastic oscillator on multiple time periods may extend the rebound towards the $1257 - $1259 resistance area, with a break of that level seeing resistance near the $1267 - $1269 area. Thereafter, strong Fibonacci resistance is located at $1285. Tested price support is currently found in the $1241 - $1244 area as well as at $1234.
Oil
• WTI retraced from the significant Fibonacci resistance found at $103.80, the 61.8% retracement level of the crash in oil prices during the second half of 2012. Crude, however, found support at $102.10 as the turmoil in Egypt has yet to subside.
• The pair seems to be consolidating in the $102.95 - $103.25 area, with strong resistance at $103.80. A breakout from this Fibonacci level sees further resistance at $104.50 and $105.45. Support today is likely to come higher at $102.30.
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Market Analysis 10-07-2013: Oops! I did it again
Daily Commentary10.07.2013, Time of writing: 03:30 GMT
The Big Picture Oops! I did it again The IMF downgraded its forecast for 2013 growth for the fifth time; it now forecasts global growth at 3.1% this year, unchanged from 2012, as China and the US will grow less and Eurozone output will shrink more than previously forecast. The key line for the FX market was that it said monetary stimulus “should continue until the recovery is well-established.” Given that the US is on its way to tapering off, that leaves the other central banks on easing mode, which would tend to underpin the dollar virtually across the board. The IMF’s new prediction for 2013 Eurozone growth (-0.6% vs previous forecast of -0.3%) is the same as the ECB’s and the IMF’s 2014 prediction of +0.9% is not that far off the ECB’s +1.1%. But given the pattern of revisions, the likelihood is that growth undershoots and the ECB is forced to ease further, which would weaken the euro. ECB member Joerg Asmussen yesterday reaffirmed that the central bank’s policy will remain accommodative for “an extended period,” which he explained was more than a year although the ECB quickly issued a statement denying the specific time frame. As for the UK, the IMF forecasts UK growth at 0.9% this year, below the Bank of England’s 1.1% forecast but not necessarily low enough to require further easing measures there.
Against this background, the movements overnight were difficult to understand. Why would the commodity currencies be the best performers when the main news story is the downgrade to global growth prospects? To make matters worse, China announced a 0.7% mom decrease in imports in June, deeper than the 0.3% mom decline in May and confounding expectations of a 6.0% rebound. (Money supply growth slowed, too.) Yet CAD, AUD and NZD all gained, while the beleaguered ZAR was the best performing currency that we track. On the other hand, CHF was the biggest loser. The answer must be that investors are looking to the US, where corporate earnings are coming in better than expected and stocks just keep going up. That’s a risk-on environment regardless of what the IMF says. USD to gain further. However I don’t think the commodity currencies can sustain a sentiment-based recovery while their economies weaken and so I would use this rally to establish short positions.
Following this week’s below-consensus German and UK industrial production, today’s French IP is likely to disappoint as well. Italian IP is expected to show a rise, probably because of mean reversion from the decline the previous month. The ECB’s Noyer, Costa and Asmussen will be talking during the day; perhaps we will get more clarification of how long an “extended period” is. The big event of the day though is the release of the minutes from the US Federal Open Market Committee (FOMC) meeting of June 18th- 19th. We’ve heard so much from so many Fed officials recently that the minutes might not shed that much more light on the situation. The key will be the discussion on the risks around the Fed’s growth outlook, which are in effect the risks around “tapering off.” Of particular interest will be any discussion about the employment situation and the falling participation rate. The falling participation rate means that the Fed’s 6.5% unemployment threshold for tightening now means a less healthy labor market than it did when the Fed introduced this criterion. Are they going to adjust that criterion in response? Fed Chairman Bernanke will be speaking later in the day and may clear up any confusion ignited by the release of the minutes. Otherwise, no major US indicators out today.
The MarketEUR/USD
• Is this it? The rebound by EUR/USD found resistance at 1.2900 with a retracement to 1.2855 occurring over the next few hours, with the bearish momentum on a high as signalled by the bearish crossovers on the RSI and the Stochastic oscillator on the 1-hour, 4-hour and daily charts. The IMF downward revision of growth prospects for the Eurozone was the trigger for a EUR/USD breakdown with the pair finding support in the 1.2750 – 1.2765 area. To add insult to injury, Standard & Poor’s downgraded Italian creditworthiness to BBB, just two notches above junk level, and maintained a negative outlook. The break of 1.2800 signals a break of the head-and-shoulders neckline that may see the pair move a lot lower.
• Strong resistance is likely to be found at the neckline or just below 1.2800. Support below 1.2750 comes at 1.2705, with a key support level seen at 1.2680, the 61.8% retracement level of the rally from July 2012 to February 2013.
USD/JPY
• USD/JPY was flat relative to yesterday morning, trading within support and resistance at 100.80 and 101.35 respectively, despite a majority of economists surveyed by Bloomberg seeing no further BoJ easing in the next 6 months.
• Support below the well-tested 100.80 comes at 100.40 and at 100.00. Resistance above 101.35 is seen in the 101.75 – 101.95 area.
GBP/USD
• GBP/USD plunged to the 1.4825 – 1.4850 reversal area as any UK figures that could miss expectations did so. Industrial and manufacturing production showed larger than expected YoY contractions with the MoM figures also missing expectations. The trade deficit also widened relative to the revised figure for the previous month.
• A breakout from 1.4880 resistance is likely to be met with significant resistance at 1.4920. Significant support below 1.4825 comes at 1.4700.
Gold
• Gold’s rebound yesterday found resistance at $1259, retracing to the $1241 - $1244 area. Gold bulls may want to note that the bearish overall growth outlook by the IMF just triggered a test of resistance, partly due to lower growth forecasts translates to lower inflationary pressures.
• Support below the $1241 - $1244 area comes at $1234 and the $1224. Resistance above $1259 is seen near the $1267 - $1269 area.
Oil
• WTI was a major gainer since yesterday morning despite the IMF downgrading growth forecasts around the globe .The forecasts did trigger a breakdown to $102.30 support but the strong rebound we are seeing in US equities, the hiked price forecasts for 2013 by the Energy Information Administration and the forecast for a further decrease in crude stockpiles announced later today, triggered a breakout from $103.25 resistance and a breakout from $103.80, the very significant 61.8% retracement level of the massive bear market in oil prices in the second half of 2008. Resistance came in the $104.50 - $104.70 area.
• Key support now comes at $103.80 and weaker support at $103.25. Resistance above $104.50 is seen at $105.45.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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