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Market Analysis 09/08/2013: Why is the dollar falling?
Daily Commentary09.08.2013, Time of writing: 03:30 GMT
The Big Picture Why is the dollar falling?There are several reasons. The most immediate reason is probably that the Fed has managed to convince the world that tapering off QE has nothing to do with tightening interest rates. That has caused expectations for US interest rates to fall back sharply. For example, the June 2016 Fed Funds futures were implying a rate of 1.82 on 5 July but have since fallen back to only 1.42%, with similar declines in the Eurodollar futures. Furthermore, many investors seem to fear that the first tapering will be accompanied by some reaffirmation of the dovish outlook.
Secondly, if we look at the balance sheets of the central banks, the Fed is in fact not alone in tapering. The ECB is not just tapering, they are shrinking their balance sheet, which is down 23% since peaking in June of last year. The Bank of England’s balance sheet too is down 2.4% from its peak. Meanwhile, the Fed’s balance sheet keeps growing, and of course what they mean by “tapering” is just that they will slow the pace of expansion of the balance sheet, not shrink it. So it may be that the tapering argument is not such a strong support for USD in the first place as other countries are doing similar. Of course, that doesn’t explain why USD/JPY has fallen back to almost exactly where it was when the Bank of Japan started its quantitative easing even though its balance sheet is already some 20% bigger, vs a 12% expansion in the Fed’s balance sheet over that same time period.
Dollar weakness was again the theme overnight. For some time now USD has been weak vs the G10 currencies but holding up reasonably well vs EM currencies, but following China’s higher-than-expected import figures yesterday, EM currencies rebounded and the dollar fell almost across the board. The dollar does not seem to be responding to good data as sentiment seems to be turning against it. Watch the technicals, not the fundamentals.
During the European day we get French industrial production in June, which is expected to have turned around to +0.3% mom from -0.4% mom. A larger-than-forecast rise higher wouldn’t be too surprising though as Italian, German and UK IP all exceeded expectations. The UK trade figures for June are expected to show a modest improvement overall in the UK’s appalling trade account, with a narrowing in both the visible trade and overall trade deficits. However one searches in vain for any signs of the “rebalancing” way from consumption and towards exports and investment that the Government said it wanted. In Canada, housing starts in July are expected to be a little bit weaker at 191k vs 199.6k in June. The unemployment rate is forecast to stay at 7.1%, but within this, employment is forecast to rise by 10k vs a 0.4k decline in the previous month. These figures could be modestly CAD-supportive.
The Market EUR/USD
• EUR/USD moved higher during yesterday’s session, reinforcing the previous uptrend after a trading range pause. The pair is trading above both the 20-period and 200-period moving averages on our four-hour chart, heading towards the 1.3415 resistance level. If a significant penetration of that level occurs, the pair will exit the long-term (daily, weekly) trading range between 1.2750 and 1.3415.
• Support: Support is found at the psychological level of 1.3300, followed by the 1.3185 and 1.3058 respectively.
• Resistance: The only resistance level identified on the short-term horizon (4hour chart) is the recent highs at 1.3415. The next in line are 1.3525 and 1.3705, found from the daily chart.
USD/JPY
• USD/JPY moved sideways during yesterday’s session, and is still testing the lower line of the downtrend channel and the 61.8% retracement area at 96.75. We expect the price to pull back and return into the downtrend channel, continuing the downward momentum, also confirmed by the bearish cross of the 20-period moving average below the 200-period moving average. On the long term horizon it is forming a possible Head & Shoulders pattern (daily chart), which will be confirmed if the pair breaks below the 95 area.
• Support: Support is the 95 area where the neckline of the daily “head and shoulders” formation lies, followed by the 93.73 level.
• Resistance: Resistance levels are at 97.67, followed by the 100 (psychological level), 100.84 and 101.52.
GBP/USD
• GBP/USD continued moving higher during yesterday’s trading activity, currently testing resistance at 1.5528. However, since the stochastic oscillator recently exited the overbought area and is now heading towards oversold, we believe we might see the price pulling back before the pair resumes its upward move. Moreover, the pair is trading above both the 20-period and 200-period moving averages, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5431, 1.5201 and 1.5102.
• Resistance: The pair is near the 1.5528 resistance level and a clear penetration of it might lead us to the 1.5674 and 1.5752 levels.
Gold
• Gold moved higher during yesterday’s session, penetrating the upper boundary of the downtrend channel in blue, but leaving the 20-period moving average below the 200-period moving average. It seems that gold is moving higher due to the negative correlation with the USD, although in fact that correlation is not as strong as some would believe; for EUR/USD for example it’s only 36%, down from a peak of 57% back in 2008. The price is currently near the resistance area of 1320.78 and an upward violation of it should lead us upward to the 1347.27 resistance level. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus is still moving in a downtrend.
• Support: Support levels are at 1264.15(50%) and 1245.03(61.8%).
• Resistance: Resistance levels are at 1320.78, 1347.27and 1376.73
Oil
• WTI continued moving lower during yesterday’s session, achieving a clear penetration (daily close) below the blue uptrend line. We consider this as an early bearish signal but we need a significant penetration of the 102.75 support in order to make scenarios for a possible trend reversal. A clear close below this level will signal the completion of the double top reversal formation, which is visible on the 4hour and the daily chart.
• Support: Support levels are at 102.75follwed by the 100.80 and 97.85.
• Resistance: Resistance levels are at 105.70 followed by the 107.53 and the recent highs of 108.89.
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Market Analysis 12/08/2013
Daily Commentary 12.08.2013, Time of writing: 03:30 GMT
The Big Picture The dollar collapsed last week, falling against almost every currency we track.It only managed to eke out a small gain against the IDR and INR. Several currencies managed gains of over 2%. The selling finally petered out during New York trading and the EUR, JPY and GBP failed to make new highs for the week. The notable trend on Friday was the strength of the commodity currencies as the change in sentiment caused by last week’s signs of a rebound in the Chinese economy in July. The surprisingly strong import figures on Thursday were followed on Friday by higher-than-expected industrial production, lending and broad money supply growth, which have caused a recovery in sentiment to commodities. Basic materials was the only S&P 500 sector to gain on Friday, and the S&P 500 metals and mining index was up 6.1% over the week. The CAD demonstrated the importance of this global driver, as a weak employment report initially sent USD/CAD higher but the pair quickly returned to the lows. The big question then is whether the Chinese import story is for real and, if so, now long it will last.
The highlight this week will be Q2 GDP data. Japan started the week off overnight with somewhat disappointing growth of 2.6% qoq annualized, vs 3.6% expected. While the economic surprise index for Japan remains quite high, demonstrating that indicators are tending to exceed market expectations, it is coming down as analysts become more optimistic and unfortunately the data becomes somewhat weaker.There are no other major indicators scheduled for today.
For the rest of the week, the focus will be on Tuesday, with the US retail sales, Eurozone industrial production and the ZEW indices, and Wednesday, with the 2Q GDP figures for the Eurozone and many of its economies, as well as the Bank of England minutes. Those will be required reading to learn just how the MPC came up with that disastrous decision to hedge their forward guidance with so many caveats that they sent interest rates up, not down. Thursday sees UK retail sales and US CPI and IP, while US housing starts are out Friday. There are no major central bank meetings this week.
The Market EUR/USD
• EUR/USD moved lower during Friday’s trading session, currently testing the lower boundary of the uptrend channel. Therefore, we consider this move as a pullback before price continues its upward move. The pair is trading near the 20-period moving average on our four-hour chart, but is still above the 200-period moving average, confirming that price is trading in a bullish territory. Currently price is near the psychological level of 1.3300. A downward penetration of it should lead us towards the 1.3185 level.
• Support: Support is found at the psychological level of 1.3300, followed by the 1.3185 and 1.3058 respectively.
• Resistance: The only resistance level identified on the short-term horizon (4hour chart) is the recent highs at 1.3416. The next in line are 1.3525 and 1.3705, found from the daily chart.
USD/JPY
• USD/JPY moved sideways during Friday’s trading session, penetrating downwards the 61.8% retracement level and testing the lower line of the downtrend channel. We expect the price to pull back and return into the downtrend channel, continuing its downward momentum, also confirmed by the bearish cross of the 20-period moving average below the 200-period moving average. On the long term horizon it is forming a possible Head & Shoulders pattern (daily chart), which will be confirmed if the pair breaks below the 95 area.
• Support: Support is the 95 area where the neckline of the daily “head and shoulders” formation lies, followed by the 93.73 level.
• Resistance: Resistance levels are at 97.67, followed by the 100 (psychological level), 100.84 and 101.52.
GBP/USD
• GBP/USD moved lower during Friday’s session, after failing to overcome Thursday’s recent high. We consider that this is a correction of the uptrend (marked by the blue uptrend line) and might take us towards the 1.5308 area. Currently, the pair remains above both the 20-period and 200-period moving averages, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5431, 1.5201 and 1.5102.
• Resistance: The pair is near the 1.5528 followed by the 1.5674 and 1.5752 levels.
Gold
• Gold moved higher during Friday’s trading activity, penetrating the upper boundary of the blue downtrend channel and the 1320.78 resistance level. The 20-period moving average has reached the 200-period moving average and a bullish cross might occur during the next trading periods. It seems that gold is moving higher due to the negative correlation with the USD, although in fact that correlation is not as strong as some would believe; for EUR/USD for example it’s only 36%, down from a peak of 57% back in 2008. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus is still moving in a downtrend.
• Support: Support levels are at 1320.78 (previous resistance) followed by the 1271.88 and 1245.03.
• Resistance: Resistance levels are at 1347.27, 1376.73 and the 1423.60 (June highs).
Oil
• WTI continued moving higher during Friday’s session, penetrating upwards the 105.70 resistance level. The pair is moving in a trading range between the 102.62 and 108.96 boundaries and a penetration of one of them should give us clear indications about the next trending direction, despite the fact that price remains above the 200 moving average.
• Support: Support levels are at 102.62 followed by the 100.80 and 97.85.
• Resistance: Resistance levels are 107.53 and the recent highs of 108.85. The next in line resistance level is identified from the weekly chart at 114.43.
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MARKETS SUMMARY
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Market Analysis 13/08/2013
Daily Commentary 13.08.2013, Time of writing: 03:30 GMT
The Big Picture The dollar recovered across the board yesterday, with only the NOK gaining slightly vs the US currency.The shift in sentiment was particularly impressive given that Friday’s Commitment of Traders (COT) report had shown that speculative traders switched to being long EUR last week after five weeks of being short. There was no particular trigger for the rally. Market reports attributed it to enthusiasm ahead of today’s retail sales figures for July. The headline figure is expected to be up 0.3% mom, a deceleration from +0.4% mom in Jun, but the so-called “control group” (excluding petrol stations, auto dealers and building materials) is forecast to power ahead at +0.4% mom vs only +0.1% the previous month. That figure might reassure investors about the health of the US economy and help to confirm that the Fed is likely to begin tapering off its quantitative easing at its September meeting. Also, the NFIB small business optimism survey is forecast to rise to 94.5 from 93.5.
The strength of the dollar vs all three commodity currencies was particularly impressive given the continued recovery in sentiment towards China. Gold rallied strongly, South African stocks hit a new high for the year and Chinese ETFs in the US gained as much as 3%. Yet the AUD was the second-worst performing G10 currency vs USD (after JPY). What all of this suggests to me is that in fact sentiment towards the dollar has not disintegrated anywhere near as much as I had thought. If the US currency can gain in these conditions, then there is still widespread demand for it. It’s way too early to throw in the towel on the long dollar trade. In fact, this pullback could be a good opportunity for dollar bulls to get back in.
Other indicators out today include the ZEW current situations index for Germany, which is expected to rise to 12.0 from 10.6, with the expectations index expected to rise to 39.9 from 36.3. An improvement in the German indices would tend to confirm that the Eurozone economy is bottoming out and could help to keep EUR/USD near the top of its trading range. Similarly, EU industrial production is forecast to be up 0.9% mom in June, a turnaround from -0.3% mom in May, with the yoy rate of change finally breaking into positive territory at +0.3% vs a 1.3% yoy decline in the previous month. This figure would corobborate the message of the ZEW index about the Eurozone economy bottoming, something that we should learn more about tomorrow when the Eurozone Q2 GDP figure is released. Meanwhile, UK CPI for July is forecast to be flat mom, which would bring the yoy rate of change down slightly to 2.8% from 2.9%. That could weaken GBP a bit.
The Market EUR/USD
• EUR/USD moved lower during yesterday’s trading session, penetrating to the downside the lower boundary of the uptrend channel and currently testing the psychological level of 1.3300. A clear break below that level should lead the pair towards the next support at 1.3231. Despite the fact of the lower boundary’s penetration, the price is trading near the 20-period moving average on our four-hour chart, but remains above the 200-period moving average, confirming that it is still trading in a bullish territory.
• Support: Support is found at the 1.3231 level, followed by the 1.3175 and 1.3066 respectively.
• Resistance: The only resistance level identified on the short-term horizon (4hour chart) is the recent highs at 1.3416. The next in line are 1.3525 and 1.3705, found from the daily chart.
USD/JPY
• USD/JPY moved higher during yesterday’s trading activity after testing twice the 95.75 support level. The price managed to pull back and return into the channel, as we mentioned in yesterday’s comments, approaching the 97.67 resistance level. We expect the bulls to face a major hurdle at that level, since we consider it a strong technical level over the short term. On the long term horizon it is forming a possible Head & Shoulders pattern (daily chart), which will be confirmed if the pair breaks below the 95 area.
• Support: Support is the 95 area where the neckline of the daily “head and shoulders” formation lies, followed by the 93.73 level.
• Resistance: Resistance levels are at 97.67, followed by the 100 (psychological level), 100.84 and 101.52.
GBP/USD
• GBP/USD moved lower during yesterday’s trading session, approaching the 1.5431 support level. We consider that this is a correction of the uptrend (marked by the blue uptrend line) and might take us towards the 1.5300 area. Currently, the pair remains above the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5431, 1.5201 and 1.5102.
• Resistance: Resistance is identified at 1.5569 followed by the 1.5674 and 1.5752 levels.
Gold
• Gold moved higher during yesterday’s trading activity, remaining above the blue downtrend channel, currently trading near the 1347.27 resistance level. The 20-period moving average managed to cross above the 200-period moving average, favoring the bulls’ expectations. However, on the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus is still moving in a downtrend.
• Support: Support levels are at 1320.78 (previous resistance) followed by the 1271.88 and 1245.03.
• Resistance: Resistance levels are at 1347.27, 1376.73 and the 1423.60 (June highs).
Oil
• WTI moved sideways during yesterday’s session, making minor moves and remaining above the 105.70 level. The pair is moving in a trading range between the 102.62 and 108.96 boundaries and a penetration of one of them should give us clear indications about the next trending direction, despite the fact that price remains above the 200 moving average.
• Support: Support levels are at 102.62 followed by the 100.80 and 97.85.
• Resistance: Resistance levels are 107.53 and the recent highs of 108.85. The next in line resistance level is identified from the weekly chart at 114.43.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Date-year:
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Market Analysis 14/08/2013
Daily Commentary 14.08.2013, Time of writing: 03:30 GMT
The Big Picture With commodity prices rising, it should be no surprise that bond yields followed.Yields across the world moved higher yesterday, ranging from less than 2 bps in Spain to 14 bps in the UK. US Treasury 10-year yields rose by around 10 bps. The rise in US yields may have been sparked by the robust US retail sales figures (more due to the upward revision to the previous data than to any surprise in the latest figure), which made tapering more likely; it wasn’t driven by inflation expectations, which have been virtually unchanged for a week now. That means higher US real yields are likely to support the dollar going forward, in my view.
Gilts were the worst-performing of the major global bond markets even though the UK annual inflation rate edged down in July. This may be because people are starting to think that the Bank of England doesn’t actually plan on keeping inflation under control; the five-year breakeven rate for the UK widened by 5 bps yesterday. So although sterling was Iittle changed against the dollar and even a bit stronger vs EUR, we still remain bearish on the currency. It will be a big day for sterling today as we get the minutes of the recent Monetary Policy Committee (MPC) meeting, which decided the “forward guidance” that the Bank recently launched. It will be interesting to read how so many intelligent people could reach a decision that had the exact opposite effect to what they were hoping for. Also we get the unemployment data for June, which now becomes a key indicator as the MPC has made changing its monetary policy conditional on unemployment falling to 7.0%. You needn’t start worrying yet; it’s forecast to stay unchanged at 7.8%.
In the Eurozone, it’s GDP day! This time it should be better than last time, when a slew of negative numbers simply confirmed everyone’s worst fears about the Eurozone. Economists are not expecting any great surge this time, but at least +0.2% is on the right side of zero. There have been many good figures out of the Eurozone recently. Yesterday’s ZEW survey was well above expectations and although EU industrial production for June fell short a little bit of what people expected, nonetheless it did grow, as opposed to the decline in May. The improved Eurozone outlook and the concomitant rise in Bund yields may counter the improved US outlook to some degree and keep EUR/USD in its recent trading range.
The Market EUR/USD
• EUR/USD moved lower during yesterday’s trading session, breaking through the psychological level of 1.3300 (R1). The pair tested successfully the 1.3231 (S1) support level and currently is trading a bit above it. A downward violation of that level should lead the pair towards the next support level at 1.3152 (S2) which also match with the 38.2% retracement level of the previous uptrend. Moreover, the 20-period moving average lies above the 200-period moving average and therefore the current negative momentum is considered a correction of the previous move.
• Support: Support is found at the 1.3231 (S1) level, followed by the 1.3152 (S2) and 1.3077 (S3) respectively.
• Resistance: Resistance is at the psychological 1.3300 (R1) and 1.3400 (R2), followed by the 1.3525 (R3), found from the daily chart.
USD/JPY
• USD/JPY moved higher yesterday, going through the 97.67 (S1) level and currently trading near the upper boundary of the blue downtrend channel. Since the stochastic oscillator is in an overbought area, we believe that the pair is likely to find resistance at the trendline and resume moving downwards through the channel. On the long term horizon USD/JPY is forming a possible Head & Shoulders pattern (daily chart), which will be confirmed if the pair breaks below the 95 area.
• Support: Support is at the 97.67 (S1) previous resistance, followed by the 95 area (S2) where the neckline of the daily “head and shoulders” formation lies and the 93.77 (S3) level.
• Resistance: Resistance levels are the psychological round number of 100.00 (R1), the 100.84 (R2) and the 101.53 (R3).
GBP/USD
• GBP/USD moved lower yesterday, and is currently finding support at the 1.5431 (S1) level. We consider that this is a correction of the uptrend (marked by the blue uptrend line) and further selling pressure might take us towards the 1.5300 area. Currently, the pair remains above the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5431 (S1), 1.5201 (S2) and 1.5102 (S3).
• Resistance: Resistance is identified at 1.5569 (R1) followed by the 1.5674 (R2) and 1.5752 (R3) levels.
Gold
• Gold did not managed to break above the technical level of 1347.27 (R1), since aggressive sellers pushed the price towards yesterday’s first support at 1320.78 (S1). On the other hand, the 20-period moving average remains above the 200-period moving average, giving some bullish indication for the precious metal. If the price fails to penetrate the 1320.78 (S1), it might retest Monday’s high at 1347.27 (R1). On the other hand, if buyers fail to maintain the price above that level, then we expect gold to retrace back down towards the upper boundary of the channel at the 1290 area. However, on the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe gold is still moving in a downtrend.
• Support: Support levels are at 1320.78 (S1) followed by the 1271.88(S2) and 1245.03 (S3).
• Resistance: Resistance levels are at 1347.27 (R1), 1376.73 (R2) and the 1423.60 (R3) (June highs).
Oil
• WTI moved slightly upwards during yesterday’s session, making minor moves and remaining above the psychological round number of 105.00 (S1). The pair is moving in a trading range between the 102.62 (S2)and 108.96 (R2) boundaries and a penetration of one of them should give us clear indications about the next trending direction.
• Support: Support levels are at the psychologiscal 105.00 (S1) level, at the102.62 (S2) and 100.80 (S3).
• Resistance: Resistance levels are 107.53 (R1) and the recent highs of 108.85 (R2). The next in line resistance level is identified from the weekly chart at 114.43 (R3).
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Market Analysis 15/08/2013 Inflation could run out of control. Can the BoE keep the
Daily Commentary15.08.2013, Time of writing: 03:30 GMT
The Big Picture Inflation could run out of control. Can the BoE keep the rate in history lows?The U.S dollar declined versus the British pound following Wednesday’s release of minutes from the Bank of England as the Unemployment level for the April to June (quarter) arrived inline with expectations at 7.8%. At the same time the UK Claimant Count Change came in much better than expected for July at 29.2k versus -15k (consensus) giving more bullish momentum to sterling hitting a high at 1.5507 during the European session. Bank of England Governor Mark Carney stated that would keep interest rates at historical lows (0.5%) until unemployment falls to 7% or below. Additionally, the Bank of England would remain focused on the asset purchase program (QE) of £375bn. Despite the inflation figures it could come out of control in the near term as at the moment is above 2.0%, yesterday’s figures revealed that the manufacturing output along with the service sector and housing market can keep the sterling stronger in the short term as it indicates that the recovery in the UK economy is picking up.
The Eurodollar remained unchanged as it continued to trade within yesterday’s range and near the psychological level of 1.3250, despite the good news that came during the European session that the Eurozone has emerged from recession after struggling with six quarters of negative growth. But how will the investors react? I believe that the region is still far from recovery as other factors can drive the euro in new lows in the medium term. The most important is the unemployment rate that is at 12.1% while major member countries within the Eurozone are still in a recession (Italy, Greece, and Spain).
In the United States, the Producer Price Index (YoY) came in at +2.1% in July, missing expectations of +2.4%. Moreover, the Producer Price Index ex Food & Energy (YoY) grew only +1.2% in July, against estimates for +1.4% with both figures falling short of economist expectations.
It’s CPI day and the US Core along with the CPI is usually a high impact release, as the Federal Reserve are now placing more focus on inflation, as the number of Employment sectors are improving maintaining the rate below the 8.0% since September 2012. The Unemployment Rate for July was 7.4% improving from 7.6% in June 2013.
UK Retail sales are due out today and of course this is considered one of the most important indicators of consumer spending since the UK annual inflation rate is rising out of control, even though it edged down to 2.8% in July. UK Retail sales are expected to have risen by 0.5% mom from 0.2% to 0.7% and 0.2% yoy from 2.2% to 2.4% in July. In additions, Retail Sales excluding food and energy are expected to rise from 0.2% to 0.6% mom and 0.6% from 2.1% to 2.7% yoy in July, which would be USD supportive.
For tomorrow, the calendar in the US is thin but important as the housing starts and the building permits figures are out for July followed by the Reuters/Michigan Consumer Sentiment Index. The housing starts are forecast to rise to 900k mom from 836k indicating 7.7% improve in this sector; building permits are expected to rise from 911k mom to 945k; while the Reuters/Michigan Consumer Sentiment Index is forecast to have slightly risen to 85.4% from 85.1% the previous month.
The Market EUR/USD
• EUR/USD moved higher during the overnight trading session, after testing twice the 1.3231 (S1) support level and currently is trading near the psychological resistance of 1.3300 (R1). If buying pressure continues and manages to push the price above that level, a bullish extension would be triggered towards the 1.3400 (R2) resistance level. It is worth noting that the RSI oscillator has just crossed above its equilibrium level of 50 entering a bullish territory and alongside with the moving averages indications, strengthens the probabilities for a further upward move.
• Support: Support is found at the 1.3231 (S1) level, followed by the 1.3152 (S2) and 1.3077 (S3) respectively.
• Resistance: Resistance is at the psychological 1.3300 (R1) and 1.3400 (R2) levels, followed by the 1.3525 (R3), found from the daily chart.
USD/JPY
• USD/JPY managed to test the downtrend line and turned down to continue its move through its respective downward-sloping trading channel, as we expected in yesterday’s comments. Currently is testing the 97.67 (S1) which has acted as a support level several times during the recent past. If the bears are strong enough to push the rate below that level, they should drive it towards the 95.77(S3) and the 95 area, where we expect the completion of a long term (daily chart) “head and shoulders” formation.
• Support: Support is at the 97.67 (S1) previous resistance, followed by the 95 area (S2) where the neckline of the daily “head and shoulders” formation lies and the 93.77 (S3) level.
• Resistance: Resistance levels are the psychological round number of 100.00 (R1), the 100.84 (R2) and the 101.53 (R3).
GBP/USD
• GBP/USD found support at 1.5431 (S1) last week and in succession the rate moved towards the resistance level of 1.5569 (R1). A break above that level should lead the pair towards the next resistance level of 1.5674 (R2). Moreover, the pair remains above both the 20-period and the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5431 (S1), 1.5201 (S2) and 1.5102 (S3).
• Resistance: Resistance is identified at 1.5569 (R1) followed by the 1.5674 (R2) and 1.5752 (R3) levels.
Gold
• Gold moved higher during yesterday’s session, after finding support at the 1320.78 (S1) level. The price is currently testing Monday’s high at 1347.27 (R1), and if the bulls act more aggressively than the bears, a break above that level will drive them towards the next resistance at 1376.73 (R2). Moreover, the 20-period moving average remains above the 200-period moving average, giving some bullish indication for the precious metal. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe gold is still moving in a downtrend.
• Support: Support levels are at 1320.78 (S1) followed by the 1271.88(S2) and 1245.03 (S3).
• Resistance: Resistance levels are at 1347.27 (R1), 1376.73 (R2) and the 1423.60 (R3) (June highs).
Oil
• WTI moved slightly upwards during yesterday’s session and is currently near the resistance level of 107.53 (R1). The pair is moving in a trading range between the 102.62 (S2) and 108.96 (R2) boundaries and a penetration of one of them should give us clear indications about the next trending direction.
• Support: Support levels are at the psychological 105.00 (S1) level, at the102.62 (S2) and 100.80 (S3).
• Resistance: Resistance levels are 107.53 (R1) and the recent highs of 108.85 (R2). The next in line resistance level is identified from the weekly chart at 114.43 (R3).
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Market Analysis 16/08/2013 Mixed US data pushed the dollar lower
Daily Commentary 16.08.2013, Time of writing: 03:30 GMT
The Big Picture Mixed US data pushed the dollar lowerThe US dollar fell against a number of currencies on mixed economic data with the investors remaining uncertain for the time Fed will decide to phase out its monetary stimulus program. The Consumer Price Index rose to 2.0% YoY from 1.8% while jobless claims surprisingly dropped by 15,000 to 320,000, which is the lowest level since October 2007. Both these indicators make tapering off QE more likely insofar as they show inflation at the top of the Fed's target range and a solid labour market, the main condition the FOMC set for tapering.
The dollar initially firmed as a result. The Industrial production was unchanged mom in July, down from +0.2% in June and below estimates of 0.3%. The Philadelphia Fed survey was worse than expected showing signs of slowdown in the economy.
Finally, Treasury International Capital (TIC) data showed a net outflow of long-term portfolio investment from the US of $66.9B, far away from expectations that were forecast at an inflow of $31.3B. The mixed data on growth, plus the signs that investors are moving funds out of the US ahead of tapering, sent the dollar lower. Technicals also played a part as several currencies bounced off support lines, triggering buying.
British pound went higher versus the US dollar to an eight – week high during European trading yesterday, after UK Retail sales for July outpace expectations adding hopes of a sustained economy recovery. In detail, Retail Sales came out much stronger than expected of 2.4% YoY to 3.0% YoY while MoM improved from 0.2% MoM to 1.1% MoM showing that economic conditions are improving.
For today, the final European Consumer Price index is expected to decline -0.5% MoM in July from 0.1% MoM, while year over year is forecast to remain unchanged from the preliminary at 1.6%. Moving to the U.S., Housing starts and Building permits are due for July and this will indicate if it is going to be a rise in the construction sector. Finally, the Reuters/Michigan consumer confidence index is forecast to rise slightly 0.1 from 85.1 to 85.2.
The Market EUR/USD
• EUR/USD moved higher during the overnight trading session following a test of the 1.3231 (S2) support level and managed to break above the psychological level of 1.3300 (S1). Currently the pair is heading towards the recent highs at 1.3400 (R1) and a clear break above that level will signal the exit of the long term (daily chart) trading range, therefore a bullish extension would be triggered towards higher resistance areas. Furthermore, the 20-period moving average is above the 200-period moving average, favoring the scenario for new short term highs.
• Support: Support is found at the 1.3300 (S1), followed by the 1.3231 (S2) and 1.3132 (S3) respectively.
• Resistance: The main resistance level identified on the 4-hour chart is previous week’s highs at 1.3400 (R1). The next in line are at 1.3517 (R2) and 1.3706 (R3), found from the daily chart.
USD/JPY
• USD/JPY tested for a second time the downtrend line during the overnight session, failed to close above it and returned back to the channel. If the bears continue their momentum, they should lead the pair towards the 95.77 (S1) level, near the critical area of 95 where the long term head and shoulders neckline lies.
• Support: Support is at the 95.77(S1) and 93.77 (S2) levels, followed by the 92.48 (S3) on the daily chart.
• Resistance: Resistance levels are the 98.56 (R1) (previous support), followed by the psychological round number of 100.00 (R2) and the 100.84 (R3).
GBP/USD
• GBP/USD moved higher during yesterday’s session, breaking above the 1.5569 (S1). The pair is currently trading below the 1.5674 (R1) and a break above that level will drive the pair towards June’s highs at 1.5752(R2). Moreover, the pair remains above both the 20-period and the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5569 (S1) (previous resistance), 1.5431 (S2) and 1.5200(S3).
• Resistance: Resistance is identified at 1.5674 (R1) followed by the 1.5752(R2) and 1.5840 (R3) (daily chart) levels.
Gold
• Gold moved higher during yesterday’s session and broke Monday’s high at 1347.27 (S1), establishing the continuation of the uptrend marked with the blue uptrend line. Currently Gold is near the 1376.73 (R1) level and if bulls manage to drive price above that level, the will have to face June highs at 1422.09 (R2). Moreover, the 20-period moving average remains above the 200-period moving average, giving some bullish indications for the precious metal. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe is still correcting its long term downtrend.
• Support: Support levels are at 1347.27 (S1) followed by the 1320.78(S2) and 1271.88 (S3).
• Resistance: Resistance levels are at 1376.73 (R1), 1422.09 (R2) and the 1485.18 (R3) (daily chart).
Oil
• WTI moved slightly higher during yesterday’s session and is currently testing the resistance level of 107.53 (R1). If buyers achieve a clear break of that level, they will have to face the 108.85 (R2) level which is also the upper boundary of the short term trading range. As we mentioned in previous comments we should wait for a close outside the trading range, in order to have clear indications for the next probable directional move.
• Support: Support levels are at the psychological 105.00 (S1) level, at the 102.62 (S2) and 100.80 (S3).
• Resistance: Resistance levels are 107.53 (R1) and the recent highs of 108.85 (R2). The next in line resistance level is identified from the weekly chart at 114.43 (R3).
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Market Analysis 19/08/2013
Daily Commentary19.08.2013, Time of writing: 03:30 GMT
The Big Picture The dollar regained ground throughout much of the day Friday, closing slightly positive against most currencies as US yields moved higher. 10-year Treasury yields rose 6 bps on Friday and continued gaining today, rising 3 bps during Asian trading Monday morning.
Friday’s economic news was mixed, with the U of Michigan consumer confidence index slipping to 80.0 in August from 85.1. The reading was the lowest in four months and much below the forecast 85.5 reading expected by economists. However, this series is heavily influenced by gasoline prices, which have fallen back since the August survey was done, and so the market was not that strongly affected by it. On the other hand, housing starts rose 5.9% mom in July to an 896,000 annual place while building permits for future home construction jumped 2.7 % to a 943k pace. The rise in housing starts corroborated the message from Thursday’s National Association of Home Builders (NAHB) index and suggested that the construction sector will remain strong and will contribute to economic growth this year despite higher rates, which makes the Fed’s “tapering off” QE more likely.
This week’s figures got started overnight with Japan’s figures, which were somewhat disappointing as the Japan’s trade deficit widened more than expected to JPY 944bn (SA) in July from Y599bn in June, as imports surged, outpacing the growth in exports. The news initially sent USD/JPY higher but the pair later fell back.
Activity today is likely to be quiet as there are no major indicators on today’s calendar. Spain will auction 10-year government bonds. The focus of attention this week will be on Wednesday when the FOMC releases the minutes from its July meeting. We get preliminary Chinese and Eurozone PMI reports on Thursday and German and UK GDP data on Friday.
The Market EUR/USD
• EUR/USD moved lower during Friday’s trading session after finding support at the 20-period moving average. Currently the pair is trading between the 1.3300 (S1) and 1.3400 (R1) psychological levels. A clear break above the 1.3400 (R1) level will signal the exit of the long term (daily chart) trading range, triggering a bullish extension towards higher resistance areas. Furthermore, the 20-period moving average is above the 200-period moving average, favoring the scenario for new short term highs.
• Support: Support is found at the 1.3300 (S1), followed by the 1.3231 (S2) and 1.3132 (S3) respectively.
• Resistance: The main resistance level identified on the 4-hour chart is previous week’s highs at 1.3400 (R1). The next in line are at 1.3517 (R2) and 1.3706 (R3), found from the daily chart.
USD/JPY
• USD/JPY moved sideways during Friday’s trading activity, remaining into the downtrend blue channel. If the bears appear more aggressive than the bulls and manage to enforce their momentum, they should lead the pair below the psychological level of 97.00 (S1), towards the 95.77 (S2) level and near the critical area of 95 where the long term head and shoulders neckline lies.
• Support: Support is at the psychological 97.00(S1), 95.77 (S2) and 93.77 (S3).
• Resistance: Resistance levels are the 98.56 (R1), followed by the psychological round number of 100.00 (R2) and the 100.84 (R3).
GBP/USD
• GBP/USD moved sideways, making minor moves, during Friday’s session, remaining above the 1.5569 (S1). The pair is currently trading below the 1.5674 (R1) and a break above that level will drive the pair towards June’s highs at 1.5752(R2). Moreover, the pair remains above both the 20-period and the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5569 (S1) (previous resistance), 1.5431 (S2) and 1.5200(S3).
• Resistance: Resistance is identified at 1.5674 (R1) followed by the 1.5752(R2) and 1.5840 (R3) (daily chart) levels.
Gold
• Gold moved higher during Friday’s session, currently trading near the 1376.73 (S1) level. A daily close above that level will establish a clear upward break and bulls will have to face June highs at 1422.09 (R1). Moreover, the 20-period moving average remains above the 200-period moving average, giving some bullish indications for the precious metal. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe is still correcting its long term downtrend.
• Support: Support levels are at 1376.73 (S1) followed by the 1347.27(S2) and 1320.78(S3).
• Resistance: Resistance is identified at 1422.09(R1), followed by the 1485.18(R2) and 1540.36(R3) (daily chart).
Oil
• WTI moved sideways during Friday’s session and is still testing the resistance level of 107.53 (R1). If buyers achieve a clear break of that level, they will have to face the 108.85 (R2) level which is also the upper boundary of the short term trading range. As we mentioned in previous comments we should wait for a close outside the trading range, in order to have clear indications for the next probable directional move.
• Support: Support levels are at the psychological 105.00 (S1) level, at the 102.62 (S2) and 100.80 (S3).
• Resistance: Resistance levels are 107.53 (R1) and the recent highs of 108.85 (R2). The next in line resistance level is identified from the weekly chart at 114.43 (R3).
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Market Analysis 20/08/2013: Rising rates roil EM currencies
Daily Commentary20.08.2013, Time of writing: 03:30 GMT
The Big Picture Rising rates roil EM currencies: Rising US interest rates were again the main theme overnight as 10 year Treasuries hit 2.88% and expectations for Fed funds rose almost back to the July peaks. Emerging market currencies were crushed, with the beleaguered Indian rupee (INR) falling 3.5%vs USD (even though it was already at a record low) and the Indonesian rupiah (IDR) down 2.0%. MXN and ZAR were both down by more than 1%. The market is questioning how these countries with current account deficits will be able to fund themselves when money is less abundant and US interest rates are more attractive. By contrast, USD was mixed vs the G10 currencies, with CHF, EUR and GBP gaining modestly against the US currency.
You can see from the graph how the dollar has strengthened over the past two weeks against most EM currencies, with a modest relationship between the size of the country’s current account and its performance. For the G10 currencies however the relationship if anything was the reverse: the pound was the best-performing G10 currency over the last two weeks despite Britain’s current account deficit amounting to 3.9% of GDP.
It’s my view that over time, JPY will be used as the funding currency of choice. The country has a widening trade deficit and is the one currency where there is no risk of the central bank closing off the spigot any time soon. Just as importantly, the Bank of Japan has so far been successful in keeping nominal interest rates down while raising inflation expectations – i.e., lowering real yields. The five-year break-even inflation rate is now 1.4%, up from about 1.1% six months ago (albeit down from a peak of 1.84%in May). This compares with an average inflation rate of -0.4% for the last five years, so it shows a pretty sharp change of expectations. Yet five-year yields are only 0.29%, meaning that they are deeply negative compared with expected inflation. As the US starts to taper off its QE, Japan should become the major source of liquidity within the G10, in my view, and I would expect to see JPY carry trades come back in force. That suggests a higher USD/JPY. GBP is also likely to be under pressure as the focus moves to current account deficits. CHF by contrast would be likely to hold up relatively well on that account.
The minutes from the recent Reserve Bank of Australia (RBA) meeting showed that another cut in rates isn’t imminent but that “the course of the exchange rate would be important” in setting policy, implying that the RBA would be likely to cut rates if the AUD rose. AUD/USD fell as a result. We expect that the AUD will continue to weaken as the interest rate support disappears and the terms of trade move against the currency.
There are no major European indicators out today, only Eurozone construction output for June. Output was down 0.3% mom in May; there’s no forecast for June. In the US, the Chicago Fed national activity index is expected to improve slightly to -0.10 from -0.13. A rising index sometimes means a rising dollar, but not always. This is unlikely to be a major market-moving event.
The Market EUR/USD
• EUR/USD moved sideways during yesterday’s session and is still trading between the 1.3300 (S1) and 1.3400 (R1) psychological levels. A symmetrical triangle has formed and a clear break outside of it should enforce the pair’s new directional movement. The price is near the 20-period moving average and a break below it should lead the pair towards the lower Bollinger band, near the 1.3231 (S2) area. Momentum weakness is also shown by MACD, since negative divergence is identified between the oscillator and the price.
• Support: Support is found at the 1.3300 (S1), followed by the 1.3231 (S2) and 1.3152 (S3) respectively.
• Resistance: The main resistance level identified on the 4-hour chart is previous week’s highs at 1.3400 (R1). The next in line are at 1.3517 (R2) and 1.3706 (R3), found from the daily chart.
USD/JPY
• USD/JPY moved slightly higher and after touching the downtrend line moved lower, failing to escape from its downward sloping channel. The pair remains below the 200-period moving average, still showing a bearish attitude. Meanwhile, both RSI and MACD oscillators are at relatively neutral levels, giving no clues for the momentum of the rate. In my opinion, a break below the psychological 97.00 (S1) level, will reveal investors’ potentials, and a further downward move towards the 95.77 (S2) level and near the critical area of 95 where the long term head and shoulders neckline lies, will be more probable.
• Support: Support is at the psychological 97.00(S1), 95.77 (S2) and 93.77 (S3).
• Resistance: Resistance levels are the 98.56 (R1), followed by the psychological round number of 100.00 (R2) and the 100.84 (R3).
GBP/USD
• GBP/USD moved higher during yesterday’s trading activity, finding resistance at the 1.5674 (R1). Our oscillators do not favor an upward break above that level, since there is a negative divergence between MACD and the price action, and RSI has recently exited its overbought zone. A failure of the pair to overcome that hurdle, should drop it towards the 1.5569 (S1) support level. However, the price remains above both the 20-period and the 200-period moving average, thus we are still in an uptrend and our weakness indications might only cause a pullback.
• Support: Support levels are at the 1.5569 (S1) (previous resistance), 1.5431 (S2) and 1.5200(S3).
• Resistance: Resistance is identified at 1.5674 (R1) followed by the 1.5752(R2) and 1.5840 (R3) (daily chart) levels.
Gold
• Gold moved lower during yesterday’s session, failing to maintain a break above the 1376 (R1) level. Currently the precious metal is moving downwards and a retracement towards 1347 (S1) seems probable. If selling pressure causes a break below that level, then the retracement would continue towards the 1320 support level and the uptrend blue line. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe is still correcting its long term downtrend.
• Support: Support levels are at 1347 (S1) followed by the 1320 (S2) and 1271 (S3).
• Resistance: Resistance is identified at 1376 (R1), followed by the 1422 (R2) and 1485 (R3) (daily chart).
Oil
• WTI moved lower during yesterday’s trading activity, failing to break above the resistance of 107.53 (R1). The price remains in a trading range between the 102.62 (S2) and 108.85 (R2) boundaries and as we mentioned in previous comments we should wait for a close outside the trading range in order to have a clear indication for the next probable directional move.
• Support: Support levels are at the psychological 105.00 (S1) level, at the 102.62 (S2) and 100.80 (S3).
• Resistance: Resistance levels are 107.53 (R1) and the recent highs of 108.85 (R2). The next in line resistance level is identified from the weekly chart at 114.43 (R3).
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Market Analysis 21/08/2013: Tuesday was the reverse of Monday
Daily Commentary21.08.2013, Time of writing: 03:30 GMT
The Big Picture Tuesday was the reverse of Monday: With US 10-year bond yields falling back to 2.80% and implied rates on Fed Fund futures retreating as well, the dollar was generally weaker against both G10 and EM currencies. Even the beleaguered INR managed to regain ground against the dollar, although IDR continued to weaken. Among G10 currencies, the three commodity currencies and NOK were weaker vs USD, probably owing to indications of less tightening to come (e.g., the much lower-than-expected Q2 GDP report for Norway, RBNZ saying that new lending curbs could reduce house price inflation in half).
Some interesting action in CHF. EUR/USD managed to break out of its recent trading range and move above 1.3400 even as peripheral bond spreads widened (Spain vs Germany +12 bps, for example). German Finance Minister Schaeuble’s admission that Greece will need a third bailout should also have depressed the euro, but didn’t. Nonetheless CHF strengthened vs both EUR and USD. It’s likely that some of the money flowing out of EM currencies is looking for a safer home, and CHF would naturally be a possibility. Look for CHF to strengthen further as concerns over EM health intensify.
The pendulum could swing back the other way and the dollar get a boost when the Fed releases the minutes from its July 30-31st FOMC meeting. This will provide details of the discussion that led all the Fed officials to such strong conviction that September will see the start of “tapering.” I expect the minutes to reaffirm this conclusion and hence send US rates up higher, boost the dollar again and send EM currencies lower. Then overnight we get the HSBC/Markit flash manufacturing PMI for China for August. While not the official PMI, this one is closely watched. It’s expected to rise to 48.2 from 47.7, which would still be showing a contraction in manufacturing albeit less of one. That could help AUD to recover.
The Market EUR/USD
• EUR/USD moved higher during yesterday’s trading activity, breaking the triangle’s upper boundary and the short-term highs of 1.3400 (S1).This upward slope shows that the bulls are ready to attempt an escape of the long term (daily) trading range, leading the pair towards the 1.3517(R1) resistance level (daily chart). The price is above both the 20- and 200-period moving averages, confirming its bullish attitude, while the MACD shows increasing momentum considering that the oscillator crossed above its trigger line above zero line.
• Support: Support is found at the1.3400 (S1) and 1.3300 (S2) psychological levels, followed by the 1.3231 (S3).
• Resistance: Since we reached new short term highs, our resistance areas are identified from the longer time frame (daily chart) at 1.3517(R1) and 1.3706 (R2) respectively.
USD/JPY
• USD/JPY moved lower during yesterday’s session, testing twice the psychological support level of 97.00 (S1). That level acted as a support several times during the last week and the failure to break it is a cause for some concern. I believe that if the bears are strong enough to drive the rate below it, a downward extension towards the 95.77(S2) would be triggered. The pair remains below the 200-period moving average, confirming the downtrend we have been experiencing since July. Meanwhile, both RSI and MACD oscillators are at relatively neutral levels, giving no clues for the momentum of the rate.
• Support: Support is at the psychological 97.00(S1), 95.77 (S2) and 93.77 (S3).
• Resistance: Resistance levels are the 98.56 (R1), followed by the psychological round number of 100.00 (R2) and the 100.84 (R3).
GBP/USD
• GBP/USD moved sideways yesterday, still struggling near the 1.5674 (R1) resistance level. MACD supports the weakness of the pair as we note negative divergence between the oscillator and the price action. A failure of the pair to overcome that hurdle should drop it towards the 1.5569 (S1) support level. However, the price remains above both the 20- and the 200-period moving averages, thus we are still in an uptrend and our weakness indications might only cause a pullback.
• Support: Support levels are at the 1.5569 (S1), 1.5431 (S2) and 1.5200(S3).
• Resistance: Resistance is identified at 1.5674 (R1) followed by the 1.5752(R2) and 1.5840 (R3) (daily chart) levels.
Gold
• Gold returned to retest the 1376(R1) level after yesterday’s unsuccessful attempt to break above it. Currently the precious metal is making minor moves and a retracement towards the 1347 (S1) seems probable. If selling pressure causes a break below that level, then the retracement would probably continue towards the 1320 support level and the uptrend blue line. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe gold is still correcting its long-term downtrend.
• Support: Support levels are at 1347 (S1) followed by the 1320 (S2) and 1271 (S3).
• Resistance: Resistance is identified at 1376 (R1), followed by the 1422 (R2) and 1485 (R3) (daily chart).
Oil
• WTI moved noticeably lower yesterday, reaching the psychological support level of 105.00 (S1). A downward penetration of that level should lead the price towards the 102.62 (S2), and a clear break below it would signal the exit of the trading range and the completion of a triple top reversal formation. However, since WTI remains in a trading range between the 102.62 (S2) and 108.85 (R2) boundaries, we should wait for the exit direction in order to have a better picture.
• Support: Support levels are at the psychological 105.00 (S1) level, at the 102.62 (S2) and 100.80 (S3).
• Resistance: Resistance levels are 107.53 (R1) and the recent highs of 108.85 (R2). The next in line resistance level is identified from the weekly chart at 114.43 (R3).
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Market Analysis 22/08/2013: FOMC minutes confirm tapering expectations
Daily Commentary 22.08.2013, Time of writing: 03:30 GMT
The Big Picture FOMC minutes confirm tapering expectations: The FOMC minutes were naturally the major event of the day yesterday. The markets’ response was confused, to say the least, with bond yields and the dollar initially soaring as the initial headlines suggested there was broad support for Chairman Bernanke’s tapering timeline, then coming back down after a more tempered interpretation from the Wall Street Journal’s widely watched Fed watcher downplayed the idea of a fixed schedule, then moving higher yet again. In the final analysis, the market decided that the minutes suggest that the Fed is on schedule to start tapering in September so long as the data co-operates. It’s all data-dependent, which means more volatility every time a number comes out. US was higher across the board as a result, gaining against all G10 and the 15 EM currencies that we track. It gained particularly vs NOK (+2.1%) and SEK (+1.3%) in G10 and BRL (+2.5%), ZAR (+2.5%) and MXN (+2.3%) in EM.
This is the kind of trend that I had expected. I expect that the current Fed board will want to start tapering off QE before the end of Chairman Bernanke’s term so that the Fed is launched in that direction. Regardless of the fact that this is tapering, not ending, QE, the shift in the focus of monetary policy is likely to support the dollar, in our view. That’s because the market believes that, once tapering begins, each day of tapering is a day closer to the Fed raising rates. This regardless of how much the FOMC protests that the two decisions are totally separate. Over the long term this should mean higher US real interest rates, which should support the dollar.
China got the day’s indicators off to a good start with a much better-than-expected HSBC/Markit flash manufacturing PMI for August. It rose to 50.1 from 47.7 in July (exceeding expectations, which were for 48.2). AUD/USD was already recovering when the news came out and received a further boost, but only minor as the pair remains below where it was Tuesday morning. AUD’s failure to recover on such a good number – unexpectedly recovering to above the 50 “boom-or-bust” line – demonstrates the negative sentiment towards AUD right now, perhaps because of the perceived willingness of the RBA to see a weaker currency. It reinforces my bearish attitude towards the currency.
Later today France, Germany and the EU as a whole announce their PMIs for both the manufacturing and service sector for August. The manufacturing PMIs are all expected to be above 50, showing that the Eurozone economy continues to expand (although the French services PMI is forecast to be below 50, albeit improved from July). That could provide some support for EUR. The only major US indicator out today is the weekly jobless claims, expected to be up slightly at 330k vs 320k. But that would still leave the 4-week moving average lower at 328k vs 332k, so no delay to the Tapering Express!
The Market EUR/USD
• EUR/USD moved lower, failing to maintain above the psychological level of 1.3400 (R1). Currently the pair is heading towards the 1.3300 (S1) support level and we expect to see if the sellers are strong enough to push the price lower. However, EUR/USD remains in an uptrend, since it is forming higher highs and higher lows, also confirmed by the rate’s reading above the 200-period moving average.
• Support: Support is found at the 1.3300 (S1) psychological level followed by the 1.3231 (S2) and the 1.3152 (S3) levels respectively.
• Resistance: Yesterday’s support at 1.3400 (R1) is now providing resistance, followed by the 1.3448 (R2) and 1.3517 (R3) (daily chart).
USD/JPY
• USD/JPY moved higher yesterday, breaking above the downtrend line and currently finding resistance at the 200-period moving average. The pair is trading near the 98.56 (R1) resistance level and an upside break of it should lead the pair towards the psychological number of 100.00 (R2). A failure to maintain above the channel could mean the price moves lower, reinforcing the formation of the possible long term head and shoulders.
• Support: Support levels are the 98.05 (S1), 97.00(S2) and 95.77 (S3).
• Resistance: Resistance levels are the 98.56 (R1), followed by the psychological round number of 100.00 (R2) and 100.84 (R3).
GBP/USD
• GBP/USD moved lower yesterday, failing to reach its June highs (1.5752 R2). The pair is currently trading below the 1.5674 (R1) resistance and is heading towards the 1.5569 (S1) support. If selling pressure overcomes buying pressure at that level, we expect the price to continue correcting its uptrend towards the 1.5431 (S2) level, near the uptrend line. MACD supports the weakness of the pair since we note negative divergence between the oscillator and the price action.
• Support: Support levels are at the 1.5569 (S1), 1.5431 (S2) and 1.5200(S3).
• Resistance: Resistance is identified at 1.5674 (R1) followed by the 1.5752(R2) and 1.5840 (R3) (daily chart) levels.
Gold
• Gold moved slightly lower during yesterday’s session after testing for a third time the 1376 (R1) resistance level. Currently the precious metal is making minor moves and a retracement towards the 1347 (S1) seems probable. If selling pressure causes a break below that level, then the retracement would continue towards the 1320 (S2) support level and the uptrend blue line. Weakness is also shown by MACD, since it is decelerating and lies below its trigger line. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe gold still correcting its long term downtrend.
• Support: Support levels are at 1347 (S1) followed by the 1320 (S2) and 1271 (S3).
• Resistance: Resistance is identified at 1376 (R1), followed by the 1422 (R2) and 1485 (R3) (daily chart).
Oil
• WTI moved lower yesterday, breaking the psychological support level of 105.00 (R1).Currently WTI is heading towards 102.62 (S2), and a clear break below it would signal the exit of the trading range and the completion of a triple top reversal formation. However, since WTI remains in a trading range between the 102.62 (S1) and 108.85 (R3) boundaries, we should wait for the exit direction in order to have a better picture.
• Support: Support levels are at 102.62 (S1), 100.80 (S2) and 97.80 (S3).
• Resistance: Resistance levels are 105.00 (R1), 107.53 (R2) and the recent highs of 108.85 (R3).
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