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Market Analysis 11-07-2013: The markets finally seem to have gotten the picture
Daily Commentary11.07.2013, Time of writing: 03:30 GMT
The Big Picture The markets finally seem to have gotten the picture: the Fed’s decision whether to “taper off” QE is totally separate from the decision whether to raise rates. The minutes of the June FOMC meeting showed that about half of the FOMC members wanted to end asset purchases by the end of this year (note that not all FOMC members vote, so this does not mean half of the voting members) but over 3/4ths thought the first rise in rates wouldn’t be warranted until sometime in 2015 or later. “You can only conclude that highly accommodative monetary policy for the foreseeable future is what’s needed in the US economy,” Chairman Bernanke said a couple of hours after the release of the minutes. He also made clear that the 6.5% unemployment rate target that the Fed has is a necessary but not sufficient level for raising rates. That is to say, unemployment will have to be 6.5% before they consider raising rates, but just because it hits that level doesn’t mean they will automatically start tightening.
The separation of these two issues and Mr. Bernanke’s comments may have made the FX market revise its thinking about when the Fed is likely to start tightening, but still the difference in direction is clear. In the US, the main question facing the central bank is when and how to remove the extraordinary stimulus; in almost every other major central bank, the question is what more they can do to support their economies. This divergence in direction is likely to support the dollar going forward, in my view. Today’s retracement – aided by technical factors, especially in EUR/USD (see below) – may continue for a few more days because of technical factors, but that should just make for better entry levels eventually for a fundamentally based upleg again in the dollar.
There are no major Eurozone indicators out today (just Fench CPI). In the US, only the weekly jobless claims will be of any consequence for the FX market. Initial jobless claims are expected to remain around the recent level of 340k but continuing claims are expected to rise a bit. Given the extreme focus on the US labor market in light of the Fed’s comments, these figures have the potential to cause considerable volatility, especially when the two numbers contradict each other.
The MarketEUR/USD
• It was not it. The breakout from the head-and-shoulders neckline at 1.2800 was an initial signal that the EUR/USD head-and-shoulders formation was probably not confirmed, with short covering driving the pair towards 1.2830 resistance, with a breakout to 1.2855 materialising on strong dollar bearish momentum as signalled by the RSI and the Stochastic Oscillator. The Fed minutes, which showed that many FOMC members want to see further improvements in the labour market, triggered a 100-pip up move, before a significant retracement found support at the 50% retracement level of the major rally in the second half of 2012. Bernanke’s extremely dovish speech sparked major dollar selling with EUR/USD gains continuing overnight. The most significant movement, however, came following the breakout from 1.3055 - 1.3075 area, which sees the 50- and 200-day MA, as well as the 38.2% retracement level of the aforementioned rally. Resistance came at 1.3200, with support following a retracement coming at the major 1.3075 level.
• Resistance above 1.3200 is found in the 1.3230 – 1.3250 area and thereafter at 1.3300. Some support is seen at 1.3115, with strong support in the 1.3055 – 1.3075 area.
USD/JPY
• USD/JPY saw significant volatility over the past 24 hours, with a breakdown from trendline support at 101.00 and the significant 100.80 support level seeing a steep down move with a trading range forming between 100.00 support and 100.40 resistance. The FOMC meeting minutes sparked major volatility with the dollar ultimately losing, with a new intraday low coming at the 50-day MA. The biggest USD/JPY losses however came following the breakdown of that level with support following the sell-off being found at 98.25. Volatility this morning continued with the BoJ maintaining its monetary base, as the markets await BoJ Governor Kuroda’s speech.
• Key support is likely to come in the 97.90 – 98.10 area, which sees the 23.6% retracement level of the post-Abe rally, with tested support thereafter at 97.05. Resistance above 98.80 may come in the 99.45 – 99.70 area.
GBP/USD
• GBP/USD initially broke out from 1.4920 resistance turning it to support at a time when the dollar was seeing technical weakness. The FOMC minutes triggered some sterling gains which were fully reversed, but this was not the case with Bernanke’s speech, which triggered multiple breakouts, with resistance ultimately coming at the very significant 1.5200 level that sees two overlapping Fibonacci levels.
• A breakout from the 1.5200 – 1.5220 area sees next resistance at 1.5270. Key support is found in the 1.5125 – 1.5140 area, with further support at 1.5040. Any significant moves today are likely to be dollar related since we have a drought of UK news.
Gold
• In this market reversal, even gold managed to shine, gaining 2.4% from yesterday morning, rebounding from $1244 support, having a fake breakout from $1259 resistance on the FOMC minutes, before Bernanke’s speech led to a breakout from $1259 and $1269 resistance, with resistance coming at the significant $1285 - $1289 area, which sees the 38.2% retracement level of the post Lehman-gold rally.
• The next key resistance level is $1302, and thereafter $1320. Some support is found at $1269 and $1259.
Oil
• WTI was a major gainer yesterday, with the gains being WTI specific since Brent was largely flat from yesterday morning. The much larger than expected reduction in crude stockpiles led to a breakout from $105.45, with the next resistance level seen at $107.00.
• Support now comes at $105.45 and $104.50. Resistance above $107.00 is seen at $108.00.
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MARKETS SUMMARY
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Market Analysis 12-07-2013: The calm after the storm
Daily Commentary 12.07.2013, Time of writing: 03:30 GMT
The Big Picture The calm after the storm:The dollar was little changed overall this morning, with the DXY index almost exactly where it was when I wrote this comment yesterday. This implies to me that the markets are settling down after the turmoil caused by Wednesday’s FOMC minutes/Bernanke speech and rather than any broad USD move, were going back to trading individual currencies on those currencies’ merits. Over time I think this trend will allow the dollar to make a comeback. Market reports said the US currency weakened following worse-than-expected jobless claims (both new and continuing claims were higher than expectations and higher than the previous week), but since the US currency actually peaked half an hour after that news came out I don’t see how it could have been responsible for weakening.
There were two significant moves overnight. On the one hand, AUD and NZD weakened as Australian home loans grew less than forecast in May. Concerns over Chinese growth are also weighing on AUD and NZD ahead of next week’s China GDP data. But CAD gained on hopes for continued US stimulus, demonstrating that location matters as well as classification as a “commodity” currency. The other move worth noting was in GBP, which was the best performing currency among the majors. Investors and analysts are starting to reconsider the likelihood that the new Bank of England Governor can overcome resistance on the Monetary Policy Committee to further quantitative easing. I expect that while an increase in outright purchases may not be possible, there are other measures that the central bank can take, as Mr. Carney himself has pointed out. I expect the Bank to implement such measures and for GBP to weaken as a result.
The major indicator out today is Eurozone industrial production for May. German IP was below expectations, but French and Italian IP modestly exceeded expectations so today’s Eurozone figure could go either way. The market consensus is for -0.3% mom vs +0.4% mom in April, which would tend to reinforce views of a weak Eurozone economy and thereby be EUR-negative. US producer prices for June later in the day are expected to have risen by 0.5% mom or +0.1% excluding food and energy, both the same as in the previous month. That might assuage fears of deflation that could delay QE tapering off and thereby weaken the dollar. U of Michigan consumer confidence for July is expected to rise to 84.7 from 84.1, which would also be USD-supportive. The Fed’s Plosser and Bullard speak at a panel discussion about the central bank. They may put yet another spin on the FOMC’s stance. The hawkish Mr. Plosser recently said the Fed should begin tapering off “now,” while the dovish Mr. Bullard dissented from the latest Fed decision because he is concerned that inflation may be too low.
Note: the “Big Picture” analysis is based on 7AM – 7 AM Cyprus time prices, whereas the following technical analysis is based on midnight-to-midnight prices. There may be some discrepancy with regards to intraday directioni as a result, although the outlook does not change.
The Market EUR/USD
• EUR/USD continued to move higher yesterday, being backed up by strong momentum indicators, and is likely to continue to rise further following Wednesday’s breakout. The pair however managed to keep only half of its gains yesterday, as during the second half of the day it corrected downwards, finding support at 1.3014.
• Resistance levels can be found at 1.3200 (yesterday’s high) and 1.3290, support at 1.3014 and 1.2890.
USD/JPY
• USD/JPY continued to drop following the general USD selling, Though the longer term outlook on USD/JPY is bullish, it likely to see a further drop for the time being as the Stochastic Oscillator has left the oversold region. The pair at the point of writing is at the 99.00 key level.
• Resistance levels can be found around the 99.80-100.00 region and 100.70, support at 98.60 and 97.00.
AUD/USD
• AUD/USD has seen significant volatility over the past four days but has been finishing the day flat at the 0.9170 region, putting the pair in a wait-and-see mode depending on which direction a break occurs. A breakout of 0.9300, yesterday’s high, may see a change in the overall downtrend being observed in the pair shooting it all the way to 0.9460.
• Resistance levels are 0.9290 and 0.9350, support at 0.9130 and 0.9070.
Gold
• Gold continued to make gains yesterday, then retraced half of its gains, and since then it has been consolidating around the 1283.00 area. Given its recent breakout it is likely for some further move to the upside as it has gone out of overbought region.
• Resistance levels can be found at 1297.75 with a breakout leading all the way to 1343, support at 1260 followed by 1226.50
Oil
• WTI’s up movement observed over the past days saw a significant drop yesterday after it failed to break above its top 4-Hour Bollinger Bands level. WTI maintains however an uptrend and it is likely for the drop observed to be over and the up-move to resume as in early trading hours it bounced off the 104.50 support, its middle Bollinger Bands.
• Resistance levels can be found at 107.40(yesterday, high), with a breakout leading all the way to 108.30, support at 103.40 followed by 101.70.
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MARKETS SUMMARY
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Market Analysis 15-07-2013: Every dog has its day
Daily Commentary15.07.2013, Time of writing: 03:30 GMT
The Big Picture Every dog has its day:Or week, in this case. The precious metals were the big winners last week, but with some noticeable twists. The precious metals with industrial uses – palladium, silver, platinum – rose more than gold, as did WTI. This suggests the move had more to do with renewed optimism for the global economy than any increased confidence in QE. But then why did copper lag? Perhaps because it is simply less volatile (standard deviation of 6.4% so far this year, vs 16.0% for silver) or perhaps because of the continued slowdown in China (see below). Nonetheless given the overall drop in the dollar last week, gold’s performance can only be termed disappointing. It simply confirms to me that baring some unforeseen disaster, the trend for gold remains down.
The most important indicator for the day (and perhaps the week) is already out: China 2Q GDP. It hit the consensus forecast exactly at +7.5% yoy, down from +7.7% in Q1. That confirms the slowdown in the economy. But with the Finance Minister recently saying that growth of 6.5% or 7.0% wouldn’t be a problem, it may be somewhat of a relief, because even if it were worse, the government wouldn’t necessarily have done anything to boost growth. In addition, industrial production, fixed asset investment and retail sales for June were announced at the same time and they too were largely on target and confirmed the slowdown. Retail sales on the other hand accelerated, perhaps showing that the government is having some success in reshaping the economy to be more dependent on domestic demand. Nonetheless the business climate index and entrepreneur confidence index both fell, indicating that businessmen are getting nervous. No doubt the recent spike in interbank rates and the difficulty in getting loans is having an impact on business sentiment. It seems likely that the slowdown in China will continue for some time, especially with the problems in the banking system. That suggests a weaker AUD and struggling base metal prices, in my view.
The other main event of the week will be Fed Chairman Bernanke’s testimony to the US House and Senate Banking Committees on Wednesday and Thursday, in which he will once again get an opportunity to send the markets into wild gyrations as he repeats himself for the umpteenth time. I don’t expect anything new from him; the only question is how the markets react to what he says. It appears from last week’s action that investors have finally gotten the message, which would imply little volatility, but one never knows. For today, there are no major Eurozone indicators out. Mr. Asmussen of the ECB will be speaking. Last week he sent EUR/USD to the low for the year with his comment that the ECB’s pledge to keep rates low for “an extended period of time” extends beyond 12 months. The ECB quickly backpedalled his comments in an email sent to journalists. He’s not likely to make that same mistake again and so I do not expect anything particularly revealing from him. The calendar in the US is thin but worth watching. The Empire State manufacturing index is forecast to have slipped a bit in July to 5.0 from 7.84 in June; retail sales on the other hand are forecast to have risen by 0.8% mom in June vs +0.6% in May. The retail sales “control group” (excluding autos dealers, building materials and petrol stations) is forecast to show the same +0.3% mom rise as it did the previous month. Continued growth in retail sales would probably be supportive of USD, given the US economy’s reliance on consumption.
• EUR/USD remains unchanged since Friday with outlook remaining to the upside. Resistance levels can be found at 1.3200 and 1.3290, support at 1.3014 and 1.2890.
USD/JPY
• USD/JPY ended slightly higher. Outlook remains to the upside. Resistance levels can be found around the 99.80-100.00 region and 100.70, support at 98.60 and 97.00.
EUR/GBP
• EUR/GBP ended slightly higher. The outlook for the pair remains to the upside back up by a strong rising trend line support. Stochastic is in overbought region so a break of this trendline may see an imminent drop. Resistance is the 0.8690 level followed by 0.8790, support is at 0.8610 followed by 0.8590
Gold
• Gold continued its gaining streak after bouncing higher from its middle Bollinger Bands (4-Hour). Gold maintains strong momentum and we think it is highly likely that the 1300 level may be tested. A breakout of this level could see Gold soar much higher. However with the stochastic being in overbought region we may observe a down correction today if this level is not broken. Resistance levels can be found at 1300.00 with a breakout leading all the way to 1343, support at 1260.00 followed by 1226.50
Oil
• WTI moved higher after bouncing up from the 104.50 support, its middle Bollinger Bands. A further move to the upside may be expected as it maintains a strong rising trend line support. Resistance levels can be found at 107.40 with a breakout leading all the way to 108.30, support at 103.40 followed by 101.70
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Market Analysis 16-07-2013
Daily Commentary16.07.2013, Time of writing: 03:30 GMT
The Big Picture Movements overnight highlight the crucial role that central banks play in the currency markets nowadays. There was considerable divergence on the commodity currencies – AUD was the best-performing G10 currency overnight, followed by NZD, while CAD was the second worst (after JPY). CAD is clearly being influenced by the US economy, where yesterday’s disappointing June retail sales figure showed a gain that was short of market estimates. The Bank of Canada meets tomorrow, its first meeting under new Gov. Stephen Poloz, but almost all economists expect the statement to remain unchanged. The Reserve Bank of Australia (RBA) on the other hand released the minutes of its 2 July meeting, which revealed that the board members thought the inflation outlook was “slightly higher” due to the AUD’s recent drop. That reduced the likelihood of a rate cut at next month’s RBA meeting and caused AUD/USD to jump. I think the rally in AUD/USD is overdone and speculators may want to take a look at going short at these levels – perhaps even going short AUD/CAD in expectation of some mean reversion there. To my mind, a China slowdown seems more likely than a US slowdown at this point and so AUD seems more vulnerable to me than CAD. As for NZD, Q2 inflation was less than expected, which suggests that the RBNZ will be able to keep rates low for longer than expected. Yet NZD still strengthened vs USD. I still like to sell AUD/NZD as I believe the China slowdown will hit Australia more than New Zealand. This uptick may be a good opportunity. Meanwhile, JPY was the worst-performing G10 currency in anticipation of further dovish comments in the minutes of the recent Policy Board meeting, which will be released tomorrow.
It’s CPI day! CPIs are coming out in the UK, Eurozone and the US. Given that the worry nowadays is that inflation may be too low, currencies will be helped by higher inflation figures, which reduce the need for further extraordinary monetary measures to prevent deflation. UK producer prices and consumer prices are due out today. The Bank of England Monetary Policy Committee says one of its two major concerns is “the potential responsiveness of inflation expectations to continued above-target inflation.” Hence any indication that inflation is indeed continuing above target will be seen as discouraging further QE and therefore GBP-positive. Today’s data unfortunately are expected to give a mixed picture: mom changes are under control but yoy rate of increases are accelerating. Eurozone final CPI for June is out; the forecast is merely the provision figure, +1.2% yoy. The ZEW survey for July is forecast to show some improvement in the picture in Germany, which would be surprising, given the slowdown in factory orders and the decline in exports. Optimism in the face of these data would be likely to be EUR-positive.
In the US, CPI is expected to be up 0.3% mom in June, an acceleration from +0.1%, while core CPI is forecast to repeat May’s 0.2% rise. On a yoy basis, headline CPI should accelerate but core should fall slightly. These numbers should help to assuage any fears among FOMC members that inflation is too low and hence help to smooth the way ever so slightly for tapering off QE. That would be USD-positive. US industrial production for June is forecast to be up 0.3% mom, an acceleration from unchanged in May. Eurozone IP for May was -0.3% mom and UK IP was flat mom, so the US figure would once again demonstrate the resilience and strength of the US economy, which should be USD-bullish. Finally, the National Association of Homebuilders’ (NAHB) Index for July is forecast to fall back a bit to 51 from 52. But that’s still above 50, meaning more respondents said conditions were good than said they were poor. Last month’s figure was a seven-year high and the biggest monthly jump since 2002, so a small decline is not surprising. Sustained confidence among homebuilders in the face of surging mortgage rates (up 120 bps from the lows last November), will help to give Mr. Bernanke & Co. confidence that they can taper off QE without tapering off the housing market too.
The MarketEUR/USD
• EUR/USD is virtually unchanged since yesterday. It dropped during the European session and rebounded after finding support at 1.2990. Trend remains to the upside. Resistance levels can be found at 1.3140 and 1.3200, support at 1.2990 and 1.2890.
USD/JPY
• USD/JPY made gains yesterday, breaking above the 100.00 level but lost half of the gains later after failing to break above its top Bollinger Bands (4-Hour) level. We expect the outlook to remain bullish with some further down move possible. Resistance levels come at 100.70 and 101.35, support at 98.60 and 97.00. The 100 level always remains a key level.
GBP/USD
• GBP/USD ended the day marginally lower. Just like EUR/USD it dropped during the European session and recovered most of its losses later on. Resistance levels come at 1.5180 and 1.52780, support at 1.5050 and 1.4950
Gold
• Gold suffered losses yesterday, trading in a tight range around its middle Bollinger Bands (4-Hour). Resistance levels can be found at 1300.00 and 1343, support at 1260.00 followed by 1226.50
Oil
• WTI marginally higher after a volatile day full of ups and downs. WTI lost its gains during today’s early trading hours finding resistance at the 106.70. With stochastic being in overbought region and its strong two week rising trend line close to breaking down, we believe it is highly likely to see a move to the downside today. Resistance levels can be found at 106.70 and 107.40, support at 105.40 and 103.90
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Market Analysis 17-07-2013: Dollar down ahead of Bernanke
Daily Commentary 17.07.2013, Time of writing: 03:30 GMT
The Big Picture Dollar down ahead of Bernanke: The dollar declined broadly ahead of Mr. Bernanke’s semi-annual testimony to Congress, which begins today. It was lower against all the G10 currencies and most of the 15 EM currencies that we track. The US economic news supported tapering off QE, yet had no impact on the dollar. (US CPI in June was higher than expected, which would reduce any lingering fears among FOMC members that inflation was too low, and the NAHB housing sentiment index soared 5 points instead of falling 1 as was forecast.) Equities fell despite solid earnings reports and Treasury yields declined despite the higher CPI, so all in all the markets are clearly looking at something else besides the data.
Data is likely to take a back seat today as well as there are three central bank events on the schedule. The main one will be when Fed Chairman Bernanke makes his biannual presentation to the House financial services committee today and the Senate banking committee tomorrow. In his prepared statement he usually hews pretty closely to the latest pronouncement from the FOMC, but then he faces a Q&A with the Congressmen. They will try to pin him down on when the Fed will start tapering off QE, but we cannot expect much beyond what he has already said: “later this year,” assuming all the conditions are met. They will then no doubt ask him questions about whether the economy is likely to meet those conditions. The June payroll figures, which came out after June FOMC meeting took place, were fairly robust; someone may try to get him to clarify whether this has changed the balance of opinion on the FOMC. Also, bond yields have risen since he started talking about “tapering” in late May; he’s likely to be pressed about the effect this may have on the US economy and whether “fear of tapering” could start a feedback loop that stops the process. His recent comments have tended to be dovish and reassuring, hence USD-negative; we’re likely to get more of the same, which I expect will cause USD to weaken somewhat further. A lot of it is already in the price, as the dollar has fallen around 1%-2.5% vs most G10 currencies over the last week (-2.25% vs EUR), but still there is bound to be some reaction.
In the UK, the release of the Bank of England MPC minutes will make interesting reading to see if we can get more detail on the more extensive “forward guidance” that they hinted would be coming in August. Also one wonders just where they think short rates should be. Further details on these matters is likely to be negative for the pound. Finally, the Bank of Canada MPC meets today; nobody expects a change in rates there, but it’s the first meeting under the new Governor so people will be anxious to see what changes there might be in the statement following the meeting. Investors will also pour over the new quarterly Monetary Policy Report to see any changes in the outlook.
As for data, UK jobless claims are expected to be down in June and average earnings for those still in work are expected to be up. The ILO unemployment rate is forecast to remain unchanged at 7.8%. US housing starts in June are expected to be up 5.0% mom, a slight slowing from +6.8% mom in May, but building permits are forecast to rise 1.5% vs the 3.1% fall in May.
The Market EUR/USD
• EUR/USD moved higher after breaking above its 200-day moving average, both in daily and 4-hour timeframes. Further move to the upside is to be expected especially if the 1.3200 level is broken. The stochastic is overbought so there is the potential for a pullback. Resistance levels can be found at 1.3200 and 1.3290, support at 1.3065 and 1.3000.
USD/JPY
• USD/JPY continued to make losses with the stochastic reaching oversold levels. There is a significant support level at 98.40, a level of a previous high and the 200-day moving average (4 hours). A breakout from that could see USD/JPY collapse. Resistance levels come at 100.10 and 100.70, support at 98.42 and 97.00.
USD/NOK
• USD/NOK had the biggest fall (i.e., NOK gained the most vs USD) of any of the G10 currencies yesterday after bouncing lower from its middle Bollinger Bands level reaching the key 6.000 level. A very important support approaching at 5.9520 which is its 200-day moving average. Stochastic has reached oversold region. Resistance levels come at 6.0920 and 6.1800, support at 5.9529 with a break leading to 5.9000.
Gold
• Gold moving higher yesterday, while it continues to trade within a tight range with 1300.00 level being the key level. Stochastic reaching overbought region. Resistance levels can be found at 1300.00 and 1343.00, support at 1260.00 followed by 1226.50
Oil
• WTI ending lower after breaking below its two week rising trend line and finding support at 105.40. We expect further move to the downside if the current support is broken. Resistance levels can be found at 106.70 and 107.40, support at 105.40 and 103.90.
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Market Analysis 18-07-2013: Central banks calling the tune
Daily Commentary18.07.2013, Time of writing: 03:30 GMT
The Big Picture Central banks calling the tune: Big surprises yesterday from both the Bank of England and Fed Chairman Bernanke. The BoE was much more hawkish than expected; the newly installed Governor, Mark Carny, had been expected to lead the Bank to new forms of easing, and yet his first accomplishment was to get all the Monetary Policy Committee members to agree that they didn’t need to increase their bond purchases. As a result, GBP was (almost) the only G10 currency to gain against the dollar yesterday (SEK also gained modestly). However, I think that while they may be giving up increasing their outright purchases, they are likely to find other innovative ways to ease, the recent introduction of forward guidance being just the start. I think GBP is likely to weaken again ahead of the next MPC meeting on 1 August and suggest market participants wait for the timing to re-establish shorts in GBP/USD and longs in EUR/GBP.
Mr. Bernanke on the other hand was more dovish than expected, in that he highlighted problems in the labor market, but he continues to anticipate “tapering off” QE later this year as long as the economy in general and the labor market specifically continue to improve. USD was sold off in response to the comments, but reversed later in the US day and is now higher against most G10 and EM currencies. It seems to me that the market has now pretty well understood Mr. Bernanke’s position and digested the Fed’s policy. No matter how dovish he tries to be, Fed policy is still diverging from all other G10 central banks and that is likely to underpin the dollar going forward, in my view.
The Bank of Canada was the other central bank in the news yesterday. Gov. Poloz said the nation’s economy has significant slack and inflation remains muted. BoC kept its bias unchanged (as it has been since April 2012), but the relatively subdued outlook sent USD/CAD higher. There’s no fundamental reason to expect CAD to strengthen in the near term.
For today, Mr. Bernanke’s second day of testimony is not likely to produce many surprises so I don’t expect the volatility of yesterday – probably the short-covering that took place after his comments yesterday is likely to continue. Otherwise, it’s a quiet day in Dataland. UK retail sales are forecast to be up only slightly in June, but even that may help GBP to keep its momentum going. In the US, the Philadelphia Fed index for July is expected to fall slightly, but on the other hand the leading indicators for June are expected to be up, so it’s a wash. More importantly, the consensus for this week’s jobless claims is that they will fall back to 345k from last week’s unusually high 360k, which would be encouraging after what Mr. Bernanke said about the labor market and would probably help USD to continue rallying. Elsewhere, the G20 deputy finance ministers and central bank governors meet today and tomorrow in Moscow to prepare the communique for their bosses’ meeting there this weekend. Japan may be a topic of discussion there as it was at the last meeting back in February, as many of the countries are still upset about the impact Japan’s “quantitative and qualitative easing” is having on their currencies. However the group last time wound up giving Japan a free pass to keep going with QE, which was positive for USD/JPY; I’d expect the same again.
The Market EUR/USD
• EUR/USD ends the day lower while dropping below its 200 and 20-day moving averages. Key resistance levels can be found at 1.3160 and 1.3220, support at 1.3065 and 1.3000.
USD/JPY
• USD/JPY bouncing higher after reaching its bottom Bollinger Bands level and reaching the100 level once again. Further move to the upside likely to continue. Resistance levels come at 100.70 and 101.30, support at 98.42 and 97.00.
EUR/GBP
• EUR/GBP collapses after failing to break above the key 0.8700 level and subsequently breaking below its 2 week rising trend line and 23.6% retracement level of that move. At the point of writing the pair is testing the 38.2% retracement level of that move, with stochastic being oversold. Resistance levels come at 0.8650 with a break leading to 0.8690., support at 0.8595 and 0.8550 .
Gold
• Gold ends lower after visiting 1300 level but failing to break above it. As stochastic is oversold and gold is testing its bottom Bollinger Bands, we think it’s likely that 1300 will be re-tested. Resistance levels can be found at 1300.00 and 1343.00, support at 1260.00 followed by 1226.50.
Oil
• WTI ending higher after failing to break below the 105.40 support and testing the 106.70 resistance. Further move to the upside upon break of this resistance is likely. Resistance levels can be found at 106.70 and 107.40, support at 105.40 and 103.90.
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Market Analysis 19-07-2013: The market vs the fundamentals
Daily Commentary19.07.2013, Time of writing: 03:30 GMT
The Big Picture The market vs the fundamentals: I’ve said before that a currency is not the stock price of a country, and today’s action proved it. All the fundamental news pointed to a higher dollar, and yet the dollar is lower against almost all the G10 currencies (it’s basically unchanged against JPY). The July Philadelphia Fed manufacturing survey rose to +19.8 from 12.5, whereas a decline to 8.0 was expected. This was the highest since March 2011. Gains in the six-month outlook were equally impressive, and the employment component reached the highest level since March 1984. Meanwhile the weekly jobless claims had been expected to fall to 345k but instead fell even further to 334k. Moreover, Moody’s raised the outlook for the US to stable from negative as the US deficit picture has improved so much. All this should make tapering off much less controversial and thereby support the dollar, but it didn’t. There was some favorable political news from Italy and Portugal, but that certainly should not have been enough to turn around US sentiment.
Fed Chairman Bernanke’s second day of testimony went off without revealing any major new insights, except perhaps when he was asked about the gold price: “Nobody really understands gold prices and I don’t pretend to really understand them either,” he admitted.
CAD was the biggest gainer, just a day after it was one of the biggest losers, after Canadian wholesale sales for May rose at the fastest pace in more than two years to a record level. This helped to counter Bank of Canada Gov. Poloz’s rather more subdued view of the economy. I think this also must have reflected profit-taking after Thursday’s large decline in CAD and so I would argue it just represents a new opportunity to get on board USD/CAD for those who missed the boat the first time. I think the central bank governor’s view is more important than one month’s indicator, especially at the wholesale level.
There are no major numbers out of Europe or the US today. In the UK, the Public Sector Net Borrowing for June is expected to be down a bit from May, but hardly enough to close the gap and until it is closed, the government will have to rely on monetary policy to take up the slack. The Bank of Canada’s core measure of CPI for June is expected to be -0.2% mom, a turnaround from +0.2% in May. That would confirm what new Gov. Poloz said on Thursday about the “muted” outlook for inflation and could revive the higher USD/CAD trend. Outside of that, we’ll wait to hear some news from Moscow from the G7 deputy Finance Ministers and Central Bank Governors’ meeting, which takes place over the weekend. Also over the weekend we have the Japan Upper House elections, which the ruling Liberal Democratic Party and its allies are expected to win. That should aid PM Abe in achieving his political goals, which should boost the stock market and hence USD/JPY too. The only question is how much is already discounted in the price, since a win is widely assumed. The combination of some accommodation for Japan from the G20 and an Abe win in the elections should prove positive for USD/JPY, in my view.
The Market EUR/USD
• EUR/USD moves higher as the 1.3060 support level holds and pair reaching oversold region. Once again breaks above 200 Moving Average in Daily and 4 Hour timeframes. Resistance levels at 1.3200 and 1.3290, support at 1.3060 and 1.3000.
USD/JPY
• USD/JPY fell along with Japanese stocks after an adviser to PM Abe said that the nation’s consumption tax must be raised “at some point” because of the governments’ dodgy finances. This has been common knowledge since the 1990s and so cannot possibly have surprised anyone in the markets, but apparently the idea that the government might actually do what’s necessary comes as a shock.
• USD/JPY moves higher and then collapses below 100.00 in early trading hours after reaching overbought region and failing to break above the 100.70 resistance (top Bollinger Bands level) .Resistance levels come at 100.70 and 101.30, support at 99.30 and 98.42.
USD/CAD
• USD/CAD breaks below its 200-day moving average and moves lower reaching its bottom Bollinger Bands level. Stochastic in oversold region so some up move plausible. Resistance at 1.0440 and 1.0510, support at 1.0330 and 1.0270.
Gold
• Gold moves higher as it continues to trade within its tight Bollinger Bands region. Resistance levels can be found at 1300.00 and 1343.00, support at 1260.00 followed by 1226.50.
Oil
• WTI skyrockets to a new yearly high after breaking two key resistance levels and tests 108.40. A break of this level should see WTI reach 109.75 and 112.20 levels. With stochastic being highly overbought more likely to see a pullback today. Support levels come at 106.50 and 104.60.
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Market Analysis 23-07-2013
Daily Commentary23.07.2013, Time of writing: 03:30 GMT
The Big Picture The U.S. dollar declined against key rivals on Tuesday as investors continued to weigh the prospects for a continuation of monetary stimulus from the Federal Reserve. The dollar was on course for its third straight daily loss against the Japanese yen, buying ¥99.55 compared with late Monday’s ¥99.60. Meanwhile the Japanese government raised its view of the economy saying there are signes of self-sustaining recovery.
EURUSD strengthened to $1.3196 from $1.3185, and reached an intraday high of $1.3207. Important to note that the euro hadn’t traded above the $1.32 since June 19.
Asian stocks and European equity futures rose after China’s premier said the economy won’t grow any slower than 7 percent and U.S. housing data damped concern the Federal Reserve will rein in stimulus.
The Market EUR/USD
• EUR/USD continues to oscillate in a trading range on the daily chart, between 1.34/1.37 and 1.2750. On the 4hr chart, it has moved higher toward the top of the range, currently testing the resistance around 1.32. It remains above the 20 period and 200 period moving average on the 4hr and daily timeframes.
• Next Resistance level identified at 1.3283 and 1.3414 with Support at 1.3065 and psychological level 1.30 on the downside.
USD/JPY
• USD/JPY is consolidating its recent upmove on the daily chart, having unsuccessfully tested the 100 psychological level again in recent days. On the 4hr chart it has broken below the upward trendline and is currently finding support on the 200-period moving average. Currently the pair is consolidating.
• A successful break above the psychological level of 100 should lead to the next Resistance levels at 100.85 and 101.70 respectively. A confirmed break below the 200-period moving average will lead to a correction towards Support at 98.21 and 97.
USD/CAD
• USD/CAD has recently confirmed a bearish “golden cross” (a cross of the MA 20 below the MA 200) on the 4hr timeframe and is currently testing support at 1.0330.
• If the break below this support level at 1.0330 is confirmed, the pair will proceed toward the next level of support at 1.0138 and eventually toward the significant psychological level of 1.00. In case the pair moves higher, resistance is identified at 1.0432 and 1.0603
Gold
• Gold continued its move higher yesterday, after breaking the down-sloping trendline from the Daily chart. It remains below the 200 day moving average on the daily and is currently approaching daily Fibonacci resistance levels at 1.338. This is considered as a healthy correction in a downtrend and will be interesting to follow how it unfolds.
• On the 4hr chart, the 20-period moving average is ready to cross the 200-period moving average, confirming the recent short-term uptrend.
• Resistance is identified at the current level of 1338 as well as at 1423. Support is currently located near the 200 period moving average close to 1300 (also a round number and psychological level).
Oil
• WTI corrected a portion of its recent parabolic uptrend overnight, after failing to reach the significant resistance area of 110 on the daily chart. It has broken and closed below the uptrending channel (in blue), however it remains above the 200 period moving average in both the Daily and 4hr charts, and thus is considered to be in an uptrend.
• Support levels can be determined using Fibonacci retracements on the 4hr chart at 102.95 (38.2%), 101 (50%) and 99 (62.8%)
• Resistance is identified at the previously mentioned level of 110.
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Market Analysis 24-07-2013
Daily Commentary24.07.2013, Time of writing: 03:30 GMT
The Big Picture Crude oil future fell in overnight trading on Wednesday due to China disappointing data (Chinese manufacturing index dropped to 11- month low).
EUR/USD is correcting lower after being overbought due to disappointing Chinese economic data. During the US trading hours on Tuesday, Euro rose to one month high versus the dollar, with the dollar weakening following US Economic indicators supported the argument for the Fed to delay a reduction to its bond-buying program.
Australian dollar reversed gains to the US dollar after Chinese data announcement (down to buying 92.58 US cents from 93.17). Gains were recorded earlier on the grounds of Australian CPI being in line with expectations at 2.4%.
Gold slipped on Wednesday after hitting a fresh one-month high during the session and dollar climbed off lows. Spot gold dropped 0.3% to $1,343.56 an ounce.
The Market EUR/USD
• EUR/USD remains in a bullish trend, and has moved higher since yesterday, breaking above the resistance around 1.32. It trades above the 20 period and 200 period moving average on the 4hr and daily timeframes. On the long-term timeframes (Daily, Weekly), it remains in a trading range between 1.34/1.37 and 1.2750.
• Resistance: next resistance levels identified at 1.3283 and 1.3416 as the pair moves up
• Support: support is identified at 1.3065 and the psychological level 1.30 on the downside.
USD/JPY
• USD/JPY is consolidating in a pennant formation (a flag in blue) on the 4hr chart. It tested again the 100.00 psychological level yesterday and failed to close above, currently finding support on the 200-period moving average. A break of the pennant should lead to the next strong directional move for the pair.
• Resistance: A successful break above the psychological level of 100 should lead to the next resistance levels at 100.85 and 101.53 respectively.
• Support: A confirmed break below the 200-period moving average should lead to a correction towards the next support levels at 98.25 and 97.
USD/CAD
• USD/CAD moved lower in yesterday’s trading, after breaking below support at 1.0330. Currently the pair is below the 20-period and 200-period Moving Average, in a bearish trend expected to lead the pair lower.
• Resistance: In a possible upward correction, the pair should find resistance at 1.0330 and 1.0432.
• Support: The next support area is identified at 1.0138 and 1.00, as the pair moves lower.
Gold
• Gold continued its move higher yesterday, testing the resistance at 1338. It gave back some of its early gains in overnight trading, coming back to test the previous resistance level (now support) of 1338. Despite the recent upmove, it remains below the 200 day moving average on the Daily chart and is reaching significant areas of resistance at Fibonacci retracement levels of 1346 (38%), 1398 (50%) and 1449 (62%). The current upmove is still considered as a healthy correction in a downtrend and will be interesting to follow how it unfolds.
• Resistance is identified at the levels of 1398, 1423 and 1449.
• Support is currently located near the 200 period moving average near 1300, which is also a round number and psychological level).
Oil
• WTI consolidated in yesterday’s trading, after closing below the uptrending channel (in blue). It remains above the 200 period moving average in both the Daily and 4hr charts, and thus is considered to be in an uptrend.
• Resistance is identified at the recent high of 108.96 and significantly around the level of 110.
• Support levels can be determined using Fibonacci retracements on the 4hr chart at 102.75 (38.2%), 100.8 (50%) and 98.85 (62.8%)
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Market Analysis 25-07-2013
Daily Commentary 25.07.2013, Time of writing: 03:30 GMT
The Big Picture The U.S. dollar eased versus a basket of currencies on Thursday, after strong economic data from the U.S. confirmed the on-going recovery in the U.S. and lead to a rise in Treasury yields.
Crude oil future fell for a second day, extending its recent losses, following yesterday’s China disappointing output data (Chinese manufacturing dropped to 11- month low) and shrinkage in crude stockpiles in the U.S.
Gold extended losses on Thursday, as strong economic data from the U.S. and Europe are prompting investors to reconsider its safe-haven status. Spot gold fell as much as 0.5% to $1,315 an ounce.
The Market EUR/USD
• EUR/USD remains in a bullish short-term trend and has attempted to move higher after breaking above the resistance around 1.32. It gave back its profits in the overnight session, currently back at support at 1.3205. It trades above the 20 period and 200 period moving average on the 4hr and daily timeframes. On the long-term timeframes (Daily, Weekly), it remains in a trading range between 1.34/1.37 and 1.2750.
• Resistance: next resistance levels identified at 1.3283 and 1.3416 as the pair moves up
• Support: support is identified at 1.3065 and the psychological level 1.30 on the downside.
USD/CAD
• USD/CAD moved lower in yesterday’s trading, after breaking below support at 1.0330. It recovered some of the earlier losses in overnight trading and returned near yesterday’s levels. Currently the pair is below the 20-period and 200-period Moving Average, in a bearish trend expected to lead the pair lower.
• Resistance: In a possible upward correction, the pair should find resistance at 1.0330 and 1.0432.
• Support: The next support area is identified at 1.0138 and 1.00, as the pair moves lower.
AUD/USD
• AUD/USD moved lower in yesterday’s trading, after finding resistance on the 200 period Moving Average on the 4hr chart around 0.93. Currently the pair is below the 20-period and 200-period Moving Average, in a bearish trend expected to lead the pair lower.
• Resistance: In a possible upward correction, the pair should find resistance at 0.9307 and 0.9605.
• Support: The next major support area is identified at the recent low and round number of 0.90.
Gold
• Gold moved lower in yesterday’s trading day, after finding resistance at 1346 which is the 38% Fibonacci retracement level. Despite the recent upmove, it remains below the 200 day moving average on the Daily chart and is reaching significant areas of resistance at Fibonacci retracement levels of 1346 (38%), 1398 (50%) and 1449 (62%). The current upmove is still considered as a healthy correction in a downtrend and will be interesting to follow how it unfolds.
• Resistance is identified at the levels of 1346, 1398 and 1449.
• Support is currently located near the 200 period moving average near 1300, which is also a round number and psychological level). Further support is identified at 1274 and 1181 if gold moves lower.
Oil
• WTI has retraced lower in yesterday’s trading, after closing below the uptrend channel (in blue). It remains above the 200 period moving average in both the Daily and 4hr charts, and thus is considered to be in a correction of an uptrend currently.
• Resistance is identified at the recent highs of 107.51, 108.96 and significantly around the level of 110.
• Support levels can be determined using Fibonacci retracements on the 4hr chart at 102.71 (38.2%), 100.82 (50%) and 98.91 (62.8%)
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