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Market Analysis 06/09/2013
Daily Commentary 06.09.2013, Time of writing: 03:30 GMT
The Big Picture The US dollar was stronger against all the major currencies after the ECB’s decision to keep its monetary policy unchanged, leaving key policy rates at their historical lows. The dollar continued to gain throughout the day after the dovish comments by Mario Draghi. In terms of market reaction, the euro fell immediately just after the ECB conference started, breaking below the 1.3150 level against the dollar within one hour falling almost 120 pips during the US session.
Moving north, the bank of England has been influenced by Governor Mark Carney policy to keep their interest rates in low levels amid strengthening economic recovery, thus the BoE kept their bond-buying program and interest rates unchanged. The GBP rose significantly against the EUR during the BoE announcement and extended its gains during the ECB press conference recording a fresh low at 0.8407 EUR/GBP.
Certainly, the biggest figure of the month is the US non-farm payrolls for August. The market is expecting an increase in the payrolls with survey showing 180k vs 161k the previous month. The unemployment rate is expected to remain unchanged at 7.4%. Yesterday’s US jobs data was encouraging; the ADP employment change for August was a modest +176k but initial jobless claims continued to move lower and the employment component of the non-manufacturing ISM index was extremely strong. A better-than-expected non-farm payrolls figure will likely put the Fed on track to begin tapering off its bond purchases in September, as expected, which would probably send the dollar still higher. At this point even a disappointing report might result in just a smaller degree of tapering, say USD 10bn a month instead of the USD 20bn or so that is expected. That could be neutral or even bearish for the dollar.
Having as a ‘main course’ today the US non-farm payrolls, we doubt if the rest of the economic indicators will have much impact on the today market as we expect the NFP report to drive the market. In today’s economic calendar, we have the German Trade balance and the current account for July. UK consumer inflations expectations and consumer confidence expectations for August. Also, UK will release figures on industrial production and on manufacturing production for July. Finally, Canada will release data on unemployment rate for August which is expected to remain unchanged at 7.2%.
In the G20 meeting, U.S President Barack Obama came under pressure from Russia’s President Vladimir Putin and other world leaders as a possible US military strike against Syria could push the price of oil up and hurt the world economy.
The Market EUR/USD
• EUR/USD moved lower and managed to break below the 1.3152 level (yesterday’s support). At the time of writing the pair is trading between the 1.3077 (S1) and 1.3152 (R1) levels and if selling pressure continues pushing the rate downwards I expect it to find support at the 1.3077 (S1). A clear downward break of that level would trigger extensions towards the psychological round number of 1.3000 (S2). It is worth noting that the MACD oscillator crossed below its trigger line in a bearish territory, adding significance to the negative picture of the price action.
• Support: Support is found at the 1.3077 (S1) level, followed by the psychological level of 1.3000 (S2) and 1.2895 (S3) respectively.
• Resistance: Resistance levels are 1.3152 (R1), followed by 1.3231 (R2) and the psychological level of 1.3300 (R3).
USD/JPY
• USD/JPY continued following the upward boundary of the uptrend channel and after finding resistance near the psychological level of 100.00 (R1), moved slightly lower. If the long holders are strong enough to win the battle at that hurdle, they should target the next resistance levels of 100.84 (R2) and 101.52 (R3) next. On the other hand, if they fail to do so, a pullback towards the 99.13 (S1) is probable, since both RSI and MACD oscillators might move away from their overbought levels in the next periods (although in recent months USD/JPY has occasionally remained in technically overbought territory for significant lengths of time). On the longer time frame (daily chart), the price remains above the upper boundary of a triangle formation, adding significance to the pair’s bullish picture.
• Support: Support levels are at 99.13 (S1), followed by 98.09 (S2) and the psychological level of 97.00 (S3).
• Resistance: Resistance levels are the round number of 100.00 (R1), followed by the 100.84 (R2) and the 101.52 (R3) levels respectively.
GBP/USD
• GBP/USD continued moving higher breaking above the 1.5569 level and confirming the end of the correction mentioned in previous comments. Currently the pair is heading towards the 1.5674 (R1) resistance level and a clear upward penetration of it should lead the price towards new short term highs. Moreover, the 20-period moving average lies above the 200-period moving average and alongside with the MACD’s positive value, they provide significance to the aforementioned scenario.
• Support: Support levels are identified at 1.5569(S1), 1.5425 (S2) and 1.5296 (S3) respectively.
• Resistance: Resistance found at the levels of 1.5674 (R1), 1.5752 (R2) and 1.5840 (R3), found from the daily chart.
Gold
• Gold continued moving lower, breaking below the 1376 level (yesterday’s support). Currently the price lies slightly above the 200-period moving average and I expect it to continue moving lower towards the trend line and maybe the 1347 (S1). However, since the precious metal remains in the uptrend channel, and the 20-period moving average is above the 200-period moving average, I still consider this downward movement as a correction, before the price reverses and continues its uptrend.
• Support: Support levels are at 1347 (S1), followed by 1320 (S2) and 1271 (S3).
• Resistance: Resistance is identified at the 1376 (R1) level, followed by 1394 (R2) and 1422 (R3).
Oil
• WTI moved once more towards the upper boundary of the trading range we are observing since the beginning of July. At the time of writing the price is testing the boundary at 108.85 (R1) and a clear break above this level might signal the real exit of the sideways action. However, both the RSI and MACD oscillator remained near their neutral levels giving no clues and indications about the forthcoming action of the oil.
• Support: Support levels are at 107.53(S1), 105.50(S2) and 103.44 (S3).
• Resistance: Resistance levels are at 108.85 (R1), followed by 112.14 (R2) and 114.21(R3), found from the weekly chart.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 09/09/2013: Dollar down on weaker payrolls
Daily Commentary 09.09.2013, Time of writing: 03:30 GMT
The Big Picture Dollar down on weaker payrolls:The dollar fell Friday against all its G10 counterparts and most EM currencies as well as the August non-farm payrolls came in below estimate, causing investors to question whether the Fed would start tapering off its quantitative easing this month. The US 10-year bond went over 3% in early trading in New York but after the NFP came out plunged to a low of 2.86% as thoughts of tapering receded (it’s currently trading around 2.95%). While there is a lot of discussion about special factors in the employment data, nonetheless the fact is that the three-month moving average has moved down to 148k from 151k in July. The unemployment rate fell 0.1 percentage point but that was due to a lower participation rate, which is not encouraging.
I would note though that although the initial reaction to the data was harsh, that judgement gradually softened and both the bond and the Fed Funds futures gradually regained about half their losses. That suggests to me that the dollar too is likely to recover gradually this week as the market realizes that the overall tone of the data is improving and although this figure may have been disappointing, the Fed is still determined to start tapering eventually. I would particularly point out the very weak reaction in USD/JPY, which did not lose very much on the news and in fact was higher on the week.
China’s exports rose more than expected in August and imports were lower, pushing up the nation’s trade surplus to USD 28.5bn from USD 17.8bn in the previous month. Meanwhile inflation fell slightly in the month to 2.6% from 2.7%. Higher exports with no risk of inflation is good news for the Chinese economy and the news lifted AUD (although one might have thought the lower-than-expected imports would be discouraging; the conclusion must be that exports are a leading indicator of imports). Over the weekend the Liberal-National coalition pushed out the incumbent Labour Party in a general election, but that does not seem to have been a major factor in the FX market.
Activity today is likely to be quiet as there are no major indicators on today’s calendar. In Switzerland the unemployment rate for August is expected to stay unchanged at 3.2%. Eurozone Sentix investor confidence index for September is expected to rise to -3.5 from -4.9, although this is nowhere near as closely followed as the ZEW index. US consumer credit for July is forecast to rise by USD 12.6bn, less than the USD 13.8bn in June; however with most of US consumer credit being student loans nowadays, this indicator is less important than it used to be. Overnight, we will get the UK RICS house price balance for August which is expected to rise to 38% from 36%.
For the week as a whole, the main focus will be on data from China, which includes money and lending growth, retail sales, PPI, and fixed asset investment and industrial production. The only G10 central bank meeting this week will be the Reserve Bank of New Zealand on Friday morning European time; the Bank of Japan will release the minutes of its recent Policy Board meeting. For the UK, the focus will be on Wednesday, when the labor data is announced. Eurozone industrial production figures will be released on Thursday. US retail sales for August and consumer confidence for September on Friday will be the highlights of the week; other US data out this week includes small business sentiment, producer prices and inventories. The strong retail sales figure (+0.4% mom excluding autos and gasoline, same as July) is likely to support the idea that the Fed will go along with tapering and therefore be USD-positive.
The Market EUR/USD
• EUR/USD moved higher, breaking above the 1.3152 level (Friday’s resistance). At the time of writing the pair is trading slightly above that level. If the bears manage to drive the price below it, I expect them to target the 1.3077 (S2) support level. The MACD oscillator lies below its zero line, indicating negative momentum for the rate, but managed to cross above its trigger line, confirming the weakness of the downtrend.
• Support: Support is found at the 1.3152 (S1) level, followed by 1.3077 (S2) and the psychological round number of 1.3000 (S3)
• Resistance: Resistance levels are 1.3239 (R1), followed by the psychological levels of 1.3300 (R2) and 1.3400 (R3).
EUR/JPY
• EUR/JPY opened the European session with a bullish gap, driving the price below the resistance level of 131.43 (R1). A clear break above that resistance should drive the battle towards the recent highs of 132.42 (R2). We think the pair is moving in an uptrend since the price is above both the 20- and the 200-period moving averages and above the valid uptrend line, marked in blue. We may refrain from using RSI’s and MACD’s signals, since both lie in relatively neutral levels.
• Support: Support levels are at 130.51 (S1), followed by 129.49(S2) and 128.86 (S3).
• Resistance: Resistance is found at the levels of 131.43 (R1), 132.42 (R2) and 133.74 (R3), found from the daily chart.
GBP/USD
• GBP/USD continued moving higher and is currently lying below the resistance level of 1.5674 (R1). In my opinion the current move is a 5th impulse Elliot wave and as a result I expect the pair to overcome that level and challenge new short term highs. Moreover, the 20-period moving average lies above the 200-period moving average and alongside with the MACD’s positive value, they provide significance to the aforementioned scenario.
• Support: Support levels are identified at 1.5569 (S1), 1.5425 (S2) and 1.5296 (S3) respectively.
• Resistance: Resistance found at the levels of 1.5674 (R1), 1.5752 (R2) and 1.5840 (R3), found from the daily chart.
Gold
• Gold moved higher after finding support at the 200-period moving average and managed to break above the 1376 level (Friday’s resistance). Currently the metal is finding resistance at the 1394 (R1) level and if the long holders are strong enough to overcome that resistance, bullish extensions should be triggered towards the short term highs of 1422 (R2). Besides, a clear break above 1394 should signal the end of the correction we have been experiencing since Aug. 28th. Despite the fact that the MACD oscillator is below zero, it lies above its trigger line pointing upwards, increasing the odds for it to enter into bullish territory.
• Support: Support levels are at 1376 (S1), followed by 1347 (S2) and 1320 (S3).
• Resistance: Resistance is identified at the 1394 (R1) level, followed by 1422 (R2) and 1440 (R3).
Oil
• WTI managed to escape from its 2-month trading range, breaking above its upper boundary at 108.85 (R1). If the price continues its bullish momentum and manages to overcome the 112.14 (R1) level, then it will be highly likely that this is the real exit of the sideways activity. The RSI is testing its overbought level of 70, but the MACD oscillator lies above both the zero line and its trigger line, enhancing the probabilities for a further upward movement.
• Support: Support levels are at 108.85 (S1), 106.71 (S2) and 105.23 (S3).
• Resistance: Resistance levels are at 112.14 (R1), followed by 114.21 (R2) and 121.13 (R3), the latter two found from the weekly chart.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 10/09/2013: Dollar eases further as tapering fears recede
Daily Commentary10.09.2013, Time of writing: 03:30 GMT
The Big PictureDollar eases further as tapering fears recede : Once again the dollar weakened against all the currencies we track, both the G10 and EM currencies, as expectations of higher interest rates in the US faded. The May 2015 Fed Funds futures for example are now 15 bps above their early Friday lows, and contracts further out are marked even higher as investors push out the probable date of Fed tightening. Another theme in the market is the idea that with President Obama struggling with Congress over his Syria policy, he is likely to have less political capital to push through the unpopular Larry Summers as his candidate to replace Ben Bernanke when the latter’s term as Fed chairman ends next January. That would make it more likely that Janet Yellen, the current deputy chairman of the Fed, gets the post. Yellen has been a big supporter of quantitative easing and is known to be more concerned about growth than about inflation right now. The market reasons that if she is nominated, the Fed is likely to keep interest rates low for longer than would be the case if Summers got the job.
It was notable that the commodity currencies and NOK were among the largest gainers yesterday despite further falls in oil prices as Syria accepted a Russian proposal that it should hand over all its chemical weapons to an international group. This suggests that the markets are discounting a stronger global economy. That might also explain why SEK was the biggest gainer; the Swedish economy is highly leveraged to global growth. If this is true, then I think the US economy is likely to overcome this recent soft patch in employment data and tapering should commence sooner or later. The question is whether the FOMC will be content to wait another month. The dovish San Francisco Fed President John Williams (2 out of 5 on the Reuters hawk-o-meter scale) yesterday said that recent economic data signal gradual job market improvement in line with his expectations, which suggests that the Fed could start some tapering at the Sep. 17th-18th meeting. A Bloomberg poll taken after the payrolls data showed economists expect the Fed to taper bond buying by $10bn at the meeting, which could surprise the FX market. But until then we are likely to see further gains by the commodity currencies in particular, which have been severely depressed recently.
We already got the only indicator for the day from the UK: the RICS (Royal Institute of Chartered Surveyors) house price balance. This shows the percentage of surveyors who see house prices rising minus the percent that see prices falling. It rose to 40% from 37%, which was above expectations of 39% and could boost GBP today. As for the Eurozone, there are only second-tier indicators out today. French industrial production is expected to have risen 0.5% mom in July, a turnaround from -1.4% mom in the previous month, another sign that the Eurozone economy is bottoming out and a possible support for EUR. In US, the National Federation of Independent Businesses (NFIB) small business optimism survey for August is forecast to rise to 95.0 from 94.1, which is important in that as small businesses are major employers. Also, the JOLTs (job openings and labor turnover) report is expected to show 3.9mn job openings in July, down slightly from 3.936mn in June, which was the highest level in five years. That would show a relatively healthy job market even though the number of jobs being added each month has been falling recently and could aid the case for tapering, thereby supporting the dollar.
The Market EUR/USD
• EUR/USD moved significantly higher, breaking the upper boundary of the downtrend channel and the 1.3239 level (yesterday’s resistance). Currently the pair lies between the 1.3239 (S1) support and the psychological resistance of 1.3300 (R1), where a clear upward penetration should drive the price towards the next round number of 1.3400 (R2). Additionally, momentum signals confirm the bullish attitude of the pair, since the oscillator lies above its trigger line in bullish territory and negative divergence is observed between the MACD and the price action.
• Support: Support is found at the 1.3239 (S1) level, followed by 1.3188(S2) and 1.3134 (S3)
• Resistance: Resistance levels are the psychological round numbers of1.3300 (R1) and 1.3400 (R2) followed by the 1.3448 (R3) level.
USD/JPY
• USD/JPY is moving sideways, remaining for a third trading day between the 99.13 (S1) and the resistance of 100.00 (R1). If the longs attempt once more to overcome that strong hurdle and they succeed, bullish extensions should be triggered towards the 100.84 (R2) and 101.52 (R3) resistance levels. However, both RSI and MACD oscillators lie at their neutral levels, providing no indications for the pair’s momentum. On the long-term (daily chart), the rate is still trading above the upper boundary of a symmetrical triangle, adding positivity to the price action.
• Support: Support levels are at 99.13 (S1), followed by 98.09(S2) and the round number of 97.00 (S3).
• Resistance: Resistance is found at psychological level of 100.00 (R1), followed by the levels of 100.84 (R2) and 101.52 (R3).
GBP/USD
• GBP/USD continued moving higher and managed to break above the 1.5674 level (yesterday’s resistance). At the time of writing the pair is lying between that level and the resistance of 1.5752 (R1). A clear win of the bulls at that level should extend the current move towards new short term highs. The MACD’s positive value and the fact that the 20-period moving average lies above the 200-period moving average make such a breakout likely, in our view.
• Support: Support levels are identified at 1.5674 (S1), 1.5569 (S2) and 1.5425 (S3) respectively.
• Resistance: Resistance found at the levels of 1.5752 (R1), 1.5840 (R2) and 1.5892 (R3), the latter two found from the daily chart.
Gold
• Gold moved lower after finding resistance at the 1394 (R1) level and at the time of writing is testing the 1376 (S1) support level. A clear penetration below that level would mean that the correction we are experiencing since the 28th of August is still in effect. The precious metal lies above the 200-period moving average and the blue uptrend line, thus we believe the overall trend is still an uptrend. Also, the MACD oscillator lies below zero but above its trigger, pointing upwards; an entrance into its bullish territory might be the first sign for the correction’s completion.
• Support: Support levels are at 1376 (S1), followed by 1347 (S2) and 1320 (S3).
• Resistance: Resistance is identified at the 1394 (R1) level, followed by 1422 (R2) and 1440 (R3).
Oil
• WTI moved lower and once more returned to its familiar territory below the 108.82 (R1) level (yesterday’s support). It seems that the long holders of the contract are not strong enough to maintain the price above that boundary. If the price keeps falling, it might challenge the 106.71 (S1) and 105.23 (S2) support levels. The RSI oscillator returned near its neutral level confirming the indecision for the next directional movement.
• Support: Support levels are at 106.71 (S1), 105.23(S2) and 103.44(S3).
• Resistance: Resistance levels are at 108.85 (R1), followed by 110.58 (R2) and 112.14 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 11/09/2013: Dollar stable as Syria risk diminishes
Daily Commentary 11.09.2013, Time of writing: 03:30 GMT
The Big Picture Dollar stable as Syria risk diminishes: The dollar is pretty stable vs the G10 currencies over the last 24 hours, as shown by the nearly unchanged DXY index. The currencies to show the largest change were NOK, which rocketed midday yesterday after the higher-than-expected Norwegian CPI, and JPY, which has weakened as oil prices fell back and stock markets around the world rebounded. CHF was also a bit weaker vs both USD and EUR as the risk of war in the Middle East receded, diminishing the perceived need for a safe-haven currency. The drama over Syria is dominating markets as President Obama asked Congress to delay a vote on attacking Syria while he pursues a Russian proposal for international monitors to take over and destroy Syria’s arsenal of chemical weapons. Otherwise the G10 currencies were little changed from when we wrote yesterday morning.
The Syrian issue is on now on hold for some time while negotiations continue. In that case, the market’s attention is likely to turn to other events, namely next week’s FOMC meeting, the German elections the weekend after, and perhaps the return of the dreaded “fiscal cliff” in the US sometime in October. Market participants are talking about a Wall Street Journal piece that noted that the seven Fed governors (i.e. those who work for the Federal Reserve Board, not the regional Fed presidents) have not made any public speeches or delivered any prepared remarks since July 18. It will have been two months with no speech or testimony from any governor by the time Chairman Bernanke gives his press conference following next week’s meeting. This is the longest stretch since at least 1996, when records began. Their silence could indicate uncertainty about what the decision will be at the September meeting, but the market is beginning to think that they are tacitly confirming the many hints that we’ve gotten from other FOMC members (for example, non-voter John Williams on Monday) that tapering will indeed begin this month. In that case, I believe the dollar is in for a rebound soon. Given its resilience so far, I would expect USD/JPY to be the biggest beneficiary of such a move. There could also be some profit-taking in NZD/USD, which has recovered somewhat recently. NZD may also be weakened by the RBNZ meeting overnight (see below).
The focus of attention today will be on the UK August labor report, which has taken on critical importance for the pound after the Bank of England said they won’t consider changing interest rates until the unemployment rate has come down to 7.0%. The ILO unemployment rate for July is expected to remain unchanged at 7.8%, which could disappoint those looking for the UK economy to recover faster than the Bank expects and be negative for GBP. Jobless claims are forecast to fall by 21.0k in August, a slower pace of decline than 29.2k in July. In the US, markets participants are waiting to see whether there will be a second consecutive rise in the weekly MBA mortgage applications in the week of Sep. 6th. The previous week came out at +1.3%, the first rise in four weeks. The market expects the wholesale inventories to show a turnaround to +0.3% mom in July from -0.2% mom in June. Then overnight, the Reserve Bank of New Zealand will make its interest rate decision. Economist unanimously forecast that the RBNZ will keep the official rate on hold at 2.50%, so the focus of attention will be on the statement and the press conference after the announcement. In his statement following the last meeting in June, Gov. Wheeler said the RBNZ expected to keep rates unchanged “through the end of the year.” The market will be waiting to see if he extends that pledge following the recent move to rein in mortgage lending through quantitative restrictions.
The Market EUR/USD
• EUR/USD continued moving higher but without achieving any significant move, remaining between the 1.3239 (S1) and the 1.3300 (R1) levels. If the bulls are strong enough to overcome the hurdle at 1.3300 (R1), they might drive the battle towards the next psychological level of 1.3400 (R2). The rate is above both the 20- and 200-period moving averages and alongside with MACD’s positive indications, the indicators favor a further upward movement.
• Support: Support is found at the 1.3239 (S1) level, followed by 1.3188 (S2) and 1.3134 (S3)
• Resistance: Resistance levels are the psychological round numbers of 1.3300 (R1) and 1.3400 (R2) followed by the 1.3448 (R3) level.
USD/JPY
• USD/JPY moved significantly higher, breaking above the psychological round number of 100.00. Currently the pair is trading between the 100.00 (S1) level and resistance at 100.84 (R1) following the slope of the blue channel’s upper boundary. If the longs manage to maintain the pair above the critical 100.00 (S1) level, I expect them to target the next resistance level at 100.84 (R1). A clear upward penetration of that resistance should extend their move towards the 101.52 (R2) level. The MACD oscillator lies above its trigger in bullish territory, confirming the upward trend. On the long-term (daily chart), the rate is still trading above the upper boundary of a symmetrical triangle, adding some assurance to the rising price.
• Support: Support levels are at the critical level of 100.00(S1), followed by 99.13(S2) and 98.09(S3).
• Resistance: Resistance is found at 100.84 (R1), 101.52 (R2) and 102.41 (R3), the latter one found from the daily chart.
GBP/USD
• GBP/USD continued moving higher in Asian trading but at a slower pace than during European trading yesterday. At the time of writing the pair lies slightly below the resistance of 1.5752 (R1) where a clear upward break should drive the rate towards the 1.5840 (R2) level, which was last seen at the beginning of February. The MACD’s positive value and the fact that the 20-period moving average lies above the 200-period moving average make such a breakout likely, in our view.
• Support: Support levels are identified at 1.5674 (S1), 1.5569 (S2) and 1.5425 (S3) respectively.
• Resistance: Resistance found at the levels of 1.5752 (R1), 1.5840 (R2) and 1.5892 (R3), the latter two found from the daily chart.
Gold
• Gold continued moving lower breaking below the 1376 support level midday yesterday. During Asian trading this morning, the price has been testing the blue uptrend line that coincides with the reading of the 200-period moving average. If the precious metal finds support near that area, I expect it to challenge the resistance levels of 1376 (R1) and 1394 (R2). A clear break above the latter one should signal the completion of the correction we have been experiencing since the 28th of August and the continuation of the metal’s uptrend. Also, the stochastic oscillator seems to be ready to exit its oversold zone, increasing the odds for an upward movement.
• Support: Support levels are at 1347 (S1), followed by 1320 (S2) and 1271 (S3).
• Resistance: Resistance is identified at the 1376 (R1) level, followed by 1394 (R2) and 1422 (R3).
Oil
• WTI continued its downward move reaching the 106.71 (S1) support level. The price is currently testing that level and if selling pressure causes a break below it, extensions towards the 105.23 (S2) support are likely. However, WTI remains in its sideways path, providing no indications for the direction of the forthcoming trend.
• Support: Support levels are at 106.71 (S1), 105.23 (S2) and 103.44 (S3).
• Resistance: Resistance levels are at 108.85 (R1), followed by 110.58 (R2) and 112.14 (R3).
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MARKETS SUMMARY
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Market Analysis 12/09/2013: Dollar weakens as global tightening spreads
Daily Commentary 12.09.2013, Time of writing: 03:30 GMT
The Big Picture Dollar weakens as global tightening spreads: The dollar continues to weaken. It fell against most G10 currencies and all 15 EM currencies that we track. (The only exception was AUD, which fell after announcing a surprising 10.8k fall in employment in August vs an expected 10.0k rise.) The biggest gainer among the G10 was vs NZD. While the Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged at 2.5%, as was generally expected, and repeated previous statements that rates would remain unchanged for the remainder of this year, it added that “OCR increases will likely be required next year.” This is the first G10 central bank to warn explicitly of rate increases. The market now expects a rate hike sometime in Q2 (previously it was expected sometime in the second half of the year) and it could come earlier if house prices continue to rise at their recent pace. NZD could appreciate further, in our view, as the currency’s gains after RBNZ statements tend to continue for some time.
The market recently revised up its forecasts for Norwegian rates following higher-than-expected inflation there; it revised up its forecasts for UK rates after yesterday’s better-than-expected employment data; and now New Zealand has moved to an explicit tightening bias. On the other hand, expectations for US rates as reflected in the Fed Funds futures are being revised down. Some degree of tapering seems to be fully discounted in the market meaning we could get a “buy the rumor, sell the fact” reaction after next week’s FOMC meeting. I have been bullish on USD but it now appears that until we see the US economy once again taking the lead globally, USD could suffer further. Perhaps it would be better to avoid USD entirely until the picture clears. Investors should look at the commodity currencies (AUD, NZD and CAD) as expectations of higher growth may boost them further, also SEK which is sensitive to improved global growth prospects. Against these longs, I believe JPY continues to be the most appropriate funding currency, as the Bank of Japan will be the last central bank to change policy. The ECB is also continuing to discuss ways of easing and Eurozone growth seems likely to disappoint, so I would also consider EUR on the short side. Note that EUR/JPY fell yesterday (see below).
Following yesterday’s surprise fall in UK unemployment, the focus today will be Bank of England Gov. Carney’s testimony to the UK Parliament’s Treasury Committee on the central bank’s August inflation report. It will be particularly interesting to see if he has recalculated the time that it might take for unemployment to hit his 7.0% trigger level in light of yesterday’s announcement. Eurozone industrial production is expected to have fallen 0.3% mom, a turnaround from +0.7% mom the previous month and bringing the yoy rate of change down to -0.2% from +0.3%. This calls into question the validity of the PMIs, as the Eurozone manufacturing PMI of 50.3 in the month should mean expansion. EUR could weaken on the news. Canada’s new housing price index is expected to rise 0.1% mom in July, a slowdown from 0.2% mom in June. In the US, the only relevant indicator for the FX market is the weekly jobless claims, which are forecast to rise to 330k from 323K, bringing the four-week moving average up slightly to 331k from 329k.
The Market EUR/USD
• EUR/USD achieved a significant break above the psychological level of 1.3300 (yesterday’s resistance). This morning the pair is trading slightly above that level and since the longs managed to drive the price above it, they might target the next critical resistance at 1.3400 (R1). The rate remains above both the 20- and 200-period moving averages and alongside with MACD’s positive indications, the indicators favor a further upward movement.
• Support: Support is found at the psychological 1.3300 (S1) level, followed by 1.3239 (S2) and 1.3188 (S3)
• Resistance: Resistance levels are the psychological round number of 1.3400 (R1), followed by 1.3448 (R2) and the1.3517 (R3) (daily chart).
EUR/JPY
• EUR/JPY moved noticeably lower, after finding resistance at the 133.35 (R1) level, near the channel’s upper boundary. Currently the pair is testing the 132.42 (S1) support which coincides with the 20-period moving average. In my opinion the downward pullback might continue since both the RSI and the MACD oscillators are signaling weakness. The RSI exited its overbought area and is pointing downwards, while the MACD lies in a positive area but below its trigger line. However, the overall trend is considered to be an uptrend, since the rate is still trading within the blue uptrend channel.
• Support: Support levels are at 132.42 (S1), followed by 131.43 (S2) and 130.51 (S3).
• Resistance: The only resistance identified on the short-term horizon is at 133.35 (R1), followed by 133.74 (R2) and 134.23 (R3), found from the weekly chart.
GBP/USD
• GBP/USD moved significantly higher during European trading yesterday, breaking above the 1.5752 level (yesterday’s resistance) which was last seen on the 17th of June. This morning the pair is ready to test the 1.5840 (R1) hurdle, where a clear break should target the 1.5892 (R2) and probably the psychological 1.6000 (R3) next. The MACD oscillator continues to accelerate in bullish territory, lying above its trigger, adding significance to the positive picture.
• Support: Support levels are identified at 1.5752 (S1), 1.5674(S2) and 1.5568 (S3) respectively.
• Resistance: Resistance found at the levels of 1.5840 (R1), 1.5892 (R2) and 1.6000 (R3), the latter two found from the daily chart.
Gold
• Gold moved slightly lower despite the weaker dollar, breaking below the blue uptrend line. Currently the price lies above the support at 1347 (S1) and the 50% Fibonacci retracement level of the previous upward wave. A rebound near that strong support area might be the first signal of the correction’s completion and the continuation of the precious metal’s upward path. However, if a clear break below that critical area occurs, I expect bearish extensions towards the next support levels. Relying on momentum indicators does not seem a good strategy since the Stochastic recently exited its oversold area, but the MACD remains negative.
• Support: Support levels are at 1347 (S1), followed by 1320 (S2) and 1271 (S3).
• Resistance: Resistance is identified at the 1376 (R1) level, followed by 1394 (R2) and 1422 (R3).
Oil
• WTI moved higher, finding support at the 106.71 (S1) level, even after the US Energy Information Agency (EIA) announced that US oil output had increased last week to the highest level since May 1989. Currently WTI is trading between that support level and the upper boundary of its recent trading range following its sideways path and provides no indications for the direction of the forthcoming trend. Also, both the RSI and the MACD are near their neutral levels, confirming the non-trending phase of WTI.
• Support: Support levels are at 106.71 (S1), 105.23 (S2) and 103.44 (S3).
• Resistance: Resistance levels are at 108.85 (R1), followed by 110.58 (R2) and 112.14 (R3).
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Market Analysis 13/09/2013: USD looking for new sources of inspiration
Daily Commentary13.09.2013, Time of writing: 03:30 GMT
The Big PictureUSD looking for new sources of inspiration: The dollar remained in a narrow range as the market looked for new sources of inspiration. EUR moved lower from the beginning of the European day and remained lower after Eurozone industrial production turned out much worse than expected. There was a momentary flurry when the weekly jobless claims came out much lower than expected, but that turned out to be due to computer problems in two states. Some Syria risk crept back as Syrian President Assad started to put preconditions on his participation in the chemical arms deal and stock markets moved lower, but gold also moved lower nonetheless.
NOK was the biggest winner of the day; the country’s economic indicators are beating consensus by the most of any major country (and probably the EM countries too, although I haven’t checked them individually), according to the Citi economic surprise index. The country’s surprisingly good economic performance recently makes us think that Norges Bank will be the next central bank after New Zealand to change to a tightening bias when it meets next Thursday, Sep. 19th. To repeat a frequent theme of ours, the Bank of Japan will probably be the last central bank to change policy, so long NOK/JPY could be a profitable play (probably through long USD/JPY and short USD/NOK).
As next week’s FOMC meeting gets closer and the market starts to think about what comes after tapering begins, there may be a focus on the possibility that the US government has to shut down. (Sound familiar?) According to the New York Times, much of the government will shut down as of Oct. 1st unless Congress approves new spending bills to replace expiring ones, and by mid-October the Treasury Dept. will lose the borrowing authority to finance the government and pay its debts. To make matters worse, the Republicans in the House of Representatives can’t even agree among themselves on a bargaining position. A large bloc of Republicans are demanding the delay of President Obama’s health care law for a year as the price of going along with raising the debt limit, a demand that President Obama has made clear he will not even discuss. So far this stalemate does not even seem to be on the market’s radar screen, probably because of the “boy who cried wolf” phenomenon – we’ve been here several times before and always managed to reach a last-minute compromise. But it could start to be a market factor – a dollar-negative market factor – if the end of September approaches without a solution.
The Eurozone finance ministers’ meeting in Lithuania is the only thing on the calendar today for Europe. The main items on their agenda will be growth and financial stability in the Eurozone as well as the financial situation of Greece and the status of the bailout program for Cyprus. In US, the focus will be on retail sales for August. Market expectations for the headline figure are for a rise of 0.5% mom, showing an acceleration from +0.2% mom in July. On the other hand, the closely followed retail sales excluding autos and gasoline are expected to decelerate to +0.3% mom from +0.4% mom previously. Shortly afterwards, University of Michigan consumer sentiment for September is expected to fall slightly by 0.1 point to 82.0. Weakness in these two important indicators could cause some investors to question US growth prospects and thereby weaken USD a bit.
The Market EUR/USD
• EUR/USD moved lower during yesterday’s session after finding resistance at the 1.3322 (R1) level, which coincides with the 61.8% Fibonacci retracement level of the previous downward wave. A clear break above that strong hurdle should target the next psychological resistance at 1.3400 (R2). On the other hand, if the rate fails to do so, bearish extensions should be triggered towards 1.3234 (S1) and 1.3188 (S2) next.
• Support: Support is found at the 1.3234 (S1) level, followed by 1.3188 (S2) and 1.3103 (S3)
• Resistance: Resistance levels are at 1.3322 (R1) (61.8%), followed by the psychological level of 1.3400 (R2) and the 1.3448 (R3) level found from the daily chart.
USD/JPY
• USD/JPY declined but after finding support at the well tested level of 99.13 (S1) recovered some of its losses. At the European open the price coincides with the 20-period moving average, heading once more towards the 100.00 (R1) level. The pair has been moving in an uptrend since the beginning of August and if it manages to break above that level, it’s likely to target the next resistance at 100.82 (R2). However, negative divergence is observed between the oscillators and the price action, so we should be aware that we could see USD/JPY move lower temporarily during the near future.
• Support: Support levels are at 99.13 (S1), followed by 96.09 (S2) and the round number of 97.00 (S3).
• Resistance: Resistance is identified at the psychological level of 100.00 (R1), followed by 100.84 (R2) and 101.52 (R3)
GBP/USD
• GBP/USD moved slightly lower after finding resistance at the 1.5840 (R1) level. Currently the pair is lying between that level and the support at 1.5752 (S1). If the bulls manage to regain their recent momentum and drive the rate above the 1.5840 (R1) level, I expect them to extend their move towards 1.5892 (R2) and probably the psychological 1.6000 (R3) level next. However the MACD oscillator crossed below its trigger line, showing light signs of weakness, which suggests that such an aggressive move is not likely today.
• Support: Support levels are identified at 1.5752 (S1), 1.5674(S2) and 1.5568 (S3) respectively.
• Resistance: Resistance found at the levels of 1.5840 (R1), 1.5892 (R2) and 1.6000 (R3), the latter two found from the daily chart.
Gold
• Gold fall sharply during yesterday’s trading session, breaking below the strong support area between the 1347 level and the 50% Fibonacci retracement level of the previous upward move. For the moment the yellow metal is finding support at the 1320 (S1) level, but if the downward bias continues I expect the price to break that barrier and slip towards the support of 1271 (S2). The MACD oscillator lies below its trigger line in a bearish territory, increasing the odds for the continuation of the decline.
• Support: Support levels are at 1320 (S1), followed by 1271(S2) and 1245 (S3).
• Resistance: Resistance is identified at the 1347 (R1) level, followed by 1376 (R2) and 1394 (R3).
Oil
• WTI moved higher and for the umpteenth time is testing the upper boundary of its 2-month trading range. If the price breaks above that level and manages to overcome the recent highs, a newborn uptrend might be established targeting for new resistance areas. Both the RSI and the MACD remained near their neutral levels confirming the reluctance of WTI to enter in a trending phase.
• Support: Support levels are at 106.71 (S1), 105.23 (S2) and 103.44 (S3).
• Resistance: Resistance levels are at 108.85 (R1), followed by 110.58 (R2) and 112.14 (R3).
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Market Analysis 16/09/2013: Summers’ lease hath all too short a date
Daily Commentary 16.09.2013, Time of writing: 03:30 GMT
The Big Picture Summers’ lease hath all too short a date: Larry Summers withdrew his candidacy for Fed Chairman over the weekend, making it more likely that Fed Vice Chair Janet Yellen will be appointed. She is known to favour the current quantitative easing system and to be more concerned nowadays with growth rather than inflation, whereas Summers, the former front-runner, was thought to be more in favour of cutting back on the QE program (if indeed his views on the topic were known at all). Thus the market believes interest rates will remain lower for longer under Yellen than they would have under Summers. The news of his withdrawal has sent US interest rates sharply lower, with the implied rate on the June 2015 Fed Funds future (the farthest one that actually traded so far) falling by 10 bps and the yield on the 10-year Treasury bond futures also falling by 10 bps (after a 7 bps drop in the cash market on Friday). S&P 500 stock futures were up 1.1%. Naturally with US interest rate expectations changing so much, the dollar was lower against almost all the major currencies (except NOK).
Personally I think this may be overdone as concerns the near-term, because the Fed seems to be on its way to begin tapering with even the resident doves on board. (We’ll know more about that later this week.) However, it’s true that when it comes time to begin raising short rates, which will come eventually, Yellen may be more willing to err on the side of caution than Summers would have been. In that respect the change may further the shift in outlook on relative monetary policy that we’ve been seeing. For some time the dollar story was one of divergence: US monetary policy alone in the G10 shifting towards tightening, whereas the other central banks were either neutral or still retained an easing bias. Now with New Zealand already adopting a tightening bias, Norway poised to do so later this week (maybe), and the market already pricing in such a change in the UK, this policy divergence has changed into policy convergence. That is not likely to produce as strong a dollar as we were expecting before. The change is particularly evident this morning in the EM currencies, which have generally strengthened vs USD.
The schedule today begins with the final figure for the Eurozone CPI for August. The preliminary figure was +0.1% mom. In the US, industrial production for August is expected to rise 0.4% mom vs a flat figure the previous month, with capacity utilization in August forecast to rise slightly by 0.1 to 77.9. The Empire state manufacturing survey for September is expected to rise slightly to 9.00 from 8.25. These generally strong figures for the US could help to spark a dollar rebound in US trading. For the week as a whole, the focus will of course be on the FOMC decision Wednesday on whether to begin “tapering off” its monthly bond purchases. Swiss National Bank and Norges Bank will also have monetary policy meetings on Thursday; no rate changes are expected at these policy meetings, but there is some debate about what adjustment Norges Bank will make to its expected rate path after its recent higher-than-expected inflation figures and weaker-than-expected regional survey. The Reserve Bank of Australia will release its meeting minutes on Tuesday. For the UK, the focus will be on Tuesday’s retail sales, CPI and PPI with the BoE’s minutes coming out on Wednesday. Eurozone consumer confidence will be released on Friday. In the US, CPI and the Treasury capital flows data come on Tuesday and the Phili Fed index on Thursday. There is a lot of housing data out this week from the US: NAHB housing market index on Tuesday, housing starts and building permits on Wednesday, and existing home sales on Thursday. Strong data there could shore up the dollar. Bank of Canada will release CPI data on Friday.
The Market EUR/USD
• EUR/USD opened the European session with a bullish gap, breaking above the 1.3322 level, which coincides with the 61.8% Fibonacci retracement level of the 20th August- 6th September downward move. Currently the pair is lying between the 1.3322 (S1) support and the psychological round number of 1.3400 (R1), where a clear upside break should target the next resistance levels of 1.3448 (R2) and 1.3517 (R3) respectively. The MACD oscillator, which was already in bullish territory, has just achieved a cross above its trigger line, completing the bullish picture of the price action.
• Support: Support is found at the 1.3322 (S1) level, followed by 1.3234 (S2) and 1.3188 (S3)
• Resistance: Resistance levels are the psychological number of 1.3400 (R1) (61.8%), followed by 1.3448 (R2) and 1.3517 (R3) (daily chart)
EUR/JPY
• EUR/JPY declined during Friday’s session but after today’s opening managed to find support at 131.70 (S1) and moved slightly higher. If the pair continues heading towards the resistance of 132.63 (R1) and breaks above it, bullish extensions should be triggered towards the 133.35 (R2) and 133.74 (R3) resistance levels. On the other hand, a break below the 131.70 (S1) support (also 50% Fibonacci retracement of the previous upward wave) should target the next support at 130.96 (S2). Both the RSI and MACD oscillators lie at their equilibrium levels, thus giving little indicator of which way the rate might go.
• Support: Support levels are at 131.70 (S1), followed by 130.96 (S2) and the 130.51(S3).
• Resistance: Resistance is identified 132.63 (R1), followed by 133.35 (R2) and 133.74 (R3), the latter one found from the daily chart.
GBP/USD
• GBP/USD also opened the session with a gap to the upside and breaking above the 1.5892 resistance level (current support). The pair is now heading towards the psychological level of 1.6000 (R1), where I expect the price to find strong resistance. If the bulls are strong enough to overcome that hurdle, they are likely to drive the battle towards the 1.6080 (R2) and 1.6173 (R3) resistance levels. The MACD oscillator, already in positive territory, achieved a bullish cross above its trigger line, confirming the bullish picture of the pair.
• Support: Support levels are identified at 1.5892 (S1), 1.5840 (S2) and 1.5716 (S3) respectively.
• Resistance: Resistance is found at the psychological level of 1.6000 (R1), 1.6080 (R2) and 1.6173 (R3), the latter two found from the daily chart.
Gold
• Gold found support at the 1305 level, which coincides with the 50% retracement level of the 28th June - 28th August upward move, and moved higher. At the time of writing the yellow metal lies between the 1320 (S1) and 1347 (R1) levels and if buying pressure continues pushing the price higher, a break above the 1347 (R1) is probable, targeting the next resistance of 1376 (R2). The MACD oscillator reading is below zero but above its trigger, showing weakness for the price to continue its downward path.
• Support: Support levels are at 1320 (S1), followed by 1305(S2) and 1271 (S3).
• Resistance: Resistance is identified at the 1347 (R1) level, followed by 1376 (R2) and 1394 (R3).
Oil
• WTI moved lower after finding resistance once more at the upper boundary of the sideways range. Currently the price lies between the 106.71 (S1) and 108.85 (R1) levels. Still, both the RSI and the MACD lie near their neutral levels, confirming the indecisiveness between WTI investors.
• Support: Support levels are at 106.71 (S1), 105.23 (S2) and 103.44 (S3).
• Resistance: Resistance levels are at 108.85 (R1), followed by 110.58 (R2) and 112.14 (R3).
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Market Analysis 17/09/2013
Daily Commentary 17.09.2013, Time of writing: 03:30 GMT
The Big Picture After opening lower against almost all currencies yesterday, the dollar bounced back during the day and is starting trading in Europe Tuesday slightly higher against most currencies than it was 24 hours ago. This comes despite a disappointing Empire State manufacturing survey for September, which came out at 6.2 vs expectations of 9.10. That gave the dollar a further kick downward but the US currency recovered some of its losses after the US industrial production for August came out in line with expectations at +0.4% mom. Apparently many investors are not so sure that Janet Yellen is going to get the Fed post by default; some people believe former Bank of Israel Gov. Stanley Fisher would be in the running for the Fed post as well. The 10-year Treasury yield had been down to 2.78% at one point but finished the day at 2.86%, while Fed Funds futures that had been up 11 bps at one point were 4 bps off their peaks by the close as the “no Summers” rally faded.
The dollar may be able to regain some of its losses further but with Fed policy in flux, there are perhaps better ways to play the monetary divergence theme. Long NZD/JPY, long AUD/JPY, short AUD/NZD, short EUR/GBP, EUR/NOK or EUR/SEK…these are some ways to play policy divergence without involving the dollar. The minutes from the Reserve Bank of Australia’s recent policy meeting, released overnight, only confirmed the policy divergence between Australia, which reserves the right to ease further, and New Zealand, which has shifted to a tightening bias. See my article on the CNBC guest blog “Trading the Fed taper: avoid the dollar” at http://www.cnbc.com/id/101038673
Today’s indicators include the September ZEW survey; both the current situation index and the expectations indicator are expected to rise. That could prove EUR-positive, except that of course Germany is far from typical for the Eurozone. In the UK, the EU harmonized CPI, the Bank of England’s inflation target, is expected slow slightly to 2.7% yoy from 2.8% yoy in July. That would be a victory for the Bank and perhaps GBP-positive as the pace of inflation slows for the second consecutive month towards their 2.5% target. In the US both headline and core CPI for August are expected at +0.2% mom, the same rise as in July and posing no problem for the Fed. Finally, the National Association of Homebuilders’ Index for September is forecast to fall slightly to 58 from 59. But given the sharp rise recently, a drop of a point or two wouldn’t surprise or disappoint anyone.
The Market EUR/USD
• EUR/USD moved lower during the day, covering yesterday’s opening gap. The pair remains in a near-term upward sloping channel and is currently testing the 1.3322 (S1) support level. A clear break below that level, followed by an exit of the channel, might lead the rate towards the next support at 1.3234 (S2), while a rebound should challenge once more the well tested resistance of 1.3400 (R1). Although MACD lies in a positive territory, it crossed below its trigger, confirming the temporary weakness of the price action.
• Support is found at the 1.3322 (S1) level, followed by 1.3234 (S2) and 1.3188 (S3)
• Resistance levels are the critical level of 1.3400 (R1), followed by 1.3448 (R2) and 1.3517 (R3) (daily chart)
USD/JPY
• USD/JPY moved higher after rebounding at the lower boundary of the uptrend channel and during the early European morning it managed to break the 99.13 barrier. I expect the bulls to continue driving the rate upwards, setting the first target at the psychological level of 100.00 (R1), where a clear break should trigger more extensions towards the resistance of 100.84 (R2) and the channel’s upper boundary. On the longer time frame (daily chart), the price returned and tested successfully the symmetrical triangle’s upper line, increasing the probabilities for further upward movement.
• Support levels are at 99.13 (S1), followed by 98.09 (S2) and 97.00(S3).
• Resistance is identified at the psychological level of 100.00 (R1), followed by 100.84 (R2) and 101.52 (R3).
GBP/USD
• GBP/USD moved lower trying to cover yesterday’s gap. At the time of writing the pair is testing the 1.5892 (S1) support level, where a downward break might be the first signal for a newborn correction towards the next support areas. The MACD oscillator supports the rate’s weakness, since it returned below its trigger line in its positive territory. However, the overall trend is still considered to be an uptrend, since the price is trading above the blue trend line and above both the 20-period and 200-period moving average
• Support levels are identified at 1.5892 (S1), 1.5840 (S2) and 1.5716 (S3) respectively.
• Resistance is found at the psychological level of 1.6000 (R1), 1.6080 (R2) and 1.6173 (R3), the latter two found from the daily chart.
Gold
• Gold fell once again, returning to and again testing the 1305 (S1) level, which coincides with the 50% retracement level of the 28th June - 28th August upward move. In early European trading the yellow metal lies slightly above that level and if the longs are strong enough to maintain the price above it, they should drive the battle towards the resistance barrier of 1347 (R1). The MACD oscillator reading is below zero but above its trigger, showing weakness for the price to continue its downward path.
• Support levels are at 1305 (S1), followed by 1271(S2) and 1245 (S3).
• Resistance is identified at the 1347 (R1) level, followed by 1376 (R2) and 1394 (R3).
Oil
• WTI moved lower, breaking below the 106.71 level and also below the lower boundary of a symmetrical triangle identified on our 4-hour chart. The bears are now driving the price towards the 105.23 (S1) support, where a clear downward penetration should lead them towards the next support of 103.44 (S2). RSI is slightly above the 30 level, pointing downwards, while the MACD lies below its trigger line in a negative zone, favoring a further downward move.
• Support levels are at 105.23 (S1), 103.44 (S2) and 102.62 (S3).
• Resistance levels are at 106.71 (R1), followed by 108.85 (R2) and 110.58 (R3).
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Market Analysis 18/09/2013: FOMC Day!
Daily Commentary18.09.2013, Time of writing: 03:30 GMT
The Big PictureFOMC Day! And here we are, FOMC day! The big event today of course will be the announcement of the Federal Open Market Committee’s (FOMC) decision on whether to begin “tapering off” its monthly purchases of $85bn in bonds -- $45bn in Treasuries, $40bn in mortgage-backed securities (MBS) – and if so, how much to cut back of each kind. After the announcement and during the press conference we expect significant market volatility.
According to a Bloomberg survey of 61 economists, 30% of the respondents expect no change, but of the 70% who do expect a change, only two people (5%) expect just a $5bn cut, 53% expect a $10bn cut, 23% expect a $15bn cut and 19% expect a $20bn cut or more. In other words, while about a third of the market would not be surprised to see the FOMC delay the start of tapering, if they do start this month, then they’re expected to cut by $10bn to $15bn. (The largest cut forecast is $25bn.)
By type of bond, 67% of the people polled expected a cut in the T-bond purchases, with those expecting a $10bn cut outweighing those expecting a $5bn cut by 2-to-1. As for the MBS purchases, 55% expect no cut; of those who do, the ratio is opposite that of the Treasury purchases: people expecting a $5bn cut outweigh those expecting a $10bn or more cut 2-to-1. MBS purchases directly fund the mortgage market and so are thought to do more for the economy than Treasury purchases, which is why some people argue MBS purchases should be cut back less than Treasuries. On the other hand, others think the Fed should cut both proportionately so as to keep things simple and ensure that they communicate their intentions smoothly to the market.
I would think a cut of $5bn in each would be within the range of market estimates and would not have much of an effect on the market, indeed it could give rise to a small relief rally (yields down, dollar down) that it wasn’t higher. $15bn ($10bn Treasuries, $5bn MBS) might be seen as at the top of the expected range and could send US interest rates and the dollar up modestly, if anything. A $20bn reduction would probably be seen as aggressive and would be likely to push US interest rates and the dollar up sharply, while I expect that no change would result in a relief rally as mentioned before. My personal expectation is for $10bn, given the Fed’s desire not to upset the markets by moving too quickly. That would imply a slightly weaker dollar on the news.
Of course, the market’s reaction is likely to be colored by the statement that accompanies the announcement and by the comments that Chairman Bernanke makes in the press conference following the meeting. The market will parse those words with extraordinary care to predict how the Fed intends to proceed from here. The mix between Treasuries and MBS may also have some impact on the market.
In addition to the statement, the market will keep an eye on the new economic projections from the FOMC members concerning interest rates, inflation, growth and unemployment. The last projections, made in June, were for the unemployment rate to be 6.5% to 6.8% next year, falling below the 7% barrier that Chairman Bernanke set for eliminating the bond purchases but not falling below the 6.5% trigger for raising rates until 2015.
The Market EUR/USD
• EUR/USD moved slightly higher after having rebounded from the support level of 1.3322 (S1). Technically, I believe the pair is still moving in a short term uptrend, since it remains inside the blue upward sloping channel and above both the 20- and the 200-period moving averages. If buying pressure continues pushing the price upwards, I expect it to challenge the well-tested barrier at 1.3400 (R1). The MACD oscillator is positive, indicating bullish momentum for the price action, but still lies below its trigger line providing signs of a temporary weakness.
• Support is found at the 1.3322 (S1) level, followed by 1.3234 (S2) and 1.3188 (S3)
• Resistance levels are the critical level of 1.3400 (R1), followed by 1.3448 (R2) and 1.3517 (R3) (daily chart
USD/JPY
• USD/JPY moved sideways yesterday, remaining slightly above the 99.13 (S1) support level. If the longs are willing to move the price away from that barrier, the next hurdle they should deal with is the psychological level of 100.00 (R1). Both the MACD and RSI oscillators confirm the current sideways movement since they lie near their equilibrium levels. However, the overall trend of the pair remains an uptrend, marked by the blue uptrend channel. On the longer time frame (daily chart), the price returned and tested successfully the symmetrical triangle’s upper line, increasing the probabilities for further upward movement.
• Support levels are at 99.13 (S1), followed by 98.09 (S2) and 97.00(S3).
• Resistance is identified at the psychological level of 100.00 (R1), followed by 100.84 (R2) and 101.52 (R3).
EUR/GBP
• EUR/GBP moved higher after finding support at the 0.8355 (S1) level and the return-line of the downward sloping channel. Currently the pair is heading towards the 0.8423 (R1) level where a clear upward break might be the first signal of a newborn upside correction. The break should be accompanied by the entrance of MACD in its bullish territory, in order to increase the odds for the beginning of the correcting phase. If the price fails to continue moving upwards, I expect it to fall back to 0.8355 (S1) for another test.
• Support levels are identified at 0.8355 (S1), 0.8323 (S2) and 0.8260 (S3) respectively.
• Resistance is found at the levels of 0.8423 (R1), 0.8453 (R2) and 0.8503 (R3). The latter two are found from the daily chart.
Gold
• Gold fell sharply, breaking below the 1305 level (yesterday’s support), which coincides with the 50% Fibonacci retracement level of the 28th June - 28th August uptrend. At the time of writing the precious metal is heading towards the support area between the 1271 (S1) level and the 61.8% retracement level. The negative reading of MACD alongside with the bearish cross of the moving averages, complete the negative picture for the yellow metal.
• Support levels are at 1271(S1), followed by 1245 (S2) and 1207 (S3).
• Resistance is identified at the 1305 (R1) level, followed by 1337 (R2) and 1368 (R3).
Oil
• WTI found support at the 105.23 (S1) level and moved slightly higher. However the downward break of the triangle is still in effect since the 20-period moving average poked its nose below the 200-period moving average and the MACD oscillator’s value is negative and below its trigger’s reading. If the bears take control and manage to penetrate the 105.23 (S1) hurdle, they should trigger extensions towards the next support at 103.44 (S2)
• Support levels are at 105.23 (S1), 103.44 (S2) and 102.62 (S3).
• Resistance levels are at 106.71 (R1), followed by 108.85 (R2) and 110.58 (R3).
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Market Analysis 19/09/2013: In surprise, Fed decides not to taper
Daily Commentary19.09.2013, Time of writing: 03:30 GMT
The Big PictureIn surprise, Fed decides not to taper: Dollar fell sharply against its G10 counterparts as Fed maintained its $85 billion in monthly asset-purchase program. The Fed surprised the markets as it was widely expected to begin tapering off its monthly bond-purchases program in a range of $5bn to $10bn. The Fed said that it wanted to see more signs of economic improvement before tapering and that will keep rates in the current historic low range of 0%-0.25% as long as the jobless rate remains above 6.5%.The Federal Reserve’s economic growth forecast has decreased since the last report. This has been affected by their concern for the limited development in the labor market and the tightening of financial conditions.
For the third time in 2013 the Fed has lowered its economic growth predictions for this year. The Federal Reserve now believes that the economy will grow by approximately 2.0%-2.3% in the United States during 2013, below their original forecast that was between 2.3% to 2.8%. For the next four years, inflation is forecast to remain below the Fed’s target for the entire forecast period. More precisely, the Fed estimates inflation to stay below 1.2% in 2013, and increasing to between 1.7% to 2% by 2016.
The coming years, the unemployment rate is predicted to decrease. At the end of this year, unemployment is estimated to be 7.2%-7.3% and to fall to 6.5%-6.8% in 2014, 5.8%-6.2% in 2015 and 5.4%-5.9% in 2016. On October 9 the minutes will be available to the public. The next meeting for the Fed will be Oct. 29-30.
The dollar rapidly lost ground immediately after the announcement dragging USD/JPY below 98.00 with EUR/USD and GBP/USD moving higher throughout the day. Commodity currencies alongside with the Emerging market currencies moved higher against the dollar. Another big change came from Gold that climbed $65 an ounce to $1368 recovering last week losses.
Later in the day, Swiss National Bank and Norges Bank have monetary policy meetings. Both countries are expected to keep their rates unchanged. In the case of Norway, there is some uncertainty about what adjustment Norges Bank might make to its expected rate path. In the UK, retail sales excluding auto are forecast to remain unchanged in August after the unusually strong rise of 1.1% mom in July. Nonetheless this would bring the yoy rate of change up to 3.2% in August from 3.1%, showing continued resilience among consumers. Retail sales have been one of the bright spots in the UK economy and so this indicator is likely to be closely watched. US existing home sales are due for August. Shortly afterwards, Philadelphia Fed Survey and Conference Board leading indicator are coming out for August.
The Market EUR/USD
• EUR/USD surged after the Fed’s decision to maintain its bond-buying program at $85bn and crushed three resistance levels in a row. During the European morning the pair has settled slightly above the 1.3517 (S1) support level, where a re-boost by the longs should drive the actions towards February’s highs at 1.3706 (R2). The alternative scenario suggests that since the rate moved far away from the uptrend line, a possible correction towards it might occur.
• Support is found at the 1.3517 (S1) level, followed by 1.3448 (S2) and 1.3400 (S3)
• Resistance levels are the level of 1.3580 (R1), followed by 1.3706 (R2) and 1.3846 (R3). The latter two found from the daily chart.
EUR/JPY
• EUR/JPY moved higher during the overnight session, breaking above the 132.63 level (yesterday’s resistance). Currently the pair lies between the aforementioned level and the resistance of 133.34 (R1). If buying pressure continues pushing the price higher, I expect the bulls to challenge the 133.34 (R1) level, where a clear upward penetration should trigger extensions towards the 133.74 (R2) and 134.23 (R3) levels respectively. Moreover, the rate is trading into the upward sloping channel, above both the 20- and 200-period moving averages, enhancing the probabilities for a further upward movement.
• Support levels are at 132.63 (S1), followed by 131.70 (S2) and 130.96 (S3).
• Resistance is identified at 133.34 (R1), followed by 133.74 (R2) and 134.23 (R3). The latter two are found from the daily chart.
EUR/GBP
• EUR/GBP fell back and after testing once more the 0.8355 (S1) support level, recovered. Currently the pair is heading towards the 0.8423 (R1) level where a clear upward break might be the first signal of a newborn upside correction. The break would have to be accompanied by the entrance of MACD into its bullish territory, in order to increase the odds for the beginning of the correcting phase.
• Support levels are identified at 0.8355 (S1), 0.8323 (S2) and 0.8260 (S3) respectively. The last two are found from the daily chart.
• Resistance is found at the levels of 0.8423 (R1), 0.8453 (R2) and 0.8503 (R3).
Gold
• Gold climbed to test the 1368 (R1) level, breaking two resistance levels in a row. Currently the price is moving downwards, failing for now to break above the aforementioned resistance and as a result I believe we should wait for the volatility to fall, in order to make any assumptions for the next trending phase of the yellow metal.
• Support levels are at 1337(S1), followed by 1305 (S2) and 1271 (S3).
• Resistance is identified at the 1368 (R1) level, followed by 1394 (R2) and 1415 (R3).
Oil
• WTI also gained on the Fed’s decision, turning around and recovering its recent loses. At the time of writing the price is finding resistance at the strong hurdle of 108.85 (R1), where a clear upside break should target the 110.58 (R2) level. However, I believe that WTI is moving in a downtrend since it started forming lower highs and lower lows. Other indicators do not confirm any directional move yet, thus we should wait for the picture to be completed.
• Support levels are at 106.71 (S1), 105.23 (S2) and 103.44 (S3).
• Resistance levels are at 108.85 (R1), followed by 110.58 (R2) and 112.14 (R3).
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